Mickey v. BNSF Ry. Co. & Safeco Ins. Co. of Am.

• Decision Date: 19 August 2014
• Docket Number: No. SC 93591.,SC 93591.
• Citation: 437 S.W.3d 207
• Parties: Lawrence MICKEY, Respondent, v. BNSF RAILWAY COMPANY and Safeco Insurance Company of America, Appellants.
• Court: Missouri Supreme Court

437 S.W.3d 207

Lawrence MICKEY, Respondent,

v.BNSF RAILWAY COMPANY and Safeco Insurance Company of America, Appellants.

No. SC 93591.

Supreme Court of Missouri,

En Banc.

July 8, 2014.

Rehearing Denied Aug. 19, 2014.

William A. Brasher, Thomas P. McDermott, Boyle Brasher LLC, St. Louis, for Appellants.

Michael A. Wolff, Jerome J. Schlichter, Roger C. Denton, Elizabeth M. Wilkins, Schlichter Bogard & Denton LLP, St. Louis, for Respondent.

Richard G. Callahan, Nicholas P. Llewellyn, United States attorney's office, St. Louis, Kathryn Keneally, Jonathan S. Cohen, Marion E.M. Erickson, Department of Justice, Washington, D.C., for The United States.

LAURA DENVIR STITH, Judge.

Lawrence Mickey prevailed in a Federal Employers' Liability Act (FELA) suit against Burlington Northern Santa Fe Railway Company (BNSF) and received a general verdict of $345,000. The trial court entered judgment in the amount of the verdict plus interest and costs for a total of $348,731. After the judgment was affirmed on appeal, BNSF tendered $368,480.67, which was $12,820.80 less than what BNSF then owed on the judgment plus costs and accumulated interest. It did so because it sua sponte had determined that, under the Railroad Retirement Tax Act (RRTA), 26 U.S.C. § 3201 et seq., it was required to treat the entire judgment as if it were for lost wages and, therefore, subject to RRTA withholding taxes. The trial court found that BNSF had failed to satisfy the judgment and ordered BNSF's surety, Safeco Insurance Company, to pay Mr. Mickey the $12,820.80 that BNSF failed to pay. BNSF and Safeco appeal this ruling.¹

This Court affirms. The RRTA does not require employers to withhold RRTA taxes on a personal injury plaintiff's FELA award. Damages received through a suit or settlement for personal injuries, including damages for lost wages, are not subject to income tax or, normally, to retirement taxes. BNSF is incorrect in arguing that the RRTA creates an exception to this law for railroad retirement taxes. The statute on which BNSF relies is part of an entirely separate act, the Railroad Retirement Act (RRA), 45 U.S.C. § 231 et seq., which governs railroad retirement benefits. It is inapplicable to the tax question at issue here. Even were it relevant to this issue, that statute, by its terms, applies only if a portion of the award is for lost wages. The verdict was a general one, however, and this Court rejects BNSF's argument that merely because lost wages were requested, this Court is required, legally or factually, to presume that a portion of the award was for lost wages. The makeup of a jury's general verdict award is a matter that this Court has held is “within the bosom of the jury” and is not a subject for speculation by this Court. Anglim v. Mo. Pac. R.R. Co., 832 S.W.2d 298, 309 (Mo. banc 1992). BNSF's appeal fails for both of these reasons.

I. FACTUAL AND PROCEDURAL BACKGROUND

Lawrence Mickey worked for BNSF as a yard conductor and switchman for 40 years. In 2007 he learned that he had permanent disability in his back, as well as disabling injuries to his knees, legs, and feet, and he was unable to return to work. In 2008, Mr. Mickey filed a petition against BNSF under FELA ² seeking damages for these serious physical injuries as well as for his related emotional injuries, past and future medical expenses, and lost wages and benefits.

The trial court submitted the case to the jury using a general verdict form based on Missouri Approved Instruction (MAI) 36.01. The jury returned a plaintiff's verdict that stated, “We, the undersigned jurors, assess the damages of Plaintiff Larry Mickey at $345,000.” The trial court entered judgment on the verdict plus costs and post-judgment interest. At no time during the instruction conference, the submission of the instructions, or after judgment did BNSF object to the use of a general verdict form based on MAI 36.01 or request or show it was entitled to the use of a special verdict form or special interrogatories.

BNSF appealed the judgment and filed a supersedeas bond in the amount of $500,000 that was executed by BNSF as principal and Safeco as surety. The court of appeals affirmed the judgment in Mickey v. BNSF Railway Company, 358 S.W.3d 138 (Mo.App.2011).

