Elton E. Dotson and Alrethia Dotson v. United States

Conclusion reasons, foregoing we AFFIRM

For the the indict-

the denial of motion dismiss the district court for

ment REMAND to and

trial on the merits.8 Dotson,

Elton E. and Alrethia DOTSON

Plaintiffs-Appellants,

v. America, STATES

UNITED

Defendant-Appellee.

No. 95-40289. of Appeals,

United States

Fifth Circuit. 27, 1996.

June personam proceed- simply preferable it cases involved in such is an- those situations Nevertheless, conclusion, ings. Ursery certainly cautions attempt rather than to nounce Jeop- Sometimes, against expansive reading of the an Double explicate basis. howev- its doctrinal ardy it and our conclusion that er, Clause reinforces as check on the latter exercise serves useful Ursery example, cites implicated is not here. For simply potentially reflexive intu- erroneous or approval passage United with States, in Gore v. ition, particularly where some contextual 386, 391-93, 78 S.Ct. principles appear to at least flux. be in moderate which includes mind, we have With writ- these considerations jeopardy" provision reference to "double as a length might ten at on what others consid- some evolving history is an “which rooted not simple er to a obvious be -, Ursery concept.” at 116 S.Ct. at 2142. answer. Also, exemplified Ursery refers line of cases by involving "potentially punitive in Halper as opinion prepared foregoing 8. After the was fines,” personam penalties at such as id. civil circulated, down Court handed its -, wholly description at 116 S.Ct. opinion the consolidated cases of United States necessary, that a albeit consistent with idea $405,089.23 Ursery and United States v. sufficient, always "punishment” not attribute Currency, -U.S. United States jeopardy purposes been is that it have for double (1996), holding cer- 135 L.Ed.2d 549 government of its exacted exercise under tain "in rem civil forfeitures” contested powers. Finally, sovereign we observe coercive (7) & and 18 U.S.C. U.S.C. merely Ursery plainly because indicates 981(a)(1)(A) 'punishment’ [of were "neither purpose does have a deterrent sanction contesting nor crim- punishment items] owner of the forfeited necessarily it is a not mean that Jeopardy purposes particularly inal of the Double it jeopardy purposes, where double directly Ursery opinion historically regarded punish- as Clause.” The “has been ment," at-, point, gives heavy emphasis the in rem as is cer- id. issue, tainly employee suspension nature the forfeitures there dis- the case with tinguishes largely Halper be- here. Kurth Ranch Hester, DC, Stephen Washington, L. K. Schmidt, Porter, Peter & Washing- Arnold ton, DC, Litman, Litman, Roslyn Litman, M. PA, Brown, Pittsburg, Harris and John G. Jacobs, Jacobs, IL, Chicago, Plotkin and for Plaintiffs-Appellants. Garland, Dallas, TX,

