Petition — In Re Air Crash Disaster Near Chicago, Illinois on May 25, 1979 Inge Maria Kahl, Special Administrator of the Estate of Hans Jurgen Kahl, deceased, et al v. American Airlines, Inc. and McDonnell Douglas Corporation, 701 F.2d 1189 (1983) (No. 82-2149)

82-2149 NUR 29 1983

oO.

ify

In THE

Supreme Court of the United States

Octoper Term, 1982

IN RE AIR CRASH DISASTER NEAR CHICAGO,

ILLINOIS ON MAY 25, 1979

INGE MARIA KAHL, Special Administrator of the

Estate of HANS JURGEN KAHL, deceased, et al.,

Petitioners,

vs.

AMERICAN AIRLINES, INC. and

McDONNELL DOUGLAS CORPORATION,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PHILIP H. CORBOY

CORBOY & DEMETRIO, P.C.

33 North Dearborn Street

Chicago, Illinois 60602

(312) 346-3191

Attorneys for Petitioners

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

i

QUESTIONS PRESENTED FOR REVIEW

Whether a judgment and opinion of the United States

Court of Appeals for the Seventh Circuit should be per-

mitted to stand in a Multidistrict Litigation case where

that opinion is not only in conflict with the decisions of

other Courts of Appeals on the same issues and is in con-

flict with the precise opinion of this Court which it states

it is interpreting, but also where the opinion presents a

serious challenge to the continuing vitality of a basic doc-

trine which has guided the federal judiciary for more

than forty years—Erie Railroad Company v. Tompkins.

ii

LISTING OF PARTIES SEEKING REVIEW

IN THIS PETITION

Inge Maria Kahl, Special Administrator of the Estate of

Hans Jurgen Kahl, deceased

State National Bank, Administrator of the Estate of

Stephen P. Sutton, deceased

State National Bank, Administrator of the Estates of

Christopher S. Sutton and Colin M. Sutton, deceased

Thomas Ziemba, Personal Representative of the Estate of

Diane E. Ziemba and Jon J. Ziemba, deceased

Doris C. Udovich, Executor of the Estate of Alfred F.

Udovich, deceased

Angeline J. DiCastro, Administrator of the Estate of Gail

Anne DiCastro, deceased

Albert T. Ferntheil, Executor of the Estate of Carol

Arnold Ferntheil, deceased

Dorothy B. Lang, Administrator de bonis non of the

Estate of Susan Lang, deceased and Dorothy B. Lang,

Administrator with the will annexed of the Estate of E.

Stephen Lang, deceased

Sharon Fink, Administrator of the Estate of Larry M.

Fink, deceased

Peter Adduci, Administrator of the Estate of Kathleen

Adduci, deceased

Kenneth L. Sheetz, Administrator of the Estate of Dennis

T. Connell, deceased

Gayle V. Gallagher, Administrator of the Estate of Kath-

leen V. Gallagher, deceased

Sandra Leigh Cannon, Administratrix of the Estate of

Robert Lamar Cannon, deceased

Martin H. Malek, Administrator of the Estate of Doreen

L. Malek, deceased

Culver J. Vickery, Administrator of the Estate of Martha

J. Vickery, deceased

Margaret Clark and Richard Davis, Co-Administrators

of the Estate of Patricia Clark Davis, deceased

Richard J. Moruzi, Administrator of the Estate of Debra

A. Moruzi, deceased

State National Bank, Administrator of the Estates of

Christopher S. Sutton and Colin M. Sutton, deceased

ili

TABLE OF CONTENTS

QUESTIONS PRESENTED .... ce csseteseeeeeees

ae TIE becildsicpngiphvshenninian ipionresiaiiianeenineveie

C— Order of the United States District Court

for the Northern District of Illinois, East-

Be A Rr EE TEED cnnsnsencnassiasncsenienesoaccsivecses iv

a saincmaeubinanal 2

ERIE RAIA RRS AOE NST AA

STATEMENT OF THE CASE .0........cccccccccosccsooees

REASONS FOR GRANTING THE WRIT:

THE WRIT OF CERTIORARI SHOULD BE

ALLOWED BECAUSE THE COURT OF AP-

PEALS IS IN ERROR IN APPLYING NORFOLK

& WESTERN RAILWAY v. LIEPELT, AND

IS CONTRARY TO THE INTERPRETATION

OF THE LIEPELT DECISION BY SEVERAL

OTHER COURTS OF APPEAL; AND THE

OPINION CHALLENGES THE CONTINUING

VITALITY OF THE DECISION OF THIS COURT

IN ERIE RAILROAD CO. v. TOMPKINS ......... 5

a cdebbeinitoi 16

APPENDIX

A—Opinion of the United States Court of

Appeals for the Seventh Circuit, dated

> £ S. eee App. 1

B—Order of the United States Court of Ap-

peals for the Seventh Circuit, Denying

RO a ia App. 20

ern Division, dated November 17,1981 .... App. 21

iv

LIST OF AUTHORITIES

Cases

Day & Zimmerman, Inc. v. Challnor, et al., 423

I I i ici aan alata 13, 15

Elliott v. Willis, 92 Ill. 2d 330 (1982) ....... 11, 12

Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58

S.Ct. 817, 82 L.Ed. 1188 (1938) .............. passim

Estate of Spinosa v. International Harvester Co.,

eo Bt Be renee 6, 7

Fenasci v. Travelers Ins. Co., 642 F.2d 989 (5th

as III 1s sch at tnsiopanisisiesgenilahnanenllsinigidiin 7

Flintkote Co. v. Dravo Corporation, 678 F.2d 942,

RE EINER cis casi enicasiiannimnahiaevuiliienniimaenies 12

Hall v. Chicago and Northwestern Railway Co.,

5 Ill. 2d 135, 125 N.E.2d 77 (1955) .. 8, 9, 10, 11, 12

Hanna v. Plummer, 3580 U.S. 460, 85 S.Ct. 1135,

a pT A IEEE. csistiiscsinsonsonennanianisenabsounisanetinneiens 14, 15

In Re Air Crash Disaster Near Chicago, Ill. on

May 25, 1979, 476 F.Supp. 445, 449 (J.P.M.D.L.

MUTT < siccna iaodlissnkacduieitelindiiabiabuigidgeiaaiaapitnnansoobidanaabaiaeniacnies 3

In Re Air Crash Disaster Near Chicago, Ill. on

May 25, 1979, 526 F.Supp. 226 (N.D. Ill. 1981) .. 4

In Re Air Crash Disaster Near Chicago, Ill. on

May 25, 1979, 644 F.2d 633 (7th Cir. 1981) .... 3

Johnson v. Hoover Water Well Service, Inc., 108

Ill. App. 3d 994, 439 N.E.2d 1284 (1982) ......... 9

Klazxon Company v. Stentor Electric Mfg. Co., 313

I I oi dt oaaeaniniad intaeioenaucnteditgndaneunlenannie 13

Lousissaint v. Hudson Waterways Corp., 443 N.Y.S.

ry: Oe BI Te Bi CURED sissccennctnsnbenesnarcceenes 9

Norfolk and Western Railway Co. v. Liepelt, 444

U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980) .. passim

Raines v. New York Central Ry. Co., 51 Ill. 2d 428

Bete a mr id LEC te PO EN eT eR OE 9

v

Turcotte v. Ford Motor Co., 494 F.2d 173 (1st Cir.

RR eS Al A RC eR Re es MD Oe

Vasina v. Grumman Corp., 644 F.2d 112, 118 (2d

rad aoe seurlia tele alehiuiniabladacssciecheoiunnionn

OTHER AUTHORITIES

Wright, Miller & Cooper, Federal Practice and

Procedure, Ch. 14, Section 4507 ...........ccscseeeeees

Annot., Propriety of Taking Income Tax into Con-

sideration in Fixing Damages in Personal Injury

or Death Action, 63 A.L.R. 2d 1878.0...

11

In Tue

Supreme Court of the United States

Ocroser Term, 1982

IN RE AIR CRASH DISASTER NEAR CHICAGO,

ILLINOIS ON MAY 25, 1979

INGE MARIA KAHL, Special Administrator of the

Estate of HANS JURGEN KAHL, deceased, et al.,

Petitioners,

vs.

AMERICAN AIRLINES, INC. and

McDONNELL DOUGLAS CORPORATION,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

a

OPINION BELOW

The opinion of the United States Court of Appeals

for the Seventh Circuit is reported at 701 F.2d 1189 (7th

Cir. 1983).

JURISDICTION

This Court’s jurisdiction is invoked pursuant to 28

U.S.C. Section 1254(1) from the judgment and opinion

of the United States Court of Appeals for the Seventh

Circuit entered on February 15, 1983. (A copy of that

decision is attached hereto as Appendix A.) A petition

for rehearing and suggestion for rehearing en banc was

timely filed and was denied on March 31, 1988. (A copy

of the order denying that petition is attached hereto as

Appendix B.)

STATEMENT OF THE CASE

On May 25, 1979, a DC-10 airliner built by McDonnell

Douglas Corporation and owned and operated by Ameri-

can Airlines crashed almost immediately after takeoff

frorn O'Hare International Airport outside Chicago, IIli-

nois. The crash took the lives of 273 persons.

a

Shortly after the fatal crash, Inge Maria Kahl, as Spe-

cial Administrator of the Estate of Hans Jurgen Kahl,

Deceased, filed suit in the Circuit Court of Cook County,

Illinois. This first suit arising from the crash, and

many others filed in the Circuit Court of Cook County,

Illinois (the Illinois court located in Chicago and having

jurisdiction over the site of the crash), were removed to

the United States District Court for the Northern Dis-

trict of Illinois by defendants. This case, and numerous

others filed either in the state courts and later removed

or filed directly in federal court after the first cases had

already been removed to the federal court system (ap-

proximately 150 cases in all), were consolidated for pre-

trial proceedings in the United States District Court for

the Northern District of Illinois by order of the Judicial

Panel on Multidistrict Litigation. (Jn re Air Crash Disas-

ter, 476 F.Supp. 445, 449 (J.P.M.D.L. 1979).

After it had previously been decided that the substan-

tive law of Illinois (as set forth in the Illinois Wrong-

ful Death Act)! would apply in these cases (Jn re Air

Crash Disaster, 644 F.2d 633, 637 (7th Cir. 1981)), cer-

tain motions in limine were filed before the district court

seeking to determine whether a federal court sitting in

diversity would admit evidence of income tax liability the

decedent would have incurred on the earnings lost be-

cause of premature death and, also, whether the court

would instruct the jury that whatever award it made

would not be subject to federal income tax in the hands of

the survivors. The district court, applying Illinois law

under Erie Railroad v. Tompkins, 304 U.S. 64 (1938),

determined that the Illinois courts woui’ not permit the

1 [ll.Rev.Stat., Ch. 70, §1-2.2 (1981).

— =

introduction of evidence of income tax liability on the

part of the decedent nor would they instruct the jury that

the award itself would not be subject to federal income

taxation. (In re Air Crash Disaster, 526 F.Supp. 226

(N.D. Ill. 1981).) The court then concluded that it was

bound to and would follow the Illinois courts in these

matters.

Granting interlocutory appeal from the district court’s

ruling on the motions in limine, the Seventh Circuit

reversed the lower court’s ruling on both issues. With

regard to the question of the admissibility of evidence of

the federal income tax which would have been paid by

the decedent but for the untimely death, the Court of

Appeals stated that the Illinois courts might admit such

evidence, doing so by questioning the basis for, and

underlying reasoning of, the decisions of the Illinois

courts which had previously rejected this evidence. Turn-

ing next to the question of the jury instructions, the

Seventh Circuit declined to accept the decisions of several

intermediate Illinois reviewing courts which had both

specifically rejected the giving of such an instruction and

confirmed the continuing vitality of prior decisions of the

Illinois Supreme Court to this effect. The Court of

Appeals justified this refusal to conform to the existing

Illinois practice by again questioning the rationale upon

which the Illinois court system had held it would not

permit these instructions and, further, by questioning

whether the giving of this instruction was controlled by

the application of Illinois law under Erie.

—

REASONS FOR GRANTING THE WRIT

THE WRIT OF CERTIORARI SHOULD BE ALLOWED

BECAUSE THE COURT OF APPEALS IS IN ERROR IN

APPLYING NORFOLK & WESTERN RAILWAY vy. LIE-

PELT, AND IS CONTRARY TO THE INTERPRETA-

TION OF THE L/JEPELT DECISION BY SEVERAL

OTHER COURTS OF APPEAL; AND THE OPINION

CHALLENGES THE CONTINUING VITALITY OF THE

DECISION OF THIS COURT IN ERIE RAILROAD COM-

PANY v. TOMPKINS.

