Noel v. N.Y. Office of Mental Health Cent. N.Y. Psychiatric Ctr.

• Decision Date: 31 August 2012
• Docket Number: Docket No. 10–3483–cv.
• Citation: 697 F.3d 209
• Parties: Ian NOEL, Plaintiff–Appellee, v. NEW YORK STATE OFFICE OF MENTAL HEALTH CENTRAL NEW YORK PSYCHIATRIC CENTER, Defendant–Appellant.
• Court: U.S. Court of Appeals — Second Circuit

697 F.3d 209

110 A.F.T.R.2d 2012-6338

Ian NOEL, Plaintiff–Appellee,

v.NEW YORK STATE OFFICE OF MENTAL HEALTH CENTRAL NEW YORK PSYCHIATRIC CENTER, Defendant–Appellant.

Docket No. 10–3483–cv.

United States Court of Appeals, Second Circuit.

Argued: March 7, 2012.

Decided: Aug. 31, 2012.

A.J. Bosman, Bosman Law Firm L.L.C., Rome, NY, for Plaintiff–Appellee.

Kate H. Nepveu, Assistant Solicitor General (Barbara D. Underwood, Solicitor General, Andrew D. Bing, Deputy Solicitor General, on the brief), Albany, NY, for Eric T. Schneiderman, Attorney General of the State of New York, for Defendant–Appellant.

Gilbert S. Rothenberg, Acting Deputy Assistant Attorney General (Steven Parks & Marion E.M. Erickson, Attorneys, Tax Division, Appellate Section, Department of Justice, on the brief), Washington, DC, for the United States of America as amicus curiae in support of Defendant–Appellant.

Before: KATZMANN, B.D. PARKER and WESLEY, Circuit Judges.

BARRINGTON D. PARKER, Circuit Judge:

In 2008 a jury determined that the State Office of Mental Health Central New York Psychiatric Center had terminated Ian Noel in violation of Title VII of the Civil Rights Act of 1964 and awarded him back and front pay. The United States District Court for the Northern District of New York (Hurd, J.) entered a money judgment, and the State forwarded the judgment to the New York State Office of the Comptroller (“OSC”) for payment. Considering the payment as one for “wages,” the OSC made various deductions—mainly for state and federal taxes—and forwarded a check for the balance directly to Noel, ostensibly in full satisfaction of the judgment.

Noel objected to the deductions and moved to require the State to pay him the full dollar amount of the judgment. The court granted the motion. It held that the State lacked the authority to make the deductions without prior court approval and ordered the State to repay directly to Noel the full amount of the deductions. Although it was clear that Noel would be able to claim credits against his income tax liability for the taxes withheld and paid on his behalf by the OSC, the court nonetheless required, in effect, double payment to Noel. This appeal followed. We conclude that he was not entitled to this windfall.

BACKGROUND

In 2005 Noel was terminated from his job at the Central New York Psychiatric Center. Prior to his termination, he had cooperated in a formal investigation of race discrimination by his supervisors, and he brought a retaliation claim arising from this episode. Noel prevailed at trial, and a jury awarded him $210,000 in back pay, $70,000 in front pay, and $120,000 for emotional distress. The State appealed. We reversed the $120,000 emotional distress award for lack of evidence but otherwise affirmed the judgment. See Noel v. N.Y. State Office of Mental Health Cent. N.Y. Psychiatric Ctr., 361 Fed.Appx. 196 (2d Cir.2010). Thereafter Noel sought, and obtained, an amended judgment in the amount of $318,217.48, including $280,000 for back and front pay.

The State forwarded the judgment to the OSC for payment. Without seeking to amend or resettle the judgment—and without notice to counsel or to the district court—the OSC made various deductions and mailed a check for $139,582.52 directly to Noel.¹ Noel objected to the deductions and moved under Rule 70(a) for full satisfaction of the judgment and for sanctions. SeeFed.R.Civ.P. 70(a), (e). In response, the State took the position that, because the judgment was for back and front pay, which it understood to be “wages,” the OSC was obligated by the Internal Revenue Code and state law to make the deductions and forward them to the relevant taxing authorities. The State pointed out that, when Noel filed his state and federal returns, he would be entitled to claim dollar for dollar credits against his income tax liability based on the taxes withheld and remitted on his behalf. Def. Aff. in Opp'n to Noel's Order to Show Cause at 2, March 31, 2011, ECF No. 134. To avoid what, it argued, would be a significant, undeserved windfall to Noel, the State argued that it should not be required to also pay to Noel the withheld taxes.

