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Munoz v. Norfolk Southern Railway Co.

Court of Appeals of Illinois, First District, Second Division

June 28, 2019

RAFAEL MUNOZ, Plaintiff-Appellee,
v.
NORFOLK SOUTHERN RAILWAY COMPANY, Defendant-Appellant.

          Appeal from the Circuit Court of Cook County. No. 13 L 4331 Honorable Lorna E. Propes, Judge, presiding.

          JUSTICE HYMAN delivered the judgment of the court, with opinion. Justices Mason and Walker [*] concurred in the judgment and opinion.

          OPINION

          HYMAN JUSTICE

         ¶ 1 Rafael Munoz, a railroad freight conductor, sued his employer, Norfolk Southern Railway Company (Norfolk), under the Federal Employee Liability Act (FELA) (45 U.S.C. § 51 et seq. (2012)), claiming negligence for injuries he incurred at work. A jury awarded him $821, 000, including $310, 000 for past and future lost wages. After the verdict, Norfolk moved for a setoff, claiming Munoz owed taxes on the lost wages under the Railroad Retirement Tax Act (RRTA) (I.R.C. § 3201 et seq. (2012)). The trial court denied the motion, relying on cases holding that, like personal injury judgments under section 104(a)(2) of the Internal Revenue Code (I.R.C. § 104(a)(2) (2012)), the RRTA does not require employers to withhold taxes for FELA personal injury awards.

         ¶ 2 Norfolk appealed, arguing section 104(a)(2) only applies to nonrailroad employees' personal injury awards. Moreover, Norfolk asserted that because the RRTA funds employees' retirement benefits provided by the Railroad Retirement Act of 1974 (RRA) (45 U.S.C. § 231 et seq. (2012)), the statutes should be read together. That makes a FELA award for lost wages taxable "compensation" subject to a withholding tax. Alternatively, Norfolk contended that if we found the applicable RRTA language ambiguous, we should look to Internal Revenue Service (IRS) regulations, which have interpreted "compensation" in the RRTA to include payments for lost wages.

         ¶ 3 We rejected Norfolk's arguments and affirmed the trial court. We found that the RRTA defines "compensation" as money paid to an employee for "services rendered" and that lost wages cannot be paid to an employee for "services rendered." Further, under the test in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), we found that we need not look to agency regulations for clarification where, as here, the statutory language provides an unambiguous expression of congressional intent. Because we affirmed on that basis, we did not consider the applicability of section 104(a)(2) to the RRTA.

         ¶ 4 After our decision, the United States Supreme Court held in BNSF Ry. Co. v. Loos, 586 U.S.__, 139 S.Ct. 893 (2019), that FELA lost-wages awards constitute compensation subject to withholding taxes. The Illinois Supreme Court entered a supervisory order directing us to vacate our initial judgment and consider the effect of Loos. Munoz v. Norfolk Southern Ry. Co., No. 123894 (Ill. May 22, 2019). Based on Loos, we conclude Munoz's lost wages award to be compensation taxable under the RRTA. Thus, we vacate our prior disposition, reverse the order of the trial court, and remand for further proceedings.

         ¶ 5 Background

         ¶ 6 Munoz injured his shoulder and neck when a train he was working on in Norfolk's Calumet Yard came to a sudden stop. Munoz sued Norfolk for negligence under the FELA (45 U.S.C. § 51 et seq. (2012)), and sought damages for lost wages, medical bills, loss of future earning capacity, and pain and suffering. Norfolk admitted liability, leaving damages as the only issue. Norfolk asserted in a trial brief that any lost earnings award must be offset by Munoz's share of RRTA taxes, which, under the RRA, fund railroad employees' retirement benefits. The court did not address the issue at that time.

         ¶ 7 The trial court instructed the jury, in part, "If you find for the Plaintiff, any damages you award will not be subject to income taxes and therefore you should not consider taxes in fixing the amount of the verdict." The jury returned a verdict in Munoz's favor, awarding him $821, 000 in damages, including $310, 000 for past and future lost wages.

         ¶ 8 Norfolk filed a posttrial motion arguing it had a $14, 560.79 statutory lien on the verdict for "sickness benefits" it paid Munoz and asking for a $16, 610.23 setoff from Munoz's $310, 000 lost wages award for his share of RRTA taxes. Munoz did not contest the lien for sickness benefits; however, as to his lost wages portion, Munoz contended lost wages should be treated no differently under the RRTA than other personal injury awards, which are not subject to income tax withholding under the Internal Revenue Code. See I.R.C. § 104(a)(2) (2012) ("gross income does not include *** the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness").

         ¶ 9 After a hearing on the motion, the trial court followed the Missouri Supreme Court in Mickey v. BNSF Ry. Co., 437 S.W.3d 207, 212 (Mo. 2014), which held, in part, that like the exclusion for personal injury awards under Internal Revenue Code section 104(a)(2), a FELA lost wages award does not constitute income and, therefore, does not qualify as taxable "compensation" under the RRTA. The trial court rejected the opposite result, which had been reached in Heckman v. Burlington Northern Santa Fe Ry. Co., 837 N.W.2d 532, 543 (Neb. 2013) ("Under the RRA, the entire award is compensation subject to RRTA taxes that must be paid by the employer.").

         ¶ 10 Analysis

         ¶ 11 Norfolk contends the RRTA is not ambiguous, asserting that the plain language of the statute, when read in conjunction with the RRA, supports a finding that a FELA lost wages award is compensation subject to withholding taxes. Alternatively, Norfolk asserts that if we find the RRTA language is ...


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