Lawrence Mickey v. BNSF Railway Company and Safeco Insurance Company of America

SUPREME COURT OF MISSOURI
en banc
LAWRENCE MICKEY, )
)
Respondent, )
)
vs. ) No. SC93591
)
BNSF RAILWAY COMPANY and )
SAFECO INSURANCE COMPANY )
OF AMERICA, )
)
Appellants. )
APPEAL FROM THE ST. LOUIS CITY CIRCUIT COURT
Honorable John J. Riley, Judge
Opinion issued July 8, 2014
Lawrence Mickey prevailed in a Federal Employers’ Liability Act (FELA) suit
against Burlington Northern Santa Fe Railway Company (BNSF) and received a general
verdict of $345,000. The trial court entered judgment in the amount of the verdict plus
interest and costs for a total of $348,731. After the judgment was affirmed on appeal,
BNSF tendered $368.480.67, which was $12,820.80 less than what BNSF then owed on
the judgment plus costs and accumulated interest. It did so because it sua sponte had
determined that, under the Railroad Retirement Tax Act (RRTA), 26 U.S.C. § 3201 et
seq., it was required to treat the entire judgment as if it were for lost wages and, therefore,
subject to RRTA withholding taxes. The trial court found that BNSF had failed to satisfy
the judgment and ordered BNSF’s surety, Safeco Insurance Company, to pay Mr. Mickey
the $12,820.80 that BNSF failed to pay. BNSF and Safeco appeal this ruling. 1
This Court affirms. The RRTA does not require employers to withhold RRTA
taxes on a personal injury plaintiff’s FELA award. Damages received through a suit or
settlement for personal injuries, including damages for lost wages, are not subject to
income tax or, normally, to retirement taxes. BNSF is incorrect in arguing that the RRTA
creates an exception to this law for railroad retirement taxes. The statute on which BNSF
relies is part of an entirely separate act, the Railroad Retirement Act (RRA), 45 U.S.C.
§ 231 et seq., which governs railroad retirement benefits. It is inapplicable to the tax
question at issue here. Even were it relevant to this issue, that statute, by its terms,
applies only if a portion of the award is for lost wages. The verdict was a general one,
however, and this Court rejects BNSF’s argument that merely because lost wages were
requested, this Court is required, legally or factually, to presume that a portion of the
award was for lost wages. The makeup of a jury’s general verdict award is a matter that
this Court has held is “within the bosom of the jury” and is not a subject for speculation
by this Court. Anglim v. Mo. Pac. R.R. Co., 832 S.W.2d 298, 309 (Mo. banc 1992).
BNSF’s appeal fails for both of these reasons.
I. FACTUAL AND PROCEDURAL BACKGROUND
Lawrence Mickey worked for BNSF as a yard conductor and switchman for 40
years. In 2007 he learned that he had permanent disability in his back, as well as
disabling injuries to his knees, legs, and feet, and he was unable to return to work. In
1
This Court refers to BNSF and Safeco collectively as BNSF.
2008, Mr. Mickey filed a petition against BNSF under FELA 2 seeking damages for these
serious physical injuries as well as for his related emotional injuries, past and future
medical expenses, and lost wages and benefits.
The trial court submitted the case to the jury using a general verdict form based on
Missouri Approved Instruction (MAI) 36.01. The jury returned a plaintiff’s verdict that
stated, “We, the undersigned jurors, assess the damages of Plaintiff Larry Mickey at
$345,000.” The trial court entered judgment on the verdict plus costs and post-judgment
interest. At no time during the instruction conference, the submission of the instructions,
or after judgment did BNSF object to the use of a general verdict form based on
MAI 36.01 or request or show it was entitled to the use of a special verdict form or
special interrogatories.
BNSF appealed the judgment and filed a supersedeas bond in the amount of
$500,000 that was executed by BNSF as principal and Safeco as surety. The court of
appeals affirmed the judgment in Mickey v. BNSF Railway Company, 358 S.W.3d 138
(Mo. App. 2011).
After the appeal, BNSF tendered Mr. Mickey the judgment amount, costs, and
interest but withheld $12,820.80. Mr. Mickey objected that the check was insufficient to
satisfy the judgment and filed a motion under Rule 81.11 requesting the trial court to
enter judgment against Safeco on the supersedeas bond as a result of BNSF’s failure to
satisfy the judgment. BNSF and Safeco urged the trial court to find that BNSF fully
2
FELA provides railroad employees a right to recover for injuries sustained while
employed by the railroad that are caused “in whole or in part from the negligence of any
of the officers, agents, or employees” of the railroad. 45 U.S.C. § 51.
