Stokes v. United States

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS July 29, 2020
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
ALEXIS STOKES, individually and as
guardian and next friend of Baby Boy
D.S., a minor; TAYLOR STOKES,
individually and as guardian and next
friend of Baby Boy D.S., a minor,
Plaintiffs - Appellees/Cross-
Appellants,
v. Nos. 19-7034 & 19-7035
UNITED STATES OF AMERICA, ex
rel. Indian Health Service & Chickasaw
Nation Medical Center, an agency of the
Chickasaw Nation,
Defendant - Appellant/Cross-
Appellee.
_________________________________
Appeal from the United States District Court
for the Eastern District of Oklahoma
(D.C. No. 6:17-CV-00186-JH)
_________________________________
Casen B. Ross, Attorney, Appellate Staff, United States Department of Justice, Civil
Division, Washington, D.C. (Robert P. Charrow, General Counsel, Brian Stimson,
Principal Deputy General Counsel for Litigation, United States Department of Health
and Human Services; Joseph H. Hunt, Assistant Attorney General, Brian J. Kuester,
United States Attorney, Susan Stidham Brandon, Assistant United States Attorney,
and Abby C. Wright, Attorney, Appellate Staff, United States Department of Justice,
Civil Division, Washington, D.C., with him on the briefs), for Defendant-Appellant.
George W. Braly of Braly, Braly, Speed & Morris, PLLC, Ada, Oklahoma (William
W. Speed and Sheila Southard of Braly, Braly, Speed & Morris, PLLC, Ada,
Oklahoma, and Lawrence R. Murphy Jr. of Smolen Law, Tulsa, Oklahoma, with him
on the briefs), for Plaintiffs-Appellees.
_________________________________
Before BRISCOE, McHUGH, and MORITZ, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
The district court awarded damages to Baby Boy D.S. (Baby Stokes) and his
parents, Alexis Stokes and Taylor Stokes, (collectively, the Stokes) in this Federal
Tort Claims Act (FTCA), 28 U.S.C. § 2674, action. The government appeals, arguing
that the district court erred in structuring damage payments. The Stokes cross appeal,
arguing that the district court erred both by miscalculating the present value of a
portion of the award and by awarding too little in noneconomic damages. For the
reasons explained below, we affirm in part, vacate in part, and remand.
Background
An employee of a federally supported health center failed to properly
administer a drug to Alexis Stokes while she gave birth to Baby Stokes. As a result,
Baby Stokes suffers from “cerebral palsy and spastic quadriplegia,” along with other
disabilities, and his life expectancy is 22 years. App. vol. 2, 79.
The Stokes brought this FTCA case against the government. After a bench
trial, the district court found the government liable and ordered it to pay a total of
$15.9 million in damages, including the cost of Baby Stokes’s future care and
noneconomic damages. As relevant to this appeal, the district court (1) ordered the
government to pay the cost of Baby Stokes’s future care into a trust, granting the
2
government a diminishing reversionary interest in the trust and permitting the trustee
to withdraw funds as needed to provide for Baby Stokes; (2) applied a zero-percent
discount rate in calculating the present value of the award for Baby Stokes’s future
care; and (3) awarded Baby Stokes $1,000,000 in noneconomic damages, Alexis
Stokes $500,000 in noneconomic damages, and Taylor Stokes $400,000 in
noneconomic damages. 1 The government and the Stokes both appeal.
Analysis
On appeal, the government does not challenge liability or the amount of
damages. It appeals only how the trust is structured with respect to the future-care
award. In their cross-appeal, the Stokes argue that (1) the district court applied the
wrong discount rate when calculating the present value of the future-care award and
(2) their noneconomic damages are erroneously low. 2
I. Structure of the Trust
The government argues that the district court erroneously structured Baby
Stokes’s future-care award by not approximating Oklahoma’s periodic-payment
statute to the fullest extent possible. The FTCA generally requires courts to hold the
1
The district court initially awarded each of the three Stokes $350,000 in
noneconomic damages because of a state-law statutory cap. See Okla. Stat. tit. 23,
§ 61.2(B). But shortly thereafter, the Oklahoma Supreme Court found that statutory
cap unconstitutional. Beason v. I. E. Miller Servs., Inc., 441 P.3d 1107, 1109 (Okla.
2019). At the Stokes’s request, the district court then increased the noneconomic-
damages award.
2
Citing the limited nature of their appeals, the parties filed an agreed
stipulation for partial summary disposition, requesting that we order that the
government pay the portion of the damages awarded in the judgment that are
uncontested on appeal. We granted that request.
3
government liable for tort claims “in the same manner and to the same extent as a
private individual under like circumstances,” which includes applying relevant state
law. § 2674; see Hill v. United States, 81 F.3d 118, 120–21 (10th Cir. 1996). In
Oklahoma, private individuals ordered to pay more than $100,000 in future-care
damages can request that they pay those damages through periodic payments instead
of as a lump sum. Okla. Stat. tit. 23, § 9.3(C). 3 Those payments may not continue for
more than seven years. Id. If the recipient dies before all periodic payments are made,
the statute explains that the “obligation of the defendant [payor] to make further
payments ends.” § 9.3(H). But courts cannot neatly apply this Oklahoma law to the
3
As relevant here, § 9.3 provides:
C. Upon request of a party, the court may order that future damages be paid
in whole or in part in periodic payments rather than by a lump-sum
payment. Periodic payments shall not exceed seven (7) years from the date
of entry of judgment.
