Cowden v. BNSF Ry. Co.

• Decision Date: 07 July 2014
• Docket Number: No. 4:08CV01534 ERW,4:08CV01534 ERW
• Parties: KEVIN D. COWDEN, Plaintiff, v. BNSF RAILWAY COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

KEVIN D. COWDEN, Plaintiff, v. BNSF RAILWAY COMPANY, Defendant.

No. 4:08CV01534 ERW

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

Dated: July 7, 2014

MEMORANDUM AND ORDER

This matter comes before the Court on Defendant BNSF Railway Company's Motion for an Order Showing Satisfaction of Judgment [ECF No. 271].

I. BACKGROUND

This suit arises out of injuries Plaintiff Kevin D. Cowden sustained while riding in a locomotive owned and operated by Defendant BNSF Railway Company, Plaintiff's former employer. On January 14, 2008, Plaintiff, in the course of performing his job duties, was traveling in one of Defendant's locomotives in Golden City, Missouri. The portion of track on which Plaintiff traveled was subject to a "slow order," setting the maximum speed for passing trains at forty miles per hour. Defendant's business records list "tie conditions" as the reason for the slow order, and Defendant had previously placed the section of track under slow orders due to "rough track" and "washouts." Plaintiff alleged that, on the day in question, the train encountered a rough section of track and "bottomed out," throwing him into the air and causing him to land with a significant impact, resulting in injuries to his back and neck. Plaintiff filed a Complaint, asserting Defendant violated the Federal Employers' Liability Act (FELA) by failing to provide a reasonably safe working environment.

In November 2013, the matter proceeded to trial. At the conclusion of the evidence, the jury was instructed, inter alia, to consider the following elements of damages:

1. The physical pain and emotional suffering the plaintiff has experienced and is reasonably certain to experience in the future; the nature and extent of the injury, whether the injury is temporary or permanent and whether any resulting disability is partial or total, including any aggravation of a pre-existing condition;

2. Plaintiff's unpaid medical expenses;

3. The earnings the plaintiff has lost to date and the present value of earnings and earning capacity the plaintiff is reasonably certain to lose in the future;

4. The reasonable value of household services which the plaintiff has been unable to perform for himself to date and the present value of household services the plaintiff is reasonably certain to be unable to perform for himself in the future; and,

5. Any scars and disfigurement.

ECF No. 241 at 14. On November 8, 2013, a jury returned a verdict in favor of Plaintiff in the amount of $1,671,253.90. The Court entered judgment on the verdict. On January 3, 2014, the Court awarded Plaintiff $7,870.65 in costs. As of February 11, 2014, the parties agreed the amount of $1,659,617.19 represented the judgment, costs, and post-judgment interest, minus $19,983.00, representing an agreed-upon lien of Railroad Retirement Board (RRB) benefits. Plaintiff filed an Acknowledgement of Partial Satisfaction of Judgment [ECF No. 269], notifying the Court that Defendant had tendered $1,611,061.21, leaving $48,556.47 disputed by the parties. To obtain satisfaction of this latter amount, Plaintiff requested a Writ of Garnishment upon Defendant's bank account, which the Court issued on February 20, 2014.

On February 27, 2014, Defendant filed BNSF's Motion for an Order Showing Satisfaction of Judgment [ECF No. 271] under Federal Rule of Civil Procedure (FRCP)60(b)(5),¹ arguing it has satisfied the judgment in full by tendering $1,611,061.21, and properly withheld $48,556.47 for payroll taxes applicable to the judgment and tendered to the United States Treasury.

On March 5, 2014, Defendant filed a Motion to Quash or Stay Execution of the Writ of Garnishment [ECF No. 275], asking this Court to either quash the Writ of Garnishment, or stay its execution pending disposition of the instant Motion. Plaintiff did not object to the latter option, and the Court therefore stayed the Writ of Garnishment on March 12, 2014. The parties have now fully briefed their arguments regarding the disputed $48,556.47, and the Court turns to address Defendant's Motion for an Order Showing Satisfaction of Judgment.

II. DISCUSSION

The issues in Defendant's pending Motion are intertwined with two statutory bodies of law: the Railroad Retirement Act (RRA) and the Railroad Retirement Tax Act (RRTA). The RRA, 45 U.S.C. § 231 et seq., applies to railroad companies and their employees, and is administered by the RRB. 45 U.S.C. § 231f. The RRA provides railroad employees with benefits analogous to social security benefits.² Fountain v. RRB, 88 F.3d 528, 530 (8th Cir. 1996) (analogizing RRB regulations to social security regulations); Duckworth v. Allianz Life Ins. Co. of N. Am., 706 F.3d 1338, 1344 (11th Cir. 2013) ("The provisions of the [RRA] are so closely analogous to those of the Social Security Act that regulations and cases interpreting the latter are applicable to the former.") (internal quotations omitted).

