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IN RE AIR CRASH DISASTER NEAR CHICAGO

November 17, 1981

IN RE AIR CRASH DISASTER NEAR CHICAGO, ILLINOIS ON MAY 25, 1979 THIS DOCUMENT RELATES TO, SYED HAIDER, AS ADMINISTRATOR OF THE ESTATE OF VICTORIA CHEN HAIDER, DECEASED, PLAINTIFF,
v.
MCDONNELL DOUGLAS CORPORATION, A CORPORATION; AND AMERICAN AIRLINES, INC., A CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Robson and Will, District Judges.

MEMORANDUM AND ORDER

Victoria Chen Haider, a resident of Illinois, was one of 273 people who died in the crash of an airplane, built by McDonnell Douglas Corporation (MDC), and owned and operated by American Airlines (American), outside Chicago on May 25, 1979. The wrongful death action brought by her husband (who is still a resident of Illinois), as the administrator of her estate, was consolidated with approximately 150 others for pretrial proceedings in this Court. Federal jurisdiction is based upon diversity of citizenship under 28 U.S.C. § 1332.

Defendants seek to introduce evidence as to the portion of the decedent's past earnings which were subject to taxation, and evidence as to the percentage of any future earnings which would have been paid as taxes had the decedent lived. Defendants also seek to have the jury instructed that:

    If you decide to award any damages to the
  plaintiff, your award will be exempt from any income
  taxes; therefore, in fixing the amount of your award,
  you should not be concerned about or consider the
  effect of taxes on the award.*fn1

We note preliminarily that the questions whether evidence of the effect of taxation upon earnings is admissible, and whether the jury should be instructed as to the tax status of any award, are separate issues. Nordstrom, Income Taxes and Personal Injury Awards, 19 Ohio St. L.J. 212, 219-21 (1958). But in the context of an action whose federal jurisdiction rests upon diversity of citizenship, our inquiry is limited to two issues: (1) whether the determination of the issues raised in the parties' motions is to be made pursuant to Illinois law or federal law, and (2) whether Illinois law, if it applies, would lead to a different result than would federal law. Because there would be no need to determine whether Illinois or federal law governs the resolution of the issues raised in these motions if application of either Illinois law or federal law led to the same result, we address first the question whether Illinois law and federal law would resolve these issues differently.

I.

Federal law, if applicable to an action whose jurisdiction rests on diversity of citizenship, would require that we admit evidence of the effect of taxation upon the decedent's estimated capacity to contribute to the support of her family. The admissibility of this evidence is governed by the concepts of materiality and relevance. See Rules 401-03, Federal Rules of Evidence (FRE). Because "just compensation" under the Illinois Wrongful Death Act*fn3 — the source of plaintiff's substantive rights in this action — is restricted to the "pecuniary loss" sustained by the decedent's survivors, Kaiserman v. Bright, 61 Ill. App.3d 67, 18 Ill.Dec. 108, 377 N.E.2d 261, 263 (1978), evidence of the effect of taxation upon earnings is "of consequence to the determination" of "just compensation." Rule 401, FRE. Defendants correctly state that, because the focus of the Illinois Wrongful Death Act is on the decedent's contributions to her survivors rather than on her earnings, the amount which would have been taken in taxation is relevant to the determination of the portion of her earnings which would have been or could have been contributed to her survivors.

The conclusion that federal law would probably admit evidence of the effect of taxation upon a decedent's earnings, subject to the limitations of Rule 403, receives some support from the Supreme Court's recent decision in Norfolk & Western Ry. v. Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980). In Liepelt, the Court held that an Illinois state court erred in refusing evidence as to taxation of the decedent's earnings in a wrongful death action brought under the Federal Employers Liability Act (FELA).*fn4 The Court noted that the FELA, in addition to seeking to "`create uniformity throughout the Union' with respect to railroads' financial responsibility for injuries to their employees," is compensation oriented. 444 U.S. at 493 and n. 5, 100 S.Ct. at 757, quoting from H.R.Rep.No. 1386, 60th Cong., 1st Sess. 3 (1908). It reasoned that "after-tax income . . . provides the only realistic measure of [a person's] ability to support [others]," and that a wage earner's income tax is therefore relevant to a determination of the monetary loss suffered by her family when she dies. 444 U.S. at 493-94, 100 S.Ct. at 757-58.

