Court Opinion

ID: 9481505
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:21:13.93642+00
Date Added: 2024-06-11T17:48:21.891802
License: Public Domain

WELLFORD, Senior Circuit Judge,
dissenting:
I respectfully dissent from the reversal of the district court's decision in this case. The payments at issue received by plaintiffs should not be excludable from their gross income as determined by the district court.
Plaintiffs in their complaint specifically sought back pay allegedly denied them because of their sex. Plaintiffs’ complaint referred at length to schedules of pay and asserted that classes of men allegedly doing work comparable to that done by plaintiffs received more pay for the allegedly comparable work. Presumably, the pay of these men was subject to income tax and FICA withholding. Plaintiffs sought, in short, equality of pay and then demanded back pay from TVA. The subject matter of the suit was pay for work performed, all subject presumably to the gross income definition of 26 U.S.C. § 61(a).
Plaintiffs claim that what they received was not equivalent to payment for services and thus not taxable, but the burden is upon them to show entitlement to an exclusion in light of the nature of their demand for back pay. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483 (1955). Plaintiffs claim that what they received was “damages” for “personal injuries,” as in the case of Pistillo v. Commissioner, 912 F.2d 145 (6th Cir.1990), rather than otherwise taxable earned income. I.R.C. § 104(a)(2).
Pistillo involved a jury award, later converted to settlement, including fees in an age discrimination case under 29 U.S.C. §§ 621-634.1 The Pistillo plaintiffs’ claim included (according to jury instructions) “liquidated damages, compensatory damages,” and other benefits claimed to have been lost'due to age discrimination. Pistil-lo relied, in part, upon Wulf v. City of Wichita, 883 F.2d 842 (10th Cir.1989), a first amendment termination case; on Bent v. Commissioner, 835 F.2d 67 (3d Cir.1987), which was based on a first amendment claim and only partially on a lost wages claim; and on Roemer v. Commissioner, 716 F.2d 693 (9th Cir.1983), which dealt with defamation damages. I believe that Wulf, Bent and Roemer are not comparable to the present sex discrimination lost wages or comparable worth case. I find them clearly distinguishable.
Wulf and Bent, in the first place, involved wrongful terminations based upon free speech considerations, a far cry from the claim in this case which involves no termination and a straightforward wage differential demand. Roemer involved a claim for defamation, defined as a personal injury claim under California law. I conclude that it likewise has no applicability to the instant controversy.2 Pistillo’s reasoning that an age discrimination award for a termination which arose out of violation of an “individual right” and therefore is not taxable as a “personal injury” extends an exception from income taxation further than any previous case which dealt with an ADEA claim. I would not extend this rationale to a wholesale exemption of a wage benefits distribution attributable to a claimed wage differential as in this controversy.
The struggle to distinguish recoveries for personal injuries from all other recoveries began with the recognition that not all personal injuries are physical. Hawkins v. Commissioner, 6 B.T.A. 1023 (1927); Roemer, 716 F.2d 693. Even if one accepts a recent inclination of some courts to characterize awards and accessions to wealth as damages for personal injuries rather than income, one must examine carefully the distinctions in those cases from the factual circumstances, as in the case at bar, in *1125which the taxpayer obviously recovered amounts which would have been subject to income tax had they come to the taxpayer in the normal course. The majority would now extend the proposition that we look only to see whether the plaintiff has suffered an injury to personal dignity as a basis for a back pay recovery. See Pistillo, 912 F.2d at 150.
In Threlkeld v. Commissioner, 87 T.C. 1294 (1986), aff'd, 848 F.2d 81 (6th Cir.1988), plaintiff claimed injury to professional reputation as part of a state law claim of malicious prosecution and the injury was measured by reference to lost business. The Tax Court determined that the recovery was due to a personal injury despite its link to economic ability. In reaching its decision the court stated that
whether the damages received are paid on account of “personal injuries” should be the beginning and end of the inquiry. To determine whether the injury complained of is personal, we must look to the origin and character of the claim and not to the consequences that result from the injury.
87 T.C. at 1299 (citation omitted). The court did not say that all claims that include personal injury are necessarily fully about personal injury and therefore excludable from taxable income. It did not say that the consequences that flow from an injury are irrelevant to determining a claim’s character and origin. To the contrary, the Tax Court in Threlkeld stated that the court
