United States District Court, S.D. Illinois
May 9, 2005.
DENNIS SHREVE, Plaintiff,
AMERICAN COMMERCIAL BARGE LINE LLC, Defendant.
The opinion of the court was delivered by: MICHAEL J. REAGAN, District Judge
This matter is before the Court on Plaintiff's Motion in Limine
number 15, which the Court has previously reserved on. In Motion
in Limine number 15, Plaintiff argues that his damages should not
be offset by Social Security taxes. Plaintiff asserts that the
Supreme Court has not held that payments toward retirement or
Social Security pension are to be treated the same as federal and
state income taxes and, therefore, deducted to establish net
income. Plaintiff maintains that, since he is not contending that
the value of his projected lost Social Security pension benefits
constitutes an item of damages, it would be inappropriate to
deduct projected Social Security taxes from his damages.
Defendant responds that controlling precedent mandates
deduction of Social Security taxes when determining Plaintiff's
net income. Defendant argues that the proper measure of damages
in the instant case is the employee's net rather than gross
income, which includes the Social Security deduction.
Plaintiff cites a Virginia Supreme Court case, Norfolk and
Western Ry. Co. v. Chittum, 251 Va. 408, 468 S.E.2d 877 (Va.
1996), in which the court refused to equate retirement payments
with income taxes, even though retirement payments are mandated
by Congress. In so finding, the Virginia court acknowledged the
U.S. Supreme Court holding in Norfolk & W. Ry. v. Liepelt,
444 U.S. 490, 100 S.Ct. 755 (1980), in which the Court held that,
". . . with respect to the measure of damages, a railway company
is entitled to present evidence of the effect of income taxes on
the decedent's estimated future earnings." Chittum,
251 Va. at 416, 468 S.E.2d at 882 (citing Liepelt,
444 U.S. at 493-94, 100 S.Ct. at 757-58.
The Chittum court stated that the Supreme Court has never
held that retirement payments are to be treated the same as
income taxes and, therefore, deducted to establish net income.
Id. Accord Maylie v. National Railroad Passenger Corp.,
791 F.Supp. 477 (E.D.Pa. 1992) and Roselli v. Hellenic Lines,
Ltd., 524 F.Supp. 2, 4 (S.D.N.Y. 1980) (finding that the
Liepelt decision is explicitly limited to future income taxes
and that any diminution of an award to account for Social
Security taxes would have to be balanced against the amount by
which plaintiff's Social Security benefits would decrease because
of the premature end of his working life); but see Madore v.
Ingram Tank Ships, Inc. 732 F.2d 475, 479 (5th Cir. 1984)
(". . . the lost income stream must be computed after deducting
the income taxes and social security taxes the worker would have
paid had he continued to work, for he is entitled only to be made
whole for what he has lost, his net income."). However, the Fifth Circuit decision in Madore, which favors
deduction of social security taxes, is not on all fours with
Defendant's position because the court expressly noted that a
deduction for such taxes could be disregarded if there is some
"articulated reason" to do so. Madore, 732 F.2d at 479. In
the instant matter, the "articulated reason" is that Plaintiff is
not contending that the value of projected lost Social Security
pension benefits constitutes an item of damages; therefore,
Plaintiff maintains, it would be inappropriate to deduct Social
Security taxes from Plaintiff's lost salary which, in effect,
represented his contribution toward a pension without including,
as an item of damages, the value of that pension. The court in
Maylie found this reason to be dispositive of the issue.
791 F.Supp. at 487 ("It would be inappropriate to deduct from
plaintiff's lost salary taxes that, in effect, represented
plaintiff's contribution toward a pension without including, as
an item of damages, the value of that pension.").
Furthermore, there is a conflict within in the Fifth Circuit,
where Louisiana state courts are in conflict with that circuit
and with each other on this issue of federal law. Compare
Cappiello v. Exxon, 695 So.2d 1097, 1105 (La.App. 4 Cir. 1997)
(trial court erred as a matter of law in failing to deduct
employee's contributions to social security in Jones Act action),
with Parks v. Pine Bluff Sand & Gravel Co., 712 So.2d 905,
918-20 (La.App. 3 Cir. 1998) (under Jones Act, employee's
contributions to social security should not be deducted from his
calculations of lost wages); Jenkins v. Kerr-McGee Corp.,
613 So.2d 1097, 1103 (La.App. 3 Cir. 1993) ("The worker is entitled
to be made whole for what he has lost, i.e., his net income
what he would have received had he continued to work. In other
words, the lost income stream must be computed after deducting
income taxes and social security taxes the worker would have
paid had he continued to work." (internal citation omitted) (emphasis in
While acknowledging that there is no Seventh Circuit precedent
on point and that this issue is unsettled, the Court finds
Plaintiff's line of cases more persuasive. The purpose of an
award for the loss of future wages is to make a person
economically whole. Presumably, this entails replacing what the
person could be expected to have earned as take-home pay over an
expected work-life or during a period of disability.
In the opinion of the Court, the purpose and use of Social
Security taxes, which aim to replace the income of beneficiaries
when that income is reduced on account of retirement and
disability, differ markedly from the objectives underlying the
federal income tax system. Social Security program participants
are viewed as earning future benefits by making required social
security retirement tax contributions to the system during their
working years. Thus, the payment of income tax cannot be equated
with the payment of social security tax.
Since Plaintiff is losing the value of a certain number of
years that he would have paid into the social security system, to
offset his damages by Social Security taxes would defeat the goal
of making Plaintiff economically whole. Accordingly, the Court
FINDS that Plaintiff's damages should not be offset by Social
Security taxes and GRANTS Plaintiff's Motion in Limine number
IT IS SO ORDERED.
© 1992-2005 VersusLaw Inc.