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Norfolk Southern Railway Co. v. Williams

Alabama Court of Civil Appeals

June 15, 2018

Norfolk Southern Railway Company
v.
Nashanta L. Williams

          Appeal from Jefferson Circuit Court (CV-14-901707)

          PITTMAN, JUDGE.

         Norfolk Southern Railway Company ("Norfolk Southern") appeals from a judgment ("the Rule 60(b)(5) judgment") of the Jefferson Circuit Court ("the trial court") insofar as that judgment denied a Rule 60(b)(5), Ala. R. Civ. P., motion ("the Rule 60(b)(5) motion") seeking a determination as to the amount it needed to pay to satisfy a judgment in favor of Nashanta L. Williams ("the underlying judgment") in an action Williams had brought against Norfolk Southern pursuant to the Federal Employers Liability Act ("FELA"), 45 U.S.C. § 51 et seq.[1] In pertinent part, the Rule 60(b)(5) judgment ruled that the so-called "personal-injury exclusion" contained in 26 U.S.C. § 104(a)(2)[2] ("the personal-injury exclusion") excluded the damages awarded to Williams in her FELA action from taxation under the Railroad Retirement Tax Act ("the RRTA"), 26 U.S.C. § 3201 et seq., which imposes employment taxes on the compensation of railroad employees, and that, therefore, Norfolk Southern was not entitled to deduct RRTA employment taxes from the amount necessary to satisfy the underlying judgment. Because we conclude that the trial court erred in ruling that the damages awarded to Williams in the underlying judgment were not subject to the employment taxes imposed by the RRTA, we reverse and remand.

         Procedural History

         In April 2014, Williams, an employee of Norfolk Southern, brought a FELA action against Norfolk Southern, alleging that she had been injured on the job, that Norfolk Southern was liable for her injuries pursuant to FELA, and that she was entitled to damages for, among other things, past and future lost wages. The action was tried before a jury, and Williams introduced evidence in support of her claims for past and future lost wages as well as her other claims for damages. The trial court subsequently charged the jury regarding Williams's claims for past and future lost wages as well as her other claims for damages. In March 2017, the jury returned a general verdict finding in favor of Williams and awarding her damages in the amount of $360, 488. Being a general verdict, the verdict did not indicate how much, if any, of the $360, 488 the jury had awarded for past and future lost wages. However, Williams concedes that the $360, 488 included an unspecified amount of damages for lost wages. The trial court entered the underlying judgment on the jury's verdict. Neither party appealed from the underlying judgment.

         In April 2017, Norfolk Southern tendered to the clerk of the trial court a sum to satisfy the underlying judgment; that sum reflected a deduction of $19, 188.37, which Norfolk Southern contended it was required by the RRTA to withhold as Williams's share of the employment taxes imposed by that act on the $360, 488 awarded to her in the underlying judgment. Norfolk Southern further contended that, because it was required by the RRTA to withhold that $19, 188.37 and to pay it to the Internal Revenue Service ("the IRS"), it was entitled to deduct $19, 188.37 from the amount necessary to satisfy the underlying judgment. The clerk of the trial court refused to accept the sum tendered by Norfolk Southern because it was less than $360, 488. Norfolk Southern then filed the Rule 60(b)(5) motion in which it alleged, among other things, that, because the $360, 488 awarded to Williams included an unspecified amount of damages for lost wages, the RRTA required Norfolk Southern to withhold from the amount paid to satisfy the underlying judgment $19, 188.37, which represented Williams's share of the employment taxes imposed by the RRTA on the $360, 488 awarded to her, and to pay that $19, 188.37 to the IRS. Norfolk Southern further alleged that, because the RRTA required it to withhold that amount and to pay it to the IRS, Norfolk Southern was entitled to deduct $19, 188.37 from the amount necessary to satisfy the underlying judgment. Opposing the Rule 60(b)(5) motion insofar as it asserted that the $360, 488 awarded to her was subject to taxation under the RRTA, Williams asserted that, although an unspecified amount of the $360, 488 was for lost wages, none of the $360, 488 was subject to taxation under the RRTA because, Williams said, the damages awarded her for lost wages as well as the rest of the $360, 488 had been awarded to her on account of her personal injuries and, therefore, the entire $360, 488 was excluded from taxation under the RRTA by the personal-injury exclusion.