After the appeal, BNSF tendered Mr. Mickey the judgment amount, costs, and interest but withheld $12,820.80. Mr. Mickey objected that the check was insufficient to satisfy the judgment and filed a motion under Rule 81.11 requesting the trial court to enter judgment against Safeco on the supersedeas bond as a result of BNSF's failure to satisfy the judgment. BNSF and Safeco urged the trial court to find that BNSF fully satisfied the judgment because it withheld the missing $12,820.80 to remit to the IRS as Mr. Mickey's share of railroad retirement withholding taxes that BNSF claimed were due on the $345,000 in damages awarded if one presumes that the damages are made up entirely of lost wages.³ BNSF acknowledged that the IRS had not claimed in this, or any other published case, that it was required to withhold railroad retirement taxes-taxes comparable to Social Security and Medicare—but BNSF paid this amount sua sponte because, it said, it believed that the RRTA so requires.

During this same time period, BNSF filed an interpleader action in the United States District Court for the Eastern District of Missouri naming Mr. Mickey, the IRS, and the Railroad Retirement Board as defendants, and deposited the $12,820.80 with the federal district court for it to determine who was owed what amount. The IRS declined to enter its appearance. BNSF then chose sua sponte to pay the IRS the $12,820.80, and the interpleader was dismissed.

On May 24, 2012, the trial court agreed with Mr. Mickey that, in withholding the $12,820.80, BNSF had failed to satisfy the judgment. It entered judgment against Safeco for $12,820.80 and post-judgment interest. BNSF and Safeco subsequently moved to vacate and modify the May 24 judgment on the ground that BNSF fully satisfied the judgment because it was required to withhold the $12,820.80. The court overruled this motion. BNSF and Safeco appealed the trial court's entry of judgment against Safeco and its overruling of their motion to vacate and modify the judgment.⁴ After opinion by the court of appeals, this Court granted transfer. Mo. Const. art. V, § 10. This Court affirms.

II. STANDARD OF REVIEW

Construction of a statute is a question of law. City of Springfield v. Sprint Spectrum, L.P., 203 S.W.3d 177, 182 (Mo. banc 2006). This Court reviews issues of law de novo. Crockett v. Polen, 225 S.W.3d 419, 420 (Mo. banc 2007).

III. RRTA TAXES MAY NOT BE WITHHELD FROM THE JUDGMENT

This case presents the question whether, when a railroad worker is injured on the job and obtains a general verdict against his employer for negligence under FELA, the judgment is subject to railroad retirement withholding taxes under the RRTA, even though the damages are not considered income for income tax purposes and no comparable Social Security or Medicare withholding is required for comparable tort cases involving non-railroad workers. This Court answers in the negative.

A. A FELA Judgment Is Not Taxable “Compensation” Under the RRTA

Section 61(a) of the Internal Revenue Code (Code) “provides a broad definition of ‘gross income,’ ” Comm'r of Internal Revenue v. Schleier, 515 U.S. 323, 327, 115 S.Ct. 2159, 132 L.Ed.2d 294 (1995), stating “[e]xcept as otherwise provided in this subtitle, gross income means all income from whatever source derived.” 26 U.S.C. § 61(a). That definition does not include personal injury damages awards, however, for the Code specifically excludes from gross income “the amount of any damages received ... on account of physical personal injuries or physical sickness.” 26 U.S.C. § 104(a)(2). Treasury regulations explain that section 104(a)(2) pertains to “an amount received (other than workers' compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution.” 26 C.F.R. § 1.104–1(c).

The United States Supreme Court addressed the meaning of the exclusion of personal injury damages from the definition of income for tax purposes in Schleier, 515 U.S. at 333–34, 115 S.Ct. 2159. Schleier holds that income taxes are not owed on a damage award if it was received: (1) through prosecution or settlement of an action based upon tort or tort type rights and (2) on account of personal injuries or sickness. Id. at 333–34, 115 S.Ct. 2159; accord,Norfolk and Western Ry. Co. v. Liepelt, 444 U.S. 490, 496, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980).

In other words, the Code provides that damages an employee receives on account of a personal injury award through suit or settlement are not subject to income tax, even if a portion of the award is for lost wages. Schleier, 515 U.S. at 330–31, 115 S.Ct. 2159.⁵ But, because the award at issue in Schleier was not for personal injury but rather for discrimination in employment, the Supreme Court concluded this exclusion did not apply there. Id. at 332, 115 S.Ct. 2159. The Supreme Court explained that unlike in personal injury cases, in a discrimination case, even though an employee may sustain pain and suffering from such discrimination, the lost wages—and any other resulting award—stem from the discrimination, not personal injury, so the lost wages are not excluded under section 104(a)(2) of the Code. Id. at 330–31, 115 S.Ct. 2159.

Personal injury awards likewise are not subject to Federal Insurance Contributions Act (FICA) ⁶ withholding taxes, which fund Social Security and Medicare benefits and closely parallel RRTA withholding taxes. An award that does not constitute gross income cannot be subject to FICA withholding taxes. This is because, as the Supreme Court states in Central Illinois Public Service Co. v. United States, 435 U.S. 21, 29, 98 S.Ct. 917, 55 L.Ed.2d 82 (1978),...