Culver v. Slater Boat Co.

• Decision Date: 22 December 1983
• Docket Number: Nos. 79-3985,78-3064,s. 79-3985
• Citation: 722 F.2d 114
• Parties: Ruth CULVER, et al., Plaintiffs-Appellants Cross-Appellees, v. SLATER BOAT CO., et al., Defendants-Appellees Cross-Appellants, EUROPIRATES INTERNATIONAL, INC., et al., Defendants-Appellees and Cross-Appellees-Appellants, v. ODECO DRILLING, et al., Defendants-Appellees Cross-Appellants. Willie Mae BYRD, As Administratrix of the Estate of Lawrence Byrd, deceased, Plaintiff-Appellant Cross-Appellee, v. Heinrich Schmidt REEDEREI, Defendant-Appellee Cross-Appellant. . *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 114

722 F.2d 114

1984 A.M.C. 792

Ruth CULVER, et al., Plaintiffs-Appellants Cross-Appellees, v. SLATER BOAT CO., et al., Defendants-Appellees Cross-Appellants, EUROPIRATES INTERNATIONAL, INC., et al., Defendants-Appellees and Cross-Appellees-Appellants, v. ODECO DRILLING, et al., Defendants-Appellees Cross-Appellants.

Willie Mae BYRD, As Administratrix of the Estate of Lawrence

Byrd, deceased, Plaintiff-Appellant Cross-Appellee, v. Heinrich Schmidt REEDEREI, Defendant-Appellee Cross-Appellant.

Nos. 79-3985, 78-3064.

United States Court of Appeals Fifth Circuit. ^*

Dec. 22, 1983.

W. James Kronzer, W.W. Watkins, Houston, Tex., Frederick J. Gisevius, Jr., New Orleans, La., for Ruth Culver et al.

Leonard Fuhrer, Alexandria, La., for amicus curiae Louis Ober.

Richmond M. Eustis, New Orleans, La., for Slater Enterprises, Europirates, etc.

Drury, Lozes & Curry, Felicien P. Lozes, New Orleans, La., for Gulf Overseas Ser. Corp.

J. Walter Ward, New Orleans, La., for Ocean Drilling.

Mat M. Gray, III, New Orleans, La., for St. Paul Fire.

Joel D. Eaton, Walter H. Beckham, Jr., Miami, Fla., Roger Vaughan, Wagner, Cunning, Vaughan & Genders, Tampa, Fla., for Willie Mae Byrd.

Fowler, White, Gillen, Boggs, Villareal & Banker, Nathaniel G.W. Pieper, Dewey R. Villareal, Jr., Tampa, Fla., for Heinrich Schmidt Reederei.

Appeals from the United States District Court for the Eastern District of Louisiana.

Appeals from the United States District Court for the Middle District of Florida.

ON PETITIONS FOR REHEARING

Before GODBOLD, Chief Judge, BROWN, CHARLES CLARK, RONEY, GEE, TJOFLAT, HILL, FAY, RUBIN, VANCE, KRAVITCH, FRANK M. JOHNSON, JR., HENDERSON, REAVLEY, POLITZ, HATCHETT, ANDERSON, RANDALL, TATE, SAM D. JOHNSON, THOMAS A. CLARK and WILLIAMS, Circuit Judges. ^**

ALVIN B. RUBIN and FRANK M. JOHNSON, Jr., Circuit Judges:

In Johnson v. Penrod Drilling Co., 510 F.2d 234 (5th Cir.) (en banc), cert. denied, 423 U.S. 839, 96 S.Ct. 68-69, 46 L.Ed.2d 58 (1975), this court held that juries "should not be instructed to take into account future inflationary or deflationary trends in computing lost earnings ..." Id. at 241. Reviewing that decision in our first en banc consideration of these two cases, we overruled Penrod and held admissible evidence of inflation's probable effect on damage awards. Culver v. Slater Boat Co., 688 F.2d 280 (5th Cir.1982) (en banc) (Culver I). Concluding that the jury should resolve the issue on a case-by-case basis, we disclaimed any intention to establish a "single method" for considering future economic conditions. Id. at 299 n. 23. Instead, we discussed several permissible methods the district courts and parties could use. Id. at 305-06.

While we were considering an application for rehearing in Culver I, the Supreme Court decided Jones & Laughlin Steel Corp. v. Pfeifer, --- U.S. ----, 103 S.Ct. 2541, 76 L.Ed.2d 768 (1983). The Court's opinion in Pfeifer cites Culver I and confirms our holding that the fact-finder should consider inflation in determining an appropriate damage award. The Court's opinion also emphasizes, however, a fundamental point that we did not fully consider in Culver I: that courts must not allow the adjustment for inflation to convert " '[t]he average accident trial ... into a graduate seminar on economic forecasting.' " ¹

Reconsideration of Culver I in light of Pfeifer has convinced us that our failure to identify a single method as the one trial courts should use in adjusting damage awards for inflation, particularly in jury trials, would extend an invitation to litigants to engage in just such a seminar. We, therefore, withdraw the opinion in Culver I insofar as it goes beyond overruling Johnson, and hold that, in the absence of a stipulation by the parties concerning the method to be used, fact-finders shall determine and apply an appropriate below-market discount rate as the sole method to adjust loss-of-future-earnings awards to present value to account for the effect of inflation. While expert testimony and jury instructions must be based on this method, juries may be instructed either to return a general verdict or to answer special interrogatories concerning the computation of damages.