         The trial court held a hearing regarding the Rule 60(b)(5) motion and, thereafter, entered the Rule 60(b)(5) judgment. In pertinent part, that judgment stated: "As to the issue concerning whether the [RRTA] and/or the [IRS] ... requires that RRTA withholdings are to be deducted from [Williams's] general verdict, the court finds it does not based upon the personal injury exclusion." Norfolk Southern timely appealed from the Rule 60(b)(5) judgment to our supreme court, which transferred the appeal to this court, pursuant to § 12-2-7(6), Ala. Code 1975.

         The Parties' Contentions

         Norfolk Southern asserts that the RRTA imposes employment taxes on "compensation" received by railroad employees; that, although the definition of "compensation" in the RRTA does not specifically include pay received for time lost or damages awarded for lost wages in a personal-injury action, the RRTA is in pari materia with the Railroad Retirement Act ("the RRA"), 45 U.S.C. § 231 et seq., because the moneys collected pursuant to the RRTA fund the benefits available to railroad employees pursuant to the RRA; that the definition of "compensation" in the RRA does specifically include pay for time lost and provides that a railroad employee shall be deemed to receive pay for time lost when he or she receives payment for a period of absence from the active service of the employer on account of personal injury; that, because the RRTA and RRA are in pari materia, the definition of "compensation" in the RRTA must be interpreted consistently with the definition of "compensation" in the RRA; and that, therefore, the damages for lost wages awarded to Williams in the underlying judgment constitute "compensation" taxable under the RRTA. Norfolk Southern further asserts that applicable Treasury Regulations and statements of policy by the Railroad Retirement Board ("the RRB") support interpreting the definition of "compensation" under the RRTA as including damages awarded for lost wages in a personal-injury action. In addition, Norfolk Southern asserts that, under the RRA, if a payment is made by a railroad employer with respect to a personal injury suffered by a railroad employee and that payment includes pay for time lost, the total payment must be treated as being for time lost unless specifically apportioned to types of damages other than time lost and, therefore, must be treated as "compensation" under the RRA. Norfolk Southern asserts that, because the RRTA and the RRA are in pari materia, the treatment of such a payment under the RRTA should be consistent with its treatment under the RRA and that, therefore, because the general verdict in favor of Williams awarded her an unspecified amount of damages for lost wages and did not apportion any of the $360, 488 awarded to her to types of damages other than lost wages, the entire $360, 488 awarded to Williams should be treated as "compensation" under the RRTA and taxed under that act. Norfolk Southern further contends that the personal-injury exclusion does not apply to employment taxes imposed by the RRTA. Finally, Norfolk Southern asserts that, because the entire $360, 488 should be treated as "compensation" under the RRTA, it must withhold $19, 188.37 of that amount as Williams's share of the RRTA taxes on the $360, 488 and pay that $19, 188.37 to the IRS and that, therefore, it is entitled to deduct $19, 188.37 from the amount necessary to satisfy the underlying judgment. The United States has filed an amicus curiae brief in which, in substance, it makes the same arguments as Norfolk Southern.

         Williams asserts that the personal-injury exclusion does indeed apply to employment taxes imposed by the RRTA and that, therefore, none of the $360, 488 awarded to her is subject to taxation under the RRTA because, she says, the entire $360, 488, including the unspecified amount of damages for lost wages, was awarded to her "on account of personal physical injuries, " 26 U.S.C. § 104(a)(2). In the alternative, although she did not make this argument in the trial court, Williams argues on appeal that the damages awarded to her for lost wages are not taxable "compensation" under the RRTA because, she says, unlike the RRA, the RRTA does not specifically define "compensation" as including payments for time lost.