3
satisfied the judgment because it withheld the missing $12,820.80 to remit to the IRS as
Mr. Mickey’s share of railroad retirement withholding taxes that BNSF claimed were due
on the $345,000 in damages awarded if one presumes that the damages are made up
entirely of lost wages. 3 BNSF acknowledged that the IRS had not claimed in this, or any
other published case, that it was required to withhold railroad retirement taxes – taxes
comparable to Social Security and Medicare – but BNSF paid this amount sua sponte
because, it said, it believed that the RRTA so requires.
During this same time period, BNSF filed an interpleader action in the United
States District Court for the Eastern District of Missouri naming Mr. Mickey, the IRS,
and the Railroad Retirement Board as defendants, and deposited the $12,820.80 with the
federal district court for it to determine who was owed what amount. The IRS declined
to enter its appearance. BNSF then chose sua sponte to pay the IRS the $12,820.80, and
the interpleader was dismissed.
3
The RRTA contains two tiers of taxes. 26 U.S.C. § 3201. The Tier I taxes are
calculated using the same formulas as Social Security and Medicare taxes are under the
Federal Insurance Contributions Act (FICA), 26 U.S.C. 3101 et seq., and it is assessed
equally against the employer and employee. Id. at § 3201(a); RAILROAD RETIREMENT TAX
ACT (RRTA) DESK GUIDE (JANUARY 2009), available at
http://www.irs.gov/Businesses/Railroad-Retirement-Tax--Act-(RRTA)-Desk-Guide-
(January-2009)#2 (last visited June 23, 2014) (copy of document on file with this Court).
Included in the Tier I tax is the Medicare tax owed by railroad workers. RRB Form RB-20
(January 2014), available at http://www.rrb.gov/forms/opa/rb20/rb20.asp (last visited
June 10, 2014) (copy of document on file with this Court). The Tier II tax uses a separate
annual wage base and tax rate from those applicable for Tier I, and it is not assessed
equally against the employer and employee, with the employer paying a significantly
greater share of this tax. 26 U.S.C. § 3201(b); RRTA DESK GUIDE, supra. BNSF claims
Mr. Mickey’s award is subject to both Tier I and Tier II taxes. This Court refers to these
taxes collectively as RRTA taxes.
4
On May 24, 2012, the trial court agreed with Mr. Mickey that, in withholding the
$12,820.80, BNSF had failed to satisfy the judgment. It entered judgment against Safeco
for $12,820.80 and post-judgment interest. BNSF and Safeco subsequently moved to
vacate and modify the May 24 judgment on the ground that BNSF fully satisfied the
judgment because it was required to withhold the $12,820.80. The court overruled this
motion. BNSF and Safeco appealed the trial court’s entry of judgment against Safeco
and its overruling of their motion to vacate and modify the judgment. 4 After opinion by
the court of appeals, this Court granted transfer. MO. CONST. art. V, § 10. This Court
affirms.
II. STANDARD OF REVIEW
Construction of a statute is a question of law. City of Springfield v. Sprint
Spectrum, L.P., 203 S.W.3d 177, 182 (Mo. banc 2006). This Court reviews issues of law
de novo. Crockett v. Polen, 225 S.W.3d 419, 420 (Mo. banc 2007).
III. RRTA TAXES MAY NOT BE WITHHELD FROM THE JUDGMENT
This case presents the question whether, when a railroad worker is injured on the
job and obtains a general verdict against his employer for negligence under FELA, the
judgment is subject to railroad retirement withholding taxes under the RRTA, even
though the damages are not considered income for income tax purposes and no
comparable Social Security or Medicare withholding is required for comparable tort
cases involving non-railroad workers. This Court answers in the negative.
4
The United States, through the Department of Justice, filed a brief on appeal as amicus
curiae in support of BNSF, and the American Association for Justice filed a brief on
appeal as amicus curiae in support of Mr. Mickey.