Gregory Scott Mi- Powell, Department Justice, chael D. TX, Division, Dallas, Tax Kenneth W. Rosen- Allen, berg, Gary Department R. Justice, Division, Appellate Section, Tax DC, Washington, Defendant-Appellee. GARWOOD, Before: SMITH and DENNIS, Judges. Circuit Co., F.2d DENNIS, Judge: Gavalik v. Continental Can Circuit (3rd Cir.), denied, 834, 838 cert. seeking this action brought The Dotsons (1987); 495, 98 see wage paid on income taxes refund from Inc., also, Group, McLendon v. Continental They appeal settlement award. class action (D.N.J.1989). After F.Supp. summary judg- their the denial of motion trials, found two bifurcated Continental was grant the United ment the of States’ and Gavalik, violating § su liable for 510. See summary judgment. for The cross-motion (reversing judgment for Con pra trial court court held that received district McLendon, tinental); supra. 502(a) § § the Em- pursuant 510 of to (29 Security Act ployee Retirement Income litigate remaining to the issue of order 1132(a) 1140) § § do not meet the U.S.C. damages, was the Gavalik case consolidated “personal injury” from income un- exclusion the McLen- the second case under name 104(a)(2) § Revenue Code der of the Internal Inc., Group, v. don. McLendon Continental (26 104(a)(2)). Special § While the U.S.C. (D.N.J.1992). 1216 The New F.Supp. 802 parties to the Master and the 1990 settle- Jersey Law appointed court Yale district compensato- clearly a tort-like ment intended George Special Master in Professor Priest as to ry remedy, appeared be available appropri- help to the court fashion an order interpretations of extant under reasonable remedy. ate jurisprudence, judicial later decisions inter- for In December of 1990the settled preting cast doubt on the avail- ERISA have consoli- million to be distributed the $415 ability compensatory rem- excludable of such by The the Master. dated class appeal raises the of edies. This the Professor approved court settlement and subsequent whether decisions more Priest’s Plan for The Dotsons Distribution. availability per- narrowly interpreting the of $19,877 $89,754, of di- received went injury statutory sonal as remedies rectly qualified the pension to a fund. Of purposes for tax of affect the classification $64,872.35, $15,361.93 remaining was with- faith, good length arm’s settlement based taxes, $4,381.65 for income was held potential for of the reasonable withheld for FICA. The Dotsons filed an juris- damages under the then extant such tax amended income return December prudence. The district court held $64,872.35 from 1993 which excluded the do. We reverse. wages. They resulting seek refund of the made in The case arises out of a settlement $19,485 taxes, $1,107.65 from income brought action a consolidated class lawsuit year the After from FICA taxes for (Continen- Company against Continental Can claims, the IRS denied these the Dotsons tal). separate plaintiffs classes of Two brought action this federal district against brought for viola- actions Continental District of Texas. court for Southern ERISA, pro- §of which makes tion 510 summary The filed for cross-motions vides that: judgment. granted court district any person for It shall be unlawful motion, government’s and the Dotsons filed fine, expel, discipline, discharge, suspend, appeal. participant against a or or discriminate right beneficiary exercising any for I. provisions under the which he entitled summary judgment rul review We plan ... employe benefit or States, ings de v. United 48 novo. Wesson purpose interfering with the attainment (5th Cir.1995). F.3d participant may any right to which such plan ... become entitled under 61(a) of Internal Revenue Code Section broadly as “all income gross income 1140. Plaintiffs claimed that defines 29 U.S.C. expressly defendants, derived” not through implementation from whatever source 61(a). pension by 26 U.S.C. liabili- excluded the Code. scheme to avoid nation-wide by ties, broad definition prevented obtaining give Courts effect them from benefits statutory interpreting exclusions from of 510. pension plan under the violation narrowly. 104(a)(2) gross purpose maintaining income exclu- 229, 233, 1867, 1870, perhaps explained sion can best be “in- (1992). tended relieve a who has the injured.” misfortune to become ill or Epmei- appellants claim that their ERISA U.S., (7th Cir.1952). er v. exception personal settlement meets Harnett, Taxes, See also Bertram injury compensation. Tort and Section (1952); any Code excludes “the amount of dam- N.Y.U.L.Rev. Laurie (whether ages agreement Solomon, Malman, Hesch, received suit or Lewis Jerome lump periodic pay- whether as sums or Federal Income Taxation 102-3 ments) injuries on account of sickness.” Code itself does not define recently Court has de “damages the term ... on account application cided two cases on the injuries,” Treasury Regula- of but 104(a)(2) § to different anti-discrimination 1.104-l(e) (1994) § tion 26 CFR states that it statutes, Commissioner Internal Revenue of (other “means an amount received than - Schleier, 2159, 132 v. 115 S.Ct. compensation) through prosecution workers’ (1995) Burke, supra. U.S. v. legal aof suit or action based tort or The requirements Court clarified the of type rights, through tort or a settlement 104(a)(2) exclusion: agreement in prose- entered into lieu of such personal injury” must be both “on account of Supreme cution.” The Court has held that and stem from a “tort or tort-like” claim. Regulation person- links the definition of at -, supra 115 S.Ct. at 2166. injury compensation requirement al with the requirement The first tests whether the dam Burke, of a tort or tort-like suit. v. ages personal injury received were due to a siupra. rather than mere economic loss. The second Congress personal injury first enacted the examines the basis of the claim for tort- compensation in exclusion 1918 at a time characteristics, focusing scope like payments when such were considered the statutory remedies available under capital, return of human not and thus consti scheme. Id. tutionally taxable “income” under the 16th 767, H.R.Rep. amendment. See No. 65th (1918). Cong., concept 2nd Sess. 9-10 II. capital through injury a return of human lost The district court concluded that Mr. support continues to the exclusion. Commis requirement Dotson failed the that Miller, (4th

sioner v. Cir. be recovered for a tort-like claim. The civil 1990), Bittker, 1 B. Taxation of In Federal 502(a) (29 ERISA, (1981). enforcement clause of come, Gifts, para. Estates and 13.1.4 1132(a)), gives recipient personal injury damages U.S.C. beneficiaries the part right bring in effect forced to sell some of her to civil suits to recover benefits “(A) physical well-being or emotional in return enjoin any practice or to act or money.1 any provision subehapter, violates of this or (B) appropriate equitable to obtain other re theory capital The return of human does (i) (ii) lief violations or redress such however, explain, why serve any provisions subchapter enforce of this applies to exclusion also back plan.” the terms of the The district court wages personal injury part received as acknowledged Spe that the and the award, 85-97, Rev.Rul. 1985-2 C.B. 50. and interpreted governing cial Master the law supra. wages U.S. v. These would ERISA at the time of the settlement to allow ordinarily be taxable when received. Courts damages. speculate Congress’ and commentators that for extra-contractual see, 1. But Robert Ellwood. Court's Rul- lem: When would the exceed the in- ‘basis,’ ing Damages jured party's Pro- and could such basis in- on Taxation Discrimination crease?”) probably There exists no reasonable vides Little Resolution. 83 J.Tax'n n. 3 (1995). (“The theory way "profits” capital’ for the Code to tax made from the ‘human raises capital. thorny ultimately prob- rather ludicrous return of human —and absolutely compensatory damages, disputed in this clear case record unequivocally interpre- Master Priest Special Special appellants’ Master’s and the award included thought that the settlement of the law at the time the settlement tation Indeed, significant “tort-like” elements. conceding that light of later While cases. that a settlement was evidence there is Ingersoll interpreted courts had other underlying class action in the reached did, the dis- Master and the in that Defendants case feared because the inter- did look to reasonable trict court liable for dam- would be pretation at the time but law available ages they failed to settle. if to be the actual intent he considered what Applying hindsight, the district court instead Ingersoll as shown the settlement relied cases decided after ignored later cases. The limit interpret the statute to the reme Ingersoll or avoided comment on O’Connor’s under ERISA. Mertens dies available Mertens, supra. in its dicta decision 248, 262, Assocs., Hewitt 508 U.S. this to district court took mean (1993); 2063, 2072, 124 L.Ed.2d Ingersoll allow Court never intended Co., Anthem Insurance

