Woodruff v. Uss Great Lakes Fleet, Inc

210 Mich. App. 255 (1995) 533 N.W.2d 356

WOODRUFF
v.
USS GREAT LAKES FLEET, INC.

Docket No. 159042.

Michigan Court of Appeals.

Submitted January 5, 1995, at Detroit. Decided April 21, 1995, at 11:35 A.M.

The Jaques Admiralty Law Firm, P.C. (by Donald A. Krispin), for the plaintiff.

Garan, Lucow, Miller, Seward, Cooper & Becker, P.C. (By Daniel S. Saylor), for the defendant.

Before: JANSEN, P.J., and MICHAEL J. KELLY and HOOD, JJ.

MICHAEL J. KELLY, J.

Defendant appeals as of right a judgment of the circuit court awarding plaintiff $500,000. The judgment reflected a jury verdict finding defendant liable for injuries sustained by plaintiff while he was working aboard defendant's ship. We reverse and remand for a new trial on the issue of damages.

This is an action arising under federal admiralty law. In his complaint, plaintiff alleged negligence under the Jones Act, 46 USC 688 et seq., and unseaworthiness under general admiralty and maritime law. At trial, plaintiff relied on the expert testimony of Dr. John Henderson to establish the amount of his lost earning capacity. In calculating earning capacity, Dr. Henderson estimated plaintiff's future earnings and reduced them by a present-value percentage. On cross-examination, Dr. Henderson acknowledged that he did not take income taxes into consideration; his estimate of plaintiff's earning capacity was based on gross income. When defense counsel continued to ask about applicable income tax rates, plaintiff's counsel objected, at which point the parties conferred with the trial judge outside the presence of the jury.

The trial judge ruled that defendant would not be permitted to argue to the jury for a tax-based reduction of the expert's earning capacity estimate. The trial court relied in part on Norfolk & W R Co v Liepelt, 444 U.S. 490, 496-497; 100 S. Ct. 755; 62 L. Ed. 2d 689 (1980), in which the Supreme Court held that, in an action under the Federal Employers' Liability Act (FELA), 45 USC 51 et seq., the trial court erred in failing to instruct the jury that its verdict would not be subject to income taxes.

Here, because of the trial court's ruling, defense counsel did not elicit any further testimony regarding the taxability of plaintiff's future earnings. Shortly before closing arguments, defense counsel raised the issue again, and the trial court repeated its ruling that defense counsel would not be permitted to argue to the jury for a tax-based reduction of the verdict. In another discussion after closing arguments, the trial court once again denied defendant's request for an instruction to consider income taxes in calculating plaintiff's future earnings.

We believe that the trial court erred in not allowing defendant to inquire into or argue about the taxability of plaintiff's future earnings. The case relied on by the trial court, Norfolk & W R Co, supra, does not support its ruling. There, the Supreme Court merely upheld an instruction that income taxes should not be considered to adjust the final amount of the verdict after damages had been calculated because any judgment would not be subject to federal or state income taxes. The Court was concerned that

"``today's tax-conscious juries may assume (mistakenly of course) that the judgment will be taxable and therefore make their verdict big enough so that plaintiff would get what they think he deserves after the imaginary tax is taken out of it.'" [444 U.S. 497, quoting Domeracki v Humble Oil & Refining Co, 443 F2d 1245, 1251 (CA 3, 1971), cert den 404 U.S. 883, quoting 2 Harper & James, The Law of Torts, § 25.12, pp 1327-1328 (1956).]

This concern should not be blurred with the separate and distinct issue whether gross or net income figures are to be used in calculating the wage-loss portion of the verdict. As defendant aptly observes in its brief, "[j]ury verdicts are not subject to income tax liability; but the sums that comprise the jury verdict are intended solely to make a plaintiff whole. People do not bring home gross wages; they bring home after-tax wages." See also Jones & Laughlin Steel Corp v Pfeifer, 462 U.S. 523, 534; 103 S. Ct. 2541; 76 L. Ed. 2d 768 (1983).

In fact, while the Norfolk & W R Co Court required an instruction that the verdict would not be subject to income taxes, it reversed an award of damages for future earnings because the award was based solely on gross earnings. The trial court had prohibited evidence regarding how the calculations would have been affected if they had been based on net earnings. The Supreme Court noted at 444 US 493-494:

In a wrongful-death action ... [i]t is [the plaintiff's] after-tax income, rather than his gross income before taxes, that provides the only realistic measure of his ability to support his family. It follows inexorably that the wage earner's income tax is a relevant factor in calculating the monetary loss suffered by his dependents when he dies.

Although the Court's comments were made in reference to wrongful death suits under the FELA, the same principles apply wherever future earnings are awarded in a negligence action under federal law. See Jones & Laughlin, supra at 534 (Longshoremen's and Harbor Workers' Compensation Act, 33 USC 901 et seq.); Kirchegessner v United States, 958 F2d 158, 161 (CA 6, 1992) (Federal Tort Claims Act, 28 USC 2674).

Accordingly, the trial court erred in prohibiting defendant from arguing that Dr. Henderson's estimate of plaintiff's future earnings was too high because it did not consider the effect of income taxes. We do not deem the error harmless just because defendant was able to elicit a single acknowledgment from Dr. Henderson that plaintiff's income would have been subject at most to a thirty percent income tax rate. Defendant was unable to explore the effect of this acknowledgment on the calculation of future earnings or to mention it to the jury in closing argument. Dr. Henderson's acknowledgment merely established that the effect of income taxes on plaintiff's future earnings would not be de minimis. See Norfolk & W R Co, supra at 494, n 7.

We therefore remand for a new trial on the issue of damages. On remand, the trial court shall allow questions and evidence regarding the effect of income taxes on plaintiff's future earnings, and it shall instruct the jury to consider income taxes in calculating future earnings. Because it is not possible to determine how much of the original $500,000 verdict constituted compensation for lost future earnings, the new trial shall not be limited solely to that portion of the damages.

We need not remand for a trial on defendant's liability because we deem meritless defendant's evidentiary arguments concerning the remainder of the trial. The trial court did not abuse its discretion in excluding evidence that plaintiff had an ulterior motive for claiming disability. The evidence was substantially more prejudicial than probative, and defendant was able to present other evidence to discredit plaintiff's motives. MRE 403. The trial court also did not abuse its discretion in finding a Coast Guard officer qualified to render an expert opinion. MRE 702. Gaps in the officer's expertise were relevant to the weight of the testimony, not its admissibility. People v Gambrell, 429 Mich. 401, 408; 415 NW2d 202 (1987). Finally, defendant was not unfairly surprised by plaintiff's testimony that defense counsel was present at a meeting where plaintiff was told to file a fraudulent insurance claim. Nothing more was said in front of the jury, defendant presented other witnesses to rebut the accusation, and the trial court informed the jury that defense counsel denied the accusation.

Affirmed in part, reversed in part, and remanded for proceedings consistent with this opinion.