In Norfolk & Western Railway v. Liepelt, 444 U.S. 490

(1980), this Court decided that in cases brought under the

Federal Employers’ Liability Act (FELA), state courts

could not prohibit either the admission of evidence as to

the income tax liability of a decedent or the giving of an

instruction that the proceeds of the jury award to the

survivors would be exempt from federal taxation. This

Court reached this decision as a “matter governed by

federal law”, noting that one of the purposes of the FELA

was to create uniformity throughout the United States

with respect to “railroads’ financial responsibility for

injuries to their employees.” (444 U.S. at 493.)

Prior to the Liepelt decision, courts in FELA cases had

considered the matters of admission of evidence of this

type and jury instructions to be procedural in nature.

Therefore, the determination to admit such evidence or

permit this type of instruction was governed by the ap-

plicable rules of the forum in which the case was being

tried. However, recognizing that the question of the

measure of damages in a FELA action was “federal” in

character and that Congress intended to provide for

uniformity throughout the United States with regard to

the railroads’ financial liability for its employees job-

_

related injuries, this Court in Liepelt held that since the

admission of this evidence, and the giving of this instruc-

tion, were of such significant impact upon the measure of

damages ultimately reached by a jury, a state court could

not be permitted to treat these issues as “procedural”.

Instead, the state courts were required to allow such

evidence and give this instruction as a matter of federal

law in FELA cases.

The Court’s resolution of these issues in Liepelt just as

clearly governs the determination of these same issues for

the purpose of diversity jurisdiction. Having already

determined that the admissibility of this type of evidence,

and the giving of this type of instruction, has a signifi-

cant and substantial impact upon the measure of dam-

ages ultimately determined by a jury in a death action

brought under the FELA, it follows that the same im-

pact would be had in a wrongful death action brought

under state law. Therefore, a federal court hearing a

wrongful death action under its diversity jurisdiction

would be required to apply the appropriate state law

governing the admissibility of this type of evidence and

the giving of appropriate instructions.

Petitioners submit that this view of the reasoning

underlying the Liepelt decision, and the determination

that these matters are of such impact that they have a

substantial and controlling effect upon the eventual out-

come of a proceeding, is compelled not simply by the

decision itself. Where these questions have been con-

sidered by other Courts of Appeals in diversity cases

subsequent to Liepelt, this reasoning has been adopted

to require the district courts to apply existing state law.

In Spinosa v. International Harvester Co., 621 F.2d

1154 (1st Cir. 1980), the Court of Appeals held that the

=

Liepelt case did not “mandate an across-the-board change

in the majority rule regarding computation of a dece-

dent’s projected future earnings” in a diversity situation,

particularly where the decision in Liepelt was said to

stand “against a mountain of contrary state authority

(circa 28 states do not consider tax impacts).” (621 F.2d

at 1158-1159.) (See also, Vasina v. Grumman Corp., 644

F.2d 112, 118 (2d Cir. 1981).) As the Fifth Circuit com-

mented in Fenasci v. Travelers Insurance Co., 642 F.2d

986, 989 (5th Cir. 1981), the Liepelt decision was based on

the federal nature of the action being tried in state court

and was “strictly limited in application to federal law,

whereas, in this case we are dealing with state law and

are bound under Erie to apply it.”

Although the Spinosa, Vasina, and Fenasci opinions

reflect that the majority of courts which have considered

this Court’s opinion in Liepelt have recognized that it was

entered as a matter of federal law and required the ad-

mission of this evidence and the giving of this instruction

in a FELA case due to their substantial and determina-

tive effect upon the outcome of a proceeding brought un-

der federal law, the opinion of the Seventh Circuit in this

case not only disagrees with its sister circuits but also

contradicts the clear basis upon which this Court reached

its decision in Liepelt.

The opinion below, although stating that it finds that

Illinois’ substantive measure of damages is “identical to

the FELA measure” (App. 8), the Court of Appeals

concluded that while certain Illinois decisions would

“appear” to prohibit the admissibility of evidence of a

decedent’s tax liability, the federal rules of evidence

would “displace any similar state rule in federal court”

and held that any Illinois decisions to the contrary would

not “bind the district court in this case.” (App. 15).

wiltin

In a like fashion, the Seventh Circuit agreed “that,

although Illinois courts very likely would not instruct the

jury that any damages it awarded would be non-taxable,

the Illinois practice does not bind the federal courts

under Erie because, as far as we can determine from the

cases, Illinois’ concerns are either procedural or based on

a mistaken view of federal law.” (App. 19).

The opinion of the Seventh Circuit that the district

court “may admit all evidence relevant to [damages], sub-

ject to the considerations of” the Federal Rules of Evidence,

(App. 8) and that the fact that an Illinois court would

not instruct the jury that any damages it awarded would

be non-taxable did not bind a federal court to follow this

practice under Erie, is patently erroneous. As set forth

above, and as recognized by the Seventh Circuit itself in

its opinion which acknowledged the “most appealing argu-

ment that admissibility rules are tied to the substantive

law [by] an analogy to Liepelt itself, which required

state courts to apply a federal admissibility rule when ad-

judicating a federal claim” (App. 7), the admission of this

evidence so clearly has a substantive effect upon the out-

come of an amount of damages awarded that the state

law may not be disregarded and the federal rules as to

the admissibility of evidence substituted as a basis for

governing admissibility. Since the Illinois courts have

never, nor does the opinion in this case reflect that they

are likely to admit such evidence in a proceeding brought

under Illinois law—upon which these cases are to be tried

under Erie principles—the opinion of the Seventh Cir-

cuit may not stand.

The Illinois Supreme Court in Hall v. Chicago & N.W.

Ry. Co., 5 lll. 2d 185, 125 N.E. 2d 77 (1955), decided that

the Illinois courts would not permit income tax conse-

quences to be interjected into a proceeding tried before

es

the state courts. This view, and indeed the Hall decision

itself, has been cited on numerous occasions as one of the

leading authorities establishing the “majority rule”

adopted throughout the United States prohibiting either

the introduction of this type of evidence or the giving of

such an instruction. (See, Propriety of Taking Income Tax

into Consideration in Fixing Damages in Personal Injury

or Death Actions, 63 A.L.R.2d 1378 (1959). See also,

Lousissaint v. Hudson Waterways Corp., 443 N.Y.S. 678,

111 Misc. 2d 122 (1981).)

Although the Hall decision pre-dates the decision of

this Court in Liepelt, the continuing vitality of the Hall de-

cision has been recognized by the Illinois courts in numer-

ous decisions which have questioned whether this Court’s

decision in Liepelt would affect Illinois practice in this

area. In Johnson v. Hoover Water Well Service, Inc., 108 III.

App. 3d 994, 489 N.E. 2d 1284 (1982), the court noted

that the Liepelt decision would overrule previous IIlinois

decisions with regard to FELA cases tried within the

state court system. However, the court specifically found

that “the Liepelt decision does not, and could not, change

the Illinois rule in purely state matters where, as here, no

federal issues are involved. We, therefore, find Hall and

Raines [Raines v. New York Central Ry. Co., 51 Ill. 2d

428 (1972)] still controlling here.” (489 N.E. 2d at 1295.)

The decisions of the Illinois Supreme Court which the

Seventh Circuit recognizes as a possible basis for find-

ing that the Illinois Supreme Court would not permit

the admission of such evidence (App. 15), as well as the

numerous post-Liepelt state appellate court cases dealing

with these same issues, may not be brushed aside by stat-

ing that application of federal standards should “displace

any similar state rule in federal court.” The admissibility

of this evidence and the effect of this instruction is so

oT

overwhelmingly “outcome determinative” that petitioners

submit that to allow the opinion in the instant case to

stand is tantamount to reversing the basis upon which

the Liepelt opinion was decided. These questions should

be resolved pursuant to the clearly existing Illinois prac-

tice and neither the evidence nor the instruction per-

mitted.

Petitioners also respectfully submit, however, that it is

quite evident that the Seventh Circuit in its opinion was

well aware that an Illinois court would not permit the

admission of this type of evidence, nor give a jury this

instruction. Rather, it was decided to permit the district

court to act to the contrary here because the Court of

Appeals disagreed with the existing application of Illinois

law. In doing so, and by holding that a federal court is

not bound to follow state law in a diversity case, the opin-

ion is not simply wrong. It threatens the entire structure

upon which the federal court system is based.

The fact that the Court of Appeals declined to be bound

by the “erroneous” decisions of the Illinois courts as to

their own law permeates the decision here. While ostensi-

bly deciding that it was free to apply federal law in the

“absence” of any Illinois Supreme Court decision as to

the admissibility of evidence of hypothetical tax liabili-

ty in a wrongful death case, the Court acknowledged

that the decision of the Illinois Supreme Court in Hall

v. Chicago & Northwestern Railway would have ex-

cluded such evidence and “may still represent the view

the court would favor on questions of Illinois law.”

(App. 9). The Court of Appeals then disposed of the

possible conflict with the Hall case by stating that the

reasoning there was “less than compelling” for various

reasons including that the Illinois courts’ adoption of the

“majority view” with regard to the admissibility of such

=)

evidence “may” have been eroded, that the Illinois court's

interpretation of federal law was “wrong”, and that the

“approval of the majority rule [in Hall] was dictum.”

(App. 910).

After questioning the reasoning underlying the Hall

decision, and after declining to be bound by the more

recent decision of the Illinois Supreme Court in Elliott v.

Willis, 92 lll. 2d 580 (1982) as well (App. 12-13), the

opinion of the Court of Appeals noted that several Illinois

Appellate Court decisions after Liepelt had confirmed

the “continuing vitality” of the rules announced in Hall

in actions based on state law. While acknowledging that

these cases were “powerful evidence” of the content of

Illinois law (App. 16), the Seventh Circuit decided that

since Illinois did not have a “substantive interest” in

refusing to give this instruction—“therefore, perhaps

federal law shouid control.” (App. 16-17). The opinion

concluded its discussion by again dissecting the reason-

ing of the Hall decision and stating that the “rationales

for refusing to instruct the jury on this issue” should not

“bind a federal court because they speak to matters of

court administration, about which the federal courts

have independent competence.” (App. 17-19).

Under Erie, however, a federal court is not free to

disregard the substantive law of a jurisdiction simply

because it disagrees with the reasoning or rationale

underlying that law. As Professor Wright noted in his

discussion of the Erie doctrine, even the decision of

an intermediate state appellate court may not be dis-

regarded “simply because the federal court finds it

unsound”. These intermediate decisions may only be

questioned if the “federal court is convinced by other

persuasive data that the highest court of the state would

decide otherwise.” (Wright, Miller & Cooper, Federal

Practice and Procedure, Ch. 14, Section 4507, p. 95.)

—

This view has heretofore been uniformly accepted by

the federal court system:

“In determining the law of the state, federal courts

must follow the decisions of the state’s highest court,

and in the absence of such decisions on an issue,

must adhere to the decisions of the state’s inter-

mediate appellate courts unless there is some per-

suasive indication that the state’s highest court

would decide the issue otherwise. See, West v. Amer-

ican Telephone and Telegraph, 311 U.S. 23 (1940);

Allen v. A.G. Edward & Sons, Inc., 606 F.2d 84, 87

(5th Cir. 1979); Benante v. Allstate Insurance Com-

pany, 477 F.2d 558, 554 (5th Cir. 1973).” (Flintkote

Co. v. Dravo Corporation, 678 F.2d 942, 945 (11th

Cir. 1982).)

The opinion of the Seventh Circuit here reflects little or

no evidence that the courts of Illinois would or are about

to change their long standing and clearly enunciated

rules that would prohibit the admissibility of the evi-

dence which the Court of Appeals will permit here and

which clearly prohibit the giving of the instruction now

approved. The Court of Appeals questioned the reason-

ing and rationale of the Illinois Supreme Court in Hall

and £iliott, and declined to be bound by such “faulty”

reasoning. The Court further acknowledged that several

very recent decisions of the intermediate Illinois review-

ing courts had reaffirmed the continuing vitality of the

Hall decision in state law cases and refused to permit the

type of instruction requested in this case.

