Melani v. BD. OF HIGHER EDUC. OF CITY OF NEW YORK

• Decision Date: 14 February 1986
• Docket Number: No. 73 Civ. 5434 (LPG).,73 Civ. 5434 (LPG).
• Citation: 652 F. Supp. 43
• Parties: Lilia MELANI, et al., Plaintiffs, v. BOARD OF HIGHER EDUCATION OF the CITY OF NEW YORK, Defendant.
• Court: U.S. District Court — Southern District of New York

652 F. Supp. 43

Lilia MELANI, et al., Plaintiffs, v. BOARD OF HIGHER EDUCATION OF the CITY OF NEW YORK, Defendant.

No. 73 Civ. 5434 (LPG).

United States District Court, S.D. New York.

March 7, 1986.

Special Master's Recommendations February 14, 1986.

Judith P. Vladeck, of Vladeck, Waldman, Elias & Engelhard, P.C., New York City, for plaintiffs.

Norma Kerlin, Asst. Corp. Counsel, Office of the Corp. Counsel, New York City, for defendant.

MEMORANDUM DECISION

GAGLIARDI, Senior District Judge.

This application was brought on by order to show cause to require the defendant Board of Higher Education of the City University of New York, to distribute the settlement monies to the class members in accordance with the terms of the Consent Decree without any deductions for withholding taxes that may or may not be due and owing by the class members for federal, state, and city income taxes. In response to the application for the relief requested by the defendant, the taxing authorities disputed the jurisdiction of the Court to direct any relief as to them.

The Court referred the matter to the Special Master for his recommendations and report.

The Court, having received the report of the Special Master, confirms the recommendations contained in his report attached hereto.

The Court finds that it has no jurisdiction as to the taxing authorities, and, therefore, the application of the plaintiffs insofar as they are concerned is denied.

The defendant shall distribute the settlement funds expeditiously and in accordance with the amended Consent Decree.

So Ordered.

SPECIAL MASTER'S RECOMMENDATIONS RE: WITHHOLDING OF TAXES ON THE SETTLEMENT FUND

SOL SCHREIBER, Special Master.

I. INTRODUCTION

This action was commenced on December 20, 1973. The Complaint alleged discrimination in specific terms and conditions of employment at City University of New York. The Complaint sought injunctive, declaratory and compensatory relief pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (Title VII) and 42 U.S.C. § 1983 (Section 1983).

In June 1980 the Court held a trial limited to the issue of salary discrimination. In an opinion and order dated March 17, 1983 the Court held that the defendant had discriminated against the plaintiffs in the payment of salaries in violation of Title VII.

Subsequent to the March 17, 1983 opinion, the parties engaged in extensive settlement negotiations resulting in a Consent Decree eventually approved by order of the Court on July 20, 1984. The Consent Decree provided for various injunctive and declaratory relief as well as a settlement fund of $7,500,000 for compensatory relief. The Decree resolved in full all claims against the defendant by the plaintiffs involving alleged discrimination based on sex in violation of Title VII and Section 1983.

The $7,500,000 settlement fund was to be distributed as provided by the settlement decree and under the supervision of Sol Schreiber, Esq., Special Master.

Prior to any disbursement of the settlement fund, defendants raised the issue of whether all or any of the settlement monies are subject to federal, state and local income taxes, and, if so, whether withholding of all or a portion of the monies is required.

In response, plaintiffs sought an Order to Show Cause why the City University of New York, The Commissioner of Internal Revenue, The Directors of Taxation of the City and State of New York, The Director of the Division of Unemployment and Disability Insurance, and The Director of the Department of Labor and Industry should not agree to disburse the funds with no withholding of taxes.

By order of reference dated December 2, 1985 the matter was referred to Sol Schreiber, Esq., Special Master for his recommendations.

II.