Medina v. Life expansive reading remedies ERISA’s (5th Cir.) denied, F.2d cert. urged the court to that the Plaintiffs district 66, 126 As adopt. cases, these later the district court result of concluded, remedy statutory is not tort- the by Supreme in the

like defined the The district court misconceives Burke. requirement claims exclusion. tort-like for damages is The characterization of argue the appellants

The that district court by shifting focused the court decisions should have of statuto not affected the sands interpreting parties to the ERISA available ry interpretation a settlement after bona fide Shortly the of the settlement. time before damage ren or a award has been reached settled, Supreme the the Court hand by Neither the al dered. is it determined Ingersoll-Rand in ed a decision down leged unspoken of the intent McClendon, Ingersoll. in charac Justices who voted The (1990), containing dicta which depends upon of the the terization settlement the Master to conclude that com Special led damages the were re determination that damages pensatory were available under “through prosecution of suit or a ceived 502(a) Ingersollr § for a violation of upon tort-type rights action based tort or for compen that a court suit Rand held state 1.104-l(c). Treasury Reg. ...” 26 C.F.R. satory damages preempted was remedy longer may that such a no The fact Court, by opinion In her for the ERISA. of the is irrelevant to the determination exist “there is no in Justice wrote basis O’Connor of a settlement to be taxed. character 502(a)’s limiting language for ERISA ac ‘pension tions to those which seek bene in Although Court’s decision requested clear the relief fits.’ It is that retroactively apply pending Mertens is well within the [for violation] here a cases, case is not an ERISA ERISA provide. power the federal Con courts involving the It tax case case. income pre-emption a sequently, it is of no answer a claim tax treatment of a final settlement of particular plaintiff argument that damages for was conclud- under ERISA pension seeking benefits.” Id. impression decid- ed the issue of first before accepted at 486. Continental sharply court was ed divided Meriens Inger interpretation Master’s agreed controlling Consequently, to a clearly soll-Rand as even foreshadowed. plaintiffs compensa settlement based change Mertens does classification tory damages claims. any purposes tax settlement for instant retroactively reduce more than could post-settle- cited

