Opinion ID: 775271
Heading Depth: 2
Heading Rank: 1

Heading: the effect of the adea

Text: 28 In my view, the issue is resolved by interpretation and application of the statute. The analysis starts and ends with the language of the ADEA. The ADEA incorporates the feeshifting provision of the Fair Labor Standards Act, see 29 U.S.C. &#167 626(b), which states that [t]he court . . . shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, id. &#167 216(b). 29 In this case, as we previously determined, the attorney's fees paid in settlement of the Sinyards' lawsuit were awarded by the court pursuant to the ADEA. Sinyard v. Commissioner, No. 99-71369 (Apr. 27, 2001) (order). That is to say, the fee obligation arose by operation of the fee-shifting statute itself; the fees were not part of a settlement, nor were they simply a percentage of a judgment. In this respect, the case before us differs from the cases that we have previously decided. In those cases, we were faced with a settlement agreement or a judgment in favor of the plaintiff, a portion of which the plaintiff then paid to the attorney pursuant to a contingent-fee agreement. See, e.g., Benci-Woodward v. Commissioner, 219 F.3d 941 (9th Cir. 2000) (punitive damages award and contingency fee agreement); Coady v. Commissioner, 213 F.3d 1187 (9th Cir. 2000) (wrongful termination judgment following bench trial and contingency fee agreement); see also Kenseth v. Commissioner, 259 F.3d 881, 882-83 (7th Cir. 2001) (settlement in age discrimination suit and contingency fee agreement). Under the circumstances of these cases, the plaintiff has received income (the judgment or settlement), the entire amount of which--including the portion paid to the attorney--is taxable to the plaintiff. 30 In contrast to attorney's fees paid pursuant to a contingent fee, which we have previously held to be governed by state law, 1 we are guided here by the text of the ADEA. The statute provides for two separate forms of recovery. First, there is the judgment awarded to the plaintiff or plaintiffs.  29 U.S.C. &#167 216(b). Separate, and in addition to  the plaintiff's recovery, [t]he court . . . shall . . . allow a reasonable attorney's fee to be paid by the defendant. Id. So under the statute, the attorney's fees are treated separately from the judgment itself. 2 This approach is consistent with the ADEA's design to ensure that the prevailing party is made whole. Under the FLSA, Congress intended that the wronged employee should receive his full wages plus the penalty without incurring any expense for legal fees or costs. Maddrix v. Dize, 153 F.2d 274 (4th Cir. 1946). 31 Moreover, those fees are a mandatory obligation, id. ([t]he court . . . shall . . . allow (emphasis added)), which the statute has imposed directly upon the defendant. The defendant itself must pay the plaintiff's attorney's fees, regardless of any obligation that the plaintiff may have to his attorney. Consequently, the defendant's payment of the fees discharges a statutory, not a contractual, burden. 32 Thus, it is mistaken to describe this as a situation in which A [the plaintiff] owes B [her attorney ] a debt, and C [the defendant] pays the debt on A's behalf. Majority Op. at 13741. If that were an accurate description, the majority is of course correct that the payment from defendant C to attorney B would be taxable to plaintiff A as income. Lucas v. Earl, 281 U.S. 111 (1930). Here, defendant C does not satisfy a debt on behalf of plaintiff A; rather, C satisfies its own statutory obligation, imposed by the ADEA. 33 Indeed, the FLSA-based award is the exclusive basis for fees and supercedes alternative fee arrangements. See United Slate, Tile & Composition Roofers, Damp & Waterproof Workers Ass'n. Local No. 307 v. G&M Roofing Sheet Metal Co., 732 F.2d 495, 504 (6th Cir. 1984) (The fact that the plaintiff has entered into an agreement with the lawyers prosecuting the case does not impact on the statutory burden of the employer . . . .). In this sense, then, the Sinyards are quite right that their case is distinguishable from Old Colony Trust Co. v. Commissioner, 279 U.S. 716 (1929). In that venerable case, the Supreme Court considered the tax plight of the estate of William Wood, the president of the American Woolen Company. As part of Wood's compensation, the Company had paid the income tax due on Wood's salary. Id. at 720. The question presented was whether these income tax payments also constituted income to Wood. The Court held that they were taxable income. Reasoning that [t]he payment of the tax by the employers was in consideration of the services rendered by the employee, the Court therefore held it to be immaterial that the taxes were directly paid over to the government and famously concluded that [t]he discharge by a third person of an obligation to him is equivalent to receipt by the person taxed. Id. at 729. 34 Here, by contrast, IDS Financial Services (the defendant in the Sinyards' age discrimination suits) did not receive consideration in exchange for paying the Sinyards' attorneys. Had it done so, then the situation might be different: We would interpret the contract (that is, the settlement agreement) between the Sinyards and IDS; determine whether the Sinyards' attorneys already had a stake in the funds paid by IDS; and consider the effect of the relevant state law, see supra note 1. But that is not the case before us. After the Sinyards and IDS settled their lawsuit, the district court taxed attorney's fees against IDS. When IDS paid those fees to the Sinyards' attorneys, IDS satisfied its own statutory obligation. Old Colony is inapposite. 35 Thus, I conclude that the attorney's fees awarded pursuant to the ADEA's fee-shifting provision are not taxable as income to the Sinyards.