The parties to this action entered into a Consent Decree in order to resolve the action and all issues raised by the Complaint without the time and expense of additional litigation. The Consent Decree resolved in full all claims for damages, back pay, benefits, injunctive, declaratory and any other relief for alleged unlawful discrimination. (Consent Decree Section IV.(A))

Although the parties intended to settle all claims including the Title VII and Section 1983 claims, the agreement subsequently incorporated into the Consent Decree did not allocate the Settlement Fund between payments made in settlement of claims for back pay and interest thereon pursuant to Title VII and for personal injury pursuant to Section 1983. This omission gave rise to the issue presently before the Court. Lacking a specific allocation it is not possible to determine the appropriate amount of taxes to be withheld from a payment from the fund, and the entire settlement fund could be considered income for purposes of tax withholding. See, Whitehead v. Commissioner, 41 T.C.M. (CCH) 365 (1980); Anderson v. Commissioner, 38 T.C.M. (CCH) 1206 (1979); Gunderson v. Commissioner, 38 T.C.M. (CCH) 464 (1979). To facilitate the disbursement of the Settlement Fund and aid the respective parties in determining their obligations under the tax laws, the Consent Decree should be amended to provide for an allocation of payment between the settlement of claims for back pay, interest thereon, and damages for personal injury.

To make such an allocation many factors must be considered. The undersigned has reviewed and given weight to the plaintiffs' original claims, the relative strength of those claims, the previous opinion of this Court dated March 17, 1980, the opinions expressed by both parties during settlement negotiations with the special master and at the hearing before J. Gagliardi held April 16, 1985, the stipulation dated February 5, 1986 expressing the intent of both parties in settling this action, and above all, the stated purpose and dynamics of the Consent Decree.

The plaintiffs' original claims were for violations of both Title VII and Section 1983. The Section 1983 claims were dismissed by order of the Court dated June 23, 1976. Subsequent to the decision in Monell v. Department of Social Services of the City of New York, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). (which held that municipalities and other local government units are among those "persons" to whom the Civil Rights Act of 1981 applies) the plaintiffs made a motion to reinstate the Section 1983 claims. That motion was pending at the time of settlement. As the Consent Decree resolved all claim based on Title VII and Section 1983, it must be recognized that the parties and the Court proceeded under the assumption that the Section 1983 claim was part of the case.

As for the relative strength of the plaintiffs' claims, this Court has already expressed its opinion of the Title VII claims. Melani v. Board of Higher Education of the City of New York, 561 F.Supp. 769 (1983). Although the Section 1983 claims were not tried, it could be argued that the evidence and conclusion of violations of Title VII would have strongly supported such a claim.

The parties in good faith have entered into a stipulation regarding this issue (see Appendix B). As expressed therein, the intent of the parties was that the settlement fund was provided in consideration for settlement of claims for back pay and interest thereon and personal injuries. The parties have agreed that as to the Subclass I $4,000,000 fund and The Subclass II and III funds, two-thirds of the total fund was provided in consideration for settlement of claims for back pay and interest thereon and the remaining one-third of the total fund was provided in consideration for settlement of claims for personal injury. As to the Subclass I $1,300,000 fund, the entire fund was provided in consideration for settlement of claims for back pay and interest thereon.

Stipulated facts should weigh heavily in determining the proper allocation of the settlement fund. It is noted, however, that they are but one factor among many that the Court must consider. The expressed intent of the parties following settlement may not always be controlling on the issue of taxability. Villaume v. U.S., 616 F.Supp. 185, 85-2 U.S.T.C. p. 9540 (D.C. Minn.1985).

The stated purpose of the Consent Decree is the resolution in full of all claims against the defendant by the plaintiffs involving alleged discrimination based on sex in violation of Title VII and Section 1983. (Consent Decree Section IV(a)) The Decree also states that the Complaint states claims which, if proved, would authorize the Court to grant relief pursuant to Title VII and Section 1983. (Consent Decree, Section II).

The Consent Decree provides for disbursement of the Settlement Fund according to a complex and dynamic plan. There are five separate and distinct subfunds within the Settlement Fund. Each subfund is designed to compensate a distinct subclass of plaintiffs and is allocated among that subclass according to specific criteria. The different subclasses and the subfunds designed to compensate those subclasses must be understood because the issue of taxability and withholding can be resolved only in light of the intent of the parties in establishing each subfund.

A. SUBCLASS I

Subclass I provides relief for women on the University's full-time instructional staff as of the effective date of the Decree. Subclass I members are entitled to share in a subfund of $4,000,000. The subfund is for payments in settlement of all claims of discrimination up to and including the effective date of the Decree. The criteria for determining a class member's share of the $4,000,000 subfund are length of service and current salary level. Those criteria were chosen under the assumption that if there was discrimination, the longer a plaintiff had served at CUNY the more discrimination she would have suffered and that any discrimination would have had a proportionately greater effect on those with higher salaries.

The $4,000,000 fund was for settlement of both Title VII and Section 1983 claims...