Scallon v. Hooper

• Decision Date: 03 August 1982
• Docket Number: No. 8110SC1111,8110SC1111
• Citation: 58 N.C.App. 551,293 S.E.2d 843
• Court: North Carolina Court of Appeals
• Parties: Charles S. SCALLON, Administrator of the Estate of Larry Alan Aiken v. Phillip McIntyre HOOPER and Charles Kenneth Caldwell.

Page 843

293 S.E.2d 843

58 N.C.App. 551

Charles S. SCALLON, Administrator of the Estate of Larry Alan Aiken v. Phillip McIntyre HOOPER and Charles Kenneth Caldwell.

No. 8110SC1111.

Court of Appeals of North Carolina.

Aug. 3, 1982.

Bailey, Dixon, Wooten, McDonald & Fountain by Wright T. Dixon, Jr., Gary S. Parsons and Carson Carmichael, III, Raleigh, for plaintiff-appellant-appellee.

Ragsdale & Liggett by George R. Ragsdale, Peter M. Foley, and John N. Hutson, Jr., Raleigh, for defendants-appellees.

CLARK, Judge.

Plaintiff has twice appealed from judgments in his favor. His displeasure with the favorable judgments is perhaps explained by defendants' offer of judgment in the amount of $50,001.00 entered on 21 May 1979. The offer was not accepted by the plaintiff. We cannot ignore this offer of judgment and the substantial disparity which exists between the amount offered and the amounts of the jury verdicts because plaintiff and defendant have excepted and assigned error to that part of the judgment taxing against the plaintiff the costs incurred "up to and including the entry and indexing of judgment of Judge Hamilton Hobgood, setting aside the jury verdict returned in this case on October 15, 1979 ...." This provision in the judgment was based on G.S. 1A-1, Rule 68(a), which provides in pertinent part that if an offer to allow judgment is not accepted, and "the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer." (Emphasis added)

The purpose of Rule 68 is to encourage settlements and avoid protracted litigation. The offer operates to save the defendant the costs from the time of that offer if the plaintiff ultimately obtains a judgment for less than the sum offered. 7-Pt. 2 Moore's Federal Practice and Procedure § 68.06 (2d ed. 1982).

Since in this case the offer was made and served on 21 May 1979 and the judgment was for less than the sum offered, the trial court erred in taxing costs against the plaintiff up to and including 15 October 1979. Under Rule 68(a) the judgment should have ordered the plaintiff to pay the costs incurred after 21 May 1979. However, we have determined that the judgment must be reversed and the case remanded again for a new trial. Thus, the assessment of costs by the trial court depends upon the judgment finally obtained by the plaintiff.

The plaintiff assigns as error the following instruction to the jury: "[Y]ou're to be aware that any recovery that may be had in this case ... is not subject to income taxes either with the State or Federal Government."

The accuracy of the instruction is not challenged. For the federal exemption see Internal Revenue Code, § 104(a)(2), 26 U.S.C. § 104(a)(2), and Norfolk and W. Ry. Co. v. Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689, reh. denied, 445 U.S. 972, 100 S.Ct. 1667, 64 L.Ed.2d 250 (1980); and for the state exemption see G.S. 105-141(b).

Plaintiff argues that the instruction violates the collateral source rule, recognized in North Carolina, which refuses to allow the tortfeasor credit for the reasonable value of benefits to which he has contributed nothing. Young v. R.R., 266 N.C. 458, 146 S.E.2d 441 (1966); 22 Am.Jur.2d Damages § 206 (1965); 5 Strong's N.C. Index 3d Damages § 10 (1977). On the other hand, defendant argues that the collateral source rule only applies to direct benefits received by an injured party in compensation for the injury, as in Young, supra, in which the court refused to allow credit on damages for medical expenses paid through an insurance policy carried by plaintiff's employer. Defendant relies on Norfolk & W. Ry. Co. v. Liepelt, supra, which held that the refusal to instruct the jury that the award would not be subject to income taxes was reversible error because otherwise the jury would calculate a wrongful death award under the assumption that any award will be taxable to the recipient.

The question has never been specifically addressed by the North Carolina courts, but a majority of other jurisdictions have ruled that the incidence of income tax as it relates to the damages award in wrongful death cases should not be mentioned in instructions to the jury. Annot., 63 A.L.R.2d 1393 (1959); 1 S. Speiser, Recovery for Wrongful Death, § 8:14 (1975).

The majority view is not within, but is closely related to, the collateral source rule. And the reason generally given by the courts in support of the majority view differs from that given to support the collateral source rule. The reason courts adopt the majority view of refusing to take income tax consequences into consideration in awarding damages for wrongful death is that the amount of a recipient's future income tax liability is too conjectural or speculative a factor. Mitchell v. Emblade, 80 Ariz. 398, 298 P.2d 1034 (1956); Atlantic Coast Line R. Co. v. Brown, 93 Ga.App. 805, 92 S.E.2d 874 (1956); Hall v. Chicago & N. W. Ry. Co., 5 Ill.2d 135, 125 N.E.2d 77, 50 A.L.R.2d 661 (1955); Highshew v. Kushto, 235 Ind. 505, 134 N.E.2d 555 (1956); Dempsey v. Thompson, 363 Mo. 339, 251 S.W.2d 42 (1952); Smith v. Pa. R. Co., 47 Ohio Ops. 49, 99 N.E.2d 501 (1950); Dixie Feed & Seed Co. v. Byrd, 52 Tenn.App. 619, 376 S.W.2d 745 (1963), appeal dismissed, 379 U.S. 15, 85 S.Ct. 147, 13 L.Ed.2d 84 (1964); and see cases compiled in A.L.R.2d Later Case Service, Supplementing 63 A.L.R.2d 1393.

In North Carolina the recovery in a wrongful death case is based largely on losses suffered by particular beneficiaries. G.S. 28A-18-1 and -18-2. The purpose of damages is to restore these beneficiaries to the position they would have occupied had there been no death. It would be inequitable to give the income tax exemption instruction to the jury without allowing evidence relative to the effect that the exemption would have on the future tax liability of each of the particular beneficiaries. And consideration of the taxation issue as it relates to each beneficiary would ordinarily involve abundant and intricate evidence and jury instructions on present and future tax and nontax liabilities of each beneficiary. This would unduly complicate a wrongful death action, which is already complicated by our statute, G.S. 28-18-2, requiring many specific and some general elements to be considered in determining the present monetary value of the decedent to beneficiaries.

We adopt the majority view that it is reversible error for the trial court to instruct the jury that damages awarded in a wrongful death action are exempt from federal and state income taxes. We note that in the case sub judice, the tax exemption instruction was given to the jury by the trial court, apparently at the request of the defendant after all the evidence was presented and without prior notice to the plaintiff, who thus had no opportunity to present evidence relating to the effect of the income tax exemption on the various beneficiaries.

Having determined that the tax exemption instruction was reversible error which requires a...