The opinion of the court was delivered by: Bua, District Judge.
Before the Court is plaintiff's Motion In Limine to, inter alia, bar
the defendant from introducing evidence which would apprise the jury that
an award to the plaintiff would not be subject to federal or state income
taxes. For the reasons stated herein, the Court will bar defendant from
introducing any evidence related to the income or Social Security tax
consequences of an award to the plaintiff. In addition, the Court will
not instruct the jury on the non-taxability of the jury award.
Defendant relies primarily upon the Seventh Circuit's opinion in In re
Air Crash Disaster, 701 F.2d 1189 (7th Cir. 1983) ("Air Crash"), in
support of its argument that plaintiff's motion involves a "procedural"
issue and therefore should be decided under federal law. In Air Crash,
the Seventh Circuit predicated that the Illinois Supreme Court, if
presented with the issue, would hold that any award for lost income should
be reduced by the amount it would have been taxed. Air Crash, 701 F.2d at
1197. In dicta, the Court stated that the tax impact issue was procedural
in nature and therefore properly considered under federal law, and not
state law. Id. at 1195. The Court reasoned that the tax impact issue was
not "so closely linked with [Illinois'] view of the measure of damages .
. . that it binds a federal court sitting in diversity." Id. at 1194. The
Court concluded that ". . . the Illinois practice does not bind the
federal courts under Erie because Illinois' concerns are either
procedural or based on a mistaken view of federal law." Id. at 1200.
This case, however, is distinguishable from the Seventh Circuit's
comments in Air Crash. Arizona's concerns are neither procedural nor
based on a mistaken view of federal law. In Mitchell v. Emblade,
80 Ariz. 398, 298 P.2d 1034 (Ariz. 1956), opinion modified on other
grounds, 81 Ariz. 121, 301 P.2d 1032 (Ariz. 1956), the Arizona Supreme
Court clearly held that the effect of income taxes on an award has "no
in the correct measure of damages under Arizona law. Id. 298 at 1038.
This view remains the law in Arizona today. Young v. Environmental Air
Products, Inc., 136 Ariz. 206, 665 P.2d 88, 96 (Ct.App. 1982), modified
on other grounds, 136 Ariz. 158, 665 P.2d 40 (Ariz. 1983). Unlike the
Illinois courts, the Supreme Court of Arizona has clearly expressed a
"substantive" interest in this issue. Having reviewed the Arizona cases,
this Court holds that Arizona's interest in this issue is "so closely
linked with [Arizona's] view of the measure of damages," that it binds
this Court, under the Erie doctrine, to follow the Arizona rule. See Air
Crash, 701 F.2d at 1194. The rule against admitting evidence concerning
the income tax consequences of a judgment, as viewed by the Arizona
courts, is "so `outcome determinative' as to be inseparable from the
substantive law, and must be applied in diversity cases by federal
courts." Id. at 1200.
The defendant, therefore, may not introduce any evidence related to the
income or Social Security tax consequences of an award to the
plaintiffs. Furthermore, the Court will not instruct the jury as to any
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