must look to various factors, including the allegations in the ... pleadings, the evidence adduced at trial, a written settlement agreement, and the intent of the payer.... Because of the multitude of situations involving the payment of damages for an allegedly personal injury, the most that can be said is that we will look to all of the facts and circumstances to determine whether the injury is, in fact, personal.
Id. at 1306.
The majority in the present case would extend what I feel is a flawed analysis in Rickel v. Commissioner, 900 F.2d 655 (3d Cir.1990), and Pistillo beyond ADEA, again without critical analysis of the statute at issue. I find the analysis in Thompson v. Commissioner, 866 F.2d 709 (4th Cir.1989), to be both logical and compelling:
After analyzing the statutory scheme [of the Equal Pay Act and Title VII] we conclude that Thompson received the liquidated damages through prosecution of a tort-type claim for personal injuries. We conclude, however, that the claim for back pay was essentially a contractual claim for accrued wages. Thus, the Tax Court correctly held the liquidated damages award excludable under section 104(a)(2), and the award of back pay in-cludable in gross income.
Thompson performed essentially the same work as her male co-workers for which she should have received equal pay. The back pay award was simply recovery for earned, but unpaid, wages which distinguishes her award of back pay from awards for lost wages or lost income in traditional personal injury/tort actions. She received compensation for services rendered whereas a tort plaintiff receives compensation for the inability to earn an income due to the tortious action of a defendant. Threlkeld v. Commissioner, ... Bent v. Commissioner, 835 F.2d 67 (3d Cir.1987), Roemer v. Commissioner ....
Id. at 712. This better reasoned analysis of the Fourth Circuit reveals that the term “contract” should be understood in a broad sense to include that which the Third Circuit in Rickel sought to exclude by rejecting the term “economic.”
In Metzger, the Tax Court stated that its earlier decision in Hodge v. Commissioner, 64 T.C. 616 (1975), should not be read to imply that all recovery under Title VII is taxable but that the facts should be tested to determine the nature of a claim. 88 T.C. at 858. The court distinguished Hodge because the Hodge taxpayers received only back pay whereas that was not the case in Metzger. The court looked to the language in the settlement agreement, the underlying complaint and the evidence and argu*1126ments presented at trial to determine whether the recovery was meant to be back pay. 88 T.C. at 845-46. The court specifically stated that when a settlement agreement is not explicit about the character of a claim that factual evidence of the payor’s intent is “most important” to determining the applicability of § 104. Id. at 857 (citing Knuckles v. Commissioner, 349 F.2d 610 (10th Cir.1965)). It determined that the recovery was not back pay since there was no effort to calculate back pay and the settlement was meant to cover a number of claims not related to back pay.
The difference between the Metzger case and the case at bar seems apparent to me. Burke sought back pay in her complaint.3 Payment under the settlement was linked to wages and taxes were withheld.4 This is not a case in which back pay is a means of measuring loss due to a tort. Compensation for that loss, if it exists in this case, was not sought and arguably was not available under § 2000e. See Boddy v. Dean, 821 F.2d 346, 352 (6th Cir.1987). Rather, this is a case in which the plaintiff “received in settlement [payment that] was includable in gross income because it was intended to compensate [Burke] for lost earnings_” Threlkeld, 848 F.2d at 83 (distinguishing Wolfson v. Commissioner, 651 F.2d 1228 (6th Cir.1981)). See also Wolfson (accepting applicability of clear error analysis to Tax Court determinations of excludability in personal injury cases).
I would AFFIRM the district court.

. Pistillo reversed a Tax Court decision which held the jury award amount to be taxable based upon substantial authority from other circuits.

. Byrne v. Commissioner, 883 F.2d 211 (3d Cir.1989), extended the Bent and Roemer rationale to a retaliatory discharge claim under FLRA, still in no way comparable to the circumstances here.

. The complaint requested an injunction against further discrimination and an "order awarding back pay to all affected female employees ...

. The majority opinion finds some significance in conduct, which it describes as (1) TVA not taxing its direct payment to Hutcheson; and (2) not taxing monies left over as undeliverable which were turned over to the union. Each check, however, clearly stated the amount withheld as taxes making the payor’s intent clear.