Bussell v. DeWalt Products Corp.

• Decision Date: 29 January 1987
• Citation: 519 A.2d 1379,105 N.J. 223
• Parties: Guy BUSSELL, Plaintiff-Appellant, v. DeWALT PRODUCTS CORPORATION, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 223

105 N.J. 223

519 A.2d 1379

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

Supreme Court of New Jersey.

Argued Sept. 22, 1986.

Decided Jan. 29, 1987.

Andrew M. Rockman, Trenton, for appellant (Pellettieri, Rabstein and Altman, attorneys; Andrew M. Rockman and E. Elizabeth Sweetser, on the briefs).

Clarkson S. Fisher, Jr., Edison, for respondent (Ober, Kaler, Grimes & Shriver, attorneys).

The opinion of the Court was delivered by

STEIN, J.

This case and Ruff v. Weintraub, 105 N.J. 233, 519 A.2d 1384 (1986), which we also decide today, require the Court to determine whether the effect of federal and state income taxes on personal-injury damage awards may be addressed by expert witnesses or included in the jury charge. The specific issue in this case is whether the trial court must instruct the jury, upon request, that personal-injury damage awards are not subject to federal or state income tax. We agree with the Appellate Division that such an instruction is proper and should be given when requested. 204 N.J.Super. 288, 498 A.2d 787 (1985). However, we conclude that the failure to give an instruction on the taxability of the award in this case was not reversible error. Accordingly, we reverse the judgment of the Appellate Division and reinstate the judgment in favor of plaintiff.

I

On June 27, 1980, plaintiff, Guy Bussell, an employee of the Suburban Fence Company, was operating a radial saw made by defendant, DeWalt Products Corporation. Plaintiff held the wood he was cutting with his left hand. As he drew the saw inward with his right hand, a co-worker bumped his left elbow, pushing his left hand into the saw and severing his thumb and first three fingers.

Bussell filed suit alleging that DeWalt was strictly liable for his injuries. At trial, plaintiff called a number of experts to testify as to damages. An employability expert testified that due to his disability, limited education, and work experience, Bussell was not likely to find employment. He also projected what plaintiff's probable work-life would have been had he not been disabled. Based on this testimony, an economics expert testified about calculations that could be made to determine the lifetime earnings lost to plaintiff as a result of his injuries.

On direct examination, plaintiff's attorney asked the economist if he had adjusted his calculations to take into account the effect of income taxes. The expert testified that he had not, explaining that the computation of future income tax liability would be extremely difficult. He conceded, however, that the gross-wage calculation should be reduced to reflect the likely impact of income taxes, and estimated that a 15 to 20 percent reduction would be appropriate.

Defendant's attorney did not specifically object to the testimony regarding gross wages and did not explore this point further on cross-examination. He did, however, move to have the entire testimony of the economist stricken as speculative. That motion was denied.

Before the trial court instructed the jury, defense counsel requested that the following charge be given:

If you arrive at a verdict under the court's charge in favor of plaintiffs, you will not add any sum of money to the amount of the verdict on account of federal or state income taxes, since the amount awarded to a plaintiff by your verdict is not taxable income to the plaintiff within the meaning of these tax laws.

In response to the concern of plaintiff's attorney that the requested charge could prompt the jury to reduce its verdict, the trial court agreed to give a general charge on the nontaxability of personal-injury awards but not the specific charge requested by the defendant.

However, when the jury was charged, no instruction was given as to the taxability of the verdict. Defense counsel brought this omission to the court's attention. The trial court then gave a supplemental charge to the jury but again omitted the instruction that personal-injury damage awards are not taxable. Defense counsel did not raise the issue again.

The jury returned a verdict for plaintiff of $600,000. On appeal, the Appellate Division held that a jury must be instructed upon request that personal-injury damage awards are not subject to federal and state income tax. 204 N.J.Super. at 293, 498 A.2d 787. The court found that the failure to give the instruction in this case was "clearly capable of producing an unjust result," and remanded the case for a new trial on damages. Id. at 294, 498 A.2d 787.

II

The Internal Revenue Code, 26 U.S.C. § 104(a)(2), excludes from gross income "the amount of any damages received * * * on account of personal injuries or sickness." The New Jersey Gross Income Tax Act, N.J.S.A. 54A:6-6, also excludes from gross income damages for personal injury or sickness. The reason advanced for instructing juries regarding these provisions is that while juries are conscious of taxes, they are generally not aware that damage awards are exempt from taxation. Thus, they may be inclined to increase their verdicts on the mistaken assumption that the award will be subject to taxes. See Domeracki v. Humble Oil, 443 F.2d 1245 (3d Cir.), cert. denied, 404 U.S. 883, 92 S.Ct. 212, 30 L.Ed.2d 165 (1971). It is therefore urged that an instruction be given to avoid improperly inflated damage awards.

