McKee v. Colt Electronics Co., Inc.

• Decision Date: 27 May 1988
• Docket Number: No. 628,D,628
• Parties: Mary L. McKEE, as Executrix under the Will of Gordon N. McKee, Deceased, Plaintiff-Appellee, v. COLT ELECTRONICS CO., INC., the Garrett Corporation and Lockheed Corporation, Defendants, the Lockheed Corporation and Phoenix Aerospace, Inc., Defendants-Appellants. The GARRETT CORPORATION and Lockheed Corporation, Third-Party Plaintiffs, v. TEXASGULF, INC., and Texasgulf Aviation, Inc., Third-Party Defendants- Appellants. ocket 87-7774.
• Court: U.S. Court of Appeals — Second Circuit

Page 46

849 F.2d 46

Mary L. McKEE, as Executrix under the Will of Gordon N.

McKee, Deceased, Plaintiff-Appellee, v. COLT ELECTRONICS CO., INC., the Garrett Corporation and Lockheed Corporation, Defendants,

the Lockheed Corporation and Phoenix Aerospace, Inc.,

Defendants-Appellants.

The GARRETT CORPORATION and Lockheed Corporation, Third-Party Plaintiffs, v. TEXASGULF, INC., and Texasgulf Aviation, Inc., Third-Party

Defendants- Appellants.

No. 628, Docket 87-7774.

United States Court of Appeals Second Circuit.

Argued Feb. 25, 1988.

Decided May 27, 1988.

Richard F. Lawler, New York City (Whitman & Ransom, John M. Newell, of counsel), for plaintiff-appellee.

Randal R. Craft, Jr., New York City (Haight, Gardner, Poor & Havens, John P. Marinan, of counsel), for third-party defendants-appellants, Texasgulf, Inc. and Texasgulf Aviation, Inc.

Perkins Coie, Seattle, Wash. (Sherilyn Peterson, Richard C. Coyle, of counsel), for defendant-appellant Garrett Corp.

Before FEINBERG, Chief Judge, PRATT, Circuit Judge, and PETER C. DORSEY, United States District Judge for the District of Connecticut, sitting by designation.

GEORGE C. PRATT, Circuit Judge:

This appeal from a damage award is part of the litigation that arose out of the 1981 crash at Westchester County Airport of a corporate jet owned by third-party defendants Texasgulf, Inc., and its wholly-owned subsidiary, Texasgulf Aviation, Inc. (collectively, "Texasgulf"). Plaintiff's decedent, Gordon McKee, who was the vice-president/treasurer of Texasgulf, was among the six passengers killed in that crash.

The estates of the crash victims filed suits pursuant to New York's wrongful death statute, N.Y.Est. Powers & Trust Law Sec. 5-4.3 (McKinney 1981), the cases were consolidated, and Judge Goettel presided over two jury trials that were held to resolve affirmative defenses and to determine liability. The factual and procedural histories of these cases are outlined more fully in Woodling v. Garrett Corp., 813 F.2d 543 (2d Cir.1987); Texasgulf, Inc. v. Colt Electronics Co., 615 F.Supp. 648 (S.D.N.Y.1984); Morgan Guaranty Trust Co. v. Texasgulf Aviation, Inc., 604 F.Supp. 699 (S.D.N.Y.1985); Gregory v. Garrett Corp., 589 F.Supp. 296 (S.D.N.Y.1984), aff'd in part and vacated in part, 813 F.2d 543 (2d Cir.1987).

The jury found the defendants and third-party defendants jointly and severally liable for negligently causing the crash, and apportioned liability as follows: Texasgulf (owned and operated the aircraft), 70%; Garrett Corporation (installed generator control units), 20%; Phoenix Aerospace, Inc. (designed and manufactured generator control units), 5%; and Colt Electronics Co., Inc. (prepared installation drawings), 5%. We upheld that liability verdict in Woodling v. Garrett, 813 F.2d 543. After those issues were resolved, some of the cases settled, and damage trials were held in others, including McKee's.

During the McKee damages trial, plaintiffs introduced evidence to show that McKee was survived by his wife Mary and four children, who were 22, 21, 18 and 14 when he died. Mrs. McKee died prior to trial, but her videotaped deposition was shown to the jury. McKee was an athletic, vigorous man and a devoted father who was actively involved with his children. McKee's concern for his children's education was demonstrated by his decision to send them to private school, his service as trustee of the youngest child's school, his commitment to finance their graduate education, and his frequent discussions with the children concerning their educations and careers. In fact, the two older McKee children pursued careers in geology and finance, respectively, fields in which McKee, who was also highly respected in the New York financial community, specialized. The third child has since completed her undergraduate education, and the youngest is now in college.

