Smith v. Industrial Constructors, Inc.

• Decision Date: 03 March 1986
• Docket Number: No. 85-4616,85-4616
• Citation: 783 F.2d 1249
• Parties: Joan SMITH, individually and as Executrix of the estate of John Smith, and as representative of the heirs of John Smith, Plaintiff-Appellant, v. INDUSTRIAL CONSTRUCTORS, INC., etc., et al., Defendants, John E. Phelan, an individual, et al., Defendants-Appellees. Summary Calendar. Fifth Circuit
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1249

783 F.2d 1249

Joan SMITH, individually and as Executrix of the estate of John Smith, and as representative of the heirs of John Smith, Plaintiff-Appellant, v. INDUSTRIAL CONSTRUCTORS, INC., etc., et al., Defendants John E. Phelan, an individual, et al., Defendants-Appellees.

No. 85-4616

Summary Calendar.

United States Court of Appeals,Fifth Circuit.

March 3, 1986.

C.R. McRae, Margaret Ellis, Pascagoula, Miss., for plaintiff-appellant.

Hopkins, Logan & Vaughn, Stephen A. Anderson, Mark W. Davis, Gulfport, Miss., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before POLITZ, GARWOOD and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The issues before us concern two adjustments to an award for lost earnings in a wrongful death case. The plaintiff's decedent was killed in an automobile accident for which the district court, in a bench trial, found him seventy-five percent at fault. We must decide whether prejudgment interest should have been awarded on earnings lost between the time of death and the time of trial, and whether the damage award based on the decedent's lost earnings was appropriately reduced by the amount of income tax he would have paid on those earnings.

I

While driving north on highway 611 in Pascagoula, Mississippi, on November 6, 1981, John Smith collided with the rear end of a tractor/trailer driven by John Phelan, an employee of Ernest Construction Company. The accident occurred immediately after Phelan pulled out onto the highway. Smith was killed instantly.

John Smith's widow, Joan Smith, sued Phelan, Ernest Construction Company, and Industrial Constructors, Inc., as an individual, as executrix of Smith's estate, and as the heirs' representative under the Mississippi wrongful death statute. The district court heard the case without a jury, and in a thorough and able opinion held that Phelan was twenty-five percent negligent, and Smith was seventy-five percent negligent. The district court also held that Industrial Constructors, Inc., was not liable to the plaintiff because it was an entirely separate entity from the true employer, Ernest Construction Company. Ernest Construction Company was held liable under the doctrine of respondeat superior.

The district court awarded damages that generally followed those suggested by the plaintiff's expert, but reduced the earnings awards by increasing the amount for Smith's living expenses. The plaintiff's expert testified on expected wage increases, inflation, living expenses and an appropriate discount rate; he also prepared estimates that accounted for these factors.

The court allowed $200,000 for the loss of Smith's society, $475,000 for the loss of Smith's future earnings, and $75,000 for the loss of Smith's earnings from the time of his death to trial. These figures for lost earnings were already discounted to present value and adjusted for living expenses, inflation and income taxes. The plaintiff's total damages were therefore $750,000, which the district court reduced by seventy-five percent to reflect Smith's comparative negligence, arriving at an award of $187,500 to the plaintiff under the wrongful death statute. The district court also awarded $898.13 to Smith's estate, after reduction for Smith's liability, for funeral expenses. At the same time, the court denied Mrs. Smith's motion for prejudgment interest, holding that there was a legitimate dispute over the amount that the plaintiff might be able to recover and the action was one sounding in tort.

Mrs. Smith argues that she should receive an award of prejudgment interest on Smith's lost earnings from the time of his death to the time of trial according to the legal rate of interest fixed by Mississippi law, and describes this sum as liquidated. She argues that she has properly pleaded the issue of prejudgment interest by asking for it in her complaint.

Mrs. Smith also objects to the reduction of the award by the amount of income taxes the decedent would have paid on his future earnings. She argues that there is no precedent for such a reduction under Mississippi law, and that any such reduction for taxes is speculative and therefore not proper as a reduction of damages. In the alternative, Mrs. Smith argues the taxes should not be calculated on the total amount of lost-earnings damages before reduction for comparative fault, but rather income taxes should be calculated after the total amount has been reduced by the amount of his comparative fault, which would result in a lower tax rate on the proceeds.

II

Neither party contests any factual finding of the district court, nor does either party contest the district court's ruling on the precentage of negligence attributable to the respective sides. The only issues, therefore, left for our review are whether the district court properly denied prejudgment interest on the award of Smith's lost earnings from the date of his death to the date of trial, and whether the district court properly subtracted income taxes from Smith's lost earnings.