The district court both which the limiting availability of of the settlement ment ERISA amount cases perhaps made based on their now outmoded formulaic characterization of remedies. Con- interpretation of ERISA law.2 gress’ sympathy for victims of injuries, enactment, underlying that statute’s in Burke Court’s decisions distinguishable surely contingent and Schleier are was not on the fate of not have to did contend with settlements interpretations particular future of the stat- remedies, statutory based unsettled they might utes under which recover. Nei- allowing exclusively thus the Court to focus always taxpayers. ther will our decision favor on the statutes in in those cases. Surely government oppose would the ret- The Dotsons’ class action suit is one ERISA new, application generous roactive more removed; judicial step interpretations of the interpretation of the remedies un- available potential availability statute indicated the expand der statute order to tax exclu- compensatory damages plaintiffs. to the taxpayers sions. The interests both judicial post-settlement clarification of reme- government finality predictability change dies available under ERISA does not strongly support classifying legal of taxation taxpayer prosecuted the fact that judgments according or settlements to the actually compen- received a settlement which understanding type personal injuries. argu- sated tort law at the time of the interpretation ment the current settlement. prevent receiving ERISA would Dotson from case, In a similar v. Insurance Co. compensatory damages today certainly Redfield America, (9th North 940 F.2d 542 Cir. does not transform his settlement of a claim of 1991) (overruled potential compensation grounds by of actual on other Schlei into a windfall. er, supra), the Ninth Circuit characterized a purposes. award tax The Tax Court held Threlkeld v. Com received, missioner, among 1294, 1306, other dam 87 T.C. 1986 WL (6th Cir.1988), aff'd, ages, 848 F.2d 81 implied an award for breach of an approval by a case cited with the good dealing. covenant of faith and fair The in that an examination of the California Court later ruled that state law under which the recov damages such tort were not available. The ered: Ninth Circuit held that the later ease “cannot where, may be of limited in a assistance retroactively damages alter the character of settlement, the claim is itself unclear. already awarded Redfield and affirmed on Similarly, help State law is of little where appeal.” Id. at n. 2. claims, only there are several some of injuries. which are for The State award, involved a court rath Redfield law classification of the various claims will settlement, approved er than a court but identifying be of no assistance the claim or retroactively there is no more reason to re- carving up in damage claims or the recov- good-faith, length characterize arm’s settle ery. judgments. ments than court Settlements do statutory The Court’s focus on opportunity offer an to benefit at schemes in Burke and not ne- Schleier does expense by describing government the of the post-hoc cessitate the recharacterization of a this, damages the as Because of excludable. formerly settlement based a more the characterization of a settlement cannot interpretation availability promising of the of compensatory remedies. depend entirely parties. of the intent Threlkeld held that when the classifica purposes of of the Internal unclear, by such a of “we must look Revenue Code would be served tion settlements why previously It and was in the Third is difficult to understand the district arose concluded interpre- present the which circuit’s court and dissent in the case choose Circuit. The of Co., apply apply Medina v. Anthem Insurance tation of ERISA should one of the Life denied, (5th Cir.) complicated by issues that would unearth 983 F.2d 816, cert. courts (1993), post- engaging process 126 L.Ed.2d 35 in the redundant of retroactive- precedent pur ly classifying good pur- faith tax settlement Fifth Circuit for the settlements for poses taxing litigation poses. a settlement factors, including bers, anguish allegations especially the in mental and emo- to various tional distress. pleadings, court the evidence ad- the State trial, agree- a written settlement duced Earnings Impairment the He characterized ment, payer.” the and the intent of This Additur as of the nature additional evidence of settle- solely by the in not measured difference good helps to the faith of the ment insure earnings Continental em- before after engage as courts must taxpayer/party. Just ployment, attempts approximate— but inquiry they evidentiary in when deter- this again, crudely loss in long-term em- —the the allocation of settlement mine ployment prospects that faced most Conti- claims, they must possible also char- opportu- various employees nental whose skills faith, diminished for their lifetimes. parties, good the nities were acterize claims the to settle intended for.3 with The Dotsons’ award was structured court, heavy involvement an officer case, Special Master held hear- ap- court Special Master. The district court on ings for the district the issue proved the amount the settlement fought damages. intro- Continental Can defendants, plan for distribution. And losses, nonpecuniary duction of evidence of government an after what the concedes was only equitable allowed arguing that ERISA arm’s-length, adversarial court battle with Special Master admitted the remedies. class, to settle for plaintiff decided evidence, citing Ingersoll-Rand, ruling exceeding contractual dam- amounts mere compensatory damages were ages. allowable.4 after, ease, settled the Soon by remedies envisioned the settlement by fear of spurred defendants’ represent exactly range the type of “broad damages. developed Master a damages compensate” Burke associ- settlement, Plan of Distribution for de- “Although ated traditional claims. tort by the court below “the double scribed compensato- are these described Award,’ ry terms, larger remedy many than ‘Basic which included cases necessary the amount to reimburse actual injuries, dignitary compensation anticipated monetary even loss sustained or ‘Earnings Impairment com- Additur’ which intangible plaintiff, and thus address pensated earnings capacity.” lost injury.” supra at elements of Dotson, The Master described the Basic who at 1871. Mr. suffered S.Ct. wage interruption higher little took and as Award job, type of paying new received the tradi- compensate dignitary meant to for the loss by the tional tort remedies described Su- by alleged the discrimination on suffered preme in Burke. The settlement com- age experience of grounds and work injuries, pensated dignitary for emotional approached the employees Continental loss, distress, all of non-pecuniary and other Admittedly, pension benefit thresholds. damages. mere contractual As exceed proxy is a crude for those elements of require- damages such it fulfills the tort-like 104(a)(2). excludability § by ment non-pecuniary suffered mem- for under loss class disputes validity inquiry government the taxpayers the now 3. Judicial into the motives of While Ingersoll, from receive income is not parties' and those whom of McLendon reliance the unprecedented in the Tax Code. The exclusion agreed appellant’s the the General Solicitor gifts requires from income taxation an of federal position to in an amicus brief submitted the inquiry guish gifts the the distin- into motive of donor to government The Court in Mertens. wages from or business transactions. proposition Ingersoll the there cited for Duberstein, v. 363 U.S. Commissioner 502(a) compensatory re- ERISA's allows broad (1960). When the S.Ct. L.Ed.2d 1218 Amicus the States as Curi- lief. Brief for United under the law unclear remedies available Mertens, Petitioners, Supporting ae case, settlement, as in the the time the true nature of the settlement instant 124 L.Ed.2d 161 S.Ct. will also include degree inquiry parties. of into motive of some the way distinguishing III. find reasoning no of the wages Schleier from the back in the case In order to reverse the court’s district before us. The provision anti-discrimination summary govern grant judgment of to the similarly provided of 510 of ERISA com- ment, must we ensure that the settlement pensation in this case for firing both a and requirement fits the other for personal injuries. personal injuries exclusion, that the be “on themselves, as the Court distin- personal injury.” of account 26 U.S.C. them, guishes give did not rise to of the loss 104(a)(2). wages. We therefore remand the so case In recent of the case Commissioner court the district the determine U.S.-, wages amount of back included in Basic the the char- Award. as taxable a under acterized settlement made Age in Employment the Discrimination Act Earnings Impairment Additur com- (ADEA) because it was not “on account pensated to extent some for future lost injury.” personal provides The ADEA the remand, wages. the On district court should wages liquidated remedies back dam- degree determine the which the award age ages discriminatory terminations. represented wages Dotson, lost for Mr. since award, found that wages The Court the back the actually record shows he saw normally part general while excludable if earnings job. increase in at his next Once injury personal damages, did not stem direct- distinguishes the district court future lost ly injury in from the this case. The discrimi- wages potential parts from other the the against nation him both caused Additur, Earnings Impairment also must injuries personal to be fired and to suffer award, determine the nature of that the reputation damages, lost and emotional but degree to which award envisioned earn- injuries firing. did not cause the ings impairment as a result firing, of the majority contrasted this situation to ex- or, taxable, instead, per- thus “on account of Threlkeld, ample given the Tax Court in injuries” sonal such as damage emotional supra, surgeon physical in which a suffers a Any reputation. part loss of of the future injury imperils earning his future ca- wages by per- lost attributable to causation surgeon’s injuries him pacity. The injury sonal excludable. wages, wages, but Mr. lose Schleier’s lost argued, court are not “on account of IV. injury.” ease, portion instant appeal also The Dotsons district court’s designed compensate digni- grant summary judgment affirming injuries tary nonpecuniary are cer- loss taxes, withholding wage pursuant tainly personal injury.” account of “on (FICA) Federal Insurance Contributions Act discriminatory firing employees caused Unemployment Act the Federal Tax stress, stigma and the self “[suffer] (FUTA). job,” losing well-paid comes with doubt that a as These described Master. portion the settlement deter types are the of “traditional associated harms from mined to be excludable taxable income injury” in personal recognized with the Court the district court be remand to should also (internal Schleier, at-, 115 S.Ct. at 2167 wage Damages taxes. not excludable from omitted) quotations as excludable. “in in tax code’s definition of included case, however, “wages.” dif- come” considered Schleier mandates are not Rowan Cos., U.S., 247, 254, 101 wages pur- 452 ferent treatment back Inc. v. U.S. S.Ct. (1981). 2288, 2293, discriminatory firing suant to a case. Mr. L.Ed.2d 814 As such 68 Award, Redfield, they a Basic con- are not taxable under FICA. Dotson received 648, 548, U.S., wages, supra tained some measure of back and an at Anderson v. 929 F.2d (Fed.Cir.1991). Additur, Impairment com- Neither Earnings 654 taxable FUTA, pensated earnings capacity. lost We can under FICA and use for since FUTA 690 3121(a) personal injuries or sick- wages. §§ Code “on account definition