         Issues Not Before Us

         Ordinarily, the threshold issues presented by this appeal would be whether Alabama law or federal law determines whether the general verdict returned by the jury should be treated as including damages for lost wages and, after resolving that issue, whether the controlling law provides that the general verdict should be treated as including those damages.[3] However, neither party raised those issues in the trial court, and neither party has raised them on appeal. Rather, both parties' arguments in the trial court and on appeal presuppose that the general verdict in favor of Williams did indeed include an unspecified amount of damages for lost wages, and Williams expressly argues on appeal that "[she] owes no RRTA taxes on her $360, 488 jury award even though it contained an amount for lost wages." Williams's brief at 8 (emphasis added). Thus, for purposes of this appeal, we have assumed, without deciding, that the general verdict in favor of Williams included an unspecified amount of damages for lost wages.

         In addition, both parties agreed before the jury was charged in the trial court that the personal-injury exclusion excluded any damages that might be awarded to Williams from the taxes imposed by Subtitle A of Title 26 of the United States Code, 26 U.S.C. §§ 1 through 1563, which imposes what are commonly referred to as income taxes, and the jury was charged that any damages awarded to Williams would not be subject to income taxes. Therefore, the issue whether the damages awarded to Williams are subject to income taxes under Subtitle A of Title 26 of the United States Code is not before us.

         Issues Before Us

         The issues presented by this appeal are: (1) assuming, without deciding, that a general verdict in a FELA personal-injury action includes an unspecified amount of damages for lost wages, whether that general verdict is subject to employment taxes imposed by the RRTA and (2) if so, how much of it is subject to those taxes. The first issue, in turn, encompasses two subissues: (1) assuming, without deciding, that a general verdict in a FELA personal-injury action includes an unspecified amount of damages for lost wages, whether the damages for lost wages constitute "compensation" under the RRTA and (2) if so, whether the personal-injury exclusion applies to RRTA taxes so as to exempt damages awarded for lost wages in a FELA personal-injury action from taxation under the RRTA.

         Standard of Review

         All the issues presented by this appeal are questions of law; therefore, our standard of review is de novo. See Davis v. Bennett, 154 So.3d 114, 123 (Ala. 2014).

         Analysis

         Whether Damages Awarded for Lost Wages in a FELA Personal-Injury Action Constitute "Compensation" under the RRTA

         The parties have not cited any binding precedent deciding the issue whether damages awarded for lost wages in a FELA personal-injury action constitute "compensation" under the RRTA, and we do not know of any. The decisions of courts in other jurisdictions regarding this issue have not been uniform.

         As noted above, Norfolk Southern contends that the RRTA and the RRA are in pari materia and that, therefore, the definition of "compensation" in the RRTA must be interpreted consistently with the definition of "compensation" in the RRA.

"'[T]he [RRA], first passed in 1934, provides a system of retirement and disability benefits for persons who pursue careers in the railroad industry.' Hisquierdo v. Hisquierdo, 439 U.S. 572, 573, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979) (internal citation omitted). For that reason, railroad workers do not receive social security benefits, but rather, retirement benefits under the RRA. Heckman v. Burlington Northern Santa Fe Railway Co., 286 Neb. 453, 837 N.W.2d 532');">837 N.W.2d 532 (2013). "[']The RRTA is a subsection of the Internal Revenue Code (IRC). Retirement benefits paid through the RRA are funded through the RRTA. Under the RRTA, taxes are imposed on compensation earned by railroad employees. The RRTA implements a dual tax system, in which railroad employers must withhold their tax shares, as well as their employees' tax shares, and then provide both shares to the Internal Revenue Service (IRS). The first part of this dual system is "Tier 1." Tier 1 taxes are imposed against both railroad employee and railroad employer. They are analogous to taxes imposed on nonrailroad workers by the Federal Insurance Contributions Act (FICA). The second part of the dual system, "Tier 2, " also imposes taxes against both railroad employee and railroad employer. "[Tier 2] benefits are similar to those that workers would receive from a private multi-employer pension fund." RRTA taxes also include certain Medicare withholdings.[']
"Cowden v. BNSF Ry. Co. [(No. 4:08CV01534ERW, July 7, 2014) (E.D. Mo. 2014) (not published in F.Supp.3d)] (internal citations omitted)."

