In Smith v. Cessna Aircraft, 124 F.R.D. 103 (D. Md. 1989), a tort plaintiff sued to recover damages for personal injuries he sustained when his single-engine airplane crashed. Among other items, he sought to recover damages for lost income from his contracting business. In his answers to interrogatories, he attested to his annual income in each year from 1982 through 1986, in response to a question asking his income "as reflected by his federal income tax returns." Smith, supra, 124 F.R.D. at 104.
He also responded to a request for production of his tax returns by stating that they would be produced. He produced documents that purported to be tax returns for some of the years in question, but failed to produce any others. As it turned out, he in fact had not filed returns for the years 1983 through 1987.
In a deposition in follow up to that revelation, the plaintiff admitted to not filing tax returns, acknowledged that he knew he had violated the law by not doing so, and further admitted that his prior representations in the litigation had created a false impression that he had filed tax returns.
The federal district court applied the clean hands doctrine to rule that the plaintiff would be precluded from recovering any damages for lost income as a consequence of the accident.
It explained that application of the clean hands doctrine is a matter of discretion:
The court possesses broad discretion in determining whether and how to apply the clean hands maxim upon learning that a plaintiff's hands are unclean. Thus, courts "are not bound by formula or restrained by any limitation that tends to trammel the free and just exercise of discretion." Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245-46, 54 S. Ct. 146, 148, 78 L.Ed. 293, 1934 Dec. Comm'r Pat. 639 (1933). Generally, the clean hands doctrine completely bars a plaintiff in limine. Nevertheless, courts have recognized that if the fraud relates only to some of the plaintiff's claims, then the entire suit need not be dismissed. Instead, the court need only bar the plaintiff's recovery for the claims tainted by the misconduct. Id. at 107.
The court concluded that the plaintiff's hands were unclean with respect to his request for damages for compensation for lost income, and that it was "appropriate . . . to dismiss his claims for damages for lost income, because the false tax and income information provided by him was directly relevant to such claims." Id.
"The Court is disturbed that the plaintiff, who for five years failed to pay his taxes, now seeks to vindicate his claim through the federal court system, itself dependent upon the prompt and honest reporting and payment of federal taxes." Id.