Before LUMBARD, Chief Judge, and CLARK, WATERMAN, MOORE and FRIENDLY, Circuit Judges.
This is an action brought under the Federal Employers' Liability Act, 45 U.S.C. §§ 51-60, to recover damages for injuries sustained by plaintiff McWeeney on March 23, 1956, while he was employed by defendant New Haven as a yard brakeman. McWeeney was struck by a moving freight car while he was on the side ladder of another car. There was conflicting evidence whether he was contributorily negligent and, if so, in what degree, and also whether he was totally or only partially disabled. He was a bachelor, aged 36 at the date of the accident and 39 at the time of the trial. His pay for the 13 weeks immediately preceding the accident was $1,187.61, an annual rate of approximately $4,800. The case was tried to a jury which awarded him a verdict of $87,000. Defendant's motion for a new trial was denied. Defendant appealed, claiming the trial court erred in denying ten requests to charge.
The appeal was argued to a court consisting of Chief Judge LUMBARD, Judge MOORE and the writer. We were unanimous in finding no error in the refusal to give the five charges requested with respect to defendant's negligence and the three sought in regard to plaintiff's contributory negligence. However, as will appear from the opinions herein, we were in disagreement as to the judge's refusal to grant Requests No. 17 and No. 18, namely:
"17. If you arrive at a verdict under the Court's charge in favor of plaintiff, you will not add any sum of money to the amount of the verdict on account of federal or state income taxes, since the amount awarded to the plaintiff by your verdict is not taxable income to the plaintiff within the meaning of these tax laws."
"18. If your verdict is in favor of plaintiff, you must calculate any past or future loss of earnings on the basis of his net income after deduction of income taxes."
Since similar issues arise frequently in trials in this Circuit, we referred the case to the court in banc, 28 U.S.C. § 46(a), which has considered it on the record and briefs previously submitted. We shall discuss the two requests in inverse order.
The proposal that juries in personal injury or death cases should always be instructed to excise from any recovery for loss of earning power the amount that plaintiff or his decedent would have been required to contribute to the fisc, has a surface appeal,*fn1 although it has not won assent from most courts that have considered it.*fn2 We join the majority, with a qualification set forth below.
It is not altogether clear whether the proponents of the instruction say that the tax adjustment is simple for a jury, that, although it is difficult, the jury's assessment of loss of earning power is already so complicated that Ossa may as well be piled on Pelion, or just that there is no burking the problem whatever the difficulties may be. We think none of these contentions is sound in the usual case.
Only three elements need now be found in determining damages from loss of earning power in a total disability case - future normal earning power, expectancy, and discount factor.*fn3 The third is charged by the court, often accompanied, as it was here, by a rule of thumb formula to simplify the jury's task. Expectancy is usually determined by life tables and again is normally charged by the court, although a more refined analysis would permit reduction of the figures in the tables to take account of "the probable duration of plaintiff's earning capacity" (presumably with due regard to pension rights thereafter), 2 Haper & James, The Law of Torts, § 25.8, at 1317 and fn. 6 (1956), and other authorities cited in Conte v. Flota Mercante del Estado, 2 Cir., 1960, 277 F.2d 664, 670, and also of conditions unconnected with the accident that might have reduced plaintiff's expectancy below the normal term. American Law Institute, Restatement of Torts, § 924, Comment e. This leaves future earning power. As to that, of course, there are great imponderables, since existing compensation is only one element in the scale. But, whatever difficulties may inhere in this element of the formula, they do not justify the addition of other much more serious ones in the ordinary case.*fn4
The instruction here requested and refused illustrates the delusive simplicity with which the subject has been invested. Defendant wished the jury to be told merely that "If your verdict is in favor of plaintiff, you must calculate any past or future loss of earnings on the basis of his net income after deduction of income taxes." All of us agree the jury needs more guidance than that. But what is the alternative? The trial court could begin by instructing that under the optional tax provided in § 3 of the Internal Revenue Code, which McWeeney was entitled to elect, the tax on a bachelor's income of $4,800 would have been $773. This is still simple enough but the jury must determine not what McWeeney's tax on $4,800 now is but what it would be over his expectancy. In these lower brackets the amount of the tax and its percentage relation to earnings are enormously affected by the number of exemptions.The simple act of matrimony, coupled with the filing of a joint return, would reduce McWeeney's tax from $773 to $620.Is the jury to consider the likelihood of this not unusual occurrence? If the lady brought two children with her, or if these were produced in the ordinary way, the tax would be cut in half, to $380. Each additional child would bring a further tax saving of $110, so that a total of five would make the tax nominal. While such fecundity might be unlikely in a plaintiff of 39 the rule here framed for McWeeney must apply to men who evidence greater interest in marriage and parenthood, and the rise in the birth rate is a phenomenon of our age.*fn5 Is the jury in each case to speculate, or hear testimony, on the procreative proclivities and potentialities of the plaintiff and his spouse? Moreover, children are by no means the only source of exemptions; § 152 of the Code lists nine other categories. Nor will it do to say that this is over-refinement. If a defendant claims that a plaintiff in these brackets would have had to pay 20% of his income in taxes, the court cannot deprive the plaintiff of an opportunity of showing that he would not have paid anything of the kind, and once the rule were adopted, we see no way of eliminating the question of potential babies and the exemptions they trail with them.*fn6
Having duly instructed the jury how to estimate the number of plaintiff's probable exemptions, and the dates when these will come into being, and on rate brackets and deductions, and the treatment of other income of the plaintiff not affected by the accident,*fn7 the court would necessarily encounter another problem. Even the best designed instruction that stopped at that point would be unfair to the plaintiff. This is because, as proponents of the instruction recognize, the product of plaintiff's lost earning power ex-tax and his expectancy will have been discounted to produce "that sum of money which if invested at a fair rate of return will yield annually the amount by which the plaintiff's earning capacity has been lessened and which will at time of end of the plaintiff's life expectancy be reduced to zero. This takes into account the fact that money earns interest each year; and it should be remembered that this interest is taxable. Therefore, if a court is going to use income after taxes as a measure of plaintiff's loss, it must add back the taxes which would be due on the interest earned - else the award would not fully compensate for the loss."*fn8
All this is simple enough to state but how is the jury to apply it? If we suppose that plaintiff would purchase an annuity with the lump-sum previously determined, it will hardly help the jury to be told, in the language of § 72(b) of the Internal Revenue Code, that "Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date)." Of course the court could itself calculate the exclusion ratio and charge what proportion of the annual payments would be taxable, thus leaving to the jury only the task of determining the amount of each annual payment that would be taxable, the tax thereon, and the discounted amount of the sum of such tax payments, and adding this to the ex-tax award. But here a new complication seems to arise. For a portion of the periodic payments on this sum, which is to be added to fund plaintiff's tax liability, would itself be subject to tax.
It is answered that, however unrealistic it may be to suppose that a jury could properly make the series of calculations required,*fn9 the worst result from giving an instruction would be better than the best result from not giving one. This ignores that, by imposing on the jury a task that the jury cannot reasonably be expected to perform, we would be likely to impair the quality of its performance in areas of its true competence. It ignores also that although failure to instruct the jury to reduce a verdict to take account of income taxes on plaintiff's lost earning power, ...