same 1 3306(b). ness.” Thus, though giving the conduct rise to even if court determines Even the district recovery personal inju him Dotson’s caused Employment portion Im that some ry, though the to v. taxable, McLendon is it still Additur award pairment Inc., F.Supp. Group, 802 1216 Continental “remuneration for em not constitute does (D.N.J.1992), that the settlement subject wages intended taxation. I.R.C. ployment” 3306(b). injury, 3111, 3121(a), 3101, compensate for that Dotson The EIA would §§ if earning may recovery only his cause of capacity,” deduct for “loss compensated Employee already performed, and is action —the Retirement Income not for services (“ERISA”) subject wage Security taxation. v. Act of 1974 “based not Eirhart thus —is Co., Schleier, 76-C-3182, upon type rights.” Nos. Libbey-Owens-Ford tort or tort See - (N.D.Ill.1991), 6, 6; 78-C-2042, 1991 211235 at 2 at 2165 n. WL at-n. 115 S.Ct. U.S. (7th 'd, Cir.1993), Burke, 238, 229, 996 F.2d 837 504 United States U.S. aff University System, 1867, 1872-73, A M v. Texas & 112 119 Slotta L.Ed.2d 34 S.Ct. 1994) (S.D.Tex. 10, August (1992). at 1 No. 6-93-92 (“a subject payment to with dismissal upon A tort or of action is based fairly if it holding cannot be classified only remedy rights if it creates a tort-type performed.”) for renumeration services - Schleier, injury. for U.S. See judgment of the district vacate We Burke, at ---, 2166-67; 115 at S.Ct. proceedings consistent court and remand for 7, 241, at n. 504 at 237 n. 112 S.Ct. 1872 U.S. opinion. 7, provide Specifically, it must compensatory recovery of or dam SMITH, Judge, E. Circuit JERRY equitable ages. that permits A claim part part: concurring dissenting “injuries relief of an economic character” pass this does not test. See U.S. I. 1872-73, 1874; 238-39, 241, 112 S.Ct. - at---, 115 S.Ct. at distinguish majority attempts three 2166-67. precedents by controlling Supreme de- Court give effect to one of clining to retroactive provision, civil enforcement ERISA’s them, retroactivity Court’s violation of that 1132(a) 502(a), (1994), 29 U.S.C. ERISA looking poli- jurisprudence, by then to a permit recovery compensatory does an intricate and cy concern contravenes punitive damages. Mertens v. Hewitt As congressional carefully-considered enact- socs., 508 U.S. S.Ct. persuasive, Finding rationale ment. neither (1993); v. Anthem L.Ed.2d 161 Medina Life parts III respectfully from II and I dissent (5th Cir.), Co., Ins. cert. opinion. majority denied, 816, 114 recently fol- held as explicit “Without instruc lows: Congress, are bound tions from we plain language of the that limits independent requirements statute suits are] two

