Bussell v. DeWalt Products Corp.

• Decision Date: 08 October 1985
• Parties: Guy BUSSELL, Plaintiff-Respondent, v. DeWALT PRODUCTS CORPORATION, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 288

204 N.J.Super. 288

498 A.2d 787

Guy BUSSELL, Plaintiff-Respondent, v. DeWALT PRODUCTS CORPORATION, Defendant-Appellant.

Superior Court of New Jersey,

Appellate Division.

Submitted Sept. 11, 1985.

Decided Oct. 8, 1985.

Evans, Koelzer, Osborne & Kreizman, Red Bank, attorneys for appellant (Clarkson S. Fisher, Jr., Red Bank, on briefs).

Pellettieri, Rabstein & Altman, Trenton, attorneys for respondent (Andrew M. Rockman, Trenton, of counsel; Bruce H. Stern, Trenton, on brief).

Before Judges KING, SIMPSON and SCALERA.

The opinion of the court was delivered by

SIMPSON, J.A.D.

In this product liability personal injury action, defendant saw manufacturer appeals from a $792,000 judgment entered upon a jury verdict on liability and damages, and denial of its motions for judgment notwithstanding the verdict, a new trial, and remittitur. On June 27, 1980 plaintiff, then age 19, was working for Suburban Fence Company. He was operating a radial saw manufactured by defendant and making dog ears for fence posts. A co-employee bumped his left arm, causing his left hand to go into the saw and resulting in amputation of the thumb and first three fingers of his left hand. Plaintiff sued the manufacturer on a theory of strict liability in tort alleging that the saw was defective when made and sold because it lacked a lower blade guard.

On the liability issue there was a conflict of expert testimony. Medical bills were stipulated as reasonable and necessary in the amount of $24,543.29. A psychiatrist, hand injury specialist, employability expert, and economist supported plaintiff's claims as to pain and suffering, permanent disability, and future loss of income. Defendant produced no witnesses as to damages and relied solely on cross-examination and legal argument. The contentions on appeal are that:

(1) The verdict as to causation was against the weight of the evidence.

(2) The economic testimony as to future loss of earnings was pure speculation.

(3) The economic testimony as to (2) should have been stricken because it did not address the tax consequences of an award for lost earnings.

(4) The verdict was excessive.

(5) The trial court failed to charge the jury that an award would not be subject to income taxes.

I

The scope and standard of our review of the denial of defendant's motions is essentially similar to the standard governing the trial judge as to jury verdict review, viz: There should be no reversal unless it clearly appears that there was a miscarriage of justice under the law. R. 2:10-1; Dolson v. Anastasia, 55 N.J. 2, 6-8, 258 A.2d 706 (1969); Carrino v. Novotny, 78 N.J. 355, 360, 396 A.2d 561 (1979); Baxter v. Fairmont Food Co., 74 N.J. 588, 595-601, 379 A.2d 225 (1977). We have carefully reviewed the record and the arguments in support of defendant's contentions (1) through (3) and are satisfied that the evidence in support of the jury verdict is not insufficient, the denial of the motions by the trial court did not constitute a manifest denial of justice, and all issues of law raised are clearly without merit. R. 2:11-3(e)(1)(B), (C) and (E).

II

Contentions (4) and (5) are interrelated and in our view there was trial error as to (5) of such a magnitude as to require a new trial as to damages. At the charge conference the judge indicated he would advise the jury that a damages award would not be taxable, and both counsel agreed. This is correct under the Internal Revenue Code as to federal income tax, 26 U.S.C.A. § 104(a)(2) and as to the New Jersey Gross Income Tax, N.J.S.A. 54A:6-6b. Unfortunately, the judge forgot to so advise the jury and defense counsel immediately requested such a supplemental instruction. Although there was a supplemental charge on some other points, the judge again failed to advise the jury that any award would be free of income taxes. Under these circumstances there are two issues for resolution: (A) whether such a charge should be given at all; and if so, (B) whether the omission was clearly capable of producing an unjust result.

(A)

In Tenore v. Nu Car Carriers, 67 N.J. 466, 495, 341 A.2d 613 (1975), the New Jersey Supreme Court held that in wrongful death act cases a jury must be instructed that a pecuniary loss award (which includes a deceased's projected net income after taxes) is not subject to income taxation. After thoroughly reviewing conflicting opinions on the subject, Justice Pashman explained that:

As we have pointed out above, there is a sound purpose in having the court instruct the jury that a damage award is not subject to income taxation itself. This is to prevent a jury which might think otherwise from improperly increasing the verdict to protect plaintiff from the impact of such taxes. [Id. at 495, 341 A.2d 613.]

In footnote 27 on page 494, 341 A.2d 613, however, the Tenore court specifically limited this decision to recovery under the wrongful death act and found it unnecessary to comment upon Scalise v. Central R. R., 129 N.J.Super. 303, 306-307, 323 A.2d 525 (App.Div.1974) that held it would be improper in a Federal Employers' Liability Act (FELA) personal injury action to instruct a jury that an award would not be subject to federal income taxation. Scalise specifically declined to follow the contrary holding in Domeracki v. Humble Oil, 443 F.2d 1245 (3rd Cir.1971), cert. den. 404 U.S. 883, 92 S.Ct. 212, 30 L.Ed.2d 165 (1971) and noted the then conflict among the Federal Circuit Courts of Appeals. Since that time, however, the United States Supreme Court has expressly approved the rule of Domeracki and held it is error in FELA cases to refuse to instruct a jury that personal injury awards are exempt from federal income taxes. Norfolk & Western R.R. Co. v. Liepelt, 444 U.S. 490, 497, 100 S.Ct. 755, 759, 62 L.Ed.2d 689, 695-696 (1980). The rationale of the United States Supreme Court is that today's tax-conscious juries may mistakenly assume that the award will be taxable and inflate the recovery to compensate for same. There is an increased risk of such overcompensation error in New Jersey where lottery and casino jackpot winnings are frequently reported in the public media with mention of federal withholding tax deductions therefrom. Although many jurisdictions uphold the refusal of trial courts to instruct a jury that personal injury and wrongful death action awards are not taxable, ¹ we see no reason why the Tenore rule in wrongful death actions in New Jersey should not also apply in personal injury actions. Furthermore, as stated in Liepelt, supra, 444 U.S. at 498, 100 S.Ct. at 759-760, 62 L.Ed.2d at 696, such an instruction is brief and easily understood, is not prejudicial to either party, and will "merely eliminate an area of doubt or speculation that might have an improper impact on the computation of the amount of damages." We hold that in personal injury actions a jury must be instructed, upon request, that a damages award is not subject to federal income tax or New Jersey gross income tax.

(B)

The $792,000 judgment in this case represents the jury verdict of $600,000 and 32% prejudgment interest thereon from the July 8, 1981 filing of the complaint to the March 21, 1984 entry of judgment pursuant to R. 4:42-11(b). Post-judgment interest continues to accrue under R. 4:42-11(a) at 1%, or $6,000, per month. Generally, large gambling winnings and state-conducted lottery proceeds are subject to 20% federal income tax withholding under the Internal Revenue Code, 26 U.S.C.A. § 3402(q). In projecting plaintiff's estimated future income losses due to his disability, his economist reluctantly estimated a "tax bite" of "somewhere between 15 and 20 percent." Although this testimony did not directly relate to the actual non-taxability of the lump-sum...