Court Opinion

ID: 6927009
Source: CourtListenerOpinion
Date Created: 2022-07-23 23:26:01.140271+00
Date Added: 2024-06-11T16:06:58.013590
License: Public Domain

MOORE, Circuit Judge
(dissenting).
Here the burden placed upon the trial judge in this non-jury case after liability was established was to fix and award damages. In arriving at the award an important item was the calculation of the decedent’s future lost earnings. This amount the trial judge computed on the basis of net income after taxes. Since the law specifically provides that the “compensation” is for “the pecuniary injuries” to “the person or persons, for whose benefit the action is brought,” in this case the wife, the sole survivor, she cannot have lost more than the decedent would have received. Hence, in my opinion, the trial judge’s computation was correct and I would affirm.
The problem here presented is probably more recurrent in the daily routine of the district courts than any other, namely, how to charge juries as to dam*318ages in personal injury cases or how in non-jury cases correctly to award damages in the event that a plaintiff has prevailed. Although the question of the relationship of the income tax to any award is only one phase of the damage problem, it is an important factor. As a result, the trial judges are entitled to as much enlightenment as appellate courts are able to produce. At the present time, and in my opinion, the light is a flickering beam of exceedingly low candle power in this circuit.
Since negligence cases are tried, jury and non-jury, the applicable law cannot be restricted to the one situation or the other. Therefore, even though this be a non-jury case, the law must be considered as it should be presented in a jury case as well.
After so many decades of the jury system, it may seem trite to even remind ourselves that a jury consists of laymen who have to be instructed in the law and who, in theory at least, are supposed to follow it. The members come to the jury box from all walks of life and with the usual number of misconceptions, preconceptions and conceptions possessed by the public generally. They have such knowledge as they gain from the daily press of which no small amount is gleaned from the sporting pages. There they learn that some gladiator of the prize ring by virtue of having remained slightly more conscious than his opponent for fifteen rounds has been awarded for such physical prowess a sum of close to one million dollars. This news is always accompanied by the announcement that some internal revenue collector is theoretically waiting in the dressing room of the gladiator to deprive him of a large portion of his winnings. Similar publicity is given to those who by dint of the right ticket and a fleet-footed horse have acquired an Irish Sweepstake fortune. In short, the place of the Internal Revenue in our society is firmly fixed in the minds of our populace. These are the minds which assemble in the jury room. Even though distinguished professors may attempt to probe into and discover a collective jury mind (and this is virtually impossible since the only accurate method of securing this knowledge is denied to them — and to us as well) we cannot assure ourselves that some persuasive extrovert on the jury will not say: “Sure, I know, all these verdicts, you have to pay taxes, if we want this fellow to get $50,000, you got to give him $100,-000.” Some more reflective introvert may say, “I don’t know, I am not sure, why not ask the judge for instructions?” This is, of course, possible, but it is equally probable that in the jury room just as in life on the outside, reflective minds are frequently brushed aside, and capitulate.
The point need not be belabored further. The conclusion is obvious. Why have uncertainty when certainty can be so easily achieved? The function of the judge is to instruct the jury as to the applicable law. Every judge could incorporate into his charge the current law by saying, “gross income does not include — * * * (2) the amount of any damages received (whether by suit or agreement) on account of personal injuries * * * ” (26 U.S.C.A. § 104, Int. Rev.Code of 1954; for New York, see N.Y.Tax Law, McKinney’s Consol.Laws, c. 60, § 359(2) (e)). This court specifically recognized the validity of such a charge in saying in McWeeney v. New York, N. H. & H. R. R. Co., 282 F.2d 34, 2 Cir., 1960:
“Hence there would have been no error in the court’s giving the instruction [‘your verdict is not taxable income to the plaintiff within one meaning of these tax laws’].”
Under McWeeney, therefore, there surely can be no serious dispute that would not be held in error in giving trial judges such a charge as to the damage award.