In answer to this overwhelming evidence of the actual

manner in which an Illinois court would have resolved

these issues, the Court responded by questioning whether

or not “Erie considerations work in reverse” and held

that the decision of this court in Liepelt, which rested on

the “overwhelming federal interest in uniformity of prac-

tice under FELA, and the supremacy clause [which]

=) =

gives the federal government power to impose even a

procedural rule on state courts” would not permit a

federal court to disregard a state court's determination of

its own law if the “reasoning” or “rationale” by which

that court system arrives at its rules are not “sound”.

Petitioners would urge that “Erie considerations” do in-

deed “work in reverse”, as has already been determined

by this Court!

In Day & Zimmerman, Inc. v. Challinor, et al., 423 U.S.

3 (1975), this Court refused to abandon its “long stand-

ing decision in Klaron Company v. Stentor Electric Mfg.

Co., 3138 U.S. 487 (1941)” in a case where the Fifth Cir-

cuit declined to apply the Texas choice-of-law rules based

upon its own (the federal court's) determination that the

State of Texas did not have sufficient “interest in the

case” or any “policy at stake”. (423 U.S. at 3-4.) In a per

curiam opinion reversing the decision of the Fifth Cir-

cuit, this Court refused to permit a federal court in a

diversity case to “engraft onto those state rules exceptions

or modifications which may commend themselves to the

federal! court, but which have not commended themselves

to the state in which the federal court sits.” (423 U.S.

at 4.)

The basis upon which this Court acted was clear and

unequivocal: The federal court system is not to be per-

mitted to question the basis of or the reasoning upon

which a state court had decided its own law as “[o]ther-

wise, the accident of diversity of citizenship would con-

stantly disturb equal administration of justice in coordi-

nate state and federal courts sitting side by side.” (/d.)

Just as the Liepelt decision was intended to provide for

uniformity throughout the United States in actions

brought under the FELA, the decision of this Court in

Erie achieved the same uniformity of application of state

law more than forty years ago. That doctrine, however, is

=)

now threatened by the decision of the Seventh Circuit in

the instant case which would bind a federal court to

apply state law as interpreted by a state court system

only where it finds that the state court system has

interpreted its own laws “properly”.

Once the federal courts are free to go behind the “rea-

soning” and the “interests” of a state court system in in-

terpreting its laws, a second body of law and the method

of application of state law will grow up alongside that of

the existing state court system. Based then on the simple

“accident of diversity of citizenship” the administration

of justice will be disturbed when litigants file their cause

of action in, or choose to have it removed to, the federal

district court depending on which “interpretation” of

state law is perceived to be advantageous in a given case.

The situation in the cause which petitioners now seek to

bring before this Court is a clear example of what will

occur.

Under the Erie doctrine, a state rule should be applied

in a diversity case if “it would have so important an effect

upon the fortunes of one or both litigants that failure to

enforce it would be likely to cause a plaintiff to choose the

federal court.” (Hanna v. Plummer, 380 U.S. 460, 468

(1965).) Considering the need to apply Erie on the ques-

tion of the admissibility of evidence of taxation under

state law in Turcotte v. Ford Motor Company, 494 F.2d

173 (1st Cir. 1974), the Court stated: “[1]f Rhode Island

law required evidence of income taxes in computing

wrongful death damages, yet the federal district court in

Rhode Island barred such evidence in diversity cases, no

rational plaintiff who had the choice would ever bring a

wrongful death action in the state court. The difference

in wrongful death recoveries between the two forums

would be staggering. Therefore, under Erie state law

must control.” (494 F.2d at 185.)

a oe

The opinion of the Seventh Circuit in this case presents

precisely the type of forum-shopping on a grand scale

that Erie was intended to prevent—a determination re-

affirmed in cases such as Hanna v. Plummer and Day &

Zimmerman, Inc. v. Challnor.2 By questioning the “rea-

soning” or underlying rationale of the Illinois court sys-

tem’s decisions as to its own law, the Court of Appeals has

now created a situation where there will be virtually no

uniformity of the administration of Illinois law since

parties having their cases presented to a jury in the

federal court house in Chicago will receive a far differ-

ent treatment of their actions brought under the Illinois

Wrongful Death Act than they would if their cases were

being presented a few short blocks north of the federal

court house in a state court proceeding. The accident of

diversity of citizenship will now be the sole and control-

ling matter in the application of Illinois law.

Further, the opinion of the Seventh Circuit is not re-

stricted simply to issues arising under the Illinois Wrong-

ful Death Act or to just the laws of Illinois. If other

federal courts are to adopt the justification for ignoring

state law which has been approved by the Seventh Cir-

cuit in this case, virtually any body of state law may be

brushed aside by a federal court if it chooses to question

the validity of the state court system’s interpretation of

2 Such “forum-shopping” has already taken place in this case.

As soon as the Kahl pleading was filed, defendants moved to

transfer this and virtually every other case filed in the state

court system into the federal courts. Only where defendants

had been added in order to defeat diversity were the removal

attempts unsuccessful. Further, it may be noted that in five

cases arising from this crash which have been tried in the

California state court system, no evidence concerning income

taxation was admitted nor was any jury instruction on income

taxes given to the jury.

—i6—

its own law. Litigants will then choose their forum (if

they are fortunate enough to be permitted to do so by

diversity of citizenship) based solely on what they per-

ceive as the advantage offered by a federal court system,

thereby returning both the state and federal court sys-

tems to the situation which existed prior to Erie.

Petitioners respectfully submit that this situation is

neither necessary nor desirable either in this case or as

precedent within either the federal or state court system.

It is urged that the status of Illinois law is clear and con-

vincing, and that the federal court system should be

bound to apply that law regardless of its inclination to do

otherwise.

CONCLUSION

Petitioners do not challenge the decision of this Court

in Liepelt as it requires courts throughout the United

States to permit the introduction of certain evidence and

the giving of certain jury instructions in actions arising

under federal law. That decision is based upon and re-

affirms the need for uniformity of application of federal

law regardless of the type of court in which the case is

being heard. In a like fashion, however, the decision of

this Court in Erie has stood for more than forty years as

controlling the practice of the federal courts in diversity

cases. The Erie decision reflects the mandate of this

Court that the parties before the federal courts be ac-

corded uniformity of application of state law without the

application being affected by the “accident” of diversity

of citizenship.

on tien

Petitioners respectfully submit that the opinion of the

Seventh Circuit misapplies the decision of this Court in

Liepelt. The opinion has interpreted the intent of this

Court to achieve uniformity of application of federal law

as a basis upon which the federal courts may now dis-

regard state law and apply federal law as somehow

“superior” or more “desirable”. Further, and perhaps

more importantly, the opinion of the Seventh Circuit will

stand as a significant precedent by which the federal

court system may now choose to ignore the principle of

law announced in Erie and remove even the possibility of

uniform application of state law. With the federal courts

free to give state law their own interpretation, without

any requirement that such interpretation be bound by

state court practice, will permit the accident of diversity

of citizenship to be the sole controlling factor in deter-

mining how state law is to be applied.

Petitioners respectfully submit that the opinion and

judgment of the United States Court of Appeals for the

Seventh Circuit is in error and creates a dangerous and

undesirable precedent affecting the entire scope of the

federal court system. For these reasons petitioners would

respectfully request that this Honorable Court grant the

writ of certiorari in this case.

Respectfully submitted,

PHILIP H. CORBOY

CORBOY & DEMETRIO, P.C.

33 North Dearborn Street

Chicago, Illinois 60602

(312) 346-3191

Attorneys for Petitioners

App. 1

APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 81-3083, 81-3084

IN RE AIR CRASH DISASTER NEAR CHICAGO, ILLINOIS ON

May 25, 1979

Appeals of:

AMERICAN AIRLINES, INC. and

MCDONNELL DOUGLAS CORPORATION,

Defendants-A ppellants.

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. MDL 391—Edwin A. Robson and Hubert L. Will, Judges.

ARGUED May 7, 1982—DECIDED FEBRUARY 15, 1983

Before COFFEY, Circuit Judge, SWYGERT, Senior Cir-

cuit Judge, and TEMPLAR, Senior District Judge.*

SWYGERT, Senior Circuit Judge. This diversity case

involves the wrongful death actions filed by the survivors

of certain victims of the crash near Chicago on May 25,

1979, of a DC-10 aircraft manufactured by defendant Mc-

Donnell Douglas Corporation and owned by defendant

American Airlines. Many of these actions, either filed in

or removed to federal court, were consolidated for

pretrial proceedings in the United States District Court

for the Northern District of Illinois by an order of the

Judicial Panel on Multidistrict Litigation. Jn re Air

* The Honorable George a: United States Senior Dis-

trict Judge for the District of Kansas, sitting by designation.

App. 2

Crash Disaster, 476 F. Supp. 445, 449 (J.P.M.D.L. 1979).

This interlocutory appeal from the district court’s ruling

on the parties’ motions in limine raises two issues: first,

whether a federal court sitting in diversity and applying

the Illinois Wrongful Death Act,! see Jn re Air Crash Dis-

aster, 644 F.2d 638, 637 (7th Cir. 1981), may admit

evidence of the income tax liability the decedent would

have incurred on the earnings lost because of premature

death as an aid to accurate computation of the survivor’s

loss; and second, whether the court may instruct the jury

that whatever award it makes will not be subject to

federal income tax in the hands of the survivor? The dis-

trict court held that under the principles of Erie

Railroad v. Tompkins, 304 U.S. 64 (1938), it was bound to

apply state law, and that Illinois courts would reject both

the evidence and the jury instruction. Jn re Air Crash

Disaster, 526 F. Supp. 226 (N.D. Ill. 1981). Because we

hold that state and federal law do not differ on the

evidence issue, we reverse that portion of the judgment.

On the jury instruction issue, we reverse because Erie is

inapplicable.

It is clear that in cases involving federal substantive

law the evidence of “lost taxes” would be admissible and

' Til. Rev. Stat. ch. 70, 1] 1-2.2 (1981). Section 2 of the Act

provides in part:

Every [wrongful death] action shall be brought by and in

the names of the personal representatives of such deceased

person, and, except as otherwise hereinafter dhe the

amount recovered in every such action shall be for the ex-

clusive benefit of the surviving spouse and next of kin of

such deceased person and in every such action the jury may

give such damages as they shall deem a fair and Just com-

—— with reference to the pecuniary injuries resulting

rom such death, to the surviving spouse and next of kin of

such deceased person.

2 I.R.C. § 104(aX2) excludes from gross income “the amount of

any damages received (whether by suit or agreement) on ac-

count of personal injuries or sickness.” This section has been in-

terpreted to include damage awards in wrongful! death actions.

See Rev. Rul. 54-19, 1954-1 C.B. 179; Norfolk & W. Ry. v.

Liepelt, 444 U.S. 490, 496 & n.12 (1980).

App. 3

the jury instruction on the nontaxability of the award

would be proper, in appropriate circumstances. In Nor-

folk & Western Railway v. Liepelt, 444 U.S. 490 (1980),

the Supreme Court held that in cases brought under the

Federal Employers’ Liability Act (“FELA”) even state

courts may not prohibit the admission of such evidence or

the use of that instruction, reversing a decision of the II-

linois Appellate Court, 62 Ill. App. 3d 653, 378 N.E.2d

1232 (1978), and overruling the Illinois Supreme Court’s

practice under FELA, see Raines v. New York Central

Railroad, 51 Ill. 2d 428, 430, 283 N.E.2d 230, 232 (1972);

Hall v. Chicago & North Western Railway, 5 Ill. 2d 135,

149-52, 125 N.E.2d 77, 85-86 (1955). Subsequent cases

have adopted Liepelt’s reasoning in non-FELA federal

contexts. See, e.g., Fanetti v. Hellenic Lines Ltd., 678 F.2d

424, 431 (2d Cir. 1982) (Longshoremen’s and Harbor

Workers’ Compensation Act); Austin v. Loftsgaarden, 675

F.2d 168, 183-84 (8th Cir. 1982) (Securities Act of 1933

and Securities Exchange Act of 1934). See also Gulf

Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 498 & n.17

(1981). The Supreme Court has left open the question

whether it should extend Liepelt to diversity cases based

on state law. See id. at 487-88 (reserving the question

whether Liepelt would control when federal right of ac-

tion incorporates state law).

