Greer v. U.S.

• Decision Date: 06 August 1999
• Docket Number: DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,No. 98-6593,98-6593
• Citation: 207 F.3d 322
• Parties: (6th Cir. 2000) DANIEL C. GREER,, v. UNITED STATES OF AMERICA, Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 322

207 F.3d 322 (6th Cir. 2000)

DANIEL C. GREER, PLAINTIFF-APPELLEE, v. UNITED STATES OF AMERICA, DEFENDANT-APPELLANT.

No. 98-6593

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: August 6, 1999

Decided: March 22, 2000

Appeal from the United States District Court for the Eastern District of Kentucky at Ashland. No. 96-00117--Henry R. Wilhoit, Jr., Chief District Judge. [Copyrighted Material Omitted] Patrick F. Nash (argued and briefed), Lexington, KY, for Plaintiff-Appellee.

Kenneth W. Rosenberg (argued and briefed), U.S. Department OF Justice, Appellate Section Tax Division, Washington, D.C., for Defendant-Appellant.

Before: Jones, Siler, and Gilman, Circuit Judges.

OPINION

Nathaniel R. Jones, Circuit Judge.

The United States appeals the district court's grant of summary judgment in favor of plaintiff-appellee Daniel C. Greer ("Greer") in his suit to recover monies that were withheld from him for tax purposes when he was terminated by his employer. For the reasons that follow, we REVERSE and REMAND for proceedings consistent with this opinion.

I.

Greer worked for Ashland Oil, Inc. ("AOI") from 1969 until his termination in July 1993. During his years of employment with AOI, Greer held a variety of positions, including executive assistant to the executive vice president and executive assistant to the president. In 1988, he served as AOI's environmental compliance director. Although Greer regularly received positive performance reviews during his twenty-four years at AOI, he was fired in July 1993.

Greer and AOI dispute the company's motivations for his firing. According to Greer, the circumstances of his firing were highly suspicious. As environmental compliance director, Greer was required to perform environmental compliance audits of AOI's petroleum operations. Greer held this position for two- and one-half years, and he visited and audited approximately 120 sites. Greer claims he uncovered and documented violations of environmental regulations at AOI refineries. According to Greer, AOI executives feared that his reports might be released to enforcement authorities at a time when AOI was already under their close scrutiny.

In 1991, AOI removed Greer from the environmental compliance department and appointed him director of cost management. Despite the fact that he had no computer programming experience, Greer was assigned the task of creating a complex computer program. After Greer completed the project, he was given little to do for several months. Eventually, AOI's human resources department informed Greer that his position was being eliminated. Even though Greer claims to have "begged to do anything else in the company," he was dismissed and told that he simply "didn't fit in."¹ Greer appealed his dismissal all the way to AOI's chairman of the board.

Given the events leading to his abrupt termination, Greer believes AOI terminated him because he had too thoroughly identified and documented AOI violations of environmental regulations. When Greer learned that his termination was final, he told AOI representatives, "I will seek whatever remedies are available to me to protect myself in whatever way I can." However, Greer never explicitly threatened AOI with a wrongful termination lawsuit, nor did he sue AOI. In fact, Greer admitted in his deposition that he "didn't have the foggiest idea" what his legal rights were at that time.

Shortly after notifying Greer of his impending termination, AOI proposed a compensation package to Greer. After consulting with his attorney, Greer signed the proposed agreement on his last day at AOI. AOI's normal severance policy was to grant one week's salary for each year of service. In Greer's case, a normal severance package would have totaled $51,000. However, AOI and Greer agreed that AOI would pay Greer $331,968 in exchange for Greer's surrendering all claims against AOI. Specifically, by accepting the offered compensation, Greer signed a document titled "Severance Agreement and Release" ("the agreement") which waived:

any and all claims, rights, and causes of action [against AOI] of all nature, which may have arisen, or which may arise, known or unknown, out of any events or actions occurring before the date of his execution of this release, including, but not limited to, his employment, the termination of his employment, or any prior agreements between the parties, and expressly including, without limitation, as claims to be released, any claims of wrongful discharge, or any claims related to acts or omissions of the Company involving him, or of discrimination under any federal, state or local law, rule or regulation. Examples of such federal, state or local law, rule or regulation regarding discrimination include, but are not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., or any claims arising under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq. This release is for any relief, no matter how denominated, including but not limited to wages, back pay, front pay, compensatory damages, or punitive damages.