D. The court shall make a specific finding of the dollar amount of periodic
payments that will compensate the plaintiff for the future damages. The
court shall specify in its judgment ordering the payment of future damages
by periodic payments the:
1. Recipient of the payments;
2. Dollar amount of the payments;
3. Interval between payments; and
4. Number of payments or the period of time over which payments must be
made.
...
H. On the death of the recipient, money damages awarded for loss of future
earnings shall continue to be paid to the estate of the recipient of the award
without reduction. Following the satisfaction or termination of any
obligations specified in the judgment for periodic payments, any obligation
of the defendant health care provider to make further payments ends and
any security given reverts to the defendant.
4
federal government because they may not order the government to make periodic
payments. Hull ex. rel. Hull v. United States, 971 F.2d 1499, 1505 (10th Cir. 1992).
When facing a situation like this, courts must “approximate the result contemplated
by the” state statute. Hill, 81 F.3d at 121. And one common way to approximate
periodic-payment statues is for the government to pay future damages into an account
as a lump sum and then model disbursements from that account around the state’s
periodic-payment statute. See, e.g., Dixon v. United States, 900 F.3d 1257, 1260–61
(11th Cir. 2018) (noting that district court “granted the government’s request to make
a single payment into a trust for periodic disbursement” to approximate Florida’s
periodic-payment statute); Lee v. United States, 765 F.3d 521, 527 (5th Cir. 2014)
(vacating district court order because it “should have structured the [FTCA] damage
award in a manner resembling” Texas’s periodic-payment statute); Dutra v. United
States, 478 F.3d 1090, 1092 (9th Cir. 2007) (explaining that “FTCA authorizes courts
to craft remedies that approximate the results contemplated by state statutes, and
nothing in the FTCA prevents district courts from ordering the United States to
provide periodic payments in the form of a reversionary trust”; requiring that FTCA
award approximate Washington’s periodic-payment statute); Hill, 81 F.3d at 121
(ordering district court to create reversionary trust for FTCA award to approximate
Colorado’s periodic-payment statute).
Here, after trial and in anticipation of a damages award, the Stokes created a
trust that (1) permitted the trustee to withdraw funds to care for Baby Stokes as
needed and (2) granted the government a 14-year fractional reversionary interest in
5
the future-care award. 4 When the district court awarded damages, it approved this
trust structure with one exception: citing § 9.3, it ordered that the trust be modified to
ensure that “at the end of seven years no amount is payable to the government.” App.
vol. 2, 91.
Citing the requirement that it be treated the same as a private individual, the
government asked the court to amend its order to more closely model the trust on
Oklahoma law. See § 2674. Specifically, the government requested that the district
court (1) order it to pay a lump sum for the amount of Baby Stokes’s future-care
award into an account, (2) order the trustee of that account to pay one-seventh of the
lump sum to Baby Stokes each year for seven years, and (3) order that in the event
Baby Stokes were to die before all payments were made, the remaining funds from
the lump sum would revert to the government. The district court declined to modify
the trust structure, stating that it “fashioned a remedy [that] approximated the result
contemplated by state law but complied with federal law. Strict adherence to state
law is not mandated.” App. vol. 2, 153.
On appeal, the government argues that the district court erred by not
“approximat[ing] the result contemplated by” § 9.3 as required by the FTCA. Hill, 81
F.3d at 121; see also § 2674. The parties agree that the district court failed to
4
Specifically, the trust provided that, in the event of Baby Stokes’s premature
death, the government would recover a portion of the future-care award. The trust
agreement reduced the amount the government would recover by one-seventh every
two years such that after fourteen years, the government would not recover any of the
future-care award if Baby Stokes were to die prematurely.
6
approximate all of § 9.3’s provisions. 5 But they disagree on whether the district court
was required to do so. Because we must hold the government liable for tort claims
“in the same manner and to the same extent as a private individual under like
circumstances,” § 2674, we first consider how the statute would apply to a private
party. Next, we determine whether the district court fully approximated that result for
the government. In doing so, we interpret § 9.3 de novo. 6 See Burlington N. & Santa
Fe Ry. Co. v. Grant, 505 F.3d 1013, 1024 (10th Cir. 2007); Dixon, 900 F.3d at 1261
(reviewing de novo whether the district court erred in applying Florida’s periodic-
payment statute); Vanhoy v. United States, 514 F.3d 447, 451 (5th Cir. 2008) (noting
that “[t]he question whether [Louisiana’s Medical Malpractice Act] requires the
district court to provide protection to the government in the form of a reversionary
5
The government asserts that the district court failed to approximate
(1) § 9.3(C) and (D) when it permitted the trustee to withdraw funds from Baby
Stokes’s future-care award on an as-needed basis, as opposed to structuring
withdrawals as set periodic payments, and (2) § 9.3(H) when it granted the
government a diminishing fractional reversionary interest, as opposed to granting the
government a full reversionary interest in the amount of the future-care award that a
private party would not have yet paid if Baby Stokes were to die prematurely. The
Stokes do not argue that that district court fully approximated § 9.3(C), (D), or (H).