The defendants urge that we reverse tne district court

on both the evidence and the jury instruction issues. On

the former, they argue that the existence of the Federal

Rules of Evidence, which apply even in diversity cases,

see Fed. R. Evid. 101, 1101(b), and which declare rele-

vant evidence admissible, see Fed. R. Evid. 402,3 make

Erie inapplicable; and that Fed. R. Evid. 401, as con-

strued by Liepelt, provides the federal definition of

8 Rule 402 provides:

All relevant evidence is admissible, except as otherwise

— by the Constitution of the United States, by Act of

ongress, by these rules, or by other rules prescribed by

the Supreme Court pursuant to statutory authority.

Evidence which is not relevant is not admissible.

App. 4

relevancy in this kind of case.‘ In addition, they argue

that state law is identical to federal law on this issue in

any case. On the jury instruction issue, they argue that

Hall and Raines, the only Illinois Supreme Court

precedents on point, are overruled by Liepelt, because

they arose under FELA; and that we should predict that

the Illinois Supreme Court would now find the reasoning

of Liepelt persuasive. Alternatively, they argue that

because the substance of the proposed instruction relates

to the Internal Revenue Code, federal law should govern

whether the instruction should be given, even in a diver-

sity case. We address these issues in turn.

I. Admissibility of Evidence

We agree that the Federal Rules of Evidence apply and

that as a consequence the district court may not

categorically exclude certain kinds of evidence relevant

to the determination of damages. If the rules had been

promulgated under the Supreme Court's rulemaking

power, 28 U.S.C. § 2072 (1976), and did not transgress

the limits of that power, this would be true under the

reasoning of Hanna v. Plumer, 380 U.S. 460, 470-71

(1965). But the Rules of Evidence stand on even firmer

footing, for they are statutory. Pub. L. No. 93-595, &8

Stat. 1959 (1975). In such a case the Rules of Decision

Act, 28 U.S.C. § 1652 (1976), coupled with the supremacy

clause of the United States Constitution, demands that

the rules apply in federal court, unless Congress exceed-

ed its powers to regulate federal courts in enacting them.

* Rule 401 provides:

“Relevant evidence” means evidence having any tendency

to make the existence of any fact that is of consequence to

the determination of the action more probable or less

probable than it would be without the evidence.

Liepelt held that evidence of the income tax that would have

been due on lost income is “demonstrably relevant,” 444 U.S. at

495, in a wrongful death action under FELA, whose “measure

of recovery is ‘the damages .. . [that] flow from the deprivation

of the pecuniary benefits which the beneficiaries might have

reasonably received,’” id. at 493, quoting Michigan Cent. R.R.

v. Vreeland, 227 U.S. 59, 70 (1913).

App. 5

The parties have not urged us to find, and we are not

prepared to hold, that the rules are unconstitutional. See

10 J. Moore & H. Bendix, Federal Practice § 57 (2d ed.

1982).

Our conclusion is supported by many cases holding that

the Federal Rules of Evidence govern the admissibility of

evidence in diversity cases. See, e.g., Rabon v. Automatic

Fasteners, Inc., 672 F.2d 1231, 1238 n.14 (11th Cir. 1982);

Garwood v. International Paper Co., 666 F.2d 217, 223

(11th Cir. 1982); Southern Stone Co. v. Single, 665 F.2d

698, 701 (11th Cir. 1982); Ballou v. Henri Studios, Inc.,

656 F.2d 1147, 1153 (5th Cir. 1981); Croce v. Bromley

Corp., 623 F.2d 1084, 1094 (5th Cir. 1980), cert. denied,

450 U.S. 981 (1981); Johnson v. William C. Ellis & Sons

Iron Works, Inc., 609 F.2d 820, 821-22 (5th Cir. 1980);

Pollard v. Metropolitan Life Insurance Co., 598 F.2d

1284, 1286 (3d Cir.), cert. denied, 444 U.S. 917 (1979);

Gibbs v. State Farm Mutual Insurance Co., 544 F.2d 423,

428 n.2 (9th Cir. 1976). See also Oberst v. International

Harvester Co., 640 F.2d 863, 867 n.2 (7th Cir. 1980)

(Swygert, J., concurring in part and dissenting in part).

This result conforms with the practice in federal courts

preceding the adoption of the Federal Rules of Evi-

dence. See 10 J. Moore & H. Bendix, Federal Practice

§ 400.12!6]43) (2d ed. 1982) (in fashioning broad rules of

admissibility, federal courts adopted state rules that

favored admission but rejected state rules that favored

exclusion); 9 C. Wright & A. Miller, Federal Practice and

Procedure § 2405 (1971 & Supp. 1982) (same).

It does not follow, however that state evidence rules

have no bearing on what evidence is admissible in federal

court, for the relevance of the evidence is ascertainable

only by reference to the substantive law of the state. To

the extent that the state evidentiary rule defines what is

sought to be proved—here, the measure of damages—it

may bind the federal court under Erie principles.

If Illinois followed the rule of the majority of state

courts that evidence of would-be tax liability is inadmissi-

ble for the purpose of proving the amount of damages, see

cases collected in Annot., 63 A.L.R.3d 1393 (1975 &

App. 6

Supps.); Louissaint v. Hudson Waterways Corp., 111

Misc. 2d 122, 125-26, 443 N.Y.S.2d 678, 680-81 (N.Y. Sup.

Ct. 1981), this subsidiary Erie problem would be quite

difficult. Courts have supplied several rationales for the

exclusionary rule: they have argued that the calculation

of net income is too speculative or confusing because of

tax rate fluctuations and the difficulty of predicting ex-

clusions and exemptions to which the decedent would

have been entitled, see, e.g., McWeeney v. New York, New

Haven & Hartford Railroad, 282 F.2d 34, 35-36 (2d Cir.)

(en banc), cert. denied, 364 U.S. 870 (1960); that inac-

curacies resulting from the projection of gross rather

than net income are offset by the undercompensating

effects of ignoring inflation and attorney’s fees, see, e.g.,

id. at 38; and that by making the award tax exempt, see

supra note 2, Congress intended to confer a tax benefit

that should be reflected in the calculation of the award,

see, e.g., Louissaint v. Hudson Waterways Corp., 111

Misc. 2d at 128-29, 443 N.Y.S.2d at 682.

The last of these rationales should carry no weight any

longer in any court, to the extent that it relies on an inter-

pretation of federal tax law rejected by Liepelt. 444 U.S.

at 495 n.10. Nevertheless, the remaining considerations

may be so closely linked with the state’s view of the

measure of damages (which is inseparable from the sub-

stantive right of action, see Chesapeake & Ohio Railway

uv. Kelly, 241 U.S. 485, 491 (1916)) that it binds a federal

court sitting in diversity. Several courts have either held

or assumed that state law governs admissibility in this

situation. See Vasina v. Grumman Corp., 644 F.2d 112,

118 (2d Cir. 1981); Fenasci v. Travelers Insurance Co.,

642 F.2d 986, 989 (5th Cir.), cert. denied, 454 U.S. 1123

(1981); Estate of Spinosa v. International Harvester Co.,

621 F.2d 1154, 1158-59 (1st Cir. 1980); Huddell v. Levin,

537 F.2d 726, 742 (3d Cir. 1976); Turcotte v. Ford Motor

Co., 494 F.2d 173, 185 (1st Cir. 1974). But see Croce v.

Bromley Corp., 623 F.2d 1084, 1094 (5th Cir. 1980), cert.

denied, 450 U.S. 981 (1981) (holding that Fed. R. Evid.

403 controls). In addition, many courts have found

similar state admissibility rules applicable in diversity

cases. See Budge v. Post, 543 F.2d 372, 375 (5th Cir. 1981)

App. 7

(reduction of award to present value); Murphy v. Georgia-

Pacific Corp., 628 F.2d 862. 869 (5th Cir. 1980) (evidence

and jury instruction on inflation); Bailey v. Southern

Pacific Transportation Co., 613 F.2d 1885, 1388 (5th

Cir.), cert. denied, 449 U.S. 836 (1980) (evidence of

remarriage in mitigation of damages); Conway v.

Chemical Leaman Tank Lines, Inc., 540 F.2d 837, 838-39

(5th Cir. 1976) (same); Johnson v. Serra, 521 F.2d 1289,

1294 (8th Cir. 1975) (inflation); Weakley v. Fischbach &

Moore, Inc., 515 F.2d 1260, 1267 (5th Cir. 1975) (infla-

tion); Mahoney v. Roper-Wright Manufacturing Co., 490

F.2d 229, 232 (7th Cir. 1973) (evidence of alternative

design feasibility in products liability case); Chicago,

Rock Island & Peoria Railway v. Howell, 401 F.2d 752,

754 (10th Cir. 1968) (competency of circumstantial

evidence); E.L. Cheeney Co. v. Gates, 346 F.2d 197, 206

(5th Cir. 1965) (admissibility of driving convictions to

show incompetence).

Perhaps the most appealing argument that admissibili-

ty rules are tied to the substantive law is the analogy to

Liepelt itself, which required state courts to apply a

federal admissibility rule when adjudicating a federa!

claim. 444 U.S. at 493. This argument assumes, however,

that Erie considerations work in reverse, and that

assumption may be unwarranted. Liepelt expressly relied

on the overwhelming federal interest in uniformity of

practice under FELA, and the supremacy clause gives

the federal government power to impose even a

procedural rule on state courts in these circumstances.

See id. at 493 n.5, citing Brady v. Southern Railway, 320

U.S. 476, 479 (1943) (“Through the supremacy clause of

the Constitution, Art. VI, we are charged with assuring

[FELA’s] authority in state courts. Only by a uniform

federal rule . . . may litigants under the federal act

receive similar treatment in all states.”). See also Hill,

Substance and Procedure in State FELA Actions—The

Converse of the Erie Problem?, 17 Ohio St. L.J. 384, 390,

414-15 (1956) (cited with approval in Liepelt, 444 U.S. at

493 n.5); Liepelt, 444 U.S. at 503-04 (Blackmun, J., dis-

senting) (noting that federal regulation of state procedure

is warranted when a federal interest is implicated). If

App. 8

Liepelt required the admissibility of tax evidence because

of the need for uniform procedure rather than as a sub-

stantive FELA requirement, it sheds little light on

whether state admissibility rules should be characterized

as “procedural” or “substantive” for Erie purposes.

Moreover, despite the weight of authority and analogy

there are good reasons to characterize the majority ad-

missibility rule as procedural and therefore not binding

on the federal courts under Frie. In adopting the rule

that rejects evidence as being too confusing, a state court

may merely be making a statement about its own com-

petence and that of its juries to deal with this kind

of evidence. But a federal court may assess its own

capabilities differently, and logically should not be bound

by the state court’s self-evaluation. Cf Monarch In-

surance Co. v. Spach, 281 F.2d 401, 407 (5th Cir. 1960),

Indeed, to the extent that the exclusionary rule is based

on fear of confusion, it should not apply in federal court

because Fed. R. Evid. 403 provides a federal standard for

rejecting reievant evidence on the grounds of risk of prej-

udice, confusion, or waste of time,’ and, as shown above,

the Federal Rules generally displace differing state rules

even when the state rule is “outcome-determinative.”

Hanna v. Plumer, 380 U.S. 460, 470-74 (1965). oy on

demonstrates that rule 403 would not categorically bar

evidence of taxability. 444 U.S. at 494 & n.7.

Fortunately, we need not resolve this Erie conundrum

in this case, because we hold that Illinois’ substantive

measure of damages is identical to the FELA measure,

leaving the district court free to admit all evidence rele-

vant to that measure under Fed. R. Evid. 402.

it is true that federal district court determinations of

uncertain state law are ordinarily entitled to great

weight. See Buehler Corp. v. Home Insurance Co., 495

5 Rule 403 provides:

Although relevant, evidence may be excluded if its

probative value is substantially outweighed by the danger

of unfair prejudice, confusion of the issues, or misleading

the Jury. or by considerations of undue delay, waste of time,

or less presentation of cumulative evidence.