[There Medina, plan recov- terms of the at issue.” taxpayer must meet before a 104(a)(2). argu 32. The under F.2d at ery be excluded 502(a) ably interpreted in a more First, liberal must demonstrate - Howe, Varity Corp. v. giving rise fashion in underlying action cause of or tort “based tort to the second, See but not overrule Mertens. id. at taxpayer it did

type rights”; and -, at 116 S.Ct. 1076. that were received must show -, -, inquiry ... is to determine if that "the threshold -U.S. 1. Commissioner v. 2159, (1995) underlying 132 L.Ed.2d 294 cause seeks redress a action added); added). (emphasis Wesson United (emphasis see also personal injury”) States, Cir.1995) (5th (stating 897 (analo- argues Dotson Mertens Medina 508 U.S. at S.Ct. 2067-68 gizing VII, which, distinguishable underlying are to title because his ERISA the Court § found not tort-type claims arose under ERISA 29 U.S.C. does redress Thus, rights). § provides Section 510 the sub- Dotson has not met 104(a)(2) requirement claims, threshold for a underlying stance of Dotson’s ex- but 502(a) clusion. determines the available remedies. scope As Mertens and Medina define the II. 502(a), permitted by remedies are on point. A. majority

Finally, opinion subject Dotson asserts that we should to two First, interpretations. according it characterize settlement to his could be read to McLendon, allegations light provided tort-type hold that ERISA not in of sub- reme- sequent legal developments. dies at the time of the This contention McLendon settlement. Second, interpreted it is irrelevant. could be to enunciate Schleier, Burke, exception an and Wesson above, explained As require- there are two for cases in which the law was unsettled at ments for a exclusion. The first judgment the time of a or settlement. Nei- underlying asks whether the action ther rationale is tenable. personal injury; redresses the second looks majority I opinion read the to find that compensates to whether the settlement provided tort-type ERISA remedies at the See, Wesson, injury. e.g., such 48 F.3d at settlement, time of the McLendon even short, In requires 899. the first test though exist,” longer those remedies “no hav- classification, legal the second a factual char- ing been buried in “the shifting sands of acterization. statutory interpretation.” op. See at 4393. Dotson is correct that Mertens and Medi- us, Supreme recently As the reminded not na do affect the factual determination of judicial “[a] construction of a statute is an actually compensated whether the settlement authoritative statement of what the statute personal injury, he but cannot avoid the meant as well as the decision of before after classify fact that those cases his cause giving the case rise to that construction.” action as one that does redress Rivers, --, 511 U.S. at S.Ct. injury. judicial As construction of a “[a] added). (emphasis statute is an authoritative statement of what Moreover, as the Court is the the statute meant as well as before after law, interpreter authoritative of federal earli- giving decision of the case rise to that con- reaching opinions er lower-court a different struction,” Roadway Express, Rivers v. Thus, “wrong.” conclusion are Id.2 Mertens 298, -, 1510, 1519, provided compensa- holds that never ERISA (1994) added), (emphasis Mer- remedies, tory and lower courts were er- control. tens Medina ror to believe otherwise.3 permit recovery majority attempts distinguish

As ERISA does not Riv- compensatory punitive damages, “[although ... asserting does ers Mertens Mertens, personal injuries. may retroactively apply pending not redress ERISA Cf. principle adjudication litigated right 2. This fundamental to an exclusion in a different judges op. does not rest on the formalist belief that circuit. See at 4394 n. 2. That scenario Instead, (1) do not "make” law. "the would occur in rare instances where rules issue, (2) govern split liability taxpay- necessarily our hierarchical federal court circuits claim, (3) taxpayer system” er settled his (a) either that the dictate Court’s inter- (b) correct, litigate pretation chose in his home state or of a statute is and all other Rivers, participated readings wrong. in a multi-state class action. 511 U.S. at 114 S.Ct. at 1519. present This case does not such a circum- stance. Whether the Third Circuit would have majority "complicated observes that is- reached the same result as we did in Medina is irrelevant, sue!]” would arise if a settled a case in as the Court settled the event, light any few of the settled law of one circuit and later Mertens. 692 Beam, 541, 111 at 2446-47 Op. 501 U.S. at S.Ct.

