Johnson v. Penrod Drilling Co.
| Decision Date | 21 March 1975 |
| Docket Number | Nos. 71--2243,71--2245,s. 71--2243 |
| Citation | 510 F.2d 234 |
| Parties | Sam H. JOHNSON, Plaintiff-Appellee, v. PENROD DRILLING COMPANY, Defendant-Appellant. James L. STARNES, Plaintiff-Appellee, v. PENROD DRILLING COMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John M. Smith, Longview, Tex., Warren M. Faris, Mat M. Gray, III, New Orleans, La., Sam B. Hall, Jr., Marshall, Tex., Joseph W. Milner, Shreveport, La., for defendant-appellant.
Scott Baldwin, Marshall, Tex., Joseph D. Jamail, S. Gus Kolius, Houston, Tex., for plaintiffs-appellees.
E. D. Vickery, Houston, Tex., amicus curiae, for West Gulf Maritime Assn.
Francis H. Hare, Birmingham, Ala., amicus curiae, for Alabama Trial Lawyers Assn.
Benjamin W. Yancey, Edward S. Bagley, New Orleans, La., amicus curiae, for New Orleans Steamship Assn.
William R. Edwards, Corpus Christi, Tex., amicus curiae, for Texas Trial Lawyers Assn.
W. James Kronzer, pro se, amicus curiae.
Samuel C. Gainsburgh, New Orleans, La., amicus curiae, for Kierr, Gainsburgh & Benjamin.
Royce R. Till, Sim T. Lake, Houston, Tex., amicus curiae, for Fulbright, Crooker & Jaworski.
James E. Clark, Birmingham, Ala., amicus curiae, for Alabama Defense Lawyers Assn.
Royal H. Brin, Jr., Dallas, Tex., amicus curiae, for Texas Assn. of Defense Counsel.
Arthur J. Mandell, Houston, Tex., Marvin I. Barish, Philadelphia, Pa., amicus curiae, for Assoc. of Trial Lawyers of America.
George A. Frilot, III, New Orleans, La., amicus curiae, for Survivors of U.S. Coast Guardmen who Lost Their Lives Aboard the Buoy Tender White Alder.
Thomas F. Lambert, Jr., Boston, Mass., Tully R. Florey, III, Mt. Pleasant, Tex., amicus curiae.
Appeals from the United States District Court for the Eastern District of Texas.
ON REHEARING EN BANC
Before BROWN, Chief Judge, and WISDOM, GEWIN, BELL, THORNBERRY, COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, DYER, SIMPSON, MORGAN, CLARK, RONEY and GEE, Circuit Judges.
I JURY TRIAL
On the jury trial issue, the en banc court adopts the original panel opinion by Judge Simpson in this case, reported at 5 Cir., 469 F.2d 897.
On November 21, 1972 an opinion by Judge Simpson for the panel was released to the parties and was reprinted in the advance sheets of the Federal Reporter, Second Series. The opinion released on that date contained an extensive discussion of the inflation issue. On petition for rehearing, March 29, 1973, the discussion of inflation in the initial opinion was modified and abbreviated to the language set out at 469 F.2d 904--5.
The court en banc now adopts that portion of the full initial panel opinion as released on November 21, 1972, entitled 'PROCEEDINGS FOLLOWING REMAND'. To facilitate reference thereto, the unpublished portion of that opinion is appended here.