App. 9

F.2d 1211, 1214 (7th Cir. 1974). They nevertheless remain

reviewable as questions of law, see id., and in the cir-

cumstances of this case less than the usual deference may

be due because the district court confessed its own uncer-

tainty when it certified this interlocutory appeal under

28 U.S.C. § 1292(b) (1976). See In re Air Crash Disaster,

526 F. Supp. 226, 233-34 (N.D. Ill. 1981).

The Illinois Supreme Court has never decided whether

evidence of the hypothetical tax liability of lost earnings

is admissible in wrongful death cases. In Hall v. Chicago

& North Western Railway, 5 Ill. 2d 185, 149-50, 125

N.E.2d 77, 85 (1955), a personal injury case under FELA,

it noted that the trial court’s exclusion of such evidence

was in accordance with the majority rule. We are not per-

suaded by the defendants’ argument that this case has no

further force because it was overruled by Liepelt as to

FELA actions; for the reasoning by which the Illinois

court reached its conclusion in Hall may still represent

the view the court would favor on questions of Illinois

law. But we find the statement in Hall less than com-

pelling for three other reasons.

First, Hall was a personal injury case in which the

propriety of a statement to the jury on the nontaxability

of the award was in issue, and the court's apparent ap-

proval of the majority rule on the exclusion of evidence

was colored by that posture. The court interpreted

federal law to grant a tax benefit to the recipient of the

award by making it nontaxable, and feared that this

benefit would be negated if the amount of the award

were calculated on the basis of lost after-tax income, or if

the jury were told that the award was tax free. See 5 III.

2d at 152, 125 N.E.2d at 86 CU the jury were to

mitigate the damages of the plaintiff by reason of the in-

come tax exemption accorded him, then the very Con-

gressional intent of the income tax law to give the injured

party a tax benefit would be nullified.”), The conclusion

that the award should be calculated on the basis of gross

income was particularly inviting in the personal-injury

context, because the injured person whose lost earnings

were being calculated was the recipient of the award

App. 10

made nontaxable under federal law. The award thus

directly represented the lost earnings, making the

assumption that both should be tax free easy. This is not

true in the wrongful-death context; there, the recipient is

the survivor, who is entitled, as we discuss below, to the

amount the decedent would have contributed to the sur-

vivor's support—that is, the lost income net of taxes, =

sonal consumption, and the like. This difference has

caused some courts and commentators to draw a distinc-

tion between the use of tax evidence in personal-injury

and wrongful-death cases. See, e.g., Louissaint v. Hudson

Waterways Corp., 111 Misc. 2d at 126-27, 443 N.Y.S.2d

at 680-81; Wright, Damages for Personal Injuries:

Foreword, 19 Ohio St. LJ. 155, 157 (1958).

Moreover, the Illinois court’s interpretation of federal

law was wrong in any case. Liepelt interpreted the Inter-

nal Revenue Code not to confer an absolute benefit that

changes the measure of damages due. 444 U.S. at 496

n.10. Liepelt means, in effect, that the tax law simply

makes the recipient no worse off (in terms of taxes, at any

rate) than he would have been had the injury not oc-

curred, by excusing the payment of tax on » wards from

which potential taxes have already been deducted. To the

extent that Hall's approval of the exclusionary rule was

premised on its mistaken interpretation of federal law, it

has no force.

Finally, Hall's approval of the majority rule was dic-

tum, because the only issue before the court was whether

the jury could be told that the award was nontaxable.

Considered dicta of a state supreme court must be given

weight by a federal court in ascertaining state law, see

Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980), but

casual dicta are not entitled to the same degree of

deference. See McKenna v. Ortho Pharmaceutical Corp.,

622 F.2d 657, 662 (3d Cir.), cert. denied, 449 U.S. 976

(1980); 1A J. Moore, W. Taggart, A. Vestal & J. Wicker,

Federal Practice 10.307(2], at 3094-98 (2d ed. 1982). In

Hall the Ulinois Supreme Court seems to have approved

the use of evidence of gross income because of the weight

of authority from other jurisdictions (aside from its mis-

App. ll

taken view of federal law), rather than for any strong

policy reasons of its own. 5 Ill. 2d at 149-50, 125 N.E.2d

at 85. This approval has little precedential weight both

because of its lack of articulated reasons and because the

unanimity of authority on which it relied has eroded.

Even before Liepelt, at least seven jurisdictions per-

mitted some consideration of tax consequences. See

Mosley v. United States, 588 F.2d 555, 558-59 (4th Cir.

1976) (applying North Carolina law); Turcotte v. Ford

Motor Co., 494 F.2d 178, 184-86 (1st Cir. 1974) (applying

Rhode Island law); Runyon v. District of Columbia, 463

F.2d 1319, 1822 (D.C. Cir. 1972) (applying District of

Columbia law); Floyd v. Fruit Industries, Inc., 144 Conn.

659, 671-73, 186 A.2d 918, 925-26 (1957); Adams v. Deur,

173 N.W.2d 100, 105-06 (lowa 1969); Dempsey v. Thomp-

son, 863 Mo. 339, 344-46, 251 S.W.2d 42, 45-46 (1952)

(jury instruction issue only); Tenore v. Nu Car Carriers,

Inc., 67 N.J. 466, 484-95, 341 A.2d 618, 623-29 (1975). See

also Abele v. Massi, 273 A.2d 260, 260-61 (Del. 1970)

(recognizing net income as the true measure, but finding

use of evidence of taxability impractical). Since Liepelt,

two state supreme courts and one lower state court

have expressly adopted its reasoning. See Dennis v.

Branchfield, 292 Md. 319, ......, 438 A.2d 1330, 1332-34

(1982) (jury instruction issue only); Curtis v. Finneran, 83

NJ. 563, 569, 417 A.2d 15, 18 (1980); Jn re Eader, 70 Ohio

Misc. 17, ......, 434 N.E.2d 757, 759-60 (Ohio Ct. Cl. 1982).

Four state supreme courts and five lower state courts

have expressly rejected Liepelt. See Irwin v. Pacific

Southwest Airlines, 133 Cal. App. 3d 709, 717-18, 184 Cal.

Rptr. 228, 231-33 (1982) (jury instruction issue only);

Griffin v. General Motors Corp.., ...... Mass. . , 408

N.E.2d 402, 406-08 (1980); Tennis v. General Motors

Jorp., 625 S.W.2d 218, 226-28 (Mo. Ct. App. 1981) (rely-

ing on exclusivity of state pattern jury instructions);

Louissaint v. Hudson Waterways Corp., 111 Mise. 2d at

126-27, 443 N.Y.S.2d at 681 (personal injury cases only);

South v. National Railroad Passenger Corp., 290 N.W.2d

819, 827-28 (N.D. 1980); (jury instruction issue only);

Dehn v. Prouty, 321 N.W.2d 534, 538-39 (S.D. 1982) (jury

instruction issue only); Gulf Offshore Co. v. Mobil Onl

App. 12

Corp., 628 S.W.2d 171, 172-73 (Tex. Civ. App. 1982) (jury

instruction issue only); Barnette v. Doyle, 622 P.2d 1349,

1365-67 (Wyo. 1981) (jury instruction issue only). Because

the authorities are now split, we cannot assume that the

Illinois Supreme Court would be content to follow its dic-

tum based on the then-unanimous state rule. Instead, we

must consult all of the available data that the Illinois

court would consider in reaching a decision on the issue.

See West v. A.T.&T., 311 U.S. 223, 237 (1940); Huff v.

White Motor Corp., 565 F.2d 104, 106 (7th Cir. 1977).

One possible source of state law is the opinion of an in-

termediate state court. See West v. A.T.&T., 311 U.S. at

237. One pre-Liepelt Illinois appellate cases has said that

Hall does not control whether evidence of net income is

admissible in an action under the Wrongful Death Act,

but held that the admissibility issue had not been

preserved for appeal. Peluso v. Singer General Precision,

Inc., 47 Ill. App. 3d 842, 853-54, 365 N.E.2d 390, 399

(1977). A concurring opinion in the same case found that

the issue had been preserved, that no Illinois precedent

existed, and that Illinois would follow the rule later

adopted in Liepelt, citing much of the same evidence on

which the Supreme Court was to rely. Jd. at 856-59, 365

N.E.2d at 401-03. Although this evidence of the Illinois

Supreme Court’s view would not be compelling if other

data tended the other way, it confirms our view of Hall!’s

lack of precedential force and indicates how an Illin»s

court might fill that void.

The manner in which I]linois courts have expressed the

measure of damages in wrongful death cases supports the

view that lost income should be reduced by the amount it

would have been taxed. The Illinois Wrongful Death Act,

Ill. Rev. Stat. ch. 70, 12 (1981), provides that “fair and

just compensation with reference to the pecuniary in-

juries resulting from [the] death” is the amount due to the

survivor. The Illinois Supreme Court has interpreted this

statute to permit recovery only of the amount the sur-

vivor would have received from the decedent but for the

death. In Elliott v. Willis, 92 Ill. 2d 530, 540-51, ......

N.E.2d ...... eee (1982), it held:

App. 13

The purpose of the Wrongful Death Act is to com-

pensate the surviving spouse and next of kin for the

pecuniary losses sustained due to the decedent’s

death. . It is intended to provide the surviving

spouse the benefits that would have been received

from the continued life of the decedent... .

. The test is a measurement of benefits of

pecuniary value that the decedent might have been

expected to contribute to the surviving spouse and

children had the deceased lived.

See also Graul v. Adrian, 32 Ill. 2d 345, 346, 205 N.E.2d

444, 445 (1965); Welch v. Davis, 410 Ill. 130, 133, 101

N.E.2d 547, 549 (1951); Robertson v. White, 11 Ill. App. 2d

177, 181, 186 N.E.2d 550, 553 (1956); McClure v. Lence,

345 Ill. App. 158, 164, 102 N.E.2d 546, 550 (1952); Paul v.

Garman, 310 Ill. App. 447, 463-64, 34 N.E.2d 884, 891

(1941). As Liepelt, 444 U.S. at 493, and Peluso, 47 IIl.

App. 3d at 857, 365 N.E.2d at 402 (Sullivan, J., con-

curring), have pointed out, the amount that the survivor

would have expected to receive could not include the

amount that would have been paid in taxes. See also Cor

v. Northwest Airlines, Inc., 379 F.2d 893, 896 (7th Cir.

1967).

We do not hesitate to conclude that Illinois courts

would admit tax evidence to reach this abstract measure,

because they are not unfamiliar with similar economic

adjustments of damage awards. It is permissible in II-

linois to introduce mortality tables, Avance v. Thompson,

387 Ill. 77, 83-84, 55 N.E.2d 57, 60, cert. denied, 323 US.

753 (1944) (action under FELA, but prior to the distinc-

tion between state and federal rules for FELA cases);

American National Bank & Trust Co. v. Bourland, 65 Il.

App. 3d 977, 980, 382 N.E.2d 1380, 1382 (1978), and to in-

troduce evidence to enable the jury to reduce awards for

future losses to present value, see Allendorf v. Elgin,

Joliet & Eastern Railway, 8 Ill. 2d 164, 178, 183 N.E.2d

288, 296 (FELA action), cert. denied, 352 U.S. 833 (1956);

App. 14

see also Illinois Supreme Court Committee on Jury In-

structions, Illinois Pattern Jury Instructions: Civil

§ 34.03 (1971); to deduct from the lost gross earnings the

decedent's lost personal expenditures, see Scully v. Otis

Elevator Co., 2 Ill. App. 3d 185, 200, 275 N.E.2d 905, 915

(1971) (Structural Work Act case), and perhaps to correct

the portion of the award allocable to future losses for the

effects of inflation, see Raines v. New York Central

Railroad, 51 Ill. 2d at 435-37, 283 N.E.2d at 234-35;

O'Brien v. Chicago & North Western Railway, 329 IIl.

App. 382, 402, 68 N.E.2d 638, 648 (1946). Moreover, there

are some indications that income tax adjustments are

made in practice in Illinois courts. See Baird v. Chicago,

Burlington & Quincy Railroad, 63 Ill. 2d 463, 468, 349

N.E.2d 413, 415 (1976); Allendorf v. Elgin, Joliet &

Eastern Railway, 8 Ill. 2d at 181, 183 N.E.2d at 296.

