Vega v. Chi. Park Dist.

• Decision Date: 20 July 2020
• Docket Number: Case No. 13 C 451
• Parties: LYDIA VEGA, Plaintiff, v. CHICAGO PARK DISTRICT, Defendant.
• Court: U.S. District Court — Northern District of Illinois

LYDIA VEGA, Plaintiff,
v.
CHICAGO PARK DISTRICT, Defendant.

Case No. 13 C 451

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

July 20, 2020

Judge Jorge L. Alonso

MEMORANDUM OPINION AND ORDER

Plaintiff Lydia Vega brought this lawsuit asserting claims of national-origin discrimination against her former employer, the Chicago Park District ("CPD"), arising out of her termination in September 2012. A jury found in her favor on her discrimination claims, and the Court subsequently awarded back pay and other equitable relief. Following an appeal in which the Seventh Circuit vacated the Court's tax component award, but otherwise affirmed, the Court now reconsiders the tax-component award and awards plaintiff certain attorneys' fees and costs, as follows.

BACKGROUND

Plaintiff, a Hispanic woman, was terminated by CPD in 2012, after more than twenty years of service, following an investigation into the falsification of her time sheets. She subsequently filed this lawsuit, and she prevailed at a jury trial on her claim of national-origin discrimination under Title VII, 42 U.S.C. § 2000e.

Plaintiff requested certain post-trial equitable relief, including back pay as well as a tax-component award to offset any increased income-tax liability that a lump-sum back-pay award would cause her to incur. Plaintiff argued that, without a tax-component award, her tax liability

Page 2

would virtually cancel out her back-pay award. Initially, the Court could not follow plaintiff's tax-component-award calculations and declined to make any such award, but it gave plaintiff leave to provide a fuller explanation in a supplemental brief.

Plaintiff filed a supplemental brief in which she followed the methodology employed by the district court in Washington v. Office of the State Appellate Defender, No. 12 C 8533, 2016 WL 3058377, at *9 (N.D. Ill. May 31, 2016), and 2016 WL 5233563, at *4 (N.D. Ill. Sept. 22, 2016). In that case, the court calculated the tax-component award by (1) subtracting the plaintiff's actual tax burden during the back-pay period from the tax burden she would have born during the same period had she remained employed by the defendant, (2) subtracting the plaintiff's expected tax burden in the year of the decision, absent any lump-sum back-pay award, from that portion of her expected tax burden attributable to the back-pay award in the event that a lump-sum payment was made in the same year, and (3) subtracting the result of (1) from the result of (2). See 2016 WL 3058377, at *9 n. 11; 2016 WL 5233563, at * 4.

Persuaded by plaintiff's brief, as it stated in a footnote to the final judgment order, this Court incorporated the amount plaintiff calculated in her supplemental brief into its final judgment. The Seventh Circuit vacated the tax-component award and remanded for reconsideration, reasoning, without mentioning the footnote in the final judgment order, that this Court "did not explain how it arrived" at the amount of the award, and the Seventh Circuit was "unable to readily discern whether the calculation is accurate." Vega v. Chicago Park Dist., 954 F.3d 996, 1010 (7th Cir. 2020). The parties have updated their briefing, and the Court now considers the tax-component award anew, along with plaintiff's petition for attorneys' fees, her bill of costs, and defendant's motion for sanctions under 28 U.S.C. § 1927.

Page 3

I. TAX-COMPONENT AWARD

"Under Title VII, after an employer has been found to have intentionally engaged in an unlawful employment practice, the district court may order back pay, reinstatement, and 'any other equitable relief as the court deems appropriate.'" Washington, 2016 WL 3058377, at *4 (quoting 42 U.S.C. § 2000e-5(g)(1)). In deciding what forms of equitable relief are appropriate in a particular case, the district court is vested "with broad discretion to fashion a remedy." EEOC v. Ilona of Hungary, 108 F.3d 1569, 1580 (7th Cir. 1997).

The guiding principle in exercising that discretion is that the court "has not merely the power but the duty to render a decree which will so far as possible eliminate the discriminatory effects of the past as well as bar like discrimination in the future." Albemarle Paper Co. v. Moody, 422 U.S. 405, 418 (1975) (internal quotation marks and citation omitted). "And where a legal injury is of an economic character, [t]he general rule is, that . . . [t]he injured party is to be placed, as near as may be, in the situation he would have occupied if the wrong had not been committed." Id. at 418-19 (internal quotation marks and citation omitted); see also Ford Motor Co. v. EEOC, 458 U.S. 219, 230 (1982) (the statutory aim is "to make the victims of unlawful discrimination whole by restoring them, so far as possible . . . to a position where they would have been were it not for the unlawful discrimination") (internal quotations and citation omitted).