J.A. at 116 (emphasis added). In his deposition, Randy Lohoff ("Lohoff"), AOI's vice president of human resources, testified that it is AOI policy to include this general waiver whenever it grants an employee an increase in the normal severance pay.

AOI's standard practice is to withhold taxes from every settlement amount it pays. The company applied that policy to Greer's case and withheld $108,873 from the compensation package for federal income tax purposes. On June 25, 1996, Greer filed for a refund in the district court pursuant to 26 U.S.C. § 104(a)(2), seeking to recover the amount of his compensation package that was withheld for taxes.

After depositions were taken of Greer and Lohoff, both the Government and Greer filed motions for summary judgment. Greer argued that the funds he received from AOI constituted the settlement of his potential wrongful discharge claim. He asserted that the circumstances of his termination diminished his personal and professional reputation, and inflicted stress, humiliation, mental anguish, self doubt and emotional pain. Because they were part of the settlement of this potential claim, Greer argued, the funds he received under the agreement could not be taxed. The Government countered that the extra compensation from the agreement covered both the release of all potential claims as well as consideration of his past service. Because the funds paid to Greer comprised non-excludible compensation, the full amount could be taxed.

On September 22, 1998, the district court filed an unpublished opinion granting Greer's motion for summary judgment and denying the Government's motion. The district court determined that the compensation package constituted a nontaxable personal injury tort settlement. Specifically, the district court concluded that $280,968 was nontaxable and that approximately $51,000 of the agreement constituted normal severance pay that could be taxed as income.

The Government filed this timely appeal. Greer does not contest the finding that $51,000 was taxable income.

II.

This court will review a grant of summary judgment de novo. See Terry Barr Sales Agency, Inc. v. All-Lock Co., 96 F.3d 174, 178 (6th Cir. 1996). Summary judgment is appropriate where there exists no genuine issue of material fact and the moving party is entitled to summary judgment as a matter of law. See id. (citing Fed. R. Civ. P. 56(c)). Although both parties below stipulated that there were no disputes over any material facts in the case, and each submitted motions for summary judgment, that fact "does not require [us] to rule that no fact issue exists." Cherokee Insurance Co. v. E.W. Blanch Co., 66 F.3d 117, 123 n.4 (6th Cir. 1995) (quoting Begnaud v. White, 170 F.2d 323, 327 (6th Cir. 1948)). Indeed, "summary judgment in favor of either party is not proper if disputes remain as to material facts." Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). At the same time, "cross motions for summary judgment do authorize the court to assume that there is no evidence which needs to be considered other than that which has been filed by the parties." Harrison Western Corp. v. Gulf Oil Co., 662 F.2d 690, 692 (10th Cir. 1981).

III.

Under § 61(a) of the Internal Revenue Code taxpayers are liable for all gross income, meaning "all income from whatever source derived...." 26 U.S.C. § 61(a) (1994). As the Supreme Court has oft repeated, this section is to be construed liberally "in recognition of the intention of Congress to tax all gains except those specifically exempted." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955). Thus, there is no dispute that the compensation paid to Greer under the agreement falls well within the broad sweep of § 61(a) unless it is specifically excluded elsewhere in the Code. See Commissioner v. Schleier, 515 U.S. 323, 328 (1995) (concluding that the taxpayer's settlement agreement "constitutes gross income unless it is expressly excepted by another provision"); United States v. Burke, 504 U.S. 229, 233 (1992) ("There is no dispute that the settlement awards in this case would constitute gross income within the reach of § 61(a)."). Exclusions to § 61(a) are narrowly construed, see Schleier, 515 U.S. at 328; Commissioner v. Jacobson, 336 U.S. 28, 49 (1949), and the taxpayer bears the burden of proving the amount he is entitled to recover. See United States v. Janis, 428 U.S. 433, 440 (1976).

Greer claims that most of the compensation at issue should be excluded because it falls within § 104(a)(2) of the Code, which excludes from gross income any "damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness." 26 U.S.C. § 104(a)(2). The Supreme Court in Schleier set forth a two-prong test that must be...