Because this is the kind of evidence that Illinois courts

would, or in fact do, entertain in measuring damages, we

may predict that this is the course the Illinois Supreme

Court would endorse were the issue presented to it. In-

deed, because Illinois so scrupulously adjusts its damage

awards to make them compensatory, see Illinois Supreme

Court Committee on Jury Instructions, Jllinois Pattern

Jury Instructions: Civil § 31.04 (1971),® failure to adjust

6 The pattern jury instructions recommend that in a case of

wrongful death of an adult leaving lineal survivors the jury be

instructed that:

jin determining pecuniary loss . . . you may consider what

nefits of pecuniary value, including money, goods, and

services the decedent might reasonably have been expected

to contribute to the aoa had the decedent lived, bear-

ing in mind the following factors concerning the decedent:

1. What he customarily contributed in the past;

2. What he earned or what he was likely to have earned

in the future;

3. What he spent for customary personal expenses [and

other deductions);

4. What instruction, moral training, and superintend-

ence of education he might reasonably have been ex-

pected to give his [child] [children] had he lived;

(Footnote continued on following page)

App. 15

the award for taxes might render is partially punitive,

and it is the law of Illinois as well as the law of this case

that punitive damages are unavailable in wrongful death

cases. See In re Air Crash Disaster, 644 F.2d 594, 605

(7th Cir. 1981).

Our conclusion is not altered by the fact that in Elliott

v. Willis, 92 Ill. 2d at 341, ...... N.E.2d at ......, the Illinois

Supreme Court refused to permit adjustment of a

wrongful death award to reflect the lost investment earn-

ings of estate funds used to pay premature estate taxes,

even though that money would have been available to

benefit the survivors but for the wrongful death.

Although the court’s reasoning is not clear, the juxtaposi-

tion of its formulation of the abstract measure of

damages, quoted above, and its decision not to allow the

adjustment suggests that it considered the adjustment too

inconsequential to bother with, perhaps because of the

uncertainty of the calculations on which the adjustment

would depend. Even Liepelt recognized that some ad-

justments could be refused if their bases became too

attenuated. See 444 U.S. at 494 n.7. The standard for

such a refusal is supplied by Fed. R. Evid. 408, see id.,

which, as we have shown above, would displace any

similar state rule in federal court. We conclude that

Elliott’s holding should not bind the district court in this

case.

II. Jury Instruction on Nontaxability of Award

It is clear that under current Illinois practice it is

proper to refuse to instruct a jury that a damage award

in a wrongful death case (by whatever means it is com-

puted) will not be subject to taxation. In Hall v. Chicago

& North Western Railway, 5 Ill. 2d at 148-538, 125 N.E.2d

6 continued

5. His age;

6. His health;

7. His habits of industry, sobriety, and thrift;

8. His occupation.

App. 16

at 84-86, the I!linois Supreme Court held that a new trial

was proper in a personal-injury case under FELA

because of the defense counsel’s remarks in closing argu-

ment that any award would be nontaxable. It reasoned

that, even if the argument correctly stated the law, it was

improper because the jury was instructed on the proper

measure of damages and should be presumed to follow in-

structions; because the possible profusion of similar

cautionary instructions would be undesirable; and be-

cause, if an instruction on nontaxability were given,

the jury might deprive the recipient of a tax benefit in-

tended by Congress, by decreasing the award. Jd. at 150-

52, 125 N.E.2d at 86. In a subsequent FELA personal-

injury case the Illinois Supreme Court reaffirmed its ap-

proach in Hall, quoting the third rationale. Raines v.

New York Central Railroad, 51 Ill. 2d at 430, 283 N.E.2d

at 232. Although Hall and Raines were FELA cases, it is

likely that their reasoning would survive their specific

reversal by Liepelt, because the court decided them on

the basis of general Illinois jurisprudence rather than on

principles peculiar to FELA cases. Several post-Liepelt

Illinois appellate decisions confirm the vitality of Hall

and Raines in actions based on state law. Edwards v.

Kelsey-Hayes Co., No. 81-2343, slip op. at 8 (Ill. App.

Aug. 31, 1982); Johnson v. Hoover Water Well Service,

Inc., 108 Ill. App. 3d 994, 1009, 439 N.E.2d 1284, 1294-95

(1982); Christou v. Arlington Park-Washington Park Race

Tracks Corp., 104 Ill. App. 3d 257, 262, 432 N.E.2d 920,

925 (1982); Newlin v. Foresman, 103 Ill. App. 3d 1038,

1046-47, 482 N.E.2d 319, 325-26 (1982) (wrongful death

action). These cases are powerful evidence of the content

of Illinois law. See West v. A.T.&T., 311 U.S. at 237.

Ordinarily in diversity cases state law determines the

content of jury instructions and federal law governs only

the manner in which instructions are requested and

given. See 5A J. Moore & J. Lucas, Federal Prac-

tice 151.02-1 (2d ed. 1982); Fed. R. Civ. P. 51. This

rule is rooted in Erie principles insofar as the jury in-

struction expounds substantive state law. That rationale

may be lacking in the present case, however, because

App. 17

Illinois law refuses the instruction altogether rather than

defining its content, and in any case the substantive law

to which the instruction, if given, relates is the Internal

Revenue Code. Unless Illinois has a substantive interest

in refusing the instruction, therefore, perhaps federal

law should control.

At first giazice, Illinois does appear to have such a sub-

stantive interest. In Hall the Illinois Supreme Court did

not merely endorse the refusal to inform the jury of the

nontaxability of an award; it ordered a new trial because

it considered the possibility that the jury acted on the in-

formation, even if the information was truthful, a positive

evil. 5 Ill. 2d at 151-53, 125 N.E.2d at 86. It therefore

seems that the court regarded the possibility of a wind-

fall, beyond the stated measure of damages, as part of the

substantive right.

On closer inspection, however, it appears that the basis

for the possible windfall was federal] tax law, as inter-

preted by the Illinois court: Hall feared that the instruc-

tion might undo a tax benefit intended by Congress, by

impelling the jury to reduce the award by the amount of

the tax exemption. 5 Ill. 2d at 152, 125 N.E.2d at 86,

quoted in Raines, 51 Ill. 2d at 430, 283 N.E.2d at 232. But

this reasoning, as we have already noted twice, is based

on a misapprehension of federal law. Liepelt interprets

federal law to create no positive tax benefit. 444 U.S. at

496 n.10. Because plaintiffs are not entitled under

state or federal law to receive a bonus beyond compen-

satory damages, so informing the jury is harmless at

most.’

7 Our conclusion would be different if Illinois interpreted its

own substantive law to include a right to such a possible bonus.

It is only because the result in Hall seems to depend on its view

of the requirements of federal law (a characterization rein-

forced by the Illinois Supreme Court’s abstract formulation of

the measure of damages in wrongful death cases) that we find

it not controlling. Cf. Delaware v. Prouse, 440 U.S. 648, 653

(1979) (when state ground for decision is dependent on federal

law, a federal question is presented); Zacchini v. Scripps-

Howard Broadcasting Co., 4383 U.S. 562, 568 (1977) (same).

App. 18

Hall's other two rationales for refusing to instruct the

jury on this issue—that it is unnecessary if the measure of

damages is made clear, and that it would invite a flood of

cautionary instructions—should not bind a federal court

because they speak to matters of court administration,

about which the federal courts have independent com-

petence. Some state procedures, of course, are so

“outcome-determinative” as to be inseparable from the

substantive law, and must be applied in diversity cases

by federal courts. See Byrd v. Blue Ridge Electric

Cooperative, Inc., 356 U.S. 525, 535-36 (1958). We would

be faced with an ironic quandary if we were compelled to

apply the outcome-determinativeness test in this case: if

we adopt the state’s assumption that juries wil! follow in-

structions on the measure of damages, Hall, 5 Ill. 2d at

150-51, 125 N.E.2d at 85-86, giving the tax instruction

will be superfluous and not outcome-determinative; but if

we adopt Liepelt’s assumption that juries are likely to in-

flate awards absent the tax instruction, 444 U.S. at 497,

not giving the instruction will affect the outcome. State

rules thus point to application of federal law, and federal

rules to state law. But the outcome-determinativeness

test is inappropriate here, because we have already deter-

mined that increasing awards beyond compensation

would be an improper outcome under state law. The dis-

trict court therefore is free to give the tax instruction

despite contrary state procedure.®

We conclude that Illinois’s substantive measure of

damages is the same as the measure under FELA ex-

amined in Liepelt, and that the district court may admit

all evidence relevant to that measure, subject to the con-

8 This case’s ture distinguishes it from Croce v. Bromley

Corp., 623 F.2d at 1097, in which the Fifth Circuit refused to

order a new trial for failure to give a tax instruction, because

there was no indication that the verdict had been inflated.

Here, we review the rules for a future trial, not a completed

one.

App. 19

siderations of Fed. R. Evid. 403.9 We also conclude that,

although Illinois courts very likely would not instruct the

jury that any damages it awarded would be nontaxable,

the Illinois practice does not bind the federal courts un-

der Erie because, so far as we can determine from the

cases, Illinois’s concerns are either procedural! or based

on a mistaken view of federal law. For these reasons the

judgment of the district court is reversed. The parties

shall bear their own costs.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

® Such tax evidence need not be limited to the amount of tax

the decedent would have paid on lost income. Because damage

awards are reduced to pooe value with the expectation that

by investment they will replace a lost future income stream,

and because the interest so earned is taxable as income, see Jn

re Air Crash Disaster, 526 F. Supp. at 227 n.1, it may be

necessary to consider evidence on the amount by which the

damage award should be increased to account for this tax. See

Liepelt, 444 U.S. at 495.

App. 20

APPENDIX B

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

March 31, 1983

Before

Hon. JOHN L. COFFEY, Circuit Judge

Hon. LUTHER M. SWYGERT, Senior Circuit Judge

Hon. GEORGE TEMPLAR, Senior District Judge*

IN RE: AIR CRASH DISASTER NEAR CHICAGO,

ILLINOIS ON May 25, 1979

Nos. 81-3083, 81-3084

APPEALS OF: AMERICAN AIRLINES, INC. AND

McDONNELL DOUGLAS CORPORATION,

Defendants-A ppellants.

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. MDL 391—Edwin A. Robson and Hubert L. Will, Judges.

ORDER

On consideration of the petition for rehearing and

suggestion for rehearing en banc of the above entitled

matter, the members of the original panel have voted to

deny said petition for rehearing, and no active member of

the court having requested a vote or the suggestion for a

rehearing en banc,

It ls ORDERED that said petition for rehearing be, and

the same is hereby denied.

* The Honorable George Templar, United States Senior Dis-

trict Judge for the District of , is sitting by designation.

App. 21

APPENDIX C

In re AIR CRASH DISASTER NEAR

CHICAGO, ILLINOIS ON May 25, 1979

This Document Relates to,

Syed HAIDER, as Administrator of the Estate of

Victoria Chen Haider, Deceased, Plaintiff,

Vv.

MCDONNELL DOUGLAS CORPORATION, a corporation;

and American Airlines, Inc., a corporation, Defendants.

MDL 391.

No. 79 C 2444.

United States District Court,

N. D. Illinois, E. D.

Nov. 17, 1981.

John J. Kennelly, Chicago, Ill., for plaintiff Syed

Haider.

Norman J. Barry and Christopher G. Walsh, Jr.,

Rothschild, Barry & Myers, Chicago, IIl., for defendant

McDonnell Douglas Corp.

Thomas D. Allen, Robert E. Haley, Elise E. Singer,

Wildman, Harrold, Allen & Dixon, Chicago, Ill., for

defendant American Airlines, Inc.

William P. Butler and C. Kevin McCabe, Lord, Bissell

& Brooke, Chicago, Ill., for Motor Vehicle Mfrs. Ass'n of

the United States, Inc. (amicus curiae).

Rosson and WILL, District Judges.

App. 22

MEMORANDUM AND ORDER

Victoria Chen Haider, a resident of Illinois, was one of

273 people who died in the crash of an airplane, built by

McDonnell Douglas Corporation (MDC), and owned and

operated by American Airlines (American), outside

Chicago on May 25, 1979. The wrongful death action

brought by her husband (who is still a resident of II-

linois), as the administrator of her estate, was con-

solidated with approximately 150 others for pretrial

proceedings in this Court. Federal jurisdiction is based

upon diversity of citizenship under 28 U.S.C. § 1332.

Defendants seek to introduce evidence as to the portion

of the decedent’s past earnings which were subject to tax-

ation, and evidence as to the percentage of any future

earnings which would have been paid as taxes had the

decedent lived. Defendants also seek to have the jury in-

structed that:

If you decide to award any damages to the plain-

tiff, your award will be exempt from any income

taxes; therefore, in fixing the amount of your award,

you should not be concerned about or consider the

effect of taxes on the award.!