In determining that such an instruction is proper, our analysis is guided by the basic principle that the goal in setting damages is to compensate the plaintiff fairly and accurately for his losses. See Tenore v. Nu Car Carriers, 67 N.J. 466, 477, 341 A.2d 613 (1975); New Jersey Power & Light Co. v. Mabee, 41 N.J. 439, 441, 197 A.2d 194 (1964); Deemer v. Silk City Textile Mach. Co., 193 N.J.Super. 643, 651, 475 A.2d 648 (App.Div.1984). We recognize that precision is unattainable, but we are convinced that fair and accurate verdicts are more likely to result when the instructions to the jury are clear and complete.

The plaintiff argues that an instruction on taxability, rather than clarifying the factors to consider in computing damages, will only confuse the jury and lead to unwarranted speculation. This position is not without support. See, e.g., Gorham v. Farmington Motor Inn, 159 Conn. 576, 271 A.2d 94 (1970); Henninger v. Southern Pac. Co., 250 Cal.App.2d 872, 59 Cal.Rptr. 76 (1st Dist.1967); Hall v. Chicago & Northwestern R.R. Co., 5 Ill.2d 135, 125 N.E.2d 77 (1955); Annotation, "Propriety of taking income tax into consideration in fixing damages in personal injury or death action," 16 A.L.R. 4th 589 (1982).

We find this argument unpersuasive. As the Third Circuit explained in Domeracki v. Humble Oil, supra, 443 F.2d at 1251 The instruction requested * * * would not require the introduction of any additional evidence. No reference to any IRS regulation or to any specific statute would be necessary. No tax expert would need be summoned as a witness. No tax tables would be hauled into the courtroom. No additional computation would be required. In brief, such an instruction would not open the trial to matters irrelevant to traditional issues in personal injury litigation, and thus would in no way complicate the case or confuse the jury.

This view is consistent with our previous decision in Tenore v. Nu Car Carriers, supra, 67 N.J. at 493, 341 A.2d 613. In Tenore, we examined the propriety of an instruction on the nontaxability of a damage award in a wrongful-death action. We found that a general instruction on the tax exemption for damage awards is proper because it "imposes no new burden on the jury and there is nothing speculative about it." Id. at 489, 341 A.2d 613 (quoting McWeeney v. New York, N.H. & H.R.R., 282 F.2d 34, 39 (2d Cir.), cert. denied, 364 U.S. 870, 81 S.Ct. 115, 5 L.Ed.2d 93 (1960)). Our holding in Tenore is also consistent with the recent trend in federal law. See Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980); Fanetti v. Hellenic Lines Ltd., 678 F.2d 424 (2d Cir.1982), cert. denied, 463 U.S. 1206, 103 S.Ct. 3535, 77 L.Ed.2d 1387 (1983). Several other states have also adopted this rule. See, e.g., Looft v. Missouri P.R. Co., 104 Ill.App.3d 152, 60 Ill.Dec. 253, 432 N.E.2d 1152 (Ill.App.Ct. 1982); Blanchfield v. Dennis, 292 Md. 319, 438 A.2d 1330 (1982); Abele v. Massi, 273 A.2d 260 (Del.Super.Ct.1970).

Although we specifically limited our holding in Tenore to wrongful-death cases, 67 N.J. 466, 494 n.27, 241 A.2d 613, we agree with the Appellate Division that there is "no reason why the Tenore rule in wrongful-death actions in New Jersey should not also apply in personal injury actions." 204 N.J.Super. at 293, 498 A.2d 787. ¹ We therefore apply our reasoning in Tenore and hold that, when properly requested, the trial court should instruct the jury that damage awards in personal-injury cases are not subject to federal or state income taxes.

Although the precise wording of the instruction will vary, depending on the evidence presented and the circumstances of the case, we concur with the Appellate Division's observation that instructions on taxability should be "brief and easily understood." 204 N.J.Super. at 293, 498 A.2d 787. For example, we note the charge that was approved by the United States Supreme Court in Norfolk & Western Ry. Co. v. Liepelt, supra, 444 U.S. at 492, 498, 100 S.Ct. at 759, 62 L.Ed.2d at 693, 696:

Your award will not be subject to any income taxes, and you should not consider such taxes in fixing the amount of your award.

Because of its clarity and simplicity, the charge upheld in Liepelt is unlikely to confuse a jury, and is therefore preferable to the charge requested in this case.

In sum, we hold that, upon request, the trial court in a personal-injury case should instruct the jury that personal-injury damage awards are not subject to federal or state income taxes. We are confident that such a charge can be given without...