proving two elements: (1) that the plaintiffs received an award of "damages" and (2) that award was received on account of "personal injuries or sickness".
Addressing the second element first, the plaintiffs argue that the discrimination Mrs. Crossin suffered was a "personal injury". They analogize an action under Title VII to a tort claim, asserting that like a tort a violation of Title VII is "a violation of some duty owing to a plaintiff . . . generally . . . [arising] by operation of a law and not mere agreement of the parties." Downey v. Commissioner, 97 T.C. 150 (1990) quoting Black's Law Dictionary 1489 (6th ed. 1990) (definition of tort). According to the Crossins the harms that Title VII are intended to prevent are fundamental human rights. See Davis v. Passman 442 U.S. 228, 60 L. Ed. 2d 846, 99 S. Ct. 2264 (1979). They note the distinction between a tort claim and a contractual obligation and contend that a Title VII violation is more like a tort claim.
The government does not address the issue of whether or not a violation of Title VII is a "personal injury" but instead argues that the plaintiffs failed to meet the first element of § 104(a)(2), i.e., that the backpay received by Nanette Crossin did not amount to "damages" under the statute. The government claims that Mrs. Crossin's backpay award substitutes for compensation for services and is therefore not subject to an exclusion under § 104(a)(2).
The remedies available under Title VII are statutorily limited to equitable relief.
A clear distinction exists between the equitable relief allowed under Title VII and awards of compensatory or punitive damages. Espinueva v. Garrett, 895 F.2d 1164 (7th Cir. 1990). Assessments of the remedies available to victims of sex discrimination have concluded that "no damages are available under Title VII." Bohen v. City of East Chicago, Ind., 799 F.2d 1180 (7th Cir. 1986).
The money received by Mrs. Crossin was paid in reference to the amount of money she would have earned had she been hired by the F.B.I. "The demand for backpay is not in the nature of a claim for damages, but rather an integral part of the statutory equitable remedy . . ." Johnson v. Georgia Highway Express, Inc., 417 F.2d 1122 (5th Cir. 1969) quoting Smith v. Hampton Training School for Nurses, 360 F.2d 577 (4th Cir. 1966).
The government contends that the rationale behind § 104(a)(2) is that no gain is realized by a person that is compensated for the loss of personal capital lost through a personal injury, and that therefore there is no income available to tax. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 432, 99 L. Ed. 483, 75 S. Ct. 473 n. 8 (1955). The government takes the position that a settlement or award under Title VII does not represent lost personal capital but instead adds to the plaintiff's wealth by compensating him or her for services that the plaintiff should have rendered.
The government, too, distinguishes a claim under Title VII from a tort claim by comparing the remedy provided under each type of action contending that an award of backpay does not constitute damages. C.B. Sparrow, Sr. v. Commissioner 91-2 USTC para. 50,567 (C.A.D.C 1991). The government cites a Seventh Circuit opinion footnote that observed that "Title VII authorizes any equitable remedy the court considers appropriate, including back pay, but not compensatory or punitive damages." Patzer v. Board of Regents of Univ. of Wisconsin System, 763 F.2d 851 (7th Cir. 1985) at 854 n.2, (distinguishing equitable remedies from damages). By contrast tort remedies are not so limited; a victim of a tort may recover compensatory and punitive damages. Elsewhere the Seventh Circuit has stated that the fact that "backpay awards are money judgements" does not change the fact that "they are equitable in nature." United States Equal Employment Opportunity Commission v. Gurnee Inns, Inc., 956 F.2d 146 (7th Cir. 1992).
Additionally, both parties put forward policy considerations to support their positions. The plaintiffs argue that the moneys received from the Federal Bureau of Investigation compensate Nanette Crossin not for lost wages but rather for the loss of human capital and the opportunity to advance. They contend that the award is compensation for the discrimination suffered by Nanette Crossin instead of remuneration for services. The Crossins' assert also that actions under Title VII should be assessed in the same manner as those brought charging racial discrimination under 42 U.S.C. § 1981.
Awards recovered pursuant to § 1981 are excluded from taxable income. They charge that § 1981 has been interpreted to allow broader remedies than available under Title VII and that this is an incongruent result as the nature of the injury under either statute is identical. The plaintiffs assert that congress did not intend for this discrepancy to exist as is evidenced by the passage of the Civil Rights Act of 1991 which lessened the difference in remedies between victims of racial and sexual discrimination. Enactment of the Civil Rights Bill of 1991, however, compels the opposite conclusion. Congress broadened the remedies available to victims of employment discrimination because those remedies did not exist under the prior enactment.
The government furnishes several policy arguments to support its position. First, it argues that to exclude this type of settlement from taxation would create a windfall for the party receiving the settlement. In the absence of discrimination these wages would have been paid and subject to taxation during the year in which they were earned. If the recovery is not taxed the claimant is better off financially than she would have been had she not been subject to discrimination. The purpose of granting an award under Title VII is to "restore the economic status quo that would have been obtained but for . . ." the wrongful act. Musikiwamba v. Essi, Inc., 760 F.2d 740 (7th Cir. 1985). The award received by Mrs. Crossin placed her in the same position she would have occupied absent the discrimination of the F.B.I. Had the discrimination not occurred, her earnings would have been subject to income tax; disallowing their exclusion under § 104(a)(2) achieved the same result.
Defendant United States' Motion for Summary Judgment is granted. Plaintiffs' Motion for Summary Judgment is denied.
BRIAN BARNETT DUFF, JUDGE
UNITED STATES DISTRICT COURT