III

Preliminarily, we must note that both issues in this case are controlled by Mississippi law. It is well established that in diversity cases in the Fifth Circuit "state law governs the measure of damages." Murphy v. Georgia Pacific Corp., 628 F.2d 862 (5th Cir.1980), quoting Weakley v. Fishbach & Moore, Inc., 515 F.2d 1260, 1267 (5th Cir.1975). See also Culver v. Slater Boat Co., 688 F.2d 280, 289-90 (5th Cir.1982), en banc, relevant part reaff'd, 722 F.2d 114, 123 (5th Cir.1983). We have also specifically held that the question of prejudgment interest is controlled by state law. Vicon, Inc. v. CMI Corp., 657 F.2d 768, 776 (5th Cir.1981); Dunn v. Koehring Co., 546 F.2d 1193, 1201 (5th Cir.1977). Mrs. Smith notes that some confusion is engendered by one of our cases on the question whether state law controls the award of prejudgment interest. Nations v. Sun Oil, 695 F.2d 933, 939 n. 2 (5th Cir.1983). The footnote in Nations appears to indicate that the Fifth Circuit standard for federal cases would control a Mississippi workmen's compensation case in determining the method for discounting. The footnote in question is dicta because the real issue the court was addressing in Nations was a conflict between jury instructions. Furthermore, we have clearly stated in Vicon and Dunn that state law controls the award of prejudgment interest. We therefore follow the clear guide of Vicon and Dunn and apply Mississippi law in determining the award of prejudgment interest. Similarly, Mississippi law controls the subtraction of taxes from a damage award for future earnings because that reduction is a question of the measure of damages.

A.

Mississippi law is quite clear on the question whether prejudgment interest can be awarded for estimated earnings from the time of death to the time of trial. Under Mississippi law, "it is often stated that in the absence of statute or contract providing expressly therefor, or proof sufficient to support an award of punitive damages, there can be no recovery of attorney's fees or prejudgment interest." Stanton and Associates v. Bryant Construction Co., 464 So.2d 499, 502 (Miss.1985). Mrs. Smith does not contend that the proof is sufficient to support an award for punitive damages, and, in fact, by failing to contest the apportionment of liability, she concedes the inapplicability of punitive damages. Punitive damages are available in Mississippi only "for a willful and intentional wrong, or for such gross negligence and reckless negligence as is equivalent to such a wrong." Standard Life Insurance Co. of Indiana v. Veal, 354 So.2d 239, 247, (quoting Seals v. St. Regis Paper Co., 236 So.2d 388, 392 (Miss.1970)). Also, "there must enter into the injury some element of aggression or some coloring of insult, malice or gross negligence, evincing ruthless disregard for the rights of others, so as to take the case out of the ordinary rule." Standard Life Insurance Co. of Indiana, 354 So.2d at 247 (quoting Fowler Butane Gas Co. v. Varner, 244 Miss. 130, 150-51, 141 So.2d 226, 233 (1962)). A finding of only twenty-five percent negligence is incompatible with the gross negligence required for punitive damages.

In order to recover prejudgment interest, therefore, the plaintiff here must show some statute that would support an award of prejudgment interest. The Mississippi wrongful death statute makes no provision for prejudgment interest. Miss.Code Ann. Sec. 11-7-13. Another provision cited by the plaintiff only sets out the legal rate of interest in Mississippi. Miss.Code Ann. Sec. 75-17-1. No other Mississippi statute provides for prejudgment interest on estimated earnings from the time of the decedent's death to the time of trial. Consequently, the trial judge would have been correct in denying prejudgment interest on this basis alone.

The district court, however, went on to note that, even where it would be proper to allow prejudgment interest, such as in cases where punitive damages would have been proper, the trial judge has discretion over whether prejudgment interest will be awarded. Dunn, 546 F.2d at 1201. The district court held that the allocation of liability showed that there was a legitimate dispute as to whether any payment was due the plaintiff, and therefore that no award of prejudgment interest would be proper. Highlands Insurance Co. v. McLaughlin, 387 So.2d 118, 121 (Miss.1980); Glantz Contracting Co. v. General Electric Co., 379 So.2d 912, 918-19 (Miss.1980). We hold that the district court did not abuse its discretion in refusing prejudgment interest on the wages lost from the time of death to the time of trial.

Mrs. Smith also argues that Smith's earnings from the time of his death to the time of trial were liquidated and that because these earnings were clearly established and not speculative, prejudgment interest should be awarded on these damages. This is...