6
The Stokes argue that we should review the trust’s structure for abuse of
discretion. It is true that in Hull we reviewed the district “court’s decision as to the
structure of the [FTCA] award . . . only for an abuse of discretion.” Hull, 971 F.2d at
1506. But there was no state statute at issue in Hull, so our review did not involve
statutory interpretation. Moreover, in Dixon, which the Stokes rely on for this point,
the Eleventh Circuit interpreted Florida’s periodic-payment statute de novo. Dixon,
900 F.3d at 1261. Only after determining—under de novo review—that Florida’s
statute “leaves the trial court free to exercise its discretion in fashioning the periodic-
payment schedule” did the Dixon court review the periodic-payment schedule for
abuse of discretion. Id. at 1269. Thus, Dixon does not support the Stokes’s argument
and instead provides further support for reviewing this issue de novo.
7
trust” is one of legal interpretation; reviewing “district court’s ruling de novo”). And
because we are interpreting an Oklahoma statute, we use Oklahoma’s “rules of
statutory construction.” Ward v. Utah, 398 F.3d 1239, 1248 (10th Cir. 2005). So we
will not look beyond the statute’s text if “the language of the statute is plain and
unambiguous.” Antini v. Antini, 440 P.3d 57, 60 (Okla. 2019).
A. Application of § 9.3 to a Private Party
Turning to the text of § 9.3, the statute provides that “[u]pon request of a
party, the court may order that future damages be paid . . . in periodic payments.”
§ 9.3(C) (emphasis added). As the Stokes argue, because § 9.3 permits a private party
to request periodic payments, it gives the district court discretion whether to grant
that request. See Okla. Pub. Emps. Ass’n v. State ex rel. Okla. Office of Pers. Mgmt.,
267 P.3d 838, 845 n.18 (Okla. 2011) (“The term ‘may’ is ordinarily construed as
permissive . . . .”). Focusing on the word “may,” the Stokes then argue that none of
§ 9.3 is mandatory because it “uses the word ‘may’ rather than ‘shall,’ thus defining
the discretionary nature of implementing (or not) the statute.” Aplee. Br. 16 (quoting
§ 9.3). But the Stokes’s argument ignores the remainder of the statute, which
repeatedly uses the term “shall” in describing the court’s responsibilities. For
example, it states that “[p]eriodic payments shall not exceed [seven] years” and that
the “court shall specify . . . [the r]ecipient of the payments,” the “[d]ollar amount of
the payments,” the “[i]nterval between payments,” and the “[n]umber of payments or
the period of time over which payments must be made.” § 9.3(C)–(D) (emphases
added). The statute’s use of “shall” in these provisions indicates that once a court
8
grants a private party’s request to apply the statute, it must apply these provisions
when structuring payments. See Keating v. Edmondson, 37 P.3d 882, 888 (Okla.
2001) (explaining that “shall” “signifies a mandatory directive or command”). As the
government notes, under § 9.3, “a private party would never be required to make
periodic payments for future life-care expenses on anything other than a fixed
schedule . . . . Rather, a private party would either make a lump-sum payment or be
ordered to make periodic payments on a specific schedule set by the court.” Aplt. Br.
25.
We agree and conclude that, as applied to a private party, § 9.3 permits the
district court discretion to grant or deny a party’s request to apply the statute. But,
once a court grants that request, the statute’s provisions become mandatory.
B. Approximation of the Result of § 9.3
Having considered and determined how § 9.3(C) would apply to a private
party, we must now decide whether the district court fully “approximate[d] the result
contemplated by” § 9.3 as required by the FTCA. Hill, 81 F.3d at 121; see also
§ 2674. As such, we must first determine whether the district court granted the
government’s request to apply the statute. If it did, we must then determine whether
the district court fully approximated § 9.3.
The Stokes argue that the district court declined to apply § 9.3 because it
“explicitly declined to order periodic payments.” Aplee. Br. 23. Specifically, the
Stokes point to the district court’s order denying the “establishment of a specific
payment schedule.” App. vol. 2, 154. But, in its initial order awarding damages—and
9
in response to the government’s request to structure the trust according to § 9.3—the
district court noted that it structured the trust “based on Oklahoma’s statute” and, in
doing so, cited to § 9.3. App. vol. 2, 90. Moreover, a later order modifying the
damages award stated that “the court fashioned a remedy [that] approximated the
result contemplated by state law but complied with federal law. Strict adherence to
state law is not mandated.” App. vol. 2, 153. Thus, the district court clearly did not
reject application of § 9.3 in the first instance. Rather, the district court’s deviation
from § 9.3 appears to stem from a failure to understand its duty to fully approximate
the result contemplated by the statute, as required by the FTCA. Accordingly, we
conclude that the district court granted the government’s request to apply § 9.3.
Because, as explained above, this decision renders the remainder of § 9.3 mandatory
as applied to a private party, we now must determine whether the district court
approximated that result for the government. Hill, 81 F.3d at 121.
Here, the district court approved a trust that (1) permitted the trustee to
withdraw funds to care for Baby Stokes as needed and (2) granted the government a
seven-year fractional reversionary interest in the future-care award. The government
argues that this structure did not adequately approximate § 9.3. As described above,
courts often approximate periodic-payment statues by ordering the government to pay
future damages into an account as a lump sum and then modeling disbursements from
that account around the state’s periodic-payment statute. See, e.g., Hill, 81 F.3d at
121 (ordering district court to create reversionary trust for FTCA award to
approximate Colorado’s periodic-payment statute). And, citing cases where other
10
courts approximated periodic-payment statutes, the government asserts that the
district court should have approximated § 9.3 by doing just that. See, e.g., Askew v.
