Petition — Reederei v. Byrd
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Office - Su Court, U.S.
88-1749 FILED
APR 27 1904
BUD. conn ALEXANDER L. STEVAS.,
IN THE
Supreme Court of the Anited States
OCTOBER TERM, 1983
HEINRICH SCHMIDT REEDEREI,
Petitioner,
Ve
WILLIE Mae Byrb, As Administratrix of the
Estate of Lawrence Byrd, deceased,
Respondents.
PETITION OF HEINRICH SCHMIDT
REEDEREI FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Dewey R. VILLAREAL, JR.
Fow.er, WHITE, GILLEN, Boccs,
VILLAREAL & BANKER, P.A.
Counsel for Petitioner
Post Office Box 1438
Tampa, Florida 33601
(813) 228-7411
re ae a een cer
PRESS OF BYRON S. ADAMS PRINTING, WASHINGTON, D.C. (202) 347-8203
i
QUESTION PRESENTED FOR REVIEW
Whether the Fifth Circuit Court of Appeals erred by ruling
that, as a matter of law, the below market discount rate is the
only method to be used in the (old) Fifth Circuit to adjust
damage awards to account for the effects of inflation.
i
TABLE OF CONTENTS
QUESTION PRESENTED FOR REVIEW .............0000:
cn secu cbabcovecees
The Fifth Circuit Court Of A + Disregarded The
Mandate Of The Supreme Court As Shi Forth In
Jones & Laughlin Steel C v. Pfeifer, __. U.S.
—_., 103 S.Ct. 2541, 76 L. d. 768 (1983) .......
es ceeeccbcsceces
i nwecsccdoosces
TABLE OF AUTHORITIES
CASES:
Jones & Laughlin Steel Corp. v. Pfeifer, ___ U.S. —_,
103 S.Ct. 2541,
STATUTES:
28 U.S.C. § 1254(1)
33 U.S.C. § 905(b)
76 L.Ed 768 (1983) .............
TRatrererstt Dh hU6C Uh POPC ROP ARTE
“Tannen i oepeewetreweeoaee ce eS CPR RS Rae
Page
3
IN THE
Supreme Court of the Anited States
OCTOBER TERM, 1983
a
HEINRICH SCHMIDT REEDEREI,
Petitioner,
Vv.
WILLIE Mae Byrp, As Administratrix of the
Estate of Lawrence Byrd, deceased,
Respondents.
PETITION OF HEINRICH SCHMIDT
REEDEREI FOR WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
The Petitioner respectfully prays that a Writ of Certiorari
issue to review the Judgment and Opinion of the United States
Court of Appeals for the Fifth Circuit (former Fifth) entered in
this proceeding on September 22, 1982.
OPINION BELOW
The opinion below consists of the following decisions (listed
chronologically):
1. Judgment entered by the U.S. District Court for the
Middle District of Florida, Tampa Division.
2. Opinion of the U.S. Court of Appeals for the Fifth Cir-
cuit. Byrd v. Reederei, 638 F.2d 1300 (Sth Cir. 1981).
3. Petition for Rehearing and Petition for Rehearing En
Banc. Byrd v. Reederei, 650 F.2d 1324 (5th Cir. 1981).
2
4. En Banc Opinion of the U.S. Court of Appeals for the
Fifth Cireuit. Byrd v. Reederei, 688 F.2d 324 (5th Cir. 1982).
5. En Banc Opinion of the U.S. Court of Appeals for the
Fifth Circuit. Culver v. Slater Boat Co., 688 F.2d 280 (5th Cir.
1982). Byrd v. Reederei case number 78-3064, was consolidated
with Culver v. Slater Boat Co., number 79-3985.
6. En Banc Opinion of the U.S. Court of Appeals for the
Fifth Circuit. Culver v. Slater Boat Co., and Byrd v. Reederei,
722 F.2d 114 (5th Cir. 1983).
The decisions appear in the Appendix to this writ
JURISDICTION
The Judgment of this Court of Appeals for the (old) Fifth
Circuit sought to be reviewed in this case was entered on
December 22, 1983. A timely Petition for Rehearing en banc
was denied on February 24, 1984, and this Petition for Cer-
tiorari will be filed within ninety days of that date. This Court’s
jurisdiction is invoked under 28 U.S.C. § 1254(1).
STATEMENT OF THE CASE
The facts are not in dispute. On July 28, 1975, the German
freighter M/V ANTARES arrived at Port Manatee, Florida,
there to be ‘ully loaded with densely compacted cardboard
cartons. Petitioner Heinrich Schmidt Reederei, (hereafter, for
convenