Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490 (1980)

Author: Justice Blackmun

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Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490 (1980)

MR. JUSTICE BLACKMUN, with whom MR. JUSTICE MARSHALL joins, dissenting.

In this action for wrongful death arising under the Federal Employers’ Liability Act, 35 Stat. 65, as amended, 45 U.S.C. §§ 51-60, the Court today holds that, if an award is granted, federal income taxes on the decedent’s lost earnings are to be taken into account and are to reduce the amount of the award. The Court further holds that, on request, the jury must be instructed that the award is not subject to federal income tax.

I agree with neither ruling. In my view, by mandating adjustment of the award by way of reduction for federal income taxes that would have been paid by the decedent on his earnings, the Court appropriates for the tortfeasor a benefit intended to be conferred on the victim or his survivors. And in requiring that the jury be instructed that a wrongful death award is not subject to federal income tax, the Court opens the door for a variety of admonitions to the jury not to "misbehave," and unnecessarily interjects what is now to be federal law into the administration of a trial in a state court.

In this day of substantial income taxes, one is sorely tempted, in jury litigation, to accept the propriety of admitting evidence as to a tort victim’s earnings net after estimated income taxes, and of instructing the jury that an award will be tax-free. This, it could be urged, is only common sense, and a recognition of financial realities.

Ordinarily, however, the effect of an income tax upon the recipient of a payment is of no real or ultimate concern to the payer. Apart from required withholding, it just is not the payer’s responsibility or, indeed, "any of his business." The concept of "net after taxes" and the omnipresence of the tax collector, to be sure, are present facts of life, and are within the constant awareness of both recipient and payer. But these factors do not change the basic character of an award for damages, whether that award be one to compensate the surviving victim for his injury, or one to compensate the deceased victim’s survivors, by way of statutory wrongful death benefit, for their loss. The income tax effect should flow and be retained in its own channel. Surely, it should not operate to assist the tortfeasor by way of a benefit, perhaps even a windfall.


The employer-petitioner argues, and the Court holds, that federal income taxes that would have been paid by the deceased victim must be subtracted in computing the amount of the wrongful death award. Were one able to ignore and set aside the uncertainties, estimates, assumptions, and complexities involved in computing and effectuating that subtraction, this might not be an unreasonable legislative proposition in a compensatory tort system. Neither petitioner nor the Court, however, recognizes that the premise of such an argument is the nontaxability, under the Internal Revenue Code, of the wrongful death award itself.

By not taxing the award, Congress has bestowed a benefit.{1} Although the parties disagree over the origin of the tax-free status of the wrongful death award,{2} it is surely clear that the lost earnings could be taxed as income. Cf. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430-431 (1955). See generally M. Chirelstein, Federal Income Taxation 390 (1977). In my view, why Congress created this benefit under one statute is relevant in deciding where the benefit should be allocated under another statute enacted by Congress.{3}

While Congress has not articulated its reasons for not taxing a wrongful death award, it is highly unlikely that it intended to confer this benefit on the tortfeasor. Two more probable purposes for the exclusion are apparent. First, taxing the award could involve the same uncertainties and complexities noted by respondent and the majority of the courts of this country as a reason for not taking income taxes into account in computing the award. Congress may have decided that it is simply not worthwhile to enact a complex and administratively burdensome system in order to approximate the tax treatment of the income if, in fact, it had been earned over a period of time by the decedent. Second, Congress may have intended to confer a humanitarian benefit on the victim or victims of the tort. One District Court has reasoned:

The court can divine no societal purpose that would be furthered by awarding wrongdoing defendants with the benefit of this Congressional largesse. A societal purpose would be served by benefiting innocent victims of tortious conduct. Indeed, since the victims’ chances of needing public relief are thereby diminished, this concern would be greater, not less, in the case of death, where the loss of earning capacity is total. This court therefore concludes that Congress, as with all exemptions under Section 104, " . . . intended to relieve a taxpayer who has the misfortune to become ill or injured. . . ."

Huddell v. Levin, 395 F.Supp. 64, 87 (NJ 1975),{4} quoting Epmeier v. United States, 199 F.2d 508, 511 (CA7 1952), quoted in turn in Haynes v. United States, 353 U.S. 81, 84-85, n. 3 (1957).See also Comment, Income Tax Effects on Personal Injury Recoveries, 30 La.L.Rev. 672, 685 (1970); Note, 69 Harv.L.Rev. 1495, 1496 (1956); Note, Taxation of Damage Recoveries from Litigation, 40 Cornell L.Q. 345, 346 (1955).

Whichever of these concerns it was that motivated Congress, transfer of the tax benefit to the FELA tortfeasor-defendant is inconsistent with that purpose. If Congress felt that it was not worth the effort to estimate the decedent’s prospective tax liability on behalf of the public fisc, it is unlikely that it would want to require this effort on behalf of the tortfeasor. And Congress would not confer a humanitarian benefit on tort victims or their survivors in the Internal Revenue Code only to take it away from victims or their survivors covered by the FELA. I conclude, therefore, that any income tax effect on lost earnings should not be considered in the computation of a damages award under the FELA.


The Court concludes that, as a matter of federal law, the jury in an FELA case must be instructed, on request, that the damages award is not taxable. This instruction is mandated, it is said, because

it is entirely possible that the members of the jury may assume that a plaintiff’s recovery . . . will be subject to federal taxation, and that the award should be increased substantially in order to be sure that the injured party is fully compensated.

Ante at 496. The Court finds it "surely not fanciful to suppose" that the jury acted on that assumption in this case. Ante at 497.

The required instruction is purely cautionary in nature. It does not affect the determination of liability or the measure of damages. It does nothing more than call a basically irrelevant factor to the jury’s attention, and then directs the jury to forget that matter. Even if federal law governed such an admonition to the jury not to misbehave, the instruction required by the Court seems to me to be both unwise and unjustified, and almost an affront to the practical wisdom of the jury.

It also is "entirely possible" that the jury "may" increase its damages award in the belief that the defendant is insured, or that the plaintiff will be obligated for substantial attorney’s fees, or that the award is subject to state (as well as federal) income tax, or on the basis of any number of other extraneous factors. Charging the jury about every conceivable matter as to which it should not misbehave or miscalculate would be burdensome and could be confusing. Yet the Court’s decision today opens the door to that possibility. There certainly is no evidence in this record to indicate that the jury is any more likely to act upon an erroneous assumption about an award’s being subject to federal income tax than about any other collateral matter. Although the Court suggests that the difference in the expert’s estimation of the pecuniary loss and the total amount of the award represents inflation of the award for federal income taxes, ante at 496-498, this is pure surmise. The jury was instructed that it could compensate for factors on which experts could not place a precise dollar value, and it is "entirely possible" that these, instead, were the basis of the award.

In any event, it has long been settled that the giving of cautionary instructions is governed by state law when an FELA action is brought in state court. "[Q]uestions of procedure and evidence [are] to be determined according to the law of the forum [in cases arising under the FELA]." Chesapeake & Ohio R. Co. v. Kelly, 241 U.S. 485, 491 (1916). This Court, to be sure, has asserted federal control over a number of incidents of state trial practice that might appear to be procedural, and has done so out of concern, apparently, for protecting the rights of FELA plaintiffs. See, e.g., Brown v. Western R. of Alabama, 338 U.S. 294 (1949) (a State cannot apply, in an FELA case, its usual rule that pleadings are construed against the pleader); Dice v. Akron, C. & Y. R. Co., 342 U.S. 359 (1952) (FELA plaintiff is entitled to a jury trial in state court notwithstanding a contrary state rule); C. Wright, Law of Federal Courts 195-196 (3d ed.1976); Hill, Substance and Procedure in State FELA Actions -- The Converse of the Erie Problem?, 17 Ohio St.L.J. 384 (1956). I agree, of course, that state rules that interfere with federal policy are to be rejected, even if they might be characterized as "procedural." See, e.g., Note, State Enforcement of Federally Created Rights, 73 Harv.L.Rev. 1551, 1560-1561 (1960). See generally Note, Procedural Protection for Federal Rights in State Courts, 30 U.Cin.L.Rev. 184 (1961). I cannot conclude, however, that a purely cautionary instruction to the jury not to misbehave implicates any federal interest. This issue truly can be characterized as one of the "ordinary incidents of state procedure," Dickinson v. Stiles, 246 U.S. 631, 633 (1918), which should be governed by state law.

Since the law of Illinois, where this case arose, is that it is not error to refuse to instruct the jury as to the nontaxability of the award, Raines v. New York Central R. Co., 51 Ill.2d 428, 430, 283 N.E.2d 230, 232, cert. denied, 409 U.S. 983 (1972), and since I believe the trial court correctly excluded evidence of the prospective tax liability of the deceased victim, I would affirm the judgment of the Appellate Court of Illinois.

1. The parties agree that these awards are not taxable. Of course, it would not be in the interest of either party to take the position that the award is taxable.

2. Respondent maintains that a wrongful death award is within the exclusion of § 104(a)(2) of the Internal Revenue Code of 1954, 26 U.S.C. § 104(a)(2), which provides that

gross income does not include . . . the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness.

Brief for Respondent 8-9, and n. 2. Petitioner, on the other hand, contends that a wrongful death award is not, in the words of the statute, "received . . . on account of personal injuries." Petitioner points to an early ruling that wrongful death damages are not within the Code’s definition of income, because they merely replace contributions the decedent’s relatives would have received from the decedent. I.T. 2420, VII-2 Cum.Bull. 123 (1928); see Rev.Rul. 54-19, 1954-1 Cum.Bull. 179. Alternatively, petitioner argues that, even if wrongful death damages are covered by § 104(a)(2), Congress’ purpose in enacting that subsection was not to aid tort victims. Rather, § 104(a)(2) can be traced to Congress’ concern in 1918 that personal injury damages were not income within the meaning of the Sixteenth Amendment, citing H.R.Rep. No. 767, 65th Cong., 2d Sess., 9-10 (1918). Brief for Petitioner 31-32, n. 23.

3. Petitioner argues that a decision in this case that would rest on Congress’ purpose not to subject wrongful death awards to federal income taxation would "fundamentally alter all forms of injury compensation in this country," Reply Brief for Petitioner 10-11, since this nontaxability is not limited to awards under the FELA. My position, however, is merely that the policies embodied in one federal statute are relevant in aid of the interpretation of another federal statute. Absent a more explicit statement of Congress’ intent, I would not infer a congressional purpose to override the States’ traditional power to define the measure of damages applicable to state-created causes of action.

4. Vacated on other grounds, 537 F.2d 726 (CA3 1976).


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Chicago: Blackmun, "Blackmun, J., Dissenting," Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490 (1980) in 444 U.S. 490 444 U.S. 499–444 U.S. 504. Original Sources, accessed September 25, 2023,

MLA: Blackmun. "Blackmun, J., Dissenting." Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490 (1980), in 444 U.S. 490, pp. 444 U.S. 499–444 U.S. 504. Original Sources. 25 Sep. 2023.

Harvard: Blackmun, 'Blackmun, J., Dissenting' in Norfolk & Western Ry. Co. v. Liepelt, 444 U.S. 490 (1980). cited in 1980, 444 U.S. 490, pp.444 U.S. 499–444 U.S. 504. Original Sources, retrieved 25 September 2023, from