United States, 786 F.3d 1091, 1093 (8th Cir. 2015) (“[T]o best approximate the
results contemplated by the Missouri statutes, the district court should have specified
[the tort victim’s] future medical damages, created a reversionary trust to hold those
funds, and ordered periodic payments of future medical damages from the trust, with
the corpus of the trust to revert to the United States upon [victim’s] death.”); Lee,
765 F.3d at 527 (“Although the district court could not impose a continuing
obligation on the government, it should have structured the damage award in a
manner resembling the periodic[-]payment scheme.”). Thus, the government
concludes, the district court did not “approximate the result contemplated by” § 9.3
as required by the FTCA. Hill, 81 F.3d at 121; see also § 2674.
The Stokes argue that the district court was not required to approximate § 9.3
by creating a reversionary trust. In doing so, they first assert that the discretionary
nature of § 9.3 makes it “fundamentally different” from the statutes at issue in the
FTCA cases the government cites. Aplee. Br. 18. In those cases, courts generally
either approved of or ordered the district court to create trust structures similar to
what the government requests here. See, e.g., Askew, 786 F.3d at 1093; Lee, 765 F.3d
at 527. But, as the Stokes point out, those cases involved periodic-payment statutes
that require a court to order periodic payments once a party has requested them,
whereas § 9.3 allows a court to deny a party’s request. Compare, e.g., Hill, 81 F.3d at
120–21 (applying Colorado’s periodic-payment statute, Colo. Rev. Stat. § 13-64-203,
11
which mandates periodic payments in certain circumstances), with § 9.3(C)
(explaining that “the court may order that future damages be paid . . . in periodic
payments”). Contrary to the Stokes’s argument, however, this distinction does not
make § 9.3 “fundamentally different” from the statutes at issue in the government’s
cases. Aplee. Br. 18. As explained above, § 9.3’s provisions became mandatory once
the district court granted the government’s request to apply the statute. And because
§ 9.3’s provisions are mandatory here, the government’s cases are both relevant and
support its contention that the district court should have more fully approximated
§ 9.3.
The Stokes next explain that the government is not actually requesting
application of all of § 9.3 because the government does not argue that the district
court should have better approximated § 9.3(J), a provision which requires periodic
payments to include postjudgment interest. And therefore, they maintain, the
government’s argument that the district court failed to fully approximate § 9.3 is
internally inconsistent. But the Stokes do not explain how the district court could
have better approximated § 9.3(J). 7 And even assuming that the government’s
argument is internally inconsistent, the Stokes do not demonstrate how such
inconsistency impacts how a court should approximate § 9.3. Thus, the Stokes’s
§ 9.3(J) argument does not alter our analysis.
7
In this section of their brief, the Stokes assert that the government’s proposed
trust structure would deprive them of earning postjudgment interest, but nothing in
§ 9.3 limits the Stokes’s ability to invest the lump-sum payment, and the government
never suggests otherwise.
12
Finally, the Stokes argue that Hull and Hill require courts to find that any
reversionary interest be in the best interests of the tort victim and that granting the
government a full reversionary interest here is not in the best interest of Baby Stokes.
Therefore, the Stokes conclude, the district court did not err by failing to fully
approximate § 9.3. But the FTCA says nothing about the best interests of the victim,
and Hull and Hill do not suggest otherwise. True, Hull acknowledged that district
courts may structure FTCA awards according to the best interests of the tort victim.
Hull, 971 F.2d at 1505. But, as discussed above, see supra note 6, Hull did not
involve a state statute. Thus, in Hull, the fact that future-care awards may be
structured in the victim’s best interest was not displaced by state law, like it is here.
Hill similarly does not indicate that the victim’s best interests supersedes the
FTCA’s requirement to approximate state statutes. True, in Hill, we considered the
victim’s best interests in declining to exercise our inherent authority to order the
district court to grant the government a reversionary interest in the victim’s future-
earnings award. Hill, 81 F.3d at 121. But the state periodic-payment statute at issue
in Hill did not permit reversion of future-earnings awards, so there was no conflict
between our decision and the FTCA’s requirement to approximate state statutes. Id.
Thus, like Hull, Hill does not give courts permission to deviate from the FTCA’s
approximation requirement, even if doing so is in the best interests of the victim.
Accordingly, we decline to deviate from this requirement here.
Based on § 9.3’s plain language, we conclude that if a court applies § 9.3 to a
private party then it must apply all of § 9.3’s requirements. See Antini, 440 P.3d at
13
60. And that conclusion, in this case, means the court must approximate that result
for the government. Hill, 81 F.3d at 121. But, as noted above, the district court did
not fully approximate § 9.3. Instead, although it granted the government’s request to
apply the statute, it did not establish a specific payment schedule, as contemplated by
§ 9.3(C) and (D). Nor did it provide the government, in the event of Baby Stokes’
premature death, a full reversionary interest in any portion of the future-care award
that a private party making periodic payments would not yet have made, as
contemplated by § 9.3(H). Thus, the district court erred by not approximating the
result contemplated by the statute. See Hill, 81 F.3d at 121.
