No. 75-1276.United States Court of Appeals, Fourth Circuit.Argued September 9, 1975.
Decided March 3, 1976.
Page 556
William H. Holdford, Raleigh, N.C. (Narron, Holdford, Babb
Harrison, Raleigh, N.C., on brief), for appellant.
Jack B. Crawley, Jr., Asst. U.S. Atty., Raleigh, N.C. (Thomas P. McNamara, U.S. Atty., Raleigh, N.C., on brief), for appellee.
Appeal from the United States District Court for the Eastern District of North Carolina.
Before BRYAN, Senior Circuit Judge, and RUSSELL and WIDENER, Circuit Judges.
ALBERT V. BRYAN, Senior Circuit Judge:
[1] This controversy is over the computation of damages recoverable from the United States by the administratrix of the estate of Grady G. Mosley who died in the care of a Veterans Administration hospital in North Carolina through its negligence. The cause of action was provided by the State statute affording compensation for wrongful death;[1] the right of action by the Federal Tort Claims Act.[2] The liability of the Government was found by the District Court, was confirmed on the first appeal of this action Mosley v. United States, 499 F.2d 1361 (4 Cir. 1974) and is no longer contested. The case was remanded only for redetermination of damages. [2] The law of North Carolina, which prevails here,[3]stipulates: “The plaintiff in such action may recover such damages as
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are a fair and just compensation for the pecuniary injury
resulting from such death.” The accented phrase has been translated as “the present value of the net pecuniary worth of the deceased, to be ascertained by deducting the cost of his own living and expenditures from the gross income, based upon his life expectancy” and “may include other sources of income for life, such as disability income, retirement benefits, pensions, and annuities.” Mosley v. United States, supra, 499 F.2d 1361, 1362-3 (4 Cir. 1974). On the remand, the District Court, sitting without a jury, gave net damages of $23,508.25 for the wrongful death, that is for the deceased’s “pecuniary worth” — the pecuniary loss to his beneficiaries. To this sum $2,000 was added for the decedent’s pain and suffering prior to his death. In re Peacock, 261 N.C. 749, 136 S.E.2d 91, 93 (1964).[4] This judgment is now appealed by the administratrix, the widow of Grady Mosley, and solely upon the ground of inadequacy of the damages. The United States does not question the assessment for the pre-death pain and suffering.
I.
[4] The District Court, after a painstaking study of the health of Grady Mosley, his physical condition prior to and during his last hospitalization, and the character of his employment, made this finding:
[5] This is appellant’s first salient of attack in this cause. We cannot justifiably say that this finding should be discarded as clearly erroneous. [6] Mr. Mosley died on December 10, 1968 at the age of 44. His occupation had been that of a railroad locomotive engineer. For a number of years he had suffered from steadily worsening rheumatic heart disease involving mitral stenosis (a valve stoppage). Upon expert medical testimony the District Judge characterized the ailment as “a very serious one” — it was “highly questionable as to whether the proposed valvulotomy operation would have been successful” in the circumstances of his condition. He concluded:“6. Had the negligence of defendant’s employees not caused his earlier demise in December, 1968, Mr. Mosley had a life expectancy of six years, but the condition of his health was such that had he been able to return to work at all, he could not reasonably have expected to work more than two-thirds of the time during this six years.” (Accent added.)
[7] These subsidiary facts warranted, in our judgment, the Court’s ultimate adjudication of the life expectancy and prospective working-life of the decedent.“5. In any event, the valvulotomy is a palliative procedure which does not effect a cure. Mosley’s long-term prognosis was not good, and his symptoms would have increased as time passed. Very few patients with this condition ever return to work.”
II.
[8] The next inquiry was the amount of the earnings which could be fairly estimated as receivable by him in his working-life expectancy. The District Judge answered it in this way:
“7. An able-bodied man working in employment comparable to that which Mr. Mosley would have had available to him during the remainder of his life expectancy could have reasonably expected to have gross earnings from his employment as follows:
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[9] Towards reaching “the present value of the net pecuniary worth of the decedent” the trial judge quite correctly deducted from the gross earnings of $64,240.00 the amount of his personal living expenses of $11,563.20. United States v. Brooks, 176 F.2d 482, 484-485 (1949). The parties do not differ on the propriety or reasonableness of this sum. It would reduce the earnings to $52,676.80.“Since Mr. Mosley could have reasonably expected to work only two-thirds of the time during the remainder of his life expectancy, his gross earnings would have been only two-thirds of this amount or $64,240.00.”
III.
[10] A deduction contested by the appellant-administratrix was made in the trial court for State and Federal income taxes amounting to $6,424.00, computed at 10% of the just stated gross earnings of $64,240.00. (No objection was urged by either party as to the rate.) The validity of this subtraction must be judged by the law of North Carolina for, as already noted, it is her law that defines the damages. No decision of the State’s highest court nor statutory direction on this point has been cited us.
[13] Quoting from Professor Charles Alan Wright in 19 Ohio S.L.J. 157 (1958), he continues:“The argument in favor of the deduction is compelling. The beneficiaries of an action such as this are only entitled to recover the amount of their actual loss. If the deceased had lived, his future earnings would have been subject to income taxes and the amount available for those entitled to support from him would have been after taxes. However, damages awarded for wrongful death, so far as they encompass prospective earnings, are non-taxable.[7]
Unless such damages take income taxes into consideration, the beneficiariesPage 559
will accordingly be receiving more than they would have had the deceased lived.”
“`The hard fact — inevitable in a subject which grew first carelessly and then explosively — is that a number of the existing rules cannot be justified in theory. For example, I think a good argument can be made for ignoring income tax in computing damages in a suit for personal injuries, but that it is completely unsound to use earnings before tax as a measure in a death action. Authoritative doctrine, to date, has made no distinction between the two kinds of suits.'”
The opinion in Brooks concludes:
[14] With the close canvass available in the Brooks opinion, we are saved extensive discussion and repeated distinguishment of the precedents generally upon the allowance of the tax deduction. [15] In the present case the District Judge spoke pithily to the issue:“It is clear, therefore, that this issue is an open one in this jurisdiction. Free thus to follow the commands of reasonable justice, I am of opinion that the arguments for considering such income tax consequences in a death case (as distinguished from a personal injury case) are so logical and compelling, especially in a non-jury case, that a reasonable deduction from prospective earnings on account of income taxes should be made in this case.”
“Although there are no North Carolina cases dealing specifically with the question of the deductibility of income taxes from the probable gross earnings of a decedent in a wrongful death case, the Supreme Court of this state has repeatedly defined `the pecuniary injury resulting from such death’ as the `net present pecuniary worth of the deceased as ascertained by deducting the probable cost of his own living and his ordinary or usual expenses from the probable gross income derived from his own exertions based upon his life expectancy.’ Bryant v. Woodlief, 252 N.C. 488, 114 S.E.2d 241 (1960). It seems hardly arguable that `ordinary or usual expenses’ do not encompass income taxes. In any event, the better considered cases seem to require this result.” (Accent added.)
He aptly footnotes:
[16] We now embrace the resolution by Brooks and the District Court of the question.“Under the withholding tax laws, state and federal, the wage earner such as Mr. Mosley never has his hands upon that part of the tax withheld which is necessary to satisfy his tax liability, and it would be a strange rule which would allow his beneficiaries to recover from a tortfeasor that which he never could have brought home himself. Mr. Mosley’s tax returns offered in evidence in this case indicated that in 1965 he paid less than 10 per cent of his gross income as taxes, approximately eleven per cent in 1966, between eleven and twelve per cent in 1967 and between twelve and thirteen per cent in 1968. The ten percent deduction from gross earnings allowed by the court in this case is conservative.”
IV.
[17] An additional item of damages pressed by the administratrix is Grady Mosley’s right to disability payments under the Railroad Retirement Act, 45 U.S.C. § 228a et seq., during the period of his prognosed total physical disability. No allowance was made for this entitlement by the District Court. His life expectancy was put at six years but with ability to work only two-thirds of the time, thus leaving one-third of the six as years of complete disability. This two years is the period for which the administratrix now claims the railroad disability benefits. The monthly figure is approximated at $600.00 with a total of about $14,400.00 for the 24 months.
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This is dictated by the Supreme Court of North Carolina, i Bryant v. Woodlief, supra, 252 N.C. 488, 114 S.E.2d 241, 246 (1960), with this explanation:
[19] This was also the direction in the prior appeal in this litigation, Mosley v. United States, supra, 499 F.2d 1361, 1363“Even so, we do not understand that the general rule in this respect would exclude the inclusion of income from an annuity, life estate, retirement pay or other income for life only, in arriving at the pecuniary loss sustained by reason of wrongful death.” (Accent added.)
(4 Cir. 1974) and quite explicitly in Sinovich v. Erie Railroad Co., 230 F.2d 658 (3 Cir. 1956). [20] The Government would reject this allowance. Its contention is that the finding of the District Judge on working-life expectancy did not mean the partitioning of the six years into an initial work-period of four years followed by two years of disability. In this it presses that the ability to work two-thirds of the remaining life-period means that the deceased could have worked “only two out of every three working days throughout the entire six-year period.” No warrant for this interpretation appears in the text or context of the trial judge’s findings or elsewhere in the record or history of this suit. [21] However, we further think, that against this allowance of the disability benefits must be set off the sum of the survivors’ benefits under the Retirement Act paid to the widow and children of the deceased from the date of her intestate’s death. Since the disability benefits were honored for a period of two years during the hypothetical deferment of death and the survivors’ benefits have actually been paid from the real date of death, the unabated payment of the former would result in a duplication of benefits. To avoid this overlapping, the disability recovery is now credited with the amounts paid as survivors’ entitlements. [22] To do otherwise, furthermore, would lead to a disruption of the pattern of the Retirement Act. Its indemnities — the first, the employee’s lifetime benefits and, a second, the survivors’ benefits — are an entirety, the second an inseparable sequence of the former. For this reason the two provisions cannot be analogized to the disability indemnity given by statute and a survivor’s indemnity afforded by a life insurance policy carried by the deceased at his expense. This distinction is exampled i United States v. Brooks, 176 F.2d 482, 485 (4 Cir. 1949), the statutory benefit declared deductible, the insurance nondeductible from the recovery. A further difference is observable, in that, the employee was not the only one who paid for the fund, both the Government and the railroad contributing substantially. [23] The money figures on the decedent’s prospective disability annuities and the survivors’ were put in evidence. They indicate that the sums paid the survivors may exceed the decedent’s allowance, and this may explain why the District Judge gave nothing to the administratrix for decedent’s participation under the Act. If the administratrix believes that the decedent’s due was more than that of the survivors, she has leave to apply to the District Court after the issuance of our mandate for a redetermination of the deceased’s railroad retirement annuity and that of his survivors.
V.
[24] To sum up, the District Judge allotted these damages to the administratrix for the use and benefit of the widow and children of Mr. Mosley:
There is no need to decide here whether these objections might be overcome even in a jury case by having the court submit to the jury special issues, with directions not to consider income taxes, for findings on the amount of the earnings lost because of the injury or death and leaving to the court the calculation of the taxes after the verdict. It is mentioned now simply to suggest that these apprehensions can be readily obviated.
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ruling found in United States v. Brooks, 176 F.2d 482, 486
(4 Cir. 1949).