Dempsey v. Thompson, 42718

Decision Date14 July 1952
Docket NumberNo. 1,No. 42718,42718,1
PartiesDEMPSEY v. THOMPSON
CourtMissouri Supreme Court

Thomas J. Cole, Oliver L. Salter, St. Louis, Lyman J. Bishop, Belton, for appellant.

Roberts P. Elam, St. Louis, William A. Tautges, Eugene A. Rerat, Minneapolis, Minn., of counsel, for respondent.

HOLLINGSWORTH, Judge.

This case comes to the writer on reassignment. It is an action under the Federal Employers' Liability Act, 45 U.S.C.A. Sec. 51 et seq., for personal injuries sustained by plaintiff, a fireman on defendant's steam locomotive, when the locomotive was derailed at a point between Alix and Ozark, Arkansas. Defendant by answer admitted the derailment and that plaintiff's resultant injuries were due to negligence of defendant. The issue was the amount of damages as would fairly and reasonably compensate plaintiff. The jury awarded plaintiff $55,000 damages, which award was reduced by remittitur, and judgment was rendered for $45,000. Defendant has appealed.

Defendant contends (1) that the trial court erred in refusing to permit defendant to inquire of plaintiff's witness, an actuary, if the witness knew there is no income tax on awards for personal injury; in refusing defendant's request for an instruction informing the jury that no income tax could be assessed upon an award for personal injury and that nothing should be included in the jury's verdict 'for Federal, State or City taxation'; and in refusing to permit counsel for defendant to state in his argument to the jury that the amount of any award to plaintiff would not be subject to income tax; (2) that any award for future earnings lost to plaintiff should be based on net earnings after deduction for income taxes; and (3) that the judgment, after remittitur, is excessive.

In Hilton v. Thompson, 360 Mo. 177, 227 S.W.2d 675, 681, an action for damages under the Federal Employers' Liability Act, we held that the trial court did not err in refusing defendant's proffered instruction directing the jury to include nothing in the verdict for Federal, State or City taxes since such taxes could not be assessed on the amount of any verdict awarded plaintiff. In the instant case, defendant, in an extended brief and argument, insists that our conclusion in the Hilton case was wrong and urges that we consider the matter anew. And, too, plaintiff says in his brief that 'the time has come for this court to meet and decide squarely, and once and for all' whether income tax liability is a factor to be taken into account in fixing the amount of damages to be awarded a plaintiff in a personal injury action for impairment of earning capacity. To the extent the question is presented for determination in this case, we will again consider it.

The amount of damages received whether by action or by agreement on account of injuries is expressly excluded, and is exempt from income tax by the Internal Revenue Code, 26 U.S.C.A. Sec. 22(b)(2)(B)(5); and by the Income Tax Act of Arkansas, Section 14031(2)(f), Pope's Digest, Statutes of Arkansas, 1937. There can be no doubt that any money which plaintiff, a resident of Arkansas, may receive as an award in this action will not be subject to income tax. It is also true that, had plaintiff not been injured, his future earnings would have been subject to income taxes, although the impact thereof could by no means be accurately measured, being variable by law, by amount of other taxable income and by possible change of family or exemption status.

Defendant cites cases holding that the damages recoverable under the Federal Employers' Liability Act are limited to actual pecuniary loss. See Kansas City Southern Ry. Co. v. Leslie, 238 U.S. 599, 35 S.Ct. 844, 59 L.Ed. 1478; Lock v. Chicago, B. & Q. R. Co., 281 Mo. 532, 219 S.W. 919, 922. Further cases cited hold that recovery for future earnings is limited to the present cash value of net earnings. See Prince v. Kansas City Southern Ry. Co., 360 Mo. 580, 229 S.W.2d 568, 575. Defendant also contends that both the Federal Courts and the Courts of this State have recognized that income tax is a proper item for consideration in determining the present cash value of the loss of future earnings, citing, among others, the cases of Phillips v. Phillips, Mo.App., 219 S.W.2d 249, 273; Sunray Oil Corporation v. Allbritton, 5 Cir., 188 F.2d 751, 754; Wetherbee v. Elgin, Joliet and Eastern Ry. Co., 7 Cir., 191 F.2d 302, 309; DeVito v. United Air Lines, D.C., 98 F.Supp. 88, 98.