However, the income tax question also arises in connection with the damage calculation. In New York (the law assumed to apply by the majority), section 132 of the New York Decedent Estate Law specifies that damages are to be “fair and just compensation for the pe*319cuniary injuries, * * * to the person or persons, for whose benefit the action is brought.” The keynote of the New York statute is “compensation.” This court in O’Connor v. United States, 269 F.2d 578, 584, 2 Cir., 1959, recognized that, “The compensatory nature of the right to damages under the Tort Claims Act requires such consideration of Federal Income Taxes; [and that] the plaintiff-appellee can recover only for losses sustained.” This circuit has made it abundantly clear that “losses sustained” do not mean the decedent’s salary, gross or net, but only the benefits derived from those earnings “which could reasonably be expected to be dedicated to household and family use * * *.” (269 F.2d p. 585). This is a day and age of “take home” pay. As this court held in O’Connor, the amount which the deceased employee had to divide with his wife and child was the amount he actually received. No part of his income tax deduction came to him. Even then the court only allotted two-thirds to family use until the child became 21 years old and one-half thereafter. This court then fixed a round figure as damages after various calculations including “deducting estimated Federal Income Taxes.” See also the decision on a previous O’Connor appeal, 251 F.2d 939, 943, 2 Cir., 1958, wherein this court used three years’ withholding statements as the bases for its illustrative calculations in computing the amount available for the support of wife and child. Yet O’Connor was a comparatively young man and could have had more dependent and deductible progeny.
Turning now to the non-jury trial (the situation here), I find no different base for damages. Nor should there be since the same rules of “compensation” and “losses sustained” apply to a judge’s judgment as to a jury’s verdict. The only difference is that the workings of a judge’s mind are disclosed in his findings and opinion whereas the calculations of the jury whatever they may have been are totalled only in a general verdict and rarely revealed as specific items.
Certainly, the judge can instruct himself that the damage award is not subject to incbme tax. His problem is thus limited to the method used to compute the award. Both the New York statute and logic (and I submit, by proper interpretation, our own cases) compel the conclusion that in his search for proper compensation for the pecuniary injuries sustained the court should ascertain the amount of which the family is being deprived. After all, the purpose of the judge is to mete out a fair award and, in so doing, judges should not be altogether unmindful of the realities of life.
The customary proof submitted in negligence actions for the purpose of determining lost earnings, apart from pain and suffering and other special items consists of average salary or income for a period of years before injury or death. This figure is then multiplied by such factor as is applicable, obtained from life expectancy and/or work expectancy tables.
The trial court here believing that “The recent trend in decisions favors the deduction of income taxes” based his computation upon decedent’s net income. In so doing, the court relied primarily upon our O’Connor decision but as to trend referred to Floyd v. Fruit Industries, 144 Conn. 659, 136 A.2d 918, 63 A.L.R.2d 1378 (1957) and British Transport Com. v. Gourley [1956], A.C. 185, 2 W.L.R. 41 [1955].
The majority here concedes that they are unable to find any New York decision bearing upon the use of gross or net income in calculating damages. Parenthetically, I cannot understand why absence of case law should be considered a deterrent to the application of New York’s clear “pecuniary injuries” statute. Turning from strength to weakness, they are “constrained” to follow “dictum” in McWeeney, which they say somehow was buttressed by Montellier v. United States, 315 F.2d 180, 2 Cir., 1963. These slender reeds will not support the weight they would impose upon them. Indirectly recognizing this weakness, the majority *320create a wholly irrelevant “crucial” issue, namely, “whether a court can predict with sufficient certitude just what portion of decedent’s earnings would have been placed beyond libelant’s reach by future tax laws so as to permit the court justly to reduce the damage award which li-belant would otherwise be entitled to.” The fallacies of this assumed issue are immediately apparent. First, a court’s prediction with “sufficient certitude” of most elements in a negligence case has never been an essential requirement. Net earnings at the time of the trial are known (or should be) with certitude. The courts do not know what the fates would have had in store for the decedent in the future. Nor can there be prediction with certitude as to the degree of physical recovery of the injured; yet judgments based on presently known facts are rendered every day. Second, earnings are not placed beyond libelant’s reach. His tax share or contribution to government maintenance are not his to reach for. If the majority believes with certitude that the abolition of the federal income tax lies just around the corner, this may be encouraging to the taxpayer but it is a view scarcely justified by the pattern and state of our national economy. Third, the trial court is not reducing an amount “which libelant would otherwise be entitled to.” This begs the very question here for decision. The sole basis of the award should be to provide that which he, and through him his family, would have received. He could scarcely enjoy that which had been sent to the Internal Revenue District Director. Therefore, the too speculative argument rests on a false premise. Of course, many hypothetical situations can be imagined. Children will be exemptions; over 21 years of age they will not be. Single men may marry; married men may become widowed. But the salary check actually received will continue to be all that the employee has to spend and divide with his family.