' The Internal Revenue Code’s treatment of damages for

wrongful death is more eoenpees than MDC’s requested in-

struction states it to be. Only the principle of a damages award

is free from federal income taxation. Interest earned on the in-

vested principle—a component of “just compensation,” given

the fact that juries are instructed to reduce awards to present

value to account for reasonable investment opportunities—is,

however, subject to federal income taxation. 26 U.S.C.

§ 104(a)(2); Rev.Rul. 54-19, 1954-1 C.B. 179; Rev.Rul. 65-29,

1965-1 C.B. 59. Moreover, in some of these cases, the plaintiff-

survivor will have to pay federal taxes on this investment in-

come as a single taxpayer, whereas, had the decedent not died,

federal taxes on these earnings would have been paid on a

joint-return basis. Because of the different tax rates imposed

on the earnings of single and married taxpayers, the invest-

ment income from a damages award will be subject to higher

taxes than would the same earnings had they accrued to the

decedent over the course of a normal life-expectancy. Ward

and Olson, The Economic Impact of Income Tax on Damage

Awards, 17 Trial 47, 48 (No. 8, August, 1981).

App. 23

Plaintiff Syed Haider opposes both the introduction of

this evidence and the giving of instructions as to the tax

status of damages awards. Both plaintiff and defendant

MDC have filed motions in limine seeking a determina-

tion of these issues. For the reasons hereinafter stated,

we grant plaintiff's motion and deny defendant’s motion.’

We note preliminarily that the questions whether evi-

dence of the effect of taxation upon earnings is admissi-

ble, and whether the jury should be instructed as to the

tax status of any award, are separate issues. Nordstrom,

Income Taxes and Personal Injury Awards, 19 Ohio St.

L.J. 212, 219-21 (1958). But in the context of an action

whose federal jurisdiction rests upon diversity of citi-

zenship, our inquiry is limited to two issues: (1) whether

the determination of the issues raised in the parties’

motions is to be made pursuant to Illinois law or federal

law, and (2) whether Illinois law, if it applies, would

lead to a different result than would federal law. Be-

cause there would be no need to determine whether IIli-

nois or federal law governs the resolution of the issues

raised in these motions if application of either Illinois

law or federal law led to the same result, we address

first the question whether Illinois law and federal law

would resolve these issues differently.

I.

Federal law, if applicable to an action whose juris-

diction rests on diversity of citizenship, would require

* Plaintiff raised and briefed his motion as one which per-

tains to Haider. American designated its answer to plaintiff's

motion and supporting memorandum as pertaining to Haider

and to two other cases. Finally, MDC designated its cross-mo-

tion and memoranda as pertaining to Haider, the two cases

identified by American, and several other of the cases which

have been transferred to this Court for pretrial proceedings.

Our focus in this opinion is upon Haider, but we regard the

effect of this opinion as extending at least to all other cases in

which the plaintiff and the decedent are and were domiciliar-

ies of Illinois.

App. 24

that we admit evidence of the effect of taxation upon the

decedent’s estimated capacity to contribute to the support

of her family. The admissibility of this evidence is gov-

erned by the concepts of materiality and relevance. See

Rules 401-03, Federal Rules of Evidence (FRE). Be-

cause “just compensation” under the Illinois Wrongful

Death Act’—the source of plaintiff's substantive rights

in this action—is restricted to the “pecuniary loss” sus-

tained by the decedent’s survivors, Kaiserman v. Bright,

61 Ill.App.38d 67, 18 Ill.Dec. 108, 377 N.E.2d 261, 263

(1978), evidence of the effect of taxation upon earnings

is “of consequence to the determination” of “just com-

pensation.” Rule 401, FRE. Defendants correctly state

that, because the focus of the Illinois Wrongful Death

Act is on the decedent’s contributions to her survivors

rather than on her earnings, the amount which would

have been taken in taxation is relevant to the determi-

nation of the portion of her earnings which would have

been or could have been contributed to her survivors.

The conclusion that federal law would probably admit

evidence of the effect of taxation upon a decedent's earn-

ings, subject to the limitations of Rule 403, receives

some support from the Supreme Court’s recent decision

in Norfolk & Western Ry. v. Liepelt, 444 U.S. 490, 100

S.Ct. 755, 62 L.Ed.2d 689 (1980). In Liepelt, the Court

held that an Illinois state court erred in refusing evi-

dence as to taxation of the decedent’s earnings in a

wrongful death action brought under the Federal Em-

§ Tll.Rev.Stat. ch. 70, § 2 (1979) states, in pertinent part:

Every such action shal! be brought by and in the names

of the personal representatives of such deceased person

and ... the amount recovered in every such action shall

be for the exclusive benefit of the surviving spouse and

next of kin of such deceased person and in every such

action the jury may give such damages as they shall deem

a fair and just compensation with reference to the pecun-

iary injuries ence a} from such death, to the surviving

spouse and next of kin of such deceased person.

App. 25

loyers Liability Act (FELA).‘ The Court noted that the

ELA, in addition to seeking to “‘create uniformity

throughout the Union’ with respect to railroads’ finan-

cial responsibility for injuries to their employees,” is

compensation oriented. 444 U.S. at 493 and n.5, 100

S.Ct. at 757, quoting from H.R.Rep.No. 1386, 60th Cong.,

lst Sess. 3 (1908). It reasoned that “after-tax income...

provides the only realistic measure of [a person’s] ability

to support [others],” and that a wage earner’s income

tax is therefore relevant to a determination of the

monetary loss suffered by her family when she dies. 444

U.S. at 493-94, 100 S.Ct. at 757-58.

Similarly, it appears that federal law, if applicable,

would require that we instruct the jury that under sec-

tion 104(aX2) of the Internal Revenue Code, the princi-

ple of an award for damages is not taxable. Both

defendants argue essentially that Liepelt, if applicable

to a diversity action, requires giving the requested

instruction. American points to the compensatory na-

ture of both the FELA and the Illinois Wrongful Death

statute. MDC argues that the instruction is merely cau-

tionary. MDC notes that the giving of cautionary in-

structions is generally within the discretion of the trial

court, Simineo v. School District No. 16, 594 F.2d 1353,

1357 (10th Cir. 1979); Krieger v. Bausch, 377 F.2d 398,

402 (10th Cir. 1967), but claims that Liepelt demon-

strates that in certain circumstances cautionary instruc-

tions are mandated when requested by a party. Our

reading of Liepelt, however, convinces us that the Court

did not intend its holding in that case to be read so

broadly. Liepelt dealt with the narrow realm of actions

brought under the FELA, and did not purport to

address the issues of the admissibility of evidence and the

propriety of instructions, concerning taxation, outside

the context of the FELA. Estate of Spinosa, 621 F.2d

1154 (1st Cir. 1980); Croce v. Bromley Corp., 623 F.2d

‘ 45 U.S.C. §§ 51 et seg. (1976).

App. 26

1084 (5th Cir. 1980); Fenasci v. Travelers Ins. Co., 642

F.2d 986 (5th Cir. 1981); see also Vasina v. Grumman

Corp., 644 F.2d 112 (2d Cir. 1981). Some clarification of

Liepelt is provided in Gulf Offshore Co. v. Mobil Oil

COPP., scone U.S. ...... 101 S.Ct. 2870, 69 L.Ed.2d 784

(1981), an action for personal injuries brought under the

Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C.

§§ 1331 et seqg., which raised the question whether Loui-

siana law permits or percludes instructing the jury con-

cerning the taxability of an award but did not present

the question whether evidence showing the effect of

income taxes on past and future earnings is admissible.

The Court noted that the OCSLA, unlike the FELA,

explicitly authorizes the adoption of state law to the

extent that it is not inconsistent with federal law. The

Court noted that Liepelt was based on the need for uni-

formity in FELA actions. The Court stated that Liepelt,

because the FELA afforded no guidance as to whether

juries must be instructed on the status of compensatory

damages, had announced a “federal common law rule.”

101 S.Ct. at 2879-80. The Court added that Congress, in

providing that the OCSLA incorporates applicable state

law, “‘specifically rejected national uniformity’ as a

paramount goal” in the OCSLA. Jd. at 2880, quoting

Chevron Oil v. Huson, 404 U.S. 97, 104, 92 S.Ct. 349,

354, 30 L.Ed.2d 296 (1972). The Court remanded Gulf

Offshore to the Texas Court of Civil Appeals for a deter-

mination of whether Louisiana law requires giving an

instruction as to the taxability of a damages award,

and, if it does not, whether Liepelt displaces the state

rule in OCSLA cases.

Gulf Offshore indicates that the “federal common law

rule” of Liepelt is limited to situations similar to those

in which it arose. We assume, however, for the sake of

argument, that federal law requires giving the instruc-

tion in addition to admitting evidence as to taxation,

and we proceed to a determination of whether IIlinois

law provides otherwise.

App. 27

Neither the Illinois Wrongful Death Act nor the IIli-

nois Pattern Instructions concerning the calculation of

damages in wrongful death cases, IPI (Civil) § 31.01-.03,

contains any reference to the use of evidence as to a

decedent’s after-tax income to establish the pecuniary

loss to the decedent’s survivors or to the tax treatment

accorded damages by the Internal Revenue Code. Before

Liepelt, Illinois prohibited, in FELA actions brought in

state court, both the introduction of evidence on the

effect of taxes upon earnings and giving the jury in-

structions as to the non-taxable nature of compensation

for damages. Hall v. Chicago & N.W.Ry., 5 Ill.2d 135,

125 N.E.2d 77 (1955); Raines v. N.Y. Central R.R., 51

Ill.2d 428, 288 N.E.2d 230, cert. denied, 409 U.S. 983, 93

S.Ct. 322, 34 L.Ed.2d 247 (1972). Currently, Illinois fol-

lows Liepelt in FELA actions. Crabtree v. St. Louis-San

Francisco Ry., 89 Ill.App.38d 85, 44 Ill.Dec. 118, 411

N.E.2d 19 (1980); Oltersdorf v. Chesapeake & Ohio Ry.,

83 Ill.App.8d 457, 38 Ill.Dec. 896, 404 N.E.2d 320

(1980). No Illinois cases, either before or after Liepelt,

have decided these issues in non-F ELA actions. The IIli-

nois Appellate Court determined in a pre-Liepelt deci-

sion that the defendant had not preserved the evidenti-

ary issue for appeal. Peluso v. Singer General Precision,

Ine., 47 a 842, 8 Ill.Dec. 152, 365 N.E.2d 390

(1977). (The defendants in Peluso did not seek jury

instructions on the taxation of damage awards.) In dic-

tum, the Peluso court noted that FELA cases are not

controlling where the issue arises under the state

Wrongful Death statute. 365 N.E.2d at 399. In a concur-

ring opinion in Peluso, Judge Sullivan considered thie

merits, and would have permitted the defendants to

establish the fact that the plaintiff's expert witness did

not include income taxes in his estimate of the plaintiff's

lost future earnings. 365 N.E.2¢ at 401-04. In Yakstis v.

William J. Diestelhorst Co., 61 Ill.App.3d 833, 19 III.

Dec. 90, 378 N.E.2d 591 (1978), the Illinois Appellate

Court stated that “the [decedent's] tax return was rele-

vant evidence of the economic status of the decedent,

and would tend to show the economic loss caused by his

App. 28

death.” However, the plaintiff, rather than the defend-

ant, introduced into evidence the decedent’s tax return

in Yakstis. 378 N.E.2d 596.5 Yakstis, of course, was

decided before Liepelt, yet its brief discussion of the

relevance of the decedent’s tax return to the economic

loss which his survivors suffered as a result of his death

does not mention Hall, Raines, or any of the other pre-

Liepelt Illinois cases which held such evidence inadmiss-

ible when offered by the defendants.

Neither the Illinois Appellate Court’s post-Liepelt de-

cisions, nor its opinion in Yakstis, nor Judge Sullivan’s

concurring opinion in Peluso, provide much guid-

ance as to whether the Illinois Supreme Court would

apply the holdings of Liepelt to actions arising under

the Wrongful Death Act. In the absence of definitive

state authority, a federal court sitting in diversity juris-

diction must endeavor to interpret state law in the

manner in which the Supreme Court of the state would

interpret it if faced with the same issue. Huff v. White

Motor Corp., 565 F.2d 104, 106 (7th Cir. 1977); Hartford

v. Gibbons & Reed Co., 617 F.2d 567, 569 (10th Cir.

1980); Bearce v. United States, 483 F.Supp. 549, 552

(N.D.IIl. 1977).