In the Phillips case, supra, the Kansas City Court of Appeals held it would not be justified in disagreeing with the trial court in considering the amount by which an award of alimony payable monthly would be reduced by income taxes payable by the wife. We do not think the problem presented in that case is analogous to the problem presented in this case. Alimony may be adjusted from time to time as the exigencies of the case require, but not so in the case of a final award of damages for loss of future earnings for the remainder of the plaintiff's life expectancy. In the Sunray and Wetherbee cases, supra, the appellate courts were considering whether the awards there made were excessive and it was noted arguendo in the discussion of that question that the awards were most liberal, in that they were based on computations of contractual rather than net earnings after tax deductions. To the same effect is the DeVito case, supra, wherein a Federal District Court (E.D. New York) was considering an allegedly grossly excessive verdict. None of these cases holds that the jury could or should be permitted to attempt to compute and deduct the estimated income tax liability thereon; nor do the other cases cited by defendant.

On the other hand, all of the cases to which we have been cited or have found bearing directly on this subject uniformly hold that too many unforeseeable and variable factors would enter into any attempted computation of income tax liability on loss of future earnings to permit of any reasonably accurate estimate thereof. Stokes v. United States, 2 Cir., 144 F.2d 82, 87; Chicago & N. W. Ry. Co. v. Curl, 8 Cir., 178 F.2d 497, 502; Southern Pac. Co. v. Guthrie, 9 Cir., 180 F.2d 295, 302-303, and, on rehearing, 9 Cir., 186 F.2d 926, 927; Billingham v. Hughes, [1949] 1 K.B. 643, 9 A.L.R.2d 311, and annotation following; Smith v. Pennsylvania R. Co., Ohio App., 99 N.E.2d 501, 504.

The effect of these cases is that, as a matter of necessity, the general rule that an award of damages for loss of future earnings should be based strictly on actual pecuniary loss cannot be rigidly adhered to insofar as it may be impossible to compute with reasonable accuracy the amount of income tax liability that may attach thereto. We think they are soundly ruled and that the trial court did not err either in refusing to permit defendant to cross examine plaintiff's actuarial witness relative to income tax liability or in refusing to permit defendant to argue to the jury that in arriving at the amount of its award it should consider only the amount of future earnings lost to plaintiff after deduction of income taxes for which he would have been liable had he continued his employment without injury. But it does not follow that defendant was not entitled to have the jury instructed that any amount awarded plaintiff was not subject to Federal or (Arkansas) State income tax.

Present economic conditions are such that most citizens, most jurors, are not only conscious of, but acutely sensitive to, the impact of income taxes. Under the Federal and State income tax laws of both Arkansas and Missouri the net income of all persons is taxable except such as is specifically exempted. Few persons, other than those who have had special occasion to learn otherwise, have any knowledge of the exemption involved in this case. It is reasonable to assume the average juror would believe the award involved in this case to be subject to such taxes. It seems clear, therefore, that in order to avoid any harm such a misconception could bring about, it would be competent and desirable to instruct the jury that an award of damages for personal injuries is not subject to Federal or State income taxes. The instruction could be in substantially this form: 'You are instructed that any award made to plaintiff as damages in this case, if any award is made, is not subject to Federal or State income taxes, and you should not consider such taxes in fixing the amount of any award made plaintiff, if any you make.'

Can there be any sound reason for not so instructing the jury? We can think of none. Surely, the plaintiff has no right to receive an enhanced award due to a possible and, we think, probable misconception on the part of a jury that the amount allowed by it will be reduced by income taxes. Such an instruction would at once and for all purposes take the subject of income taxes out of the case.

We are now convinced and hold that an instruction substantially in the form above outlined should have been given in this case, and that the case of Hilton v. Thompson, 360 Mo. 177, 227 S.W.2d 675, insofar as it is in conflict with the ruling here made, should no longer be followed.

We are constrained to hold, however, that the case should not be remanded for a new trial. The refused instruction was a cautionary one, the giving or refusal of which is generally held to be within the discretion of the trial court. West v. St. Louis Public Service Co., 361 Mo. 740, 236 S.W.2d 308, 311; Enyart v. Santa Fe Trail Transportation Co., Mo.Sup., 241 S.W.2d 268. By given Instruction No. 1, the jury was expressly and correctly directed as to the elements of damages it should consider in arriving at a verdict. By given Instruction No. 5, it was cautioned that it should not allow anything except for the items...

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