Similarly, it appears that federal law, if applicable, would require that we instruct the jury that under section 104(a)(2) of the Internal Revenue Code, the principle of an award for damages is not taxable. Both defendants argue essentially that Liepelt, if applicable to a diversity action, requires giving the requested instruction. American points to the compensatory nature of both the FELA and the Illinois Wrongful Death statute. MDC argues that the instruction is merely cautionary. MDC notes that the giving of cautionary instructions is generally within the discretion of the trial court, Simineo v. School District No. 16, 594 F.2d 1353, 1357 (10th Cir. 1979); Krieger v. Bausch, 377 F.2d 398, 402 (10th Cir. 1967), but claims that Liepelt demonstrates that in certain circumstances cautionary instructions are mandated when requested by a party. Our reading of Liepelt, however, convinces us that the Court did not intend its holding in that case to be read so broadly. Liepelt dealt with the narrow realm of actions brought under the FELA, and did not purport to address the issues of the admissibility of evidence and the propriety of instructions, concerning taxation, outside the context of the FELA. Estate of Spinosa, 621 F.2d 1154 (1st Cir. 1980); Croce v. Bromley Corp., 623 F.2d 1084 (5th Cir. 1980); Fenasci v. Travelers Ins. Co., 642 F.2d 986 (5th Cir. 1981); see also Vasina v. Grumman Corp., 644 F.2d 112 (2d Cir. 1981). Some clarification of Liepelt is provided in Gulf Offshore Co. v. Mobil Oil Corp., ___ U.S. ___, 101 S.Ct. 2870, 69 L.Ed.2d 784 (1981), an action for personal injuries brought under the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. § 1331 et seq., which raised the question whether Louisiana law permits or precludes instructing the jury concerning the taxability of an award but did not present the question whether evidence showing the effect of income taxes on past and future earnings is admissible. The Court noted that the OCSLA, unlike the FELA, explicitly authorizes the adoption of state law to the extent that it is not inconsistent with federal law. The Court noted that Liepelt was based on the need for uniformity in FELA actions. The Court stated that Liepelt, because the FELA afforded no guidance as to whether juries must be instructed on the status of compensatory damages, had announced a "federal common law rule." 101 S.Ct. at 2879-80. The Court added that Congress, in providing that the OCSLA incorporates applicable state law, "`specifically rejected national uniformity' as a paramount goal" in the OCSLA. Id. at 2880, quoting Chevron Oil v. Huson, 404 U.S. 97, 104, 92 S.Ct. 349, 354, 30 L.Ed.2d 296 (1972). The Court remanded Gulf Offshore to the Texas Court of Civil Appeals for a determination of whether Louisiana law requires giving an instruction as to the taxability of a damages award, and, if it does not, whether Liepelt displaces the state rule in OCSLA cases.

Gulf Offshore indicates that the "federal common law rule" of Liepelt is limited to situations similar to those in which it arose. We assume, however, for the sake of argument, that federal law requires giving the instruction in addition to admitting evidence as to taxation, and we proceed to a determination of whether Illinois law provides otherwise.