The RRTA, 26 U.S.C. § 3201 et seq., is a subsection of the Internal Revenue Code (IRC). Retirement benefits paid through the RRA are funded through the RRTA. Hance v. Norfolk So.Ry. Co., 571 F.3d 511, 522 (6th Cir. 2009). Under the RRTA, taxes are imposed on compensation earned by railroad employees. 26 U.S.C. § 3201(a)-(b). The RRTA implements a dual tax system, in which railroad employers must withhold their tax shares, as well as their employees' tax shares, and then provide both shares to the Internal Revenue Service (IRS). Id. The first part of this dual system is "Tier 1." 26 U.S.C. §§ 3201(a), 3221(a). Tier 1 taxes are imposed against both railroad employee and railroad employer. 26 U.S.C. §§ 3201(a), 3221(a). They are analogous to taxes imposed on nonrailroad workers by the Federal Insurance Contributions Act (FICA). BNSF Ry. Co. v. U.S., 745 F.3d 774, 780 (5th Cir. 2014). The second part of the dual system, "Tier 2," also imposes taxes against both railroad employee and railroad employer. 26 U.S.C. §§ 3201(b), 3221(b). "[Tier 2] benefits are similar to those that workers would receive from a private multi-employer pension fund." Hance, 571 F.3d at 522. RRTA taxes also include certain Medicare withholdings.

Broadly speaking, the controversy in this Motion is rooted in the following RRTA language: "there is . . . imposed on the income of each employee a tax equal to the applicable percentage of the compensation received during any calendar year by such employee for services rendered by such employee." 26 U.S.C. § 3201(a)-(b). The issue currently before the Court is whether, pursuant to this language, a general FELA verdict is subject to such taxation. In recent months, courts have struggled to find ways to resolve this question, which has newly surfaced after a history of dormancy. That is, "[i]t has long been assumed (although no reported decision specifically addressed the issue) that damages received on account of physical injury were not subject to RRTA tax." Jeffrey R. White, The Taxman Cometh . . . To Your FELA Judgment, Trial, Apr. 2014, at 16, 18. Without any conclusive statutory authority or case law, courts have applied varying analyses to resolve this issue; notwithstanding the lack of uniformity in theirreasoning, courts have generally reached the same result: FELA verdicts are subject to RRTA taxation.

As explained infra, however, this Court cannot agree. Having conducted an extensive examination of relevant statutes, regulations, and cases - including authorities examining analogous FICA provisions - the Court simply cannot conclude Congress intended to tax personal injury judgments under the RRTA. Court has come to this decision by answering three pertinent questions, including (1) whether "compensation" under the RRTA includes an award of lost pay; (2) if so, whether Plaintiff's award is subject to any exclusions from taxation; and (3) if Plaintiff's award is subject to RRTA taxation, what portion of the award is taxed.

A. Definition of "Compensation" under the RRTA

The first question before the Court is whether an award for lost pay is subject to RRTA taxation. Defendant argues Plaintiff's verdict is subject to RRTA payroll taxes, because it qualifies as "compensation" under § 3201 of the RRTA. In support of this argument, Defendant relies on both RRA and RRTA provisions. First, Defendant contends, under the RRA, "compensation" includes "pay for time lost." 20 C.F.R. § 211.2(b)(2). Defendant states payments for personal injury, such as Plaintiff's verdict, are included in the definition of "pay for time lost," unless "at the time of payment, a part of such payment is specifically apportioned to factors other than time lost[.]" 45 U.S.C. § 231(h)(2). Aside from these RRA provisions, Defendant states Plaintiff's verdict qualifies as "compensation" under applicable RRTA regulations. Citing 26 C.F.R. § 31.3231(e)-1(a)(3)-(4), Defendant notes,

The term compensation is not confined to amounts paid for active service, but includes amounts paid for an identifiable period during which the employee is absent from the active service of the employer . . . .. . . Compensation includes amounts paid to an employee for loss of earnings during an identifiable period as the result of the displacement of the employee to a less remunerative position or occupation as well as pay for time lost.

Because the RRTA imposes taxes upon "income" equal to a defined percentage of "compensation," 26 U.S.C. § 3201, Defendant concludes Plaintiff's verdict is subject to RRTA taxes.

Plaintiff responds the verdict does not fall within the definition of "compensation" under the RRTA for several reasons. Specifically, Plaintiff states the RRA is separate from the RRTA, and, therefore, "compensation" under the RRA is not identical to "compensation" under the RRTA. Plaintiff also claims, under 26 U.S.C. § 3201, "compensation" must be given "for services rendered." Likewise, 26 U.S.C. § 3231(e)(1) defines "compensation" as "any form of money remuneration paid to an individual for services rendered...