I.

The calculation of damages suffered either by a person whose personal injuries will result in extended future disability or by the representatives of a deceased person involves four steps: estimating the loss of work life resulting from the injury or death, calculating the lost income stream, computing the total damage, and discounting that amount to its present value.

In Pfeifer the Court recognized, as we did in Culver I, that calculation of the lost income stream begins with the gross earnings of the injured party at the time of injury. ² To this amount other income incidental to work, such as fringe benefits, should be added. From it, the fact-finder should subtract amounts the wage earner would have been required to pay, such as income tax and work expenses. ³

Even in a non-inflationary economy, earnings of a worker "tend to inflate" from the operation of a number of factors, "some linked to the specific individual and some linked to broader societal forces." ⁴ The operation of both kinds of influences should be considered to reach the first stage in calculating an appropriate award, an estimate of what the lost stream of income would have been "as a series of after-tax payments, one in each year of the worker's expected remaining career." ⁵

A lump-sum award may be invested in a wide variety of securities, yielding varying rates dependent in part on their relative safety. Both Pfeifer and Culver I require that rate to be based on the return available from "the best and safest investments," ⁶ and to be computed after considering the effect of income tax on the interest received. ⁷

The rate of interest available even on the safest investments varies depending on the time at which the investment matures. Therefore, in computing the rate to be used, it is essential to determine how the award will be invested. In Pfeifer, the Court recognized that the plaintiff might invest the award "exclusively in safe short-term notes, reinvesting them at the new market rate whenever they mature," or in "a mixture of safe short-term, medium-term, and long-term bonds, with one scheduled to mature each year of his expected worklife." It then stated, "We perceive no intrinsic reason to prefer one assumption over the other." ⁸

Inflation, which has been a permanent fixture in our economy for many decades, affects both the income stream and the market interest rate. In this opinion, we consider only the method of taking general economic inflation into account. In accomplishing this, as we said in Culver I, "[t]he goal is not ... to protect the lump-sum award from the effect of inflation." It is, instead, "to assure the plaintiff the equivalent of the total of all of his future wages," including those earnings likely to be affected by inflation. ⁹

As the Court noted in Pfeifer, three methods are available for adjusting damage awards to account for the effect of inflation. In the case-by-case method, the fact-finder is asked to predict all of the wage increases a plaintiff would have received during each year that he could have been expected to work, but for his injury, including those attributable to price inflation. This prediction allows the fact-finder to compute the income stream the plaintiff has lost because of his disability. The fact-finder then discounts that income stream to present value, using the estimated after-tax market interest rate, and the resulting figure is awarded to the plaintiff. ¹⁰

In the below-market-discount method, the fact-finder does not attempt to predict the wage increases the particular plaintiff would have received as a result of price inflation. Instead, the trier of fact estimates the wage increases the plaintiff would have received each year as a result of all factors other than inflation. The resulting income stream is discounted by a below-market discount rate. This discount rate represents the estimated market interest rate, adjusted for the effect of any income tax, and then offset by the estimated rate of general future price inflation. ¹¹

The third method is the "total-offset" method. In this calculation, future wage increases, including the effects of future price inflation, are legally presumed to offset exactly the interest a plaintiff would earn by investing the lump-sum damage award. Therefore, the fact-finder using this method awards the plaintiff the amount it estimates he would have earned, and neither discounts the award nor adjusts it for inflation. ¹²

II.

The Culver I opinion would have permitted the parties to pursue any of these methods in order to demonstrate to the fact-finder what adjustment, if any, should be made to compensate for increases in the plaintiff's future wages due to the economic factors summed up by the term inflation. Indeed, we endorsed the first method, involving specific forecasts of inflation's effect on a particular plaintiff's wages, as "simpler and more accurate" than the below-market discount approaches. ¹³

The procedures necessary to determine the impact of future price inflation on a particular plaintiff on a year-by-year basis are complex and time consuming. Elaborate expert testimony is required. The battle of economic experts is apt to shift the trial's emphasis from the determination of liability and the estimation of basic damages into the formulation of predictions concerning the national, indeed, global, economic future, including the likelihood of future increases or decreases in oil prices and the stability of foreign governments. Under Culver I, defendants were free not only to controvert the plaintiffs' damage calculations; they could also dispute the validity of the method by which the plaintiffs' experts calculated damages. If such a dispute evolved, the fact-finder would be...