Neither the Illinois Wrongful Death Act nor the Illinois Pattern Instructions concerning the calculation of damages in wrongful death cases, IPI (Civil) § 31.01-.03, contains any reference to the use of evidence as to a decedent's after-tax income to establish the pecuniary loss to the decedent's survivors or to the tax treatment accorded damages by the Internal Revenue Code. Before Liepelt, Illinois prohibited, in FELA actions brought in state court, both the introduction of evidence on the effect of taxes upon earnings and giving the jury instructions as to the non-taxable nature of compensation for damages. Hall v. Chicago & N.W.Ry., 5 Ill.2d 135, 125 N.E.2d 77 (1955); Raines v. N.Y. Central R.R., 51 Ill.2d 428, 283 N.E.2d 230, cert. denied, 409 U.S. 983, 93 S.Ct. 322, 34 L.Ed.2d 247 (1972). Currently, Illinois follows Liepelt in FELA actions. Crabtree v. St. Louis-San Francisco Ry., 89 Ill.App.3d 35, 44 Ill.Dec. 113, 411 N.E.2d 19 (1980); Oltersdorf v. Chesapeake & Ohio Ry., 83 Ill.App.3d 457, 38 Ill.Dec. 896, 404 N.E.2d 320 (1980). No Illinois cases, either before or after Liepelt, have decided these issues in non-FELA actions. The Illinois Appellate Court determined in a pre-Liepelt decision that the defendant had not preserved the evidentiary issue for appeal. Peluso v. Singer General Precision, Inc., 47 Ill.App.3d 842, 8 Ill.Dec. 152, 365 N.E.2d 390 (1977). (The defendants in Peluso did not seek jury instructions on the taxation of damage awards.) In dictum, the Peluso court noted that FELA cases are not controlling where the issue arises under the state Wrongful Death statute. 365 N.E.2d at 399. In a concurring opinion in Peluso, Judge Sullivan considered the merits, and would have permitted the defendants to establish the fact that the plaintiff's expert witness did not include income taxes in his estimate of the plaintiff's lost future earnings. 365 N.E.2d at 401-04. In Yakstis v. William J. Diestelhorst Co., 61 Ill.App.3d 833, 19 Ill.Dec. 90, 378 N.E.2d 591 (1978), the Illinois Appellate Court stated that "the [decedent's] tax return was relevant evidence of the economic status of the decedent, and would tend to show the economic loss caused by his death." However, the plaintiff, rather than the defendant, introduced into evidence the decedent's tax return in Yakstis. 378 N.E.2d 596.*fn5 Yakstis, of course, was decided before Liepelt, yet its brief discussion of the relevance of the decedent's tax return to the economic loss which his survivors suffered as a result of his death does not mention Hall, Raines, or any of the other pre-Liepelt Illinois cases which held such evidence inadmissible when offered by the defendants.

Neither the Illinois Appellate Court's post-Liepelt decisions, nor its opinion in Yakstis, nor Judge Sullivan's concurring opinion in Peluso, provide much guidance as to whether the Illinois Supreme Court would apply the holdings of Liepelt to actions arising under the Wrongful Death Act. In the absence of definitive state authority, a federal court sitting in diversity jurisdiction must endeavor to interpret state law in the manner in which the Supreme Court of the state would interpret it if faced with the same issue. Huff v. White Motor Corp., 565 F.2d 104, 106 (7th Cir. 1977); Hartford v. Gibbons & Reed Co., 617 F.2d 567, 569 (10th Cir. 1980); Bearce v. United States, 433 F. Supp. 549, 552 (N.D.Ill. 1977).

In doing so, the federal court should consider all the data — including compelling inferences, logical implications from other related adjudications, and considered pronouncements — which the highest court of the state would consider. Huff, 565 F.2d at 106; Bearce, 433 F. Supp. at 552. In the absence of other authority, we take the Illinois Supreme Court's decisions in Hall and Raines, supra, although overruled by Liepelt insofar as they governed FELA actions, as expressing the position of the Illinois courts on these issues in actions arising under the state Wrongful Death statute. Our interpretation of Illinois law on these issues is necessarily somewhat speculative. Indeed, having to rely upon overruled cases as evidence of how another court would likely rule on issues if they arose in a different posture strikes us as only slightly more reliable than predictions of the future arrived at by reading the entrails of sheep. But we believe our interpretation is further supported by the absence of any reference to taxation in the Illinois Pattern ...


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