Court Opinion

ID: 9487291
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:12:47.995111+00
Date Added: 2024-06-11T17:52:11.233687
License: Public Domain

TROTT, Circuit Judge,
concurring in the judgment:
I agree with the majority’s conclusion that all damages received in settlement of an ADEA claim are excludable from gross income under § 104(a)(2) of the Internal Revenue Code. As I explained in my dissent in Hawkins v. United States, 30 F.3d 1077, 1085 (9th Cir.1994), I respectfully disagree with the majority’s adoption of a two-part test for analyzing whether damages are excludable under § 104(a)(2). Like the Tax Court, I believe the focus should be on whether the *797ADEA redresses a tort-like personal injury claim. See Downey v. Commissioner, 100 T.C. 634, 657, 1993 WL 231740 (1993). If the answer is yes, all damages received on account of that claim are not taxable. Because I agree with the majority that the ADEA creates a tort-like cause of action, both the backpay award and the liquidated damages award in this case should not be taxable.
The majority, however, has to square this result with the test they created in Hawkins. In Hawkins, the majority held that punitive damages received in a tort ease are taxable because they are “not necessarily awarded ‘on account of personal injury; rather, they are awarded ‘on account of the tortfeasor’s egregious conduct.” 30 F.3d at 1080. According to the majority in this case, damages are not received “on account of’ personal injury “unless they have some compensatory purpose and bear some relationship to the taxpayer’s underlying personal injury.” Unfortunately, I don’t see how the majority can distinguish ADEA liquidated damages from punitive damages. I think this inconsistency merits attention because it demonstrates problems with the majority’s approach in both this case and Hawkins.
A, ADEA liquidated damages should really be called double damages because the term liquidated damages is a misnomer. Cf. Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 114, 105 S.Ct. 613, 618, 83 L.Ed.2d 523 (1985) (“[A] ‘willful’ violation of the ADEA[ ] entities] a plaintiff to ‘liquidated’ or double damages.”) (emphasis added). The term “liquidated damages” suggests compensation for damages that are too obscure and difficult to prove. See Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707, 65 S.Ct. 895, 902, 89 L.Ed. 1296 (1945). However, ADEA liquidated damages serve an entirely different purpose.
The ADEA provides that its provisions “shall be enforced in accordance with the powers, remedies; and procedures” of the Fair Labor Standards Act (“FLSA”). 29 U.S.C. § 626(b). However, Congress modified the ADEA remedial provisions in two important respects. First, the ADEA did not incorporate § 16(a) of the FLSA which criminalizes willful violations. See id. §§ 216(b) & 626(b). Second, liquidated damages are automatically awarded under the FLSA, see id. § 216(b);1 by contrast, under the ADEA, liquidated damages are only awarded if the violation is willful, see id. § 626(b). Because ADEA liquidated damages replaced the criminal provisions of the FLSA, the Thurston Court concluded, “The legislative history of the ADEA indicates that Congress intended for liquidated damages to be punitive in nature.” 469 U.S. at 125, 105 S.Ct. at 624. Based on Thurston, I think it’s clear that ADEA liquidated damages are akin to punitive damages.
Treating ADEA liquidated damages like punitive damages has also been the law of this Circuit since Kelly v. American Standard, Inc., 640 F.2d 974 (9th Cir.1981). The Kelly court stated: “[T]he award of liquidated damages is in effect a substitution for punitive damages and is intended to deter intentional violations of the ADEA.” Id. at 979. In Criswell v. Western Airlines, Inc., 709 F.2d 544, 556 (9th Cir.1983), aff'd, 472 U.S. 400, 105 S.Ct. 2743, 86 L.Ed.2d 321 (1985), the court upheld an award of both prejudgment interest and liquidated damages under the ADEA because “liquidated damages and prejudgment interest serve different functions in making ADEA plaintiffs whole.” Relying on Kelly, the Criswell court reasoned that liquidated damages are “a substitution for punitive damages” because they are “intended to deter intentional violations of the ADEA.” Id. (internal quotations omitted). By contrast, prejudgment interest is intended to compensate for the loss of use of the money. Id. at 556-57.2 I don’t see how *798the majority can ran away from the clear language in Thurston, Kelly, and Criswell indicating that liquidated damages should be treated like punitive damages.
B. Because the majority held in Hawkins that punitive damages are taxable, a logical application of that rale suggests that ADEA liquidated damages are also taxable. ADEA liquidated damages, like punitive damages, are only awarded in cases of willful violation. ADEA liquidated damages, like punitive damages, are intended to punish and deter.