The court was not persuaded. It disagreed that the check for $139,582.52 satisfied the judgment since the State was unable to “submit examples of prior cases in which it withheld portions of plaintiff's back and front pay awards.” Noel v. N.Y. State Office of Mental Health Cent. N.Y. Psychiatric Ctr., No. 6:06–CV–788, 2010 WL 7701134, at *2 (N.D.N.Y. July 30, 2010); see also Entry Granting Order to Show Cause, April 4, 2011, ECF No. 141. The court granted Noel's motion and chastised the State for sending the check directly to him without either consulting or copying his counsel or the court, or requesting a ruling from the court as to the legal status of such deductions. Because the State was unable to provide “legal authority in support of its decision to withhold a significant portion of plaintiff's amended judgment,” Noel, 2010 WL 7701134, at *2, the court ordered the State to pay the balance of the final judgment, plus additional attorney's fees and costs. Although the court concluded that the State's actions were not sanctionable, id. at *3, it found that the State's failure to consult Noel's counsel about the “many complicated and complex ‘deductions' ” was inexcusable. Id. at *2. In 2010, the court entered a judgment in the amount of $164,987.59, representing a second payment of the monies previously withheld and paid over, plus interest and fees. The State paid the new judgment and appealed.

We review a district court's interpretation of its judgment for abuse of discretion and review the legal conclusions underlying a district court's decision de novo. See Garcia v. Yonkers Sch. Dist., 561 F.3d 97, 102 (2d Cir.2009). We consider the views expressed by the United States as amicus curiae for their persuasive value. See Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944).

DISCUSSION

The State argues that Title VII awards for back and front pay are “wages” when paid by an employer irrespective of whether such payment is made through a settlement or a final judgment, and, as such, it was required by law to withhold taxes. Appellant Br. at 11; Reply Br. at 5. The United States supports this position, arguing that the district court's decision is incorrect as a matter of law because it “penalizes the State for fulfilling its legal duty,” Amicus Br. at 2. Noel's primary response is that the State lacked authority to treat back and front pay incorporated in a judgment as “wages” without either seeking a ruling from the district court to that effect or pointing to specific authority that compels that result.

The Internal Revenue Code broadly defines income as “all income from whatever source derived.” I.R.C. § 61(a). Noel does not seriously dispute that Title VII back and front pay awards normally are income, see id.§ 104(a), but argues instead that, when the source of the obligation to pay is a judgment, the payment is not subject to withholding because the payment is for the judgment and not for “wages.” We disagree and hold that payments pursuant to Title VII judgments for back and front pay are “wages” as defined under the Internal Revenue Code and, as such, employers are required to withhold income and Federal Insurance Contributions Act (“FICA”) taxes. ² Moreover, we conclude that—although district courts have discretion to oversee the procedure by which these deductions are taken—the district court should not have ordered the double payment.

The Code defines “wages” for purposes of income tax withholding as “all remuneration ... for services performed by an employee for his employer,” id. § 3401(a). The Code defines “wages” for purposes of FICA withholding in a substantially similar manner as “all remuneration for employment.” Id. § 3121(a), where “employment” is defined as “any service, of whatever nature, performed ... by an employee for the person employing him.” Id. § 3121(b). For purposes of withholding, we construe that Congress intended its definition of “wages” to be interpreted in the same manner for FICA and income-tax withholding.³See Rowan Cos., Inc. v. United States, 452 U.S. 247, 257, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981).

The remedial provisions of Title VII authorize front and back pay. See42 U.S.C. § 2000e–5(g)(1). Back pay is “an amount equal to the wages the employee would have earned from the date of discharge to the date of reinstatement, along with lost fringe benefits such as vacation pay and pension benefits.” United States v. Burke, 504 U.S. 229, 239, 112 S.Ct. 1867, 119 L.Ed.2d 34 (1992) (emphasis added), superseded by statute on other grounds. Front pay is “simply money awarded for lost compensation during the period between judgment and reinstatement or in lieu of reinstatement.” Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 846, 121 S.Ct. 1946, 150 L.Ed.2d 62 (2001); see also id. at 853, 121 S.Ct. 1946 (“We see no logical difference between front pay awards made when there eventually is reinstatement and those made when there is not.”).

We have little difficulty in concluding that both back pay and front pay are “wages” as defined by the Internal Revenue Code.⁴I.R.C. § 3401(a); id. § 3121(a). Both are remuneration paid to an employee to compensate for what he would have earned had he not been the victim of discrimination. The Code requires that employers withhold taxes from remuneration paid to an employee for “services performed by an employee for his employer,” id. § 3401(a) (income tax), or for remuneration for “any service, of whatever nature, performed ... by an employee for the person employing him,” id. § 3121(a), (b) (FICA tax). The term “service performed” means “not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer.” Soc. Sec. Bd. v. Nierotko, 327 U.S....