# 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)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1983

## Text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_1244%3A1. Public record. Not legal advice.