***
We therefore vacate the portion of the district court’s order approving the
trust’s structure with respect to the future-care award and remand with instructions to
approximate § 9.3 to the fullest extent possible. Such approximation should specify
the “[r]ecipient of the payments,” the “[d]ollar amount of the payments,” the
“[i]nterval between payments,” and the “[n]umber of payments or the period of time
over which payments must be made.” § 9.3(D). In structuring these payments, the
district court should make “a specific finding of the dollar amount of periodic
payments that will compensate” Baby Stokes for his future care. Id. In addition, the
structure should provide that in the event of Baby Stokes’s premature death, the
government will receive a full reversionary interest in any portion of the future-care
award that a private party making periodic payments would not yet have made, as
contemplated by § 9.3(H).
14
II. Discount Rate
In their cross appeal, the Stokes argue that the district court erred when it
calculated the present value of Baby Stokes’s future-care award. When a court
awards damages to compensate for losses that will be suffered in the future, the court
must reduce the award to present value “to account for the effects of investment” and
“the effects of inflation.” Hull, 971 F.2d at 1510. The parties agree that the proper
way to calculate present value is to apply a discount rate, which is the interest rate
minus the inflation rate. But the Stokes argue that the district court (1) committed
legal error by determining that the discount-rate rule from Jones & Laughlin Steel
Corp. v. Pfeifer, 462 U.S. 523 (1983), did not apply to FTCA cases and
(2) committed factual error by relying on an interest rate that is not currently
available.
Here, the district court applied a zero-percent discount rate. In doing so, it did
not state which interest rate or inflation rate it used, nor did it clearly state the rule it
used for determining a discount rate. Instead, the district court stated that it “t[ook]
into account the current inflation rate of medical costs, current interest rates, and the
disparity between the experts’ opinions,” and then it concluded “that a net discount
rate of [zero] percent is appropriate.” App. vol. 2, 88. But the district court did
explicitly state that Pfeifer does not apply because that case “was not an action
brought under the FTCA.” Id. at 88 n.38.
On appeal, the Stokes first argue that the district court erred by determining
that Pfeifer does not apply to FTCA cases. Because this is a legal issue, we review it
15
de novo. 8 See El Encanto, Inc., 825 F.3d at 1162 (noting that courts “decide the
presence or absence of legal error de novo”).
In Pfeifer, the Supreme Court stated that, when calculating present value of
future awards, the discount rate should reflect the rate of interest that would be
“earned on ‘the best and safest investments’” that are “available” and should also
“represent the after-tax rate of return.” Pfeifer, 462 U.S. at 537–38 (quoting
Chesapeake & Ohio Ry. Co. v. Kelly, 241 U.S. 485, 491 (1916)). As noted above, the
district court concluded that Pfeifer did not apply here because Pfeifer was not an
FTCA case. But, as the Stokes explain, we have previously applied Pfeifer in an
FTCA case. 9 See Hull, 971 F.2d at 1511 (citing Pfeifer when determining discount
rate in FTCA case); cf. Trevino v. United States, 804 F.2d 1512, 1519 (9th Cir. 1986)
(noting that Pfeifer’s “discussion of discount rates technically is only an
interpretation of . . . the Longshoremen’s and Harbor Workers’ Compensation Act”
and thus “is not binding in an FTCA case” but that “the Court’s guidance on the issue
of economic predictions and discount rates [in Pfeifer] cannot be disregarded”). And
8
The government argues for a clearly erroneous standard, asserting that the
appropriate interest rate is a question of fact. See Hull, 971 F.2d 1512 (“We review the
district court’s choice of a discount rate under a clearly erroneous standard.”). But
this argument assumes we are reviewing the district court’s choice of a zero-percent
discount rate for factual error. Instead, we are reviewing the district court’s method of
selecting a discount rate for “the presence or absence of legal error” and thus apply de
novo review. El Encanto, Inc, v. Hatch Chile Co., Inc., 825 F.3d 1161, 1162 (10th
Cir. 2016).
9
The district court also implied that Pfeifer requires courts to use the
“Treasury Bill rate” when calculating interest rates. App. vol. 2, 88 n.38. But Pfeifer
makes no mention of which investment vehicle is appropriate, as long as that vehicle
is a safe investment. See Pfeifer, 462 U.S. at 537–38.
16
the government does not argue that Pfeifer is inapplicable here—indeed, it cites
favorably to Pfeifer in its briefing on appeal. Given our reliance on Pfeifer in Hull,
we conclude that Pfeifer applies to FTCA cases and that the district court committed
legal error in determining otherwise.
We thus vacate the portion of the district court’s order calculating the present
value of Baby Stokes’s future-care award 10 and remand with instructions to apply
Pfeifer in determining the discount rate. But we express no opinion on whether a
zero-percent discount rate itself is incorrect. Although the Stokes argue that, contrary
to Pfeifer, this zero-percent discount rate is based on an interest rate that is not
currently available, the district court did not state which interest or inflation rates it
used. Because the district court did not state the basis for its chosen discount rate, we
cannot determine whether this rate is an error. See Hull, 971 F.2d at 1511 (“[W]e
remand for the district court to make appropriate findings of fact explaining its
method of calculating present value for all awards for future damages . . . .”).