cases, not an ERISA case.” case is J.). Souter, parties If the to (opinion of give publisher’s decision to at 4394. question actually litigated the McLendon had headnote and this case “pensions” Mertens plaintiff class entitled the of whether ERISA hardly restricts one an “internal revenue” compensatory punitive or dam to recover fact, value. In precedential Mertens’s ensuing judgment might control ages, the recently prohibited “the Supreme Court cannot question. of that Dotson our decision temporal to the barriers erection of selective however, estoppel, because assert collateral law” in all cases: application of federal actually and neces the district court did not applies sarily a rule of federal when it decide the remedies this Court When settlement, approved the class action see it, parties before that rule is to the law Airlines, 164, EEOC v. American interpretation of federal law controlling (5th Cir.1995); can Dotson assert res nor given full retroactive effect and must be judicata, par not a as the Commissioner was open on direct review and still all cases McLendon, ty Travelers Ins. Co. v. St. to see events, such regardless of whether to all (5th Cir.1994), 193, Hosp., 37 F.3d Jude postdate our announce- predate or events - 1696, denied, S.Ct. cert. the rule. ment of Taxation, Virginia Dep’t Harper v. implicate the reality, In this case does not 2510, 2517, 125 97, 113 S.Ct. retroactivity. only principle “It is when added). (1993) (emphasis respect that an changes in some the law nonretroactivity may be enter- assertion of majority that retroac Finally, the asserts Beam, B. 501 U.S. tained.” James and Medina application of Mertens tive J.). Souter, (opinion of at 2443 S.Ct. op. at 4394. inequitable. See would be Court, nor the Third Neither formerly considered federal courts While (in settled McLen- Circuit prece application of whether retroactive don), circuit has ever held that nor this inequity in the individual would cause dent compensato- permits the ERISA case, recently overruled Supreme Court damages. controlling ry law test, at 94-95 & n. Harper, 509 U.S. see parties to changed; McLendon never 9, 113 explaining n. at 2515-17 & S.Ct. incorrectly. extent simply it To the read law scarcely permit the substantive can prece- “we apply controlling it declines to according particu to the spring dent, majority opinion simply in error. shift and [to] parties’] claims of equities of [individual lar rule and of harm on an old

actual reliance B. application of the new a retroactive from 1. (quoting at 2517 rule.” Id. at focusing nature of the settle- By Georgia, Distilling B. Beam Co. James underlying than of the ment rather 2439, 2447-48, 543-44, action, majority appears to create an (1991) Souter, (opinion of 48 1 115 L.Ed.2d Burke, and Wesson exception to omitted).4 J.)) (internal quotations scope available reme- in which the cases course, yields retroactivity doctrine to Of at the time of settle- dies was “unsettled” justi- ap- majority finality judgments op. and therefore ment. See 4394. by looking Congress’s exception B. fies this cases. See James plies only pending interpretation He found of ERISA: incorrect perfect, to the extent that are rules will, sought wronged against belongs anomaly, himself majority an has identified recourse, accepted the best possible we bound to fol- Schleier and fact, if the In available settlement. low. correctly, Dot- ERISA McLendon had construed settlement. addition, a far smaller why applica- son would have received I fail to understand lucky already break one unjust Dotson result. That cause an tion of Mertens would deny unjust another. hardly him way makes it was in no affected Dotson’s behavior presumed public policy favoring Finally, intent and a Schleier and Burke are not distin- “finality predictability of guishable. and taxation.” Id. While the regarding law at 4395. scope of available remedies was well-estab- lished at the underlying time of the awards majority’s exception The fails to serve ei- cases, regarding those the law the awards’ First, goals. majority ther of these while the fact, tax status was not. In both cases re- Congress “sympa- be correct feels versed lower-court decisions and drew dis- thy injuries” the victims of in sents. That Schleier and Burke clarified tax id., general, Congress specifically see chose law rather than substantive law is irrelevant: permit not to Dotson to recover for that obligation similarly- We bear an to treat ERISA, injury. enormously complex “an litigants similarly, situated and therefore to and detailed statute that resolved innumera- apply the understanding law—or at least our disputes powerful competing ble between in- of the terests,” law—to all before us. Some provide compensatory does not litigants thereby relief, Mertens, disadvantaged, but that 508 U.S. at 2071-72, disadvantage inexorably results from “the preemption and its broad precedent, necessary nature of as a compo- clause ensures that Dotson could not recover law, 514(a), any system aspires nent of under state see fairness ERISA 1144(a) (1994). Beam, equality.” James B. U.S.C. U.S. at J.). (opinion Souter, 111 S.Ct. at 2447 Thus, and Mertens reflect Schleier Congressional purpose Congress lim- same — retroactively applied Court personal injury legally ited the exclusion to years, tax in decisions twice recent see Har- injuries protected protect and chose not to Beam, per; subjecting James B. each time injury. majority’s Dotson’s extension of litigants to mammoth tax liabilities. The legally to interests that are not rejected “good argument a faith” in protected is therefore inconsistent with both “Georgia good the latter case: collected in interpretation Court’s of that faith what was at the time a constitutional legislative purpose major- statute and the subjects tax. The Court now State implement. ity purports to potentially devastating liability without fair majority opinion does not foster “final- Beam, warning.” James B. 501 U.S. at taxation,” ity predictability either. In (O’Connor, J., dissenting). 111 S.Ct. at 2456 prosecut- order to determine whether Dotson short, policy driving In concerns the ma- test, tort-type action ed under its modified ones, jority opinion are familiar and the majority examining finds itself the sub- already rejected Court has them favor of jective litigants, pleadings motives of orderly system justice. proceedings, course of the evidentia- ry rulings special op. of the master. See inquiry 4394-96. Such a fact-intensive hard-