5
A. A FELA Judgment Is Not Taxable “Compensation” Under the RRTA
Section 61(a) of the Internal Revenue Code (Code) “provides a broad definition of
‘gross income,’” Comm’r of Internal Revenue v. Schleier, 515 U.S. 323, 327 (1995),
stating “[e]xcept as otherwise provided in this subtitle, gross income means all income
from whatever source derived.” 26 U.S.C. § 61(a). That definition does not include
personal injury damages awards, however, for the Code specifically excludes from gross
income “the amount of any damages received … on account of physical personal injuries
or physical sickness.” 26 U.S.C. § 104(a)(2). Treasury regulations explain that section
104(a)(2) pertains to “an amount received (other than workers’ compensation) through
prosecution of a legal suit or action based upon tort or tort type rights, or through a
settlement agreement entered into in lieu of such prosecution.” 26 C.F.R. § 1.104-1(c).
The United States Supreme Court addressed the meaning of the exclusion of
personal injury damages from the definition of income for tax purposes in Schleier, 515
U.S. at 333-34. Schleier holds that income taxes are not owed on a damage award if it
was received: (1) through prosecution or settlement of an action based upon tort or tort
type rights and (2) on account of personal injuries or sickness. Id. at 333-34; accord,
Norfolk v. Western Ry. Co. v. Liepelt, 444 U.S. 490, 496 (1980).
In other words, the Code provides that damages an employee receives on account
of a personal injury award through suit or settlement are not subject to income tax, even
if a portion of the award is for lost wages. Schleier, 515 U.S. at 330-31.5 But, because
5
The Court decided Schleier the year before Congress amended section 104(a)(2) of the
Code in the Small Business Job Protection Act of 1996 by adding the modifier “physical”
6
the award at issue in Schleier was not for personal injury but rather for discrimination in
employment, the Supreme Court concluded this exclusion did not apply there. Id. at 332.
The Supreme Court explained that unlike in personal injury cases, in a discrimination
case, even though an employee may sustain pain and suffering from such discrimination,
the lost wages – and any other resulting award – stem from the discrimination, not
personal injury, so the lost wages are not excluded under section 104(a)(2) of the Code.
Id. at 330-31.
Personal injury awards likewise are not subject to Federal Insurance Contributions
Act (FICA) 6 withholding taxes, which fund Social Security and Medicare benefits and
closely parallel RRTA withholding taxes. An award that does not constitute gross
income cannot be subject to FICA withholding taxes. This is because, as the Supreme
Court states in Central Illinois Public Service Co. v. United States, 435 U.S. 21, 29
(1978), the term “wages” as used in FICA is narrower in scope than “gross income.” See
also Rowan Cos., Inc. v. United States, 452 U.S. 247, 254 (1981) (“[M]any items qualify
as income and yet clearly are not wages…. ‘[W]ages is a narrower concept than
income’”); Royster Co. v. United States, 479 F.2d 387, 390 (4th Cir. 1973) (“Wages are
merely one form of income”); Anderson v. United States, 929 F.2d 648, 654 (Fed. Cir.
1991) (“[P]ayments cannot be treated as ‘wages’ under FICA if they are not first made
‘income’”). For this reason, federal circuit courts of appeal hold that a personal injury
to limit the scope of personal injuries and sickness. Pub. L. No. 104-188, § 1605. This
change does not affect the instant matter, and Schleier’s holding remains intact, as
modified by the amendment. See, e.g., Sanford v. Comm’r of Internal Revenue, 2008 WL
2491676, at *3 (U.S. Tax Ct. 2008).
6
26 U.S.C. 3101 et seq.
7
award, which is excluded from income taxes under section 104(a)(2) of the Code,
necessarily also is excluded from FICA withholding taxes on wages. See, e.g., Gerbec v.
United States, 164 F.3d 1015, 1025-26 (6th Cir. 1999). As the United States Court of
Appeals for the Fifth Circuit explained in Dotson v. United States, 87 F.3d 682, 689 (5th
Cir. 1996): “Damages not included in the tax code’s definition of ‘income’ are not
considered ‘wages.’ As such they are not taxable under FICA.” See also Redfield v. Ins.
Co. of North Am., 940 F.2d 542, 548 n.4 (9th Cir. 1991), overruled on other grounds by
Schleier, 515 U.S. 323 (“[Personal injury] damages, falling outside the definition of
‘income,’ could not be regarded as ‘wages’ for the purposes of [FICA]”). Accordingly,
FICA taxes are not withheld from FELA awards.
B. Like FICA Taxes, RRTA Taxes Are Not Withheld from FELA Judgments
BNSF acknowledges that Mr. Mickey’s award is not subject to income tax under
section 104(a)(2) of the Code, and case law is clear that comparable awards are not
subject to FICA taxes, but BNSF contends, nonetheless, that Mr. Mickey’s award is
subject to RRTA taxes. Just as FICA taxes an employee’s “wages,” the RRTA taxes an
employee’s “compensation.” And regulations and case law state that the two terms carry
the same meaning. Section 3202 of the RRTA provides in relevant part:
The [railroad retirement] taxes imposed by section 3201 shall be collected
by the employer of the taxpayer by deducting the amount of the taxes from
the compensation of the employee as and when paid.
26 U.S.C. § 3202 (emphasis added). Treasury Regulation section 31.3201-1, which
corresponds with RRTA section 3201, explains that the RRTA tax is “measured by the
amount of compensation received for services rendered as an employee.”
8
The RRTA provision that defines the terms used in the RRTA states, “The term
‘compensation’ means any form of money remuneration paid to an individual for services
rendered as an employee to one or more employers.” 26 U.S.C. § 3231(e). The
corresponding regulation clarifies that, as used by the RRTA, “the term compensation has
the same meaning as the term wages in [FICA] section 3121(a) … except as specifically
limited by the Railroad Retirement Tax Act.” 26 C.F.R. § 31.3231(e)-1(a)(1) (emphasis
added). There is no such specific limitation in the RRTA, and the cases and regulations
state that “wages” and “compensation” shall be interpreted consistently for tax
withholding purposes. Id. Therefore, as stated in CSX Corp. v. United States, 518 F.3d
1328, 1331 (Fed. Cir. 2008), “the term ‘wages’ in FICA and ‘compensation’ in the
RRTA have the same meaning.” The obverse of this rule is that if a payment does not
constitute “wages,” it also does not constitute “compensation” for these purposes.
It necessarily follows that “compensation” received as a part of a personal injury
judgment is not subject to RRTA withholding taxes for the same reason that lost wages
received as part of a personal injury judgment are not subject to FICA withholding taxes.
As discussed above, a payment for lost wages is normally subject to FICA withholding
taxes, Gerbec, 164 F.3d at 1026, but where such payment is on account of a personal
injury suit or settlement, it is not, id.; Dotson, 87 F.3d at 689. This is because the lost
wages damages award is excluded from income under section 104(a)(2) of the Code, and
a payment that does not qualify as income cannot qualify as wages. See, e.g., Dotson, 87
F.3d at 689. Consequently, such a payment is not subject to FICA’s taxes on “wages.”
Likewise, lost wages obtained through a personal injury suit are not taxed under the
9
RRTA because they do not constitute income and, therefore, do not qualify as taxable
“compensation” under the RRTA.
BNSF seeks to avoid this result by asking this Court to look to an entirely separate
act, the RRA, and treat section 231(h)(2) of the RRA as if it were incorporated into the
RRTA. Section 231(h)(2) provides:
If a payment is made by an employer with respect to a personal injury and
includes pay for time lost, the total payment shall be deemed to be paid for
time lost unless … specifically apportioned to factors other than time lost
…
45 U.S.C. 231(h)(2). The reason BNSF directs this Court to the RRA is obvious. If the
Court presumes that some of the award is for lost wages, then BNSF believes it can rely
on section 231(h)(2) of the RRA to argue that the entire award is deemed to be for lost
wages and is subject to RRTA withholding taxes.
The Iowa Supreme Court accepted a similar argument in a case that was handed
down during the pendency of this appeal, Phillips v. Chicago Central & Pacific RR. Co.,
No. 13-0729, 2014 WL 2900952, at *15 (June 27, 2014). Phillips holds that the RRTA’s
definition of compensation includes lost wages and that lost wages received on account
of a FELA personal injury claim are subject to withholding taxes under the RRTA. Id. It
also holds that RRA section 231(h)(2) renders a railroad employee’s entire FELA award
subject to RRTA withholding taxes when the jury is instructed on lost wages. Id. at *7.
This Court finds Phillips unpersuasive. In reaching its result, Phillips specifically
recognized that the current version of the RRTA does not say that compensation includes
pay for lost wages or that RRTA taxes must be withheld from personal injury awards. Id.
10
at *3. Indeed, in 1983 Congress deleted from RRTA section 3231(e) language that
specifically included lost wages within the definition of “compensation” and that
instructed courts that personal injury payments that included pay for time lost were to be
deemed to be entirely for time lost unless otherwise specifically provided.7 Phillips
notes, however, that the RRA states what the RRTA no longer does, as it defines
compensation as including payments for time lost and it contains a presumption that a
personal injury payment that includes pay for time lost is considered to be entirely for
time lost. Id. at *4. Despite these amendments to the RRTA definition of compensation,
7
Prior to the 1983 amendments, RRTA section 3231(e)(1)-(2) provided:
(1) The term “compensation” means any form of money remuneration
earned by an individual for services rendered as an employee … including
remuneration paid for time lost as an employee, but remuneration paid for
time lost shall be deemed earned in the month in which such time is lost....
(2) A payment made by an employer to an individual through the
employer’s payroll shall be presumed, in the absence of evidence to the
contrary, to be compensation for service rendered by such individual as an
employee of the employer in the period with respect to which the payment
is made. An employee shall be deemed to be paid “for time lost” the
amount he is paid by an employer with respect to an identifiable period of
absence from the active service of the employer, including absence on
account of personal injury …. If a payment is made by an employer with
respect to a personal injury and includes pay for time lost, the total payment
shall be deemed to be paid for time lost unless, at the time of payment, a
part of such payment is specifically apportioned to factors other than time
lost, in which event only such part of the payment as is not so apportioned
shall be deemed to be paid for time lost.
(Emphasis added).
The 1983 amendments removed from this definition of compensation all language:
(a) relating to payments for time lost on account of personal injury; (b) equating time lost
with compensation; (c) setting forth the procedure by which to calculate the amount of a
personal injury award that constitutes payment for time lost; and (d) providing a
presumption that a personal injury payment that includes pay for time lost is to be treated
as entirely pay for time lost. 26 U.S.C. § 3231(e)(1); Phillips, 2014 WL 2900952, at *4.
11
Phillips concludes there is “no logical reason” to believe that this deletion means that
Congress intended a different rule to apply to the RRTA than to the RRA. Id. at 7.
There are many reasons why the term “compensation” has a different meaning
under the RRTA than it has under the RRA. First, Phillips simply ignores the fact that,
even assuming that the term “compensation” includes other types of pay for lost wages, 8
damages for lost wages due to personal injury are treated differently than are other lost
wages under both section 104(a)(2) of the Code and federal case law. Schleier, 515 U.S.
at 333-34. Phillips does not even mention the fact that amounts recovered in suits or
settlements for personal injury are not included within the definition of income or wages,
and are not subject to income or FICA taxes, and this Court finds the failure to address
this argument fatal to its position.
Second, this Court notes that the distinction Schleier drew between receipt of lost
wages resulting from personal injury compared with lost wages resulting from, for
example, wrongful termination, is important for a separate, but related, reason. When the
claim is for wrongful termination, an award of lost wages is for wages that the plaintiff
would have earned while employed by the defendant but for the discrimination – that is,
back pay and front pay.
But this is not so for damages awarded for personal injuries. It is long established
in Missouri that personal injury damages may include an award for lost earning capacity
8
Phillips’ discussion of Chevron deference to a treasury regulation that states that
compensation includes “pay for time lost,” see 26 C.F.R. 31.3231(e)-1(a)(4), does not
address the exception for personal injury payments, nor is it based on any language in the
RRTA and, therefore, does not govern here.
12
including both the loss of earnings between the date of the injury and the date of
judgment and the loss of future earnings. Callahan v. Cardinal Glennon Hospital, 863
S.W.2d 852, 872 (Mo. banc 1991). While lost earning capacity most often is shown by
evidence of what the plaintiff had earned and was reasonably likely to earn at the job he
had at the time of the injury, it need not be so limited, for the plaintiff is not suing for lost
back or front pay, or for “time lost,” but for the loss of the capacity to earn. Id. It would
be speculative to presume that any future lost earnings necessarily would have been
subject to the RRTA if a plaintiff presented evidence that established with reasonable
certainty that the plaintiff had lost the opportunity for employment in other occupations
as well, occupations not subject to the RRTA.
Third, as noted above (and perhaps for this reason), Congress amended the
RRTA’s definition of “compensation” to eliminate all references to personal injury
payments and other language comparable to that in the RRA’s definition. Further, in
holding that the compensation nonetheless carries the same meaning under the RRA as
the RRTA, Phillips ignores the fact that under the federal regulations the definition of
“compensation” is interpreted by reference to the Internal Revenue Code, not to the RRA.
As previously noted, Treasury Regulation section 31.3231(e)-1(a)(1) states that as used
by the RRTA, “the term compensation has the same meaning as the term wages in
[FICA] section 3121(a) … except as specifically limited by the Railroad Retirement Tax
Act.” But by relying on a specific limitation in the RRA rather than in the RRTA,
Phillips ignores this regulatory requirement.
13
Finally, Phillips pays insufficient attention to the different purposes of the RRA
and the RRTA. The RRA and RRTA are separate statutes that are administered by
separate agencies and serve different purposes. Rather than receive Social Security
benefits, railroad employees receive benefits under the RRA, which was enacted in 1937
to establish a system of annuity, pension, and death benefits. R.R. Ret. Bd. v. Duquesne
Warehouse Co., 326 U.S. 446, 447 (1946). It established the Railroad Retirement Board
(RRB) as an independent agency in the executive branch to administer the benefits
programs of the RRA. 45 U.S.C. §231f(a). The primary source of funding for RRA
benefits is taxes collected under the RRTA. 45 U.S.C. § 231n(a).
Although the RRA and the RRTA overlap to the extent that taxes collected under
the RRTA fund benefits provided under the RRA, they differ in significant ways. Most
basically, the acts are administered by separate agencies: the RRTA is part of the Internal
Revenue Code and is administered by the Internal Revenue Service of the Department of
the Treasury, while the RRA is administered by the Railroad Retirement Board, which is
an independent agency in the executive branch. 9 26 U.S.C. § 3201; 45 U.S.C. § 231.
And, the RRA is a remedial act that provides benefits to railroad workers, while the
RRTA is a tax act. For this reason, the RRB general counsel stated in a letter dated June
23, 2010, responding to an opinion request: “With respect to any employment taxes due
under the Railroad Retirement Tax Act (26 U.S.C. §§ 3231-3241), I must advise that … I
9
As authorized by section 6103(I)(1)(c) of the Code, the RRB interacts with the IRS to
the extent that the RRB conducts investigations and audits relating to the RRTA’s
coverage and sends its analyses and opinions in reports to the IRS, but it is the IRS that
then determines whether to assess RRTA taxes. RRTA DESK GUIDE, supra.
14
have no authority to provide advice concerning taxpayer obligations arising under that
Act.”
Further, the reason the RRA deems any personal injury payment that includes
some pay for time lost to be entirely for time lost is to help workers qualify for RRA
benefits. Under the RRA, if an employee is injured or unable to return to work, he may
be eligible for disability annuities. 45 U.S.C. § 231a(a)(1)(iv)-(v). Qualification for such
annuities requires the worker to have certain minimum years of railroad service, id.;
§ 231a(a)(1), and the benefits an employee receives under the RRA are based on the
employee’s earnings and length of service, § 231b(b). As the term “compensation” is
used throughout the RRA, it applies only to creditable compensation for calculating
annuities. See, e.g., § 231a; § 231b. Remedial acts are interpreted liberally in favor of
accomplishing their purpose, Hagan v. Dir. of Revenue, 968 S.W.2d 704, 706 (Mo. banc
1998), and RRA section 231(h)(2)’s broad treatment of payments that include some
damages for lost wages as being entirely on account of lost wages thus advances the
RRA’s remedial purpose. The purpose of this definition of “compensation” is not to
increase employee tax liability, for, as discussed above, the RRA is not a tax act.
Interpreting RRA section 231(h)(2) to apply to the RRTA in the manner BNSF advocates
has the effect of limiting the amount of an award an employee would receive and is
inconsistent with the Act’s remedial purpose.
15
These foundational distinctions confirm that section 231(h)(2) of the RRA does
not determine the scope of taxable compensation under the RRTA. 10 Moreover, the
approach argued by BNSF and adopted by Phillips ignores the fact that the RRTA has its
own definition of “compensation” that does not require taxation of personal injury
damages. No credible reason is given by the parties to this suit or the Iowa Supreme
Court’s opinion in Phillips why this Court should incorporate a definition of
compensation from the RRA into its interpretation of the RRTA in order to determine
whether withholding taxes are due on personal injury awards.
Moreover, even were section 231(h)(2) of the RRA applicable, Mr. Mickey’s
award still would not be subject to RRTA withholding taxes. BNSF bases its entire
taxability argument on the presumption that some of the judgment awarded to
Mr. Mickey was for lost wages. Without this presumption, section 231(h)(2) is
irrelevant, leaving BNSF without the sole basis it asserts to argue that the entirety of
Mr. Mickey’s award is subject to RRTA taxes. 11
10
As BNSF observes, in Heckman v. Burlington Northern Santa Fe Ry. Co., 837 N.W.2d
532, 534, 539-40 (Neb. 2013), the Supreme Court of Nebraska recently held that the RRA
does govern whether RRTA taxes must be withheld. Review of the opinion demonstrates
the basis of this error: Heckman failed to differentiate between the RRA and the RRTA
and actually cited section 231(h)(2) as if it were part of the RRTA. Heckman also failed
to discuss the cases and regulations equating the meaning of “wages” and
“compensation” for FICA and RRTA purposes and the excludability of personal injury
awards from gross income. Then, due to a quirk of Nebraska law discussed further
below, it determined that section 231(h)(2) of the RRA required it to find the entire
personal injury judgment was subject to income tax. BNSF cites to a small number of
mostly unpublished trial court decisions that make the same mistake of failing to
differentiate between the RRA and the RRTA, but Heckman and Phillips appear to be the
only appellate courts to do so.
11
As quoted above, section 231(h)(2) of the RRA states, in part:
16
The fundamental problem with BNSF’s argument is that Mr. Mickey’s judgment
is based on a general verdict that does not state that any part of the award is for lost
wages. BNSF acknowledges that in Missouri a general verdict form normally is used and
that it did not request, and does not argue it was entitled to use a special verdict form or
special interrogatories here that the verdict did not segregate out amounts that the jury
awarded for different types of damages claimed.
But, BNSF argues, Missouri law requires this Court to presume that some part of
the award is for the lost wages because Mr. Mickey requested lost wages. If the courts
engage in this presumption, BNSF argues, then the contradictory requirement in section
231(h)(2) of the RRA would come into play, and courts would have to deem the entire
award to be taxable lost wages.
This Court is unimpressed with BNSF’s argument that Missouri should adopt a
presumption that part of the award is for lost wages because a damage award
categorically must be presumed to include some of every type of damages claimed, only
so that it can negate this presumption and categorically substitute a contrary statutory
requirement that the entire award is deemed to be for lost wages, that is, that every type
of damages claimed are not in fact part of the award. The award cannot be presumed to
include every type of damage at the same time that it is deemed to include only lost
If a payment is made by an employer with respect to a personal injury and
includes pay for time lost, the total payment shall be deemed to be paid for
time lost unless, at the time of payment, a part of such payment is
specifically apportioned to factors other than time lost, in which event only
such part of the payment as is not so apportioned shall be deemed to be
paid for time lost.
45 U.S.C. § 231(h)(2).
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wages. This Court will not engage in a pointless act, even if Missouri courts otherwise
would recognize such a presumption.
Moreover, BNSF cites no Missouri authority for its argument that this Court must
presume that the jury’s verdict for Mr. Mickey must have included pay for lost wages
simply because Mr. Mickey presented evidence of lost wages at trial. The only
authorities BNSF cites for this proposition are Phillips, three trial court decisions from
other jurisdictions and the Nebraska Supreme Court opinion in Heckman v. Burlington
Northern Santa Fe Railway Co., 837 N.W.2d 532 (Neb. 2013). These cases, which are
based on prior case law in their own jurisdictions that they believe requires them to
presume that a general verdict includes all damages alleged, are not consistent with
Missouri law and, so, are not persuasive.
Heckman relies on prior Nebraska cases stating that Nebraska will presume that a
general verdict indicates “the winning party prevailed on all issues presented to the jury.”
837 N.W.2d at 537. Heckman reasons that this means that because the plaintiff sought
lost wages, some of the plaintiff’s award is presumed to include lost wages. It then
applies section 231(h)(2) of the RRA to hold that that the entire award was for lost
wages. Id. at 538-39. Phillips follows the same type of analysis under Iowa law. 2014
WL 2900952, at *7-8.
Both are inapposite to the resolution of this issue under Missouri law, for both
recognize that the now-supplanted court of appeals decision in the instant case stated that
Missouri courts do not have a similar presumption and that this means that RRA section
231(h)(2) would not apply to general verdicts in Missouri. See Phillips, 2014 WL
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2900952, at *6; Heckman, 837 N.W.2d at 537-38. They are not authority that such a
presumption applies in Missouri. Indeed, such a presumption does not.
Missouri Supreme Court Rule 71.01 provides: “A general verdict is one by which
the jury pronounces generally upon all or any of the issues, either in favor of the plaintiff
or defendant, and includes a verdict wherein the jury returns a finding of the plaintiff’s
total damages and assesses percentages of fault.” (Emphasis added). In other words, a
general verdict is not necessarily presumed to constitute a finding on all issues, for the
rule says it may be a pronouncement “upon all or any” of the issues presented.
