Combs v. Chicago, St. Paul, Minneapolis & Omaha Ry. Co.

• Decision Date: 28 November 1955
• Docket Number: Civ. No. 861.
• Citation: Combs v. Chicago, St. Paul, Minneapolis & Omaha Ry. Co., 135 F. Supp. 750 (N.D. Iowa 1955)
• Parties: Claude W. COMBS, Plaintiff, v. CHICAGO, ST. PAUL, MINNEAPOLIS AND OMAHA RAILWAY COMPANY, a Corporation, Defendant.
• Court: U.S. District Court — Northern District of Iowa

135 F. Supp. 750

Claude W. COMBS, Plaintiff, v.CHICAGO, ST. PAUL, MINNEAPOLIS AND OMAHA RAILWAY COMPANY, a Corporation, Defendant.

Civ. No. 861.

United States District Court N. D. Iowa, W. D.

November 28, 1955.

Raymond Whitmer, Marvin J. Klass, Sioux City, Iowa, for plaintiff.

Harry H. Miller, Frank Jacobs, Sioux City, Iowa, for defendant.

GRAVEN, District Judge.

The plaintiff was a grain inspector in the employ of the Sioux City Grain Exchange.While in the railroad yards of the defendant at Sioux City, Iowa, in connection with his duties as such inspector, he sustained serious injuries as the result of a switching operation.He brought this action against the defendant alleging that his injuries were caused by the negligence of the defendant.The jury returned a substantial verdict in his favor.The defendant filed a motion for a new trial setting forth a number of grounds.One of the grounds is the refusal of the Court to give an instruction requested by it.The defendant made proper and timely request that the jury be instructed that any allowance of damages to the plaintiff would not be subject to income taxes.Iowa has a state income tax and it was the intent of the defendant that the instruction cover both state and federal income taxes.That request was refused.

The plaintiff received a monthly salary as grain inspector.He was unable to work for some period of time following his injuries.Because of his injuries, he has been unable to resume work as a grain inspector.At the time of the trial he was in the employ of the Sioux City Grain Exchange but not as a grain inspector.

There is not involved in the present case the question as to whether in making an award for future impairment of earning capacity of a plaintiff there should be taken into consideration the taxes that would have been imposed upon his earnings if he had been able to continue his occupation or vocation.The Courts seem well agreed that the future tax liability is subject to too many variables to be a matter of consideration in an award for future impairment of earning capacity.See annotation to Billingham v. Hughes, EnglishCourt of Appeal, 19491 K.B. 643, 9 A.L.R.2d 311.See alsoChicago & N. W. Ry. Co. v. Curl, 8 Cir., 1949, 178 F.2d 497, 502, andTexas & N. O. R. Co. v. Pool, Tex. Civ.App.1953, 263 S.W.2d 582.

In the present case it is the view of the defendant that since any award of damages would be in the immediate present and since the status of such award as to nonliability is definite and certain and not the subject of conjecture and speculation that the jury should be so informed.It is also the view of the defendant that because of the emphasis placed on the tax consequences of transactions in view of the existing tax rates the jury might be under the impression that a substantial part of any award it made would be taken for income taxes.

Since the decision of the Missouri Supreme Court in the case of Dempsey v. Thompson, 1952, 363 Mo. 339, 251 S.W.2d 42, there have been increasing requests in actions for the recovery of damages for personal injuries for an instruction similar to that requested in the present case.In that casethe plaintiff, a resident of Arkansas, brought an action in Missouri to recover for personal injuries under the Federal Employers' Liability Act, 45 U.S.C.A. § 51 et seq. A verdict was returned in his favor which on appeal was affirmed.The pertinent contentions of the defendant on that appeal are stated as follows, 251 S.W.2d at page 43:

"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; * * *."

The Missouri Supreme Court had previously held in Hilton v. Thompson, 1950, 360 Mo. 177, 227 S.W.2d 675, that it was not error on the part of the trial Court to refuse to give the defendant's proffered instruction directing the jury to include nothing for federal, state or city taxes.In the case of Dempsey v. Thompson, supra, that Court reconsidered that holding.In this latter case the Court stated, 251 S.W.2d at page 44:

"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. § 22(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."

The Court after discussing a number of cases stated, 251 S.W.2d at page 45:

"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."

The Court held that its ruling should be prospective only and did not reverse the judgment in favor of the plaintiff.

In the case of Texas & N. O. R. Co. v. Pool, Tex.Civ.App.1953, 263 S.W.2d 582, at page 592, the Court stated by way of dictum that it was in accord with the view of the Missouri Supreme Court in Dempsey v. Thompson, supra, that the defendant was entitled upon request to an instruction that any amount awarded the plaintiff would not be subject to federal income tax.However, in the case of Missouri-Kansas-Texas Railroad Co. v. McFerrin, Tex.Civ.App.Austin, 1955, 279 S.W.2d 410, the Court refused to follow Dempsey v. Thompson.That Court in regard to the giving of the instruction in question stated, 279 S.W.2d at page 419:

"It assumes that the jury will not confine itself to the evidence nor the court's charge but will consider and take into account matters not mentioned therein.This is to assume that there will be misconduct on the part of the jury, an assumption in which we cannot indulge. * * *

"There was no necessity for the jury to be informed regarding the income tax law in order to properly answer the damage issues and we believe there was no error in refusing to give the requested charge."

The holding of the Missouri Supreme Court in the case of Dempsey v. Thompson, supra, received temporary support in the case of Hall v. Chicago & N. W. Ry. Co., First Dist., FirstDiv.1953, 349 Ill.App. 175, 110 N.E.2d 654.In that casethe plaintiff brought an action to recover for personal injuries under the Federal Employers' Liability Act.The attorney for the defendant in his argument to the jury stated that any amount recovered...