Liberatore v. Monongahela Ry., 140 A.3d 16, 23 (Pa. Super. Ct. 2016) (footnote omitted).

         Subject to certain specific exclusions not here pertinent, the RRTA defines "compensation" as "any form of money remuneration paid to an individual for services rendered as an employee to one or more employers." 26 U.S.C. § 3231(e)(1). The definition of "compensation" in the present version of the RRTA does not specifically include pay for time lost, although earlier versions of it did.

         "[T]he 1970 version of [26 U.S.C.] § 3231(e) stated,

"['](1) The term "compensation" means any form of money remuneration earned by an individual for services rendered as an employee to one or more employers, or as an employee representative, including remuneration paid for time lost as an employee, but remuneration paid for time lost shall be deemed earned in the month in which such time is lost ....
"['](2) A payment made by an employer to an individual through the employer's payroll shall be presumed, in the absence of evidence to the contrary, to be compensation for service rendered by such individual as an employee of the employer in the period with respect to which the payment is made. An employee shall be deemed to be paid "for time lost" the amount he is paid by an employer with respect to an identifiable period of absence from the active service of the employer, including absence on account of personal injury, and the amount he is paid by the employer for loss of earnings resulting from his displacement to a less remunerative position or occupation. If a payment is made by an employer with respect to a personal injury and includes pay for time lost, the total payment shall be deemed to be paid for time lost unless, at the time of payment, a part of such payment is specifically apportioned to factors other than time lost, in which event only such part of the payment as is not so apportioned shall be deemed to be paid for time lost.[']
"26 U.S.C. § 3231(e) (1970). Therefore, under this language, RRTA 'compensation' included payments 'for time lost, ' which, in turn, included personal injury payments.
"In 1975, Congress amended § 3231(e). Specifically, Congress amended the first sentence of subsection (1) to simply state, 'The term "compensation" means any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.' 26 U.S.C. § 3231(e)(1) (Supp. 1975). While Congress omitted the clause regarding payment for time lost in subsection (1), it retained this language in subsection (2), which read as follows under the 1975 amendment:
"[']An employee shall be deemed to be paid compensation in the period during which such compensation is earned only upon a written request by such employee, made within six months following the payment, and a showing that such compensation was earned during a period other than the period in which it was paid. An employee shall be deemed to be paid "for time lost" the amount he is paid by an employer with respect to an identifiable period of absence from the active service of the employer, including absence on account of personal injury, and the amount he is paid by the employer for loss of earnings resulting from his displacement to a less remunerative position or occupation. If a payment is made by an employer with respect to a personal injury and includes pay for time lost, the total payment shall be deemed to be paid for time lost unless, at the time of payment, a part of such payment is specifically apportioned to factors other than time lost, in which event only such part of the payment as is not so apportioned shall be deemed to be paid for time lost.[']
"26 U.S.C. § 3231(e)(2) (Supp. 1975). Finally, in 1983, Congress substantially changed § 3231(e); Congress removed all language addressing payments for time lost and payments for personal injury from § 3231(e). 26 U.S.C. § 3231(e) (Supp. II 1984)."

Cowden v. BNSF Ry. (No. 4:08CV01534ERW, July 7, 2014) (E.D. Mo. 2014) (not published in F.Supp.3d).

         The definition of "compensation" in the RRA does specifically include pay for time lost, which, in turn, is defined as including pay for an absence from active service on account of personal injury. In pertinent part, 45 U.S.C. § 231(h)(1) and (2) provide:

"(1) The term 'compensation' means any form of money remuneration paid to an individual for services rendered as an employee to one or more employers or as an employee representative, includingremuneration paid for time lost as anemployee, but remuneration paid for time lost ...

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