Equally important, what issues the jury reached is irrelevant to the question now
before this Court. The jury decides whether a plaintiff proved a cause of action or was
entitled to recovery on a particular count submitted, and it awards damages proved for
various types of losses resulting from an injury. But the application of RRA section
231(h)(2) does not depend on a presumption about what causes of action were submitted
or on which theories the jury returned a verdict, but rather on the presumption that when
a jury returns a plaintiff’s verdict it must have awarded some amount of every type of
damages claimed by that plaintiff.
The absurdity of this presumption is apparent. Just because a jury returns a verdict
for the plaintiff does not mean it gave the plaintiff all of the types of damages he or she
requested. See Sloas v. CSX Transp., Inc., 616 F.3d 380, 389 (4th Cir. 2010) (refusing to
assume the jury gave the plaintiff the entire amount of past lost wages damages he
requested where the jury returned a general verdict and plaintiff also sought other
damages); Welsh v. Burlington Northern, Inc., Emp. Benefits Plan, 54 F.3d 1331, 1339
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(8th Cir. 1995) (“Because the jury ... rendered a general verdict, though, we have no way
of knowing exactly what portion of the $500,000 award was for pain and suffering and
what portion was for future lost wages”).
For instance, here Mr. Mickey requested damages for, among other claims, pain
and suffering for extensive physical injuries, including “injuries to the soft tissues,
ligaments, tendons, muscles, blood vessels and nerves of his back, legs, knees and feet;
… straining and scarring of the soft tissues, ligaments, tendons, muscles, blood vessels
and nerves of his back, legs, knees and feet” and other permanent disabilities to his back
and knees, past and future medical expenses, lost health insurance, and lost wages, both
past and future. 12
That the jury found BNSF was liable to Mr. Mickey under FELA does not mean
that it awarded him damages for each type of soft tissue injury or scarring or other
specific injuries that Mr. Mickey claimed he suffered. It merely means that the jury
assessed his damages to be $345,000, the amount of the verdict. Indeed, this verdict
12
In his petition, Mr. Mickey asserted:
As a direct result of one or more of these negligent acts or omissions, in whole or
in part, the Plaintiff suffered injuries to his back, legs, knees and feet; he sustained
injuries to the soft tissues, ligaments, tendons, muscles, blood vessels and nerves
of his back, legs, knees and feet; he sustained bruising, straining and scarring of
the soft tissues, ligaments, tendons, muscles, blood vessels and nerves of his back,
legs, knees and feet; he has been caused to undergo severe pain and suffering and
will continue to undergo severe pain and suffering; he has sought and received
medical care and attention and will continue to receive medical care and attention;
he has suffered psychological and emotional injury, mental anguish and anxiety
and will continue to suffer psychological and emotional injury, mental anguish and
anxiety in the futures; he has incurred medical expenses and will continue to incur
medical expenses; he has lost wages and benefits and will continue to lose wages
and benefits; all to his damage.
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amount is far less than the total of all the damages requested. For these reasons, the
general verdict the jury returned means simply that the jury found for Mr. Mickey on “all
or any” of the issues presented, Rule 71.01; it does not require this Court to presume that
the jury found for Mr. Mickey on each of his damage claims. The award, therefore,
cannot be presumed necessarily to include lost wages. Rather, as this Court artfully noted
in Anglim, 832 S.W.2d at 309, “The sum included within the general verdict as
compensation for … loss of wages is a matter forever relegated to the bosom of the jury.”
Section 231(h)(2), therefore, never would come into play even were it dispositive as to
the determination of taxes under the RRTA when some of a personal injury award is for
lost wages.
IV. CONCLUSION
Mr. Mickey’s judgment is not subject to RRTA withholding taxes both because
the RRTA does not make lost wages received on account of a FELA personal injury suit
subject to RRTA taxes and because there is no basis for a presumption that part of the
award was for lost wages or that any loss in earning capacity precluded him from taking
jobs that would not have been subject to RRTA taxes. For these reasons, the trial court
did not err in overruling BNSF’s motion to vacate and modify the judgment or in holding
that Safeco was liable on its surety bond for the portion of the judgment not paid by
BNSF. Affirmed.
_________________________________
LAURA DENVIR STITH, JUDGE
All concur.
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