In doing so, the federal court should consider all

the data—including compelling inferences, logical im-

plications from other related adjudications, and consid-

ered pronouncements—which the highest court of the

state would consider. Huff, 565 F.2d at 106; Bearce, 433

F.Supp. at 552. In the absence of other authority, we

take the Illinois Supreme Court’s decisions in Hall and

Raines, supra, although overruled by Liepelt insofar as

’ The plaintiffs reasons for introducing the decedent's

return into evidence in Yakstis are not clear from the lilinois

Appaliote Court's opinion. The decedent was self-employed as

oe. $i, - ~ hs ont his tax return was

pd endant's objection to its oth a evidence.

App. 29

they governed FELA actions, as expressing the position

of the Illinois courts on these issues in actions arising

under the state Wrongful Death statute. Our interpreta-

tion of Illinois law on these issues is necessarily some-

what speculative. Indeed, having to rely upon overruled

cases as evidence of how another court would likely rule

on issues if they arose in a different posture strikes us

as only slightly more reliable than predictions of the

future arrived at by reading the entrails of sheep. But

we believe our interpretation is further supported by

the absence of any reference to taxation in the Illinois

Pattern Instructions on damages for wrongful death

and the uniform practice in the state trial courts. The

defendants have not been able to point to a single case

in which an Illinois court, in an action brought under

oe state’s Wrongful Death Act, granted what they seek

ere.

Estate of Spinosa, 621 F.2d 1154, 1158 (1st Cir. 1980),

presented a similar instance of uncertainty as to whether

the applicable state law admitted evidence on the im-

pact that taxes would have on a decedent’s future earn-

ings. The First Circuit held in Spinosa that in the

absence of New Hampshire case law on the issue, the

district court’s refusal to admit the evidence, relying on

the “majority rule” that such evidence is inadmissible,

see Annot., 63 A.L.R.2d 1393 & updates, was proper.

Although neither federal nor Illinois law is unam-

biguous as to the issues that the parties raise, the most

logical and likely conclusion is that federal law, if free

from constraints imposed in diversity jurisdiction, would

admit evidence and give an instruction as to taxation

and damage awards, while Illinois law precludes both

admission of this evidence and the giving of an instruc-

tion. We therefore turn to the question of which law we

must apply.

App. 30

II.

A federal court sitting in diversity should apply the

substantive law of the state in which it sits. Erie

Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82

L.Ed. 1188 (1938). Additionally, Illinois law is to be

applied to substantive questions in this litigation when

the decedent and the plaintiff were and are domiciliar-

ies of Illinois. Jn re Air Crash Disaster Near Chicago,

644 F.2d 633, 637 (7th Cir. 1981). Erie does not, how-

ever, require application of state law in matters of evi-

dence and procedure. Hanna v. Plumer, 380 U.S. 460,

464-74, 85 S.Ct. 1136, 1140-45, 14 L.Ed.2d 8 (19665).

Defendants argue that evidence and instructions on

taxation, rather than pertaining substantively to the

measure of damages, are procedural. We do not believe

that an analysis based on the “substantive-procedural”

dichotomy resolves the question whether we must apply

federal or state law. To ask whether an issue is “sub-

stantive” or “procedural” disposes of the ultimate ques-

tion of whether federal or state law applies only when it

is clear that the issue is either substantive or procedu-

ral. To limit analysis to application of the substantive-

procedural dichotomy is not helpful when confronted

with “matters, falling within the uncertain area be-

tween substance and procedure, [that] are rationally

capable of classification as either.” Hanna v. Plumer,

380 U.S. 460, 472, 85 S.Ct. 1136, 1144, 14 L.Ed.2d 8

(1965). Indeed, the Supreme Court has repeatedly recog-

nized that “[tJhe line between ‘substance’ and ‘proce-

dure’ shifts as the legal context changes. ‘Each implies

different variables depending upon the particular prob-

lem for which it is used.’” Hanna, 380 U.S. at 471, 85

S.Ct. at 1144, quoting Guaranty Trust v. York, 326 U.S.

99, 108, 65 S.Ct. 1464, 1469, 89 L.Ed. 2079 (19465).

in general, the admissibility of evidence and the

giving of cautionary instructions are procedural mat-

ters and hence the law of the forum applies to them.

There is no question that the form in which defendants

would have the decedent’s financial status established

App. 31

and the manner in which the defendants would have a

jury calculate its damages award have procedural as-

pects. But it is just as logical to view the manner in

which this evidence is introduced and the instructions

as to the importance that the jury should give this evi-

dence as affecting the measure of damages and hence

substantive in nature. Whether we admit or exclude this

evidence, and whether we give or do not give this

instruction, will materially affect the amount of the

jury’s award. We do not conclude that defendants’ char-

acterization of these issues as “procedural” is necessarily

inaccurate, and that these issues are wholly “substan-

tive.” The point is that these issues are both substantive

and procedural, and we see no rational basis for con-

cluding that either of them leans toward one rather

than the other label.

Instead, our decision that the issues raised by the

parties’ motions in limine are to be resolved by applica-

tion of Illinois law rests upon the “realization that it

would be unfair for the character or result of a litiga-

tion materially to differ because the suit had been

brought in a federal court.” Hanna, 380 U.S. at 467, 85

S.Ct. at 1141. That Erie’s policies of discouraging forum-

shopping and avoiding inequitable administration of the

laws serve as a better touchstone than does a simple

“substantive-procedural” dichotomy is persuasively dem-

onstrated in the First Circuit’s opinion in Turcotte v.

Ford Motor Co., 494 F.2d 173 (1974). In Turcotte, the

court rejected plaintiff's contention that federal law gov-

erned the admissibility of the effect of income taxes on

earnings in a diversity wrongful death action where the

applicable state law permitted consideration of income

tax returns. It therefore determined that Erie required

application of the state law. The court noted that the

concern of Erie and its progeny was-both to discourage

forum-shopping and to avoid inequitable administration

of the laws. Therefore, it concluded, application of the

law which would be applied in the state court was

required.

App. 32

{I}f Rhode Island law required evidence of income

taxes in computing wrongful death damages, yet

the federal district court in Rhode Island barred

such evidence in diversity cases, no rational plain-

tiff who had the choice would ever bring a wrong-

ful death action in the state courts. The difference

in wrongful death recoveries between the two

forums would be staggering.

Id. at 185.

The converse is also true. If Illinois does not admit

such evidence, its admission in the federal court, partic-

ularly where only state law may be otherwise applied,

would promote “inequitable administration of the laws.”

We think it important to emphasize what we have not

done in ruling upon these motions in limine. We have

not, as a federal court sitting in diversity, decided

whether it would be desirable to admit evidence of the

effect of taxation upon earnings or to give some instruc-

tion to the jury as to the tax status of compensation for

damages or how taxation should affect the calculation of

damages. Nor would it be proper for us to do so. Erie,

supra. The competing policy considerations have been

analyzed in detail by various courts and commentators,

see, e.g., Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d

689 (1980) and 444 U.S. at 498, 100 S.Ct. at 759 (Black-

mun, J., dissenting); Domeracki v. Humble Oil & Refin-

ing Co., 443 F.2d 1245 (3d Cir.), cert. denied, 404 U.S.

883, 92 S.Ct. 212, 30 L.Ed.2d 165 (1971); McWeeney v.

N.Y., N.H. & Hartford R.R., 282 F.2d 34 (2d Cir. 1960);

Huddell v. Levin, 395 F.Supp. 64 (D.N.J. 1975); D.

Dobbs, Remedies 575-79 (1973); Nordstrom, Income

Taxes And Personal Injury Awards, 19 Ohio St. L.J. 212

(1958), and we see no reason to add unnecessarily to the

girth of some future volume of the Federal Supplement

by repeating them here. Under present law, the decision

is one either for the Illinois legislature and the Illinois

courts or the Congress of the United States rather than

for us. Our decision is limited to a finding that Illinois

law and federal law would resolve these issues differ-

App. 33

ently, and that the principles first enunciated in Erie

require us to apply Illinois law.

We are constrained to observe once again that the

result of the application of state law in aviation disaster

cases is inevitably to create substantial disparity in che

applicable law depending on the particular state or fed-

eral court in which the case is filed or tried. The crash

here involved is typical. Residents of a number of states

and foreign countries were passengers. Their survivors

are also residents of a number of jurisdictions, not

necessarily the same as the decedents. Cases have been

filed in various state and federal courts. The federal

cases have all been transferred to us under 28 U.S.C.

§ 1407. As discovery is completed, if the parties so

desire, we have remanded a number of cases to the

transferor courts for trial. Those cases originally filed in

this district will, of course, remain here. As this opinion

indicates, whether evidence and instructions with re-

spect to federal and state income taxes will be permit-

ted depends on the applicable state law. As is obvious,

this will result in substantial differences in the damage

calculations in the various cases.

We have previously urged the enactment of a federal

aviation disaster law which would make uniform the

legal principles applicable in aviation disaster cases. It

is unjust as well as ludicrous that such issues as the

standard of liability (no-fault, comparative negligence,

contributory negligence), the measure of damages,

whether or not prejudgment interest is an element of

damages, whether or not damages for pain and suffer-

ing are recoverable, whether or not punitive damages

are recoverable, whether or not federal and state in-

come taxes should be considered in determining dam-

ages, the applicable statute of limitations and a host of

other important issues should vary from case to case

arising out of the same disaster depending on the vagar-

ies of the applicable state law.

Even the determination under conflicts of law princi-

ples of what is the applicable state law presents com-

App. 34

plex questions and results in an unnecessary burden on

the courts as the earlier opinions of this Court and the

court of appeals on the issue of punitive damages dem-

onstrate. We and the court of appeals have also had to

consider and determine whether or not prejudgment

interest is a proper element of damages and, it is

obvious, we and the court of appeals will also have con-

sidered the income tax questions dealt with in this opin-

ion. All of the foregoing would be obviated by the

enactment of a federal aviation disaster statute. Both

the best interests of justice to the affected parties and of

a sensible utilization of judicial resources would be

served by such a statute.

Plaintiff and both defendants have requested certifi-

cation under 28 U.S.C. § 1292(b) of our order as to these

issues. Section 1292(b) provides for immediate appeal of

an otherwise nonappealable interlocutory order which

the district court and the court of appeals determine (1)

involves a controlling question of law, (2) as to which

there is substantial ground for difference of opinion, and

(3) that an immediate appeal from the order may mate-

rially advance the ultimate termination of the litigation.

Certification under section 1292(b) is reserved for ex-

ceptional cases, Seven-Up Co. v. O-So Grape Co., 179

F.Supp. 167 (S.D.I11.1959), and was not intended as a

means of expediting review merely because an order in-

volves an important legal question. Bobolakis v. Com-

pania Panamena Maritima San Gerassimo, 168 F.

Supp. 236, 239 (S.D.N.Y. 1958); see 1958 U.S.Code Cong.

& Adm. News 5260-61.

We agree that whether evidence on the effect of taxa-

tion upon earnings is admissible, and whether the jury

must be instructed as to the taxability of damages, in an

action in which federal jurisdiction is based upon diver-

sity of citizenship, are issues to which “substantial

ground for difference of opinion” exists. Earlier para-

graphs of this opinion illustrate that whether Illinois or

federal law applies to these issues requires an examina-

tion of whether they are more fairly characterized as

App. 35

substantive or procedural. Our conclusion that both lab-

els are apt recognizes that the issues might possibly be

characterized as either substantive or procedural. We

also noted that Illinois law on these issues is uncertain

after Liepelt.

We also believe that these issues are “controlling

issues of law,” particularly since the only issue to be

tried in all of these cases will be the issue of damages.

Any decision on these issues will almost inevitably influ-

ence the amount of damages that the jury will award.

Moreover, any early appellate decision will enable at

least the judges trying the cases in this district to know

how to proceed with respect to evidence and instructions

as to the income tax questions. In addition, it will

obviate the need to re-try any such case if the Seventh

Circuit were ultimately, after a trial, to reverse our

decision on these issues. The substantial number of

cases affected and the possibility that some will be

transferred to other courts for trial increase the advan-

tage of obtaining a final determination of these issues

before trial.

We would hope that the court of appeals will expedite

its ruling since a number of cases are ready for trial.

The parties’ motion for certification under 28 U.S.C.

§ 1292(b) will be granted with a recommendation for

expedited consideration.

An order consistent with all of the foregoing will

enter.