Ortega v. Chi. Bd. of Educ., 280 F. Supp. 3d 1072, 1078 (N.D. Ill. 2017) (internal citations altered).

The Seventh Circuit has recognized that, when a back pay award will bump a prevailing plaintiff into a higher tax bracket, causing him to pay more in taxes than he would have if he had not been terminated and received his pay on a gradual basis over several years rather than in a lump sum following a lawsuit, a tax-component award may be necessary to make the plaintiff whole and serve the purpose of Title VII's remedial scheme. EEOC v. N. Star Hosp., Inc., 777 F.3d 898, 904 (7th Cir. 2015).

In her post-appeal brief, as in the supplemental brief she filed prior to defendant's appeal, plaintiff has again walked through the methodology the district court employed in Washington. She calculates that if she had remained employed by CPD for the period of the back pay award

Page 4

(2012-2018), she would have paid $2,800 in income tax (none in any year but 2018, after the 2017 revision of the tax laws), and she actually paid only $837 in income tax during that period, a difference of $1,963. As for 2020, based on the IRS's 2020 income tax tables, she calculates that she will owe $2,861.76 in federal income tax in the absence of any payment of back pay or damages, whereas in the event that she receives the back pay and other relief the Court has awarded this year, her income will be $539,993.87, on which she will owe $161,783.23 in federal income taxes at an effective tax rate of 29.96%. Applying that effective tax rate to the back-pay award of $180,402.90 only (not to the compensatory damages), the resulting tax liability attributable to the back-pay award is $54,049.07. The difference between $54,049.07 and $2,861.76 is $51,187.30. To compensate her for the excess tax liability, then, plaintiff asks for $49,224.30, the difference between $51,187.30 and $1,963.

Defendant does not appear to object to the theory underlying plaintiff's methodology, but it argues that plaintiff has not reliably applied it to the facts of this case. According to defendant, plaintiff has not provided sufficient information about how she calculated her tax liability in prior years or her expected tax liability in 2020, and therefore she has not met her burden of proof.

The Court fails to see the deficiency in plaintiff's calculations. First, defendant has not identified, and the Court does not see, any infirmity in the Washington methodology. As for plaintiff's application of it to her own case, defendant's principal objection is that many of the figures plaintiff uses as inputs are self-provided and self-calculated, without the apparent advice or involvement of an accountant or other expert tax preparer. But the Court does not agree with defendant that calculation of an individual's tax liability, at least in simple circumstances such as those of this case, is the sort of subject that requires an expert witness. While the assistance of an accountant or other expert might be helpful, the calculation is not ultimately more complicated

Page 5

than applying law to facts, which is a task a lawyer or indeed a layperson is competent to do; lay taxpayers routinely prepare and file their own tax returns. If plaintiff made some error in her calculations, it was incumbent on defendant to identify it; it is not enough merely to point out that plaintiff did not hire an expert.

Defendant argues that it is unable to identify any error in plaintiff's 2012-2017 tax returns because plaintiff redacted most of the data in them, offering them only to show that she paid no income tax those years. But this is not the proper forum to relitigate plaintiff's tax liability in every year of the back pay period. She filed tax returns in which she represented to the government that she owed no taxes and she testified that she paid no federal income tax during these years, which does not strike the Court as implausible, given her low level of income during this time (as the Court remarked in a previous opinion, she made approximately half as much during the back pay period as she would have if she had remained employed by CPD, see Vega v. Chicago Park District, 351 F. Supp. 3d 1078, 1092 (N.D. Ill. 2018)). Defendant knows how much income plaintiff made during these years, and it was incumbent upon defendant to explain why it believes she must have owed taxes on it, but defendant doesn't do so. In any case, what matters for purposes of the tax-component award is not so much whether plaintiff should have paid income taxes in these years but that she did not, and the Court accepts the evidence, however imperfect, that she did not.

Finally, defendant argues that plaintiff errs by including the impact of her compensatory damages award in determining which tax bracket she will fall into in 2020 as part of her calculation of the tax-component award. Defendant is incorrect. Had plaintiff calculated and sought to recover for the increase in tax liability that was directly due to the compensatory damages award, i.e., for the taxes plaintiff would owe on the compensatory...