Geris v. Burlington Northern, Inc.

• Decision Date: 03 March 1977
• Citation: 561 P.2d 174,277 Or. 381
• Parties: Douglas J. GERIS, Respondent, v. BURLINGTON NORTHERN, INC., a Delaware Corporation, Appellant.
• Court: Oregon Supreme Court

Page 174

561 P.2d 174

277 Or. 381

Douglas J. GERIS, Respondent, v. BURLINGTON NORTHERN, INC., a Delaware Corporation, Appellant.

Supreme Court of Oregon.

Argued and Submitted Oct. 4, 1976.

Decided March 3, 1977.

Delbert W. Johnson, Portland, argued the cause for appellant. With him on the briefs was Roger J. Crosby, Portland.

George M. Joseph, Portland, argued the cause for respondent. With him on the brief were Carlton R. Reiter and Zig I. Zakovics, of Reiter, Bricker & Zakovics, P.C., Portland.

Before DENECKE, C.J., and HOLMAN, TONGUE, HOWELL, BRYSON and SLOPER, JJ.

HOWELL, Justice.

This is an action which was brought in two counts under the Federal Employers' Liability Act ¹ and the Safety Appliance Act ² for personal injuries which plaintiff sustained while employed by the defendant railroad. The substance of both counts related to an allegedly defective hand brake on one of defendant's cars. Plaintiff was injured when he fell between two moving cars while attempting to release the hand brake. A wheel passed over him, resulting in the amputation of his right leg at the hip and the fracture of his left leg.

The jury returned a verdict for plaintiff in the amount of $751,000, and judgment was entered thereon. On appeal, defendant contends that the trial court erred in failing to grant a remittitur of a portion of the jury's award. ³ Defendant also assigns as error the trial court's refusal to allow evidence of the impact of income taxes to be considered in computing plaintiff's loss of earning capacity, as well as the court's refusal to instruct the jury that plaintiff's award would not be subject to taxation. Finally, defendant contends that the court erred (1) in its instructions relating to defendant's duty under the Safety Appliance Act, (2) in refusing to instruct the jury that punitive damages were not recoverable, and (3) in submitting confusing special interrogatories to the jury.

In cases arising under federal law, such as the Federal Employers' Liability Act and the Safety Appliance Act, state courts are bound to follow federal substantive law but are free to follow their own practices as to matters which are strictly procedural. See, e.g., McMahan v. States Steamship, 256 Or. 554, 474 P.2d 515 (1970), Cert. denied 401 U.S. 956, 91 S.Ct. 977, 28 L.Ed.2d 239 (1971); Hust v. Moore-McCormick Lines, Inc., 180 Or. 409, 177 P.2d 429 (1947).

The decision on remittitur is initially committed to the discretion of the trial court, and that court's ruling will not be reversed on appeal unless this court is persuaded that there was a clear abuse of discretion. Oliver v. Burlington Northern, 271 Or. 214, 531 P.2d 272 (1975); McMahan v. States Steamship, supra. See also Staples v. Union Pacific R.R. Co., 265 Or. 153, 155, 508 P.2d 426, 427 (1973):

'* * * (T)he trial court will not be reversed for denying remittitur unless the appellate court is of the opinion that the amount of the verdict is 'outrageous,' 'shocking' or 'monstrous.' * * *.'

We have considered the evidence relating to both the extent of plaintiff's injuries and the impairment of his earning capacity. Suffice it to say that we do not feel that the verdict in this case meets the test outlined above. The record indicates that the trial court applied the correct standard in ruling on defendant's motion, and we find no abuse of its discretion in this case.

A more difficult problem is presented by defendant's arguments that the trial court erred in refusing to admit evidence of the effect of income taxes on plaintiff's earning capacity and in refusing to instruct the jury that their award would not be subject to federal income taxes. Although these arguments are related, they involve issues which are analytically distinct, and we will treat them separately.

Defendant sought to elicit testimony relating to the effect of taxation on plaintiff's damages during the cross-examination of plaintiff's expert economist. Plaintiff objected, and the objection was sustained. Although defendant did not point out the legal basis for his offer of proof for the benefit of the trial court, plaintiff stipulated that the offer of proof was sufficient, and, therefore, we will consider it on appeal.