The majority tries to distinguish ADEA liquidated damages by claiming they “have both a compensatory and a punitive purpose.” What compensatory purpose? Under the law of this circuit, ADEA liquidated damages do not compensate for the loss of the use of the money, emotional distress, or pain and suffering. See Criswell, 709 F.2d at 556-57; Cancellier v. Federated Dep’t Stores, 672 F.2d 1312, 1318 (9th Cir.), cert. denied, 459 U.S. 859, 103 S.Ct. 131, 74 L.Ed.2d 113 (1982); Naton v. Bank of California, 649 F.2d 691, 698-99 (9th Cir.1981). Realistically, what’s left to compensate? The majority’s suggestion that Congress may have decided that only parties suffering willful discrimination should recover for intangible or incalculable injuries is peculiar. After all, victims of nonwillful violations would suffer the same intangible or incalculable harm. To me, the willfulness requirement clearly suggests a punitive purpose.
In support of its claim that ADEA liquidated damages serve a compensatory purpose, the majority relies heavily on the Conference Report for the 1978 amendments to the ADEA. The Conference Report states that liquidated damages “compensate the aggrieved party for nonpecuniary losses” and that the amended ADEA “does not provide remedies of a punitive nature.” H.R.Conf. Rep. No. 950, 95th Cong., 2d Sess. 13-14, reprinted in 1978 U.S.C.C.A.N. 528, 535. However, the 1978 amendments only provided for a jury trial on the issue of liquidated damages; it did not alter the nature or definition of liquidated damages. The Conference Report’s comments in 1978 — 11 years after the passage of the ADEA — are interesting, but shouldn’t be given much weight. It’s ironic that the majority relies so heavily on subsequent legislative history. In Hawkins, the majority rejected a similar argument because “ ‘the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.’” Hawkins, 30 F.3d at 1082 (quoting United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 332, 4 L.Ed.2d 334 (1961)). Here, the subsequent legislative history is even less relevant because Congress did not in any way alter the definition or availability of liquidated damages.
More troubling, however, is the majority’s statement that “for purposes of § 104(a)(2), the proper inquiry is not the damages’ relationship to the tortfeasor, but their relation to the taxpayer.” In other words, even if the case law says ADEA liquidated damages are intended to punish the tortfeasor, “from the recipient’s perspective,” the liquidated damages may still represent compensation for hard-to-calculate losses. I’m not sure I understand the majority’s argument. If ADEA liquidated damages are designed to punish the tortfeasor, it shouldn’t matter whether the award is viewed from “the recipient’s perspective.” The recipient’s thoughts or beliefs are irrelevant. The question should simply be: Why are the ADEA liquidated damages awarded? Based on the case law, I think it’s clear that ADEA liquidated damages are awarded to punish the tortfeasor, not compensate the victim.
The majority also believes it’s significant that “ADEA liquidated damages ... bear a relation to the underlying personal injury” because liquidated damages “must equal the plaintiffs total pecuniary loss.” But simply doubling the backpay award to compensate for intangible or incalculable injuries seems a rather arbitrary way to compensate victims of discrimination. If the ADEA provided that liquidated damages would be equal to 1000 times the backpay award, the liquidated damages would also “bear a relation to the *799underlying personal injury” and would increase if the backpay award increased. Under those circumstances, I imagine the majority would say the liquidated damages were clearly punitive. But what’s the principle distinguishing the two awards? I’m worried the majority’s test may break down into the following rule: large awards (which we may think are excessive) are taxable (e.g., Hawkins ), but small awards (which we may think are more reasonable) are not taxable (e.g., this case). As I indicated in Hawkins, I fear this new test may sow more confusion than clarification.
C. If I am correct, the majority should treat ADEA liquidated damages like punitive damages. Based on Hawkins, ADEA liquidated damages should be taxable. Of course, I don’t think that’s the “right” result, but I think that’s the result Hawkins requires. The majority’s application of the Hawkins test to this case only reinforces my belief that Hawkins, despite the majority’s best intentions, was wrongly decided.

. The court has discretion to award no liquidated damages or reduced liquidated damages "if the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the” FLSA. 29 U.S.C. § 260.

. The Ninth Circuit was the only circuit to adopt this interpretation of ADEA liquidated damages prior to the Supreme Court's decision in Thurston. See, e.g., Powers v. Grinnell Corp., 915 F.2d 34, 39 n. 6 (1st Cir.1990); Lindsey v. American Cast Iron Pipe Co., 810 F.2d 1094, 1102 n. 7 (11th Cir.1987). However, after the Thurston Court held that "Congress intended for [ADEA] *798liquidated damages to be punitive in nature," see 469 U.S. at 125, 105 S.Ct. at 624, two circuits reversed their original positions and embraced the Criswell approach. See Reichman v. Bonsignore, Brignati & Mazzota, P.C., 818 F.2d 278, 281-82 (2d Cir.1987); Lindsey, 810 F.2d at 1102.