Court: District Court, S.D. Iowa; January 28, 2016; Federal District Court
BNSF Railway Co. filed a motion under Federal Rule of Civil Procedure 60(b)(5) seeking to release and discharge a judgment in favor of plaintiff Randall E. Marlin, who had previously won a $75,000 jury verdict for injuries sustained while working. The court entered judgment for Marlin and taxed costs against BNSF, amounting to $2,878.97. BNSF has deposited $69,757.53 with the court, claiming this covers the judgment, costs, and post-judgment interest after deducting amounts for the Railroad Retirement Board (RRB) lien and Railroad Retirement Tax Act (RRTA) withholdings.
Marlin disputes the RRTA deduction of $3,698.36, arguing that his award, classified as a personal injury award, should not be considered wages subject to RRTA withholding. BNSF contends that the award qualifies as wages under the RRTA and that it has fulfilled its obligations by paying both the employer's and employee's portions of the RRTA. The court finds the matter is ready for decision without a hearing. The primary legal issue revolves around whether Marlin's award is considered wages under the RRTA, with both parties acknowledging that the judgment was subject to RRA withholdings.
The two-tiered Railroad Retirement Tax Act (RRTA), found in 26 U.S.C. § 3201 et seq., mandates taxes on both railroad employees and employers, with Tier I functioning similarly to FICA, providing social security-like benefits for railroad workers. Tier II operates akin to a private pension plan, linked to an employee's earnings and career service. The RRTA Tier I taxes are assessed on employee income, defined as a percentage of compensation for services rendered.
The case involves the interpretation of "compensation" under the RRTA, particularly in relation to BNSF's withholding practices from a judgment awarded to an employee, Marlin, who sued under the Federal Employers' Liability Act (FELA) for workplace injuries. Marlin cites Cowden v. BNSF Ry. Co., where the court determined RRTA withholdings do not apply to personal injury awards. In Cowden, the jury awarded damages for injuries sustained, and the court analyzed the definitions of "compensation" under both the RRTA and RRA, emphasizing the removal of personal injury payments from the RRTA's definition.
The Cowden court applied Chevron deference to Treasury regulations and considered Fifth Circuit precedents, ultimately concluding that while FELA judgments for lost pay qualify as "compensation" under the RRTA, some of the awarded amount fell under the personal injury exclusion in 26 U.S.C. § 104(a)(2), which excludes damages from gross income if related to personal physical injuries.
The Cowden court established that "income" encompasses a broader definition than "wages," leading to the conclusion that if Redfield’s "economic damages" are excluded from "gross income," they are likewise excluded from wages. Consequently, these sums are not subject to FICA withholding. The court also determined that the Plaintiff's award qualifies as "damages on account of personal physical injuries or physical sickness," aligning with the principle that personal injury exclusions apply to wages. The Cowden case involved a general verdict that included both taxable lost pay and excludable personal injury damages, affirming that under 26 U.S.C. § 104(a), all awards for personal injury in tort proceedings are excludable from income, even if they incorporate amounts for lost earnings.
In contrast, the BNSF's reliance on Phillips v. Chicago Central & Pacific Railroad Co. is criticized. The Iowa Supreme Court in Phillips had to address whether RRTA taxes were properly withheld from an award that included various damages, concluding that the entire award should be taxed as compensation for time lost. However, the Phillips court did not adequately consider the personal injury exclusion under 26 U.S.C. § 104(a)(2). The Missouri Supreme Court in Mickey v. BNSF Railway Co. found Phillips unpersuasive for similar reasons, noting that it failed to address how personal injury damages differ from regular wage loss under tax law. The analysis highlights that recoveries for personal injury are not classified as income or wages and thus are not subject to corresponding taxes.
The Mickey court ruled that the Railroad Retirement Tax Act (RRTA) does not mandate employers to withhold RRTA taxes from a personal injury plaintiff's Federal Employers Liability Act (FELA) award. It determined that damages from personal injury lawsuits, including lost wages, are typically not subject to income or retirement taxes. The court endorsed Judge E. Richard Webber’s analysis in Cowden, asserting that Marlin's damages were entirely connected to his physical injury, qualifying them for exclusion under 26 U.S.C. § 104(a)(2). To satisfy the exclusion criteria established in Lindsey v. C.I.R., Marlin needed to demonstrate two points: the underlying claim was based on tort rights, and the damages were for personal physical injuries or sickness. Evidence presented at trial indicated that Marlin suffered a physical injury due to BNSF's negligence, leading to both past and future wage losses.
The jury instructions followed the Eighth Circuit Manual, requiring proof of four elements for a FELA negligence claim, of which the first three were stipulated as proven: Marlin was an employee of BNSF, BNSF failed to ensure safe working conditions leading to a collision, and BNSF was negligent in this failure. The court instructed the jury to award damages based on the evidence of Marlin's physical pain, mental suffering, and lost earnings, emphasizing the need to avoid speculation or punitive damages. The jury awarded Marlin $75,000, and applying the rationale from Cowden, the court concluded that this entire award is excludable from RRTA withholdings under 26 U.S.C. § 104(a)(2) due to its basis in Marlin’s physical injury.
Defendant's Motion for Order Releasing and Discharging Judgment is denied. BNSF wrongfully withheld $3,698.36 from Plaintiff Marlin's Judgment. Marlin is awarded $73,390.97, calculated as the jury award of $75,000, plus costs of $2,878.97, minus an RRB lien of $4,488.00. BNSF must inform the Court within ten days on how to disburse the $69,757.53 it deposited with the Clerk of Court on November 20, 2015. Both parties requested a general verdict form regarding damages, and the jury instructions followed the Eighth Circuit Manual of Model Civil Jury Instructions. The document references the case Chevron, U.S.A. Inc. v. Nat. Res. Defense Council, Inc., and discusses a related case, Loos v. BNSF Railway Co., where the jury awarded damages for pain, lost wages, and medical expenses. In that case, the court concluded that personal injury awards are excludable from income under 26 U.S.C. 104(a), even if they include lost earnings. BNSF appealed the order, prompting potential guidance from the Eighth Circuit regarding RRTA tax implications on personal injury awards.