ly predictability. fosters majority only Dotson and the cite to one addition, authority supports position, their predictability generally con- implicitly important permits to be because it overruled that sidered States, to structure their behavior with case. The decision Reese v. United knowledge legal consequences. aff'd, In the Fed.Cl. 702 24 F.3d 228 its context, however, (Fed.Cir.1994), Dotson, present wronged parties cited illustrates litigate methodology. claims are the correct The Court of Fed will whatever available them, interpreted impose and defendants will settle if the cost of eral Burke to Claims expected requirements”: underlying settlement is less than the cost of “two distinct tort-like, Thus, litigation. plaintiff change plaintiff and the must could suit must be respect portion have received the excluded behavior one —creation personal inju paper purporting damage trail to show a award “on account of’ distorted sought good-faith availability ry. petitioner id. at 710. The belief of non- See crafty lawyering punitive damages existent remedies. exclude awarded claims While inevitable, encourage definitely it. that were tort-like: sex discrimina- we need not - U.s. at ----, harassment, at 2166-67. in-

tion, and intentional sexual failing recog id. at 703. erred in distress. See court fliction of emotional Redfield requirement, only if the second action is tort-like In connection with nize that a cause of jury’s that the award taxpayer contended recovery compensatory reme permits damages should be considered dies. punitive be- compensatory rather than be permitted the tax- court also Redfield recovery provide the law did not pursuant damages awarded payer to exclude rejected that punitive damages. The court “alleged claims because he to state law argument, finding that characterization “prayed tort causes of action” and [them] upon depend not sub- damage award did damages.” 940 F.2d at 547. for tort at 711. sequent legal developments. See id. subsequent supreme that a state court noted straightforward analysis agree I case, at held that the state law court Subsequent devel- employed in Reese. permit of tort dam- does not issue of an opments not affect the character do retroactively alter the charac- ages, “cannot impact not have an award and therefore do already id. at damages awarded.” See ter of first test does not on the second test. As the n. 2. Because the Ninth Circuit focused award, the actual require characterization of exclusively plaintiffs allegations in the on the however, speak not to it.5 Reese does suit, underly- underlying rather than on the correctly states the first test: Threlkeld action, it failed to consider ing cause of whether “The determination subsequent ruling was relevant whether the injury personal received on account puni- availability compensatory or to the claim.” depends on the nature of the properly action, rath- tive under cause of Commissioner, T.C. Threlkeld short, In than under the actual award. er aff'd, 848 F.2d 1986 WL the two tests for a the court blurred Cir.1988). (6th passages quoted by exclusion.6 problem of deter majority discuss the settled, preceded Burke and not As both mining claim the Redfield Schleier, inju After tort-like the error is understandable. that claim redresses whether cases, however, The Threlkeld we are not free to let id. at 1305-06. those ries. See that the settlement at issue was the case before us override the court found the facts of claim, prosecution majority’s to a malicious test. The reliance attributable first Schleier prosecution opinion “an action for malicious instead of on the outdated Redfield Burke, personal Schleier, action for be classified as an its would and Wesson underscores injuries” law. Id. at 1307. under state error.

short, correctly the Tax determined plaintiffs cause of action sounded that III. law, of substantive tort as a matter of the case. the facts Finally, important it is to remember recovery is posture of this case. As Dotson’s implicitly has Finally, the meaning of 26 “gross income” within N. v. Insurance Co. overruled Redfield 61(a) (1994), tax-exempt only if Cir.1991). it is (9th U.S.C. Am., Redfield injury exclusion of it falls within may taxpayers that exclude awards of holds 104(a)(2). are therefore constrained We age damages pursuant to the dis- economic statutory interpreta (“ADEA”), by the “default rule of employment act see crimination in 547; from income must be tion that exclusions holds that ADEA dam- id. at Schleier ,r - narrowly U.S. at excludable, construed.” the act does ages are not because Schleie (quoting at 2163 injuries, 115 S.Ct. remedy type tort see distinguishable might also be cases such as Howard v. 5. The same is true of Redfield change ground or clarification Commissioner, (5th Cir.1971), that it involved 447 F.2d 152 Harper, by a state court. of state law proceeds settlement Cf. decline to recharacterize (recognizing at 2519 underlying claims. based the merits of the retroactive be able to limit state courts law). of state of their declarations effect (Souter, J., 112 S.Ct. at 1878 concurring judgment)). Far from constru-

ing narrowly, majority the exclusion de-

parts controlling authority from order

protect injury Congress chose unprotected.

leave The McLendon settle- windfall, lottery simply

ment is like win-

nings any punitive damages, unrelated to

legally-protected personal injury. Wes- Cf. son, (finding 48 F.3d at 900

damages “may aptly be characterized as a tax-exempt).

windfall” and are not

Accordingly, respectfully I dissent. America,

UNITED STATES of

Plaintiff-Appellee, BOND,

Lemmuel Amon Defendant-

Appellant.

No. 94-60771. Appeals,

United Court of States

Fifth Circuit. 27, 1996.

June

Case Details

Case Name: Elton E. Dotson and Alrethia Dotson v. United States

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Jun 27, 1996

Citation: 87 F.3d 682

Docket Number: 95-40289

Court Abbreviation: 5th Cir.