Both sides presented expert economic testimony on the issues of lost earnings, McKee's personal expenses, and the value of McKee's household services. Responding to special interrogatories, the jury awarded damages as follows:

                loss of financial support                       $1,763,700
                loss of care, guidance, training and education     294,000
                lost household and other services                   13,900
                funeral and burial expenses                          5,168
                                                                ----------
                  Total                                         $2,076,768
                

Judge Goettel denied defendants' and third-party defendants' motions to set aside the damages verdict as contrary to the evidence and excessive.

Two of the many issues raised on appeal warrant discussion here. The first concerns Judge Goettel's exclusion of certain evidence of McKee's prospective income tax liability and his refusal to instruct the jury to reduce any award to account for income tax liability. The second concerns the amount of the award for loss of parental nurture, care, and guidance.

I. Income Taxes.

In Woodling v. Garrett Corp., 813 F.2d 543, 557 (2d Cir.1987), a case arising from the death of a 34-year old accountant who was also aboard the Texasgulf plane, we held that the trial court erred in admitting evidence as to income tax the decedent would have had to pay on projected future earnings and in instructing the jury that it should deduct income taxes from the decedent's projected gross income in calculating the amount that the plaintiff was entitled to recover for lost support. We refused to overrule Vasina v. Grumman Corp., 644 F.2d 112 (2d Cir.1981), where we had held that New York law does not allow evidence of the effect of taxes on lost income, and interpreted Coleman v. New York City Transit Authority, 37 N.Y.2d 137, 371 N.Y.S.2d 663, 332 N.E.2d 850 (1975), as barring both jury instructions on nontaxability of damage awards and evidence of the effect of taxes on prospective income. 813 F.2d at 557-58.

Unwilling to accept defeat on this issue even in the face of our broad and seemingly unambiguous holding in Woodling, defendants now advance a variation of their Woodling argument in the form of a proffered "McWeeney high-income earner exception" which, defendants argue, requires juries to consider the effect of income taxes in cases involving "high-income earners." See McWeeney v. New York, N.H. & H.R.R. Co., 282 F.2d 34, 38-39 (2d Cir.), cert. denied, 364 U.S. 870, 81 S.Ct. 115, 5 L.Ed.2d 93 (1960). In McWeeney, we held that "where the question is one of federal law or the applicable state law is silent," the jury should not be allowed to consider the effect of taxes on earnings. Id. at 39. Writing for the panel, Judge Friendly suggested, however, that in a "limited class of cases" involving high-income earners whose earnings would have been largely consumed by income taxes, "the court may properly give some charge or, perhaps better, use the tools provided by Fed.R.Civ.Proc. 49," and set aside an excessive verdict. Id. at 38. From this dictum, and in spite of the fact that the applicable state law is not silent, defendants seek to extrapolate what they call the "McWeeney high-income earner exception rule".

We need not address whether this "rule" actually existed, or, if it did, whether it survived Vasina and Woodling, because, while this appeal was pending, the New York State Court of Appeals decided two cases that clarify New York's position on both the evidentiary and jury instruction issues. In Johnson v. Manhattan & Bronx Surface Transit Operating Auth., 71 N.Y.2d 198, 206, 524 N.Y.S.2d 415, 519 N.E.2d 326 (1988), the court held "that without express statutory direction to the contrary, the damages component of a plaintiff's award should be based on gross projected earnings and no deduction or consideration of after-tax net income should be allowed into evidence or charged to the jury." In Lanzano v. City of New York, 71 N.Y.2d 208, 210, 524 N.Y.S.2d 420, 519 N.E.2d 331 (1988), the court held there was no error when the trial court instructed the jury that the damages award would not be subject to taxation and that the jury should not consider tax consequences when it calculated damages. The court further "express[ed the] preference that the charge state a specific direction not to add or subtract from an award because of the non-taxability of the award." Id. at 213, 524 N.Y.S.2d 420, 519 N.E.2d 331.

Because the Johnson language leaves no unresolved area in which a "McWeeney rule" might operate, it is now abundantly clear that under New York law the calculation of plaintiff's damages must be made as if taxes did not exist.

Defendants argue further, however, that Judge Goettel erred in allowing plaintiff's expert economist, Dr. Martin, to use data based on net earnings, obtained from the Bureau of Labor Statistics, as a basis for calculating McKee's personal living expenses. At oral argument defendants suggested that if the tax-free world of Johnson did apply to this case, then it rendered Dr. Martin's testimony, one part of which relied on after-tax income, inadmissible as a matter of law. We do not believe that such a result is required or anticipated by Johnson.

New York's rule reflects a policy choice made for reasons that are, perhaps, best understood by its own legislators and judges. However desirable may be New York's fictional tax-free world when calculating lost hypothetical future income, such a fiction nevertheless collides harshly with the real world when we seek to determine, in the context of a wrongful death suit, the amount of income a decedent actually spent on himself. While the calculation of damages based on future lost wages is necessarily theoretical and prospective, one of its factors, the amount of decedent's personal expenditures, is based on historical fact that cannot be calculated accurately without reference to past realities, including the realities of income taxes. Determining damages is a difficult enough task; juries should not also be required to speculate as to how...