Whether future income taxation should be taken into account in calculating plaintiff's probable future earnings which will be lost as a result of defendant's conduct is a substantive question on which federal law is controlling in cases like this one. Burlington Northern, Inc. v. Boxberger, 529 F.2d 284, 289 (9th Cir. 1975). See also McMahan v. States Steamship, supra; Hust v. Moore-McCormick Lines, Inc., supra. When federal substantive issues arise in state courts, United States Supreme Court procedents are, of course, controlling. See Pooschke v. U.P. Railroad, 246 Or. 633, 426 P.2d 866 (1967). See also United States ex rel. Lawrence v. Woods, 432 F.2d 1072, 1075--76 (7th Cir. 1970). However, since there are no Supreme Court decisions which have discussed the issue which is now before us, we have considered the matter thoroughly and carefully reviewed the decisions of the lower federal courts. ⁴ It is clear from our review of these decisions that the prevailing federal rule is that which was first articulated by Justice Friendly in McWeeney v. New York, N.H. & H.R.R., 282 F.2d 34 (2d Cir). Cert. denied 364 U.S. 870, 81 S.Ct. 115, 5 L.Ed.2d 93 (1960), and which has been further delineated in Petition of Marina Mercante Nicaraguense, S.A., 364 F.2d 118 (2d Cir. 1966), Cert. denied 364 U.S. 1005, 87 S.Ct. 710, 17 L.Ed.2d 544 (1967); LeRoy v. Sabena Belgian World Airlines, 344 F.2d 266 (2d Cir.), Cert. denied 382 U.S. 878, 86 S.Ct. 161, 15 L.Ed.2d 119 (1965); and Montellier v. United States, 315 F.2d 180 (2d Cir. 1963).

The McWeeney rule is a flexible one. That court held that income taxes should not be deducted in 'the great mass of litigation at the lower or middle reach of the income scale,' but that 'at the opposite end of the income spectrum,' failure to deduct for taxes could result in an award which 'would be plainly excessive.' 282 F.2d at 38--39. This has been interpreted to mean that income taxes should be taken into consideration only if the impact of those taxes will have a 'significant and substantial effect in the computation of probable future contributions.' Cox v. Northwest Airlines, Inc., 379 F.2d 893--96 (7th Cir. 1967), Cert. denied 389 U.S. 1044, 88 S.Ct. 788, 19 L.Ed.2d 836 (1968). See also Burlington Northern, Inc. v. Boxberger, supra at 290:

'* * * Thus, in subsequent cases, McWeeney has been interpreted to hold that in cases wherein the injured parties' income is beyond the 'lower or middle reach of the income scale' (282 F.2d at 39), and consequently the proportional impact of future income taxation is quite substantial, it is proper, in the fair calculation of loss of future earnings, that future income taxes be deducted.'

The flexible McWeeney approach has been followed by nearly every other circuit which has considered this issue, and, contrary to defendant's position, no federal court has ever held that evidence of the projected effect of taxes on plaintiff's damages is Always admissible. See, e.g., Blue v. Western Ry. of Alabama, 469 F.2d 487, 496 (5th Cir. 1972), Cert. denied 410 U.S. 956, 93 S.Ct. 1422, 35 L.Ed.2d 688 (1973); Petition of United States Steel Corp., 436 F.2d 1256, 1274 (6th Cir. 1970), Cert. denied 402 U.S. 987, 91 S.Ct. 1649, 29 L.Ed.2d 153 (1971); Cox v. Northwest, supra; Burlington Northern, Inc. v. Boxberger, supra. See also Boston & Maine R.R. v. Talbert, 360 F.2d 286, 291 (1st Cir. 1966) (deduction for taxes not allowable); United States v. Sommers, 351 F.2d 354, 360 (10th Cir. 1965) (a matter for the trial court's discretion); Chicago & N.W. Ry. Co. v. Curl, 178 F.2d 497, 501 (8th Cir. 1949) (evidence of tax effect inadmissible).

Although there is dicta in Boxberger which suggests that evidence of the impact of taxation should be considered in all cases (529 F.2d at 294), the Boxberger court clearly held that the flexible McWeeney rule would be followed in the Ninth Circuit as well:

'* * * In line with the Second Circuit, we hold that in cases wherein the gross earnings in question are beyond 'the lower or middle reach of the income scale,' and consequently 'the impact of income tax has a sigificant and substantial effect in the computation of probable future contributions' to the beneficiaries, both parties should be permitted to introduce evidence of the extent to which future earnings would have been taxed.' 529 F.2d at 294.

Defendant's reliance upon Boxberger in support of a different rule is therefore clearly misplaced.

Many reasons have been advanced to explain why the McWeeney standard must remain flexible. The computations involved and the various assumptions to be considered are extremely complex. Present progressive tax rates may be projected into the future, but they cannot realistically be applied to future wages which have been projected to rise as a result of inflation without an offsetting computation for the periodic adjustment of exemptions, deductions and income tax brackets which has historically occurred in response to inflationary trends. ⁵ Moreoever, assumptions and adjustments must be made to account for the projected effect of these exemptions and deductions on a particular plaintiff: factors which may vary as a result of changes in family circumstances and/or congressional policy. ⁶ Similar assumptions and adjudgments must also be made with respect to the effect of state income taxes on plaintiff's future earnings. As one court has stated:

'* * * There is certainly no speculation concerning the incidence of taxation, but the amount of tax which might be assessed against a given individual is a truly complex question. The number of possible exemptions, the type and amount of deductions, the effect of tax-exempt earnings, tax shelters and investment earnings, together...