In this circuit we have had Stokes v. United States, 144 F.2d 82, 2 Cir., 1944; O’Connor; McWeeney and Montellier. In Stokes the trial judge refused to make a deduction for income taxes in estimating expected earnings. This court found no error in this refusal, merely saying, “such deductions are too conjectural.” In O’Connor a deduction for estimated Federal income taxes made by a judge in a non-jury case was definitely approved. McWeeney was a jury case in which the issue was raised by the refusal of the trial court to give two requests, one, that no sum was to be added to any verdict because of income taxes and the other, that loss of earnings must be calculated on the basis of net income after taxes. A reading of the majority opinion in Mc-Weeney reveals rather clearly a belief that the increased salary base because of failure to submit net earnings to the jury was considered as an offset to the inroads of inflation and counsel fees. This surmise is supported by the majority’s own construction of McWeeney which they say was decided “in part on the fact that plaintiff’s judgment in a case like this is usually less than compensatory because of inflation and attorney’s fees * * Montellier was a non-jury ease. Although this court did not hold failure to deduct income taxes from gross to be error, it did say, “It would not have been erroneous, under the rule of McWeeney * * * for the trial judge to have made a deduction for income taxes, which would have amounted to a substantial sum in this case” (315 F.2d p. 186).
The trial judge here was charged with the duty of making a fair award for the pecuniary losses sustained. He has carefully computed such a figure. It is indeed a legal anomaly to say that the plaintiff must receive in addition an amount equivalent to the Federal and State income taxes in which the decedent never would have had a pecuniary interest.
The courts are frequently accused of being oblivious to the facts of life. In their ivory towers they are said to be unaware of the realities. Yet since virtually every case to be decided deals with some phase of human existence, the ju*321diciary should endeavor to be most conversant with the practical aspects of the problems submitted. Earl Jowitt expressed this thought in the British Transport case, supra, saying: “My Lords, I agree with Lord Sorn in thinking that to ignore the tax element at the present day would be to act in a manner which is out of touch with reality” (p. 48). Lord Goddard in considering “whether in calculating the damage the incidence of tax should be taken into account and whether it is an element to be considered in assessing general damage” held that it was and that, “Generally damages must be decided by the application of reasonable common sense” (p. 54). The House of Lords overruled Billingham v. Hughes [1949], 1 K.B. 643 and cases holding that the income tax was not be considered as an element, Lord Tucker stating, “I am persuaded that the decision in Billingham v. Tucker, to which I was a party in the Court of Appeals, was erroneous” (p. 59).
In Floyd v. Fruit Industries, supra, the Connecticut Supreme Court of Errors said, “For all practical purposes, the only usable earnings are net earnings after payment of such taxes” (136 A.2d p. 925). Recognizing that in some jurisdictions evidence of income taxes has been held inadmissible1 and referring specifically to the Stokes case in this circuit and Chicago & N. W. R. Co. v. Curl, 178 F.2d 497, 502 in the Eighth, the court stated that it was “not impressed by the reasoning of these cases.” Neither am I.
“The argument for computing damages on estimated income after taxes is a clear one; this will measure the actual loss. If plaintiff gets, in tax free damages, an amount on which he would have had to pay taxes if he had gotten it as wages, then plaintiff is getting more than he lost.” 2 Harper & James, The Law of Torts, § 25.12. As to the speculative aspect the authors answer this argument by saying, “Moreover future taxes are no more speculative than many other items that go into prophecies about future losses in this uncertain world * * * ” Since there can be no uncertainty in calculating damages for past losses when the exact tax is known, since loss of future earnings is based upon proof of past earnings and since the likelihood of our living in a tax-free society within the life span of this present court is minimal, I would prefer to decide the applicable rules of law upon the existing state of our tax structure, and let others cope with that Utopian era of the future which underlies the decision of the majority.
I not only do not find the award of the trial court to have been clearly erroneous, I find it the only proper computation within the meaning of the New York statute and the principles of just compensation. Therefore, I would affirm the judgment.

. For a comprehensive annotation on the subject, see 63 A.L.R.2d 1378, 1393-1425.