We judicially notice that inflationary conditions in this nation's economy have worsened in the interim between the November 21, 1972 panel opinion and today and we recognize that this accelerating rate of inflation increases the likelihood that inflation could become a predictable condition for the future. Nevertheless, with this added light, we still cannot so surely discern the shadow of inflation as a coming event as to warrant requiring its inclusion in a present rule for calculating future damages. The worsening of inflation might as readily foretell a recession or a depression as its continuity. Strong governmental counter-measures have been proposed and their efficacy is still unknown. Then too, if future inflation does cause higher wages, experience predictably demonstrates that higher interest rates on investments which have always accompanied inflation will also occur and this factor will mitigate the failure to include an inflationary surcharge in wage rate calculations. In addition to the Second and Sixth Circuit decisions cited in Judge Simpson's opinion, we note that three other circuits appear to agree with this procedure. 1 Cunningham v. Bay Drilling Company, 421 F.2d 1398 (5th Cir. 1970) is overruled. To the extent that Canal Barge Company, Inc. v. Griffith, 480 F.2d 11 (5th Cir. 1973) announced a contrary view, that opinion cannot stand. 2
In addition, the court en banc has considered whether on remand the juries in these causes should be permitted to consider evidence and be given an instruction on the impact of income taxes on their calculations of a proper award for loss of future wages. Allowing this subject matter to be considered would require the admission of expert opinion evidence as to what future income tax rates and deductions are expected as well as opinion evidence on what current rates and deductions would be applicable to the subject wage earner during various phases of the jury's future loss calculations. Of necessity, this evidence would have to be accompanied by an instruction from the court as to the application of these rates to such untaxable compensatory elements (and, in some cases, such taxable punitive damage elements)
as may be involved in the verdict. To compound the complexity and the jury's difficulty in reducing the proof to a monetary award, the tax effect of contingent attorneys' fees and the taxability of the interest earnings under the annuity principle used to calculate the reduced present value of future wages would have to be analyzed. As a judgmental matter and consistent with our views on inflation, in a case such as those at bar in which the annual wage rate involved (here 8,646.40 and 11,387.10 dollars) is subject to an income tax rate which would not distort projections or result in a windfall recovery, we conclude that justice is better served if these contingencies, variables and predictions are withheld from the jury's consideration. 3
The rule on remand thus becomes closely similar to that announced by the panel in Blue v. Western Railway of Alabama, 469 F.2d 487 (5th Cir. 1972). 4 Evidence to be adduced on the issue of future loss of earnings should be the predicted gross earnings lost due to defendant's wrong or neglect, without adjustment for taxes, calculated over the projected work-life of the injured party. The evidence of gross earnings should expressly indicate that the proof adduced relates to total earnings rather than to the more familiar 'take-home' pay. An instruction by the court may also make this condition clear if it is deemed necessary to avoid the possibility of duplication of the tax element in any award.
Blue required the use of an interest rate to reduce future wages to current value which was projected as appropriate 'over the period of the remaining worklife of the plaintiff'. To attain the desired simplicity and efficiency of trial procedures, we recede from this portion of that decision. The calculated gross future earnings must be reduced to present value by the use of an appropriate interest rate prevailing at the time and place of trial.
The judgments of the district court in both No. 71--2243 and No. 71--2245 are reversed and the causes are remanded for further proceedings consistent with this opinion.
Reversed and remanded.
APPENDIX
Our conclusion that the district court in each case deprived Penrod of its Seventh Amendment right to a trial by jury requires reversal of the judgments entered below with directions that new trials be held before juries unless Penrod consents under Rule 39(a) to non-jury proceedings. We think appropriate regard for husbanding judicial time requires comment upon the manner in which the issue of damages was litigated and decided below, and directions as to procedure after remand.
Dr. Thomas Mayor, an economist, testified for Starnes and Johnson in each trial for the purpose of projecting the plaintiffs' future earnings and prevailing interest rates. He stated that, in his opinion, the wages of the plaintiffs would probably increase at an annual rate of 4.8% for the remainder of their projected work-lives. In addition, he recommended that the present values of these projected future earnings be computed through the application of a 4% reduction factor. Dr. Mayor selected a 4% factor because an insurance company, if asked to sell to the plaintiffs single payment annuity contracts written to return the average projected earnings of the plaintiffs over their anticipated work-lives, would assume a 4% return on investment.
Dr. Burke A. Parsons, also an economist, testified for Penrod in the Starnes trial for the purpose of rebutting Dr. Mayor's testimony. Dr. Parsons expressed the view that it was impossible to project with accuracy inflationary trends in the economy and in the petroleum industry over the periods representing the remainders of the plaintiffs' projected work-lives. He stated that the 4.8% wage increase figure projected by Dr. Mayor was too high. With regard to an appropriate rate to be employed for reducing the future earnings award to present value, Dr. Parsons testified that the then prevailing interest rates of between seven and eight percent per year on blue-chip corporate bonds would provide an acceptable range of reduction factors.
The district court made the following findings of fact as to the estimated future earnings of Starnes:
'30. Plaintiff was 32 years of age on the day of the accident complained of. He was 37 years old at the time of the trial and had a life expectancy of 34.4 years. In all reasonable probability, plaintiff would have continued to work until age 65.
31. The wages of one performing the type of work that plaintiff was performing at the time of the accident in issue is likely to increase at the annual rate of 4.8% per annum. This percentage of annual increases in wages was the rate of increase of such wages from 1946 to 1969; and was the rate of annual increases which had held good from the year 1900.
32. At the time of the trial, it would have cost plaintiff $418,671.00 to...
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