III. Noneconomic Damages
The Stokes argue that the district court’s noneconomic-damages award was too
low. As noted above, the district court ultimately awarded Baby Stokes $1,000,000 in
noneconomic damages, Alexis Stokes $500,000 in noneconomic damages, and Taylor
Stokes $400,000 in noneconomic damages. We “review the award of noneconomic
10
In addition to the future-care award, the district court reduced both Baby
Stokes’s and Alexis Stokes’s lost-future-income awards to present value. But neither
party contests these other calculations on appeal, and thus we do not vacate the
portion of the order reducing these awards to present value.
17
damages for clear error, to determine whether ‘the award shocks the judicial
conscience.’” Deasy v. United States, 99 F.3d 354, 360 (10th Cir. 1996) (quoting
Miller v. United States ex rel. Dep’t of the Army, 901 F.2d 894, 897 (10th Cir.1990)).
This standard is difficult to meet as “[t]rial courts are vested with broad discretion in
awarding damages, and [we] do not lightly engage in a review of a trial court’s
actions.” Dolenz v. United States, 443 F.3d 1320, 1321 (10th Cir. 2006) (quoting
Hoskie v. United States, 666 F.2d 1353, 1354 (10th Cir. 1981)).
The Stokes argue that the amounts of their noneconomic damages are so low
that they shock the judicial conscience because (1) they are substantially lower than
awards in factually similar cases and (2) Baby Stokes’s injuries are so severe. The
Stokes first identify other cases that they assert are factually similar, noting that the
noneconomic damages awarded to children in those similar cases average about $9.3
million and range from about $7.6 million to $11 million. In response, the
government asserts that it is inappropriate under both Tenth Circuit and Oklahoma
law to compare awards in factually similar cases when determining whether the
award shocks the conscience. But caselaw from both our circuit and the Oklahoma
Supreme Court suggest otherwise. See Hill v. J.B. Hunt Transp., Inc., 815 F.3d 651,
670–71 (10th Cir. 2016) (noting that although “[b]oth this court and Oklahoma courts
discourage comparisons to awards from other cases, . . . [w]e have made exceptions
where a previous case is similar enough to serve as a meaningful benchmark”); Okla.
Ry. Co. v. Strong, 226 P.2d 950, 952 (Okla. 1951) (noting that when reviewing
18
damages, “[appellate] courts may . . . consider the amount of verdicts rendered in
similar cases”).
However, we need not resolve this dispute here because even considering the
difference between the amounts awarded in the cases the Stokes urge us to consider
and the amounts awarded here, the Stokes’s noneconomic damage awards do not
shock the judicial conscience. This is true even taking into consideration the extent of
Baby Stokes’s injuries, as the Stokes also urge us to do. Although not necessarily an
award we would endorse on de novo review, the district court has wide discretion in
determining noneconomic damages. See Dolenz, 443 F.3d at 1321. And the Stokes do
not meet their high burden of demonstrating that the district court erred in exercising
that discretion here. We therefore affirm the portion of the district court’s order
regarding noneconomic damages.
Conclusion
For the reasons stated above, we (1) vacate and remand the portion of the
district court’s order structuring the trust with respect to Baby Stokes’s future-care
award, with instructions to fully approximate § 9.3; (2) vacate and remand the
portion of the district court’s order calculating the present value of Baby Stokes’s
future-care award, with instructions to apply Pfeifer; and (3) affirm the portion of the
district court’s order regarding noneconomic damages.
19
19-7034, 19-7035, Stokes, et al. v. United States of America, ex rel. Indian Health Service
& Chickasaw Nation Medical Center
McHUGH, Circuit Judge, concurring:
I join in much of the majority’s thoughtful analysis and in its conclusion that the
district court’s judgment should be vacated and the case remanded. I write separately,
however, to explain where my analysis differs.
First, with respect to the structure of the Stokes’s life care trust: Rather than order
the district court to modify the trust so that it complies to the extent possible with the
requirements of Oklahoma’s periodic payment statute, I would leave the district court
free to clarify on remand whether it intended to apply that statute. In my view, the record
is not clear in that regard.
Second, with respect to the discount rate applicable to the Stokes’s damage award:
Rather than leave the district court free to again apply a zero percent discount rate, I
would find that its use of a zero percent discount rate for Baby Stokes’s life care costs
was clear error.
I agree with the panel majority’s discussion of noneconomic damages and join that
portion of the opinion in full.
I. STRUCTURE OF THE TRUST
I agree with the panel majority that if the district court had ordered periodic
distributions from the life care trust pursuant to Okla. Stat. Ann. tit. 23, § 9.3, the district
court would then be required to approximate the result that would obtain against a private
party under all that statute’s provisions. But I cannot agree that the district court “granted
the government’s request to apply § 9.3.” Maj. Op. at 11. The district court did not order
periodic trust distributions. And the district court’s treatment of Oklahoma law in its
various orders is, at best, ambiguous. Accordingly, I would remand so that the district
court has an opportunity to clarify its intentions.
Consider the structure of Oklahoma’s periodic payments statute. Okla. Stat. Ann.
tit. 23, § 9.3 provides that, “[u]pon request of a party, the court may order that future
damages be paid in whole or in part in periodic payments rather than by a lump-sum
payment.” Id. § 9.3(C) (emphasis added). If a court does order periodic payments, it must
“specify in its judgment . . . the: 1. Recipient of the payments; 2. Dollar amount of the
payments; 3. Interval between payments; and 4. Number of payments or the period of
time over which payments must be made.” Id. § 9.3(D). But, in any event, “[p]eriodic
payments shall not exceed seven (7) years from the date of entry of judgment.” Id.
§ 9.3(C).
Section 9.3 also imposes several conditions to guarantee that a defendant makes
court-ordered periodic payments:
As a condition to authorizing periodic payments of future damages, the
court shall require a defendant who is not adequately insured to provide
evidence of financial responsibility in an amount adequate to assure full
payment of damages awarded by the judgment. The judgment shall
provide for payments to be funded by:
1. An annuity contract issued by a company licensed to do
business as an insurance company, including an assignment
within the meaning of Section 130, Internal Revenue Code of
1986, as amended;
2. An obligation of the United States;
2
3. Applicable and collectible liability insurance from one or more
qualified insurers; or
4. Any other satisfactory form of funding approved by the court.
On termination of periodic payments of future damages, the court shall
order the return of the security, or as much as remains, to the defendant.
Id. § 9.3(F)-(G).
When the recipient of periodic payments dies, “damages awarded for loss of future
earnings shall continue to be paid to the estate of the recipient of the award without
reduction.” Id. § 9.3(H). By contrast, “[f]ollowing the satisfaction or termination of any
obligations specified in the judgment for periodic payments, any obligation of the
defendant health care provider to make further payments ends and any security given
reverts to the defendant.” Id.
There are three reasons we should be skeptical the district court intended to adopt
all, or even most, of § 9.3. First, under our decision in Hull v. United States, 971 F.2d
1499 (10th Cir. 1992), a court may not order the United States to make periodic
payments. See id. at 1505. Strict compliance with § 9.3 is therefore impossible in FTCA
actions. The United States concedes as much. But that concession also defeats the United
States’ argument that the district court “opted-in” to § 9.3 by limiting the partial
reversionary interest to seven years. The district court did not “opt-in” to § 9.3; it could
not do so because it had no power to order periodic payments.
Second, § 9.3—by its plain terms—never requires periodic payments. It states that
a court “may order that future damages be paid in whole or in part in periodic payments.”
Id. § 9.3(C) (emphasis added). Because a similarly situated Oklahoma court would not be
3
required to order periodic payments in a non-FTCA case analogous to this one, the
district court was not required to do so here.
Third, it would be anomalous for the district court to impose all the various
requirements of § 9.3 on this life care trust. For example, § 9.3(F) requires that periodic
payments be funded by one of four means, including “[a]n obligation of the United
States.” Id. § 9.3(F)(2). The United States does not argue that it should be required to
make a lump sum payment to the life care trust using Treasury bills or some other
government-backed instrument. But that is the logical endpoint of its all-encompassing
position that the FTCA requires the district court’s judgment to approximate Oklahoma
law in every possible respect.
To be sure, the district court determined that it would order the life care trust to
make payments within seven years “based on Oklahoma’s statute.” App., Vol. II at 90. In
addition, the district court stated that it was doing so “on the basis of the statute rather
than plaintiffs’ consent.” App., Vol. II at 91 n.41. And, the district court later described
its prior order as “fashion[ing] a remedy which approximated the result contemplated by
state law.” App., Vol. II at 153. But the district court was permitted to draw inspiration
from Oklahoma’s periodic payment statute without adopting it wholesale. Indeed, how
could it be otherwise when § 9.3(C) states that periodic payments “shall not exceed seven
(7) years” but says nothing about the duration of reversionary interests.
The panel majority sees clarity in the district court’s confusing and scattered
references to § 9.3 because it proceeds as if the district court were faced with a binary
choice between applying some of § 9.3 or none of it. See Maj. Op. at 11 (referring to the
4
district court’s “duty to fully approximate the result contemplated by the statute”). But if
§ 9.3 does not apply to this life care trust, then the district court possessed “inherent
authority” to structure the trust in an alternative way that furthered Baby Stokes’s
interests. 1 Hull, 971 F.2d at 1505.
Because the district court did not order periodic trust distributions, we should not
assume that it intended to apply § 9.3. Instead, we should vacate and remand so the
district court can clarify its intentions. On remand, the district court should be free (1) to
order periodic trust distributions based on § 9.3 or (2) to explain that it elects not to
approximate the statutory scheme and to instead show how its alternative arrangement
advances Baby Stokes’s interests.
II. THE DISCOUNT RATE
I agree with the panel majority that the district court misstated the law when it
calculated the applicable discount rate, but I would go further and also hold that—on this
record—the district court committed clear error in assessing a zero percent discount rate
applicable to the damage award for Baby Stokes’s future care.
A. Legal Framework
I agree with the panel majority that the district court was wrong to disregard Jones
& Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983), when calculating the applicable
1
Unlike the majority, I do not view Oklahoma’s statute as a rejection of the “best
interests” test. Instead, I see it as the Oklahoma Legislature’s attempt to codify a one-
size-fits-all procedure to protect the best interests of judgment beneficiaries, while
allowing the court to opt out of that procedure if the best interests of the particular
beneficiary would be better served outside that framework.
5
discount rate. In Jones & Laughlin, the Supreme Court discounted a lump sum damages
award “based on the rate of interest that would be earned on ‘the best and safest
investments’” because an injured plaintiff “is entitled to a risk-free stream of future
income to replace his lost wages.” Id. at 537 (quoting Chesapeake & Ohio Ry. Co. v.
Kelly, 241 U.S. 485, 491 (1916)). The rate should therefore “not reflect the market’s
premium for investors who are willing to accept some risk of default.” Id.
In Hull, we applied Jones & Laughlin to an FTCA damages award for injuries to a
child. “In calculating damages,” we explained,
the trier of fact should discount awards for future damages to present
value to account for the effects of investment, but the effects of inflation
should also be considered, and, with regard to wages, other factors may
need to be considered that may reasonably lead to a projection of
increased wages over time.
971 F.2d at 1510–11.
Hull cited favorably to our pre-Jones & Laughlin decision in Hoskie v. United
States, 666 F.2d 1353 (10th Cir. 1981). See 971 F.2d at 1511. There, we explained that
the object of discounting a damages award is to identify “an amount of money that can be
invested in a reasonably safe long-term investment available to the average person.”
Hoskie, 666 F.2d at 1355. Applying that rule, we held it was not clear error for a district
court to adopt a “9.5 percent discount rate . . . based on the current yield of triple A-rated
corporate bonds” when calculating the net present value of an FTCA damage award for
lost future earnings. Id. at 1355 (emphasis added).
Together, these cases teach that the first step in calculating an appropriate discount
rate is to identify the best and safest investment available to the plaintiff. After the district
6
court identifies such an investment, the second step is to identify the rate of return that
can be earned on that investment. The third step is to subtract the resulting rate of return
from the projected rate of inflation (whether for wages, healthcare, general expenses, or
any other relevant bundle of goods and services).
I offer two additional observations to assist the district court on remand. First, I
disagree with the United States’ contention that municipal bonds are categorically a safe
and available investment. Appellant Resp. at 26 (citing Chesapeake & Ohio Ry. Co., 241
U.S. at 490). Courts must make specific findings about the current availability of a safe
investment or safe set of investments. Cf. Hoskie, 666 F.2d at 1355 (referring to “the
current yield of triple A-rated corporate bonds” (emphasis added)).
I therefore also disagree with the plaintiffs’ contention that “the only risk free and
available investment vehicle” is a portfolio of Treasury bills. Appellee Resp. at 34. In
fact, the testimony at trial indicated otherwise. For example, on cross-examination, the
defense expert agreed that certain high-grade municipal bonds are “representative of a
highly secure investment.” App., Vol. V at 181.
Second, I note that historical rates of return are one tool that can help a district
court estimate future returns but are not an end unto themselves. “We cannot deny
history, nor can history provide an always reliable basis for predicting the future.”
Trevino v. United States, 804 F.2d 1512, 1518 (9th Cir. 1986). In this field of “rough
approximation,” Jones & Laughlin, 462 U.S. at 546, expert testimony on the usefulness
of historical data deserves careful consideration. E.g., App., Vol. IV at 121 (expert
testimony that it would not be appropriate to calculate a discount rate using historic
7
municipal bond yields because “we don’t know if [those rates] will ever return”); see also
Trevino, 804 F.2d at 1518 (criticizing a district court’s interest-rate calculation because
“it relied on an unrepresentative timespan”).
B. Clear Error
“We review the district court’s choice of a discount rate under a clearly erroneous
standard.” Hull, 971 F.2d at 1512. The district court committed clear error by adopting a
rate of return that the parties’ experts agreed is not currently available to the plaintiffs.
First, some housekeeping. The panel majority states: “Because the district court
did not state the basis for its chosen discount rate, we cannot determine whether this rate
is an error.” Maj. Op. at 18. But in Hull, we stated: “Because the district court adopted
the figure proposed by [an] expert, we may conclude that the district court also adopted
the expert’s methodology.” Hull, 971 F.2d at 1512.
The district court adopted a figure within the defense expert’s range of proposed
discount rates (zero to 1.82 percent) and above the plaintiffs’ expert’s proposed discount
rate (below zero). Consequently, we may review the correctness of the defense expert’s
methodology, which employed historical average rates of return on high-grade municipal
bonds. 2
2
The panel majority observes, accurately, that the defense expert calculated “three
separate discount rates each applying to a different component of the future-care award.”
Maj. Op. at 19 n.13. But the defense expert calculated all three of those discount rates
using the historical rate of return on high-grade municipal bonds. That is where the error
lies.
8
On this record, the district court committed clear error by relying on the defense
expert’s methodology. The defense expert calculated a historical rate of return on high-
grade municipal bonds of 5.92 percent. At trial, plaintiffs’ counsel asked the plaintiffs’
expert whether there are “any Triple A rated municipal bonds that are presently available
with an interest rate anywhere close to 5.92 percent,” and he answered, “No. None that
have a decent rating anyway. Maybe you could buy some, what they call garbage bonds.
But that wouldn’t be satisfactory either because they’re not risk free.” App., Vol. IV at
145. Likewise, the defense expert acknowledged on cross examination that he would “be
surprised if by the end of the year [the Stokes could] find a high-grade municipal bond
yielding 5.92 percent.” App., Vol. V at 173.
In sum, the district court committed clear error by adopting a discount rate that
relied on a rate of return not available to the plaintiffs were they to promptly invest the
life care portion of their damage award in the best and safest investment. I therefore
concur in the panel’s decision to vacate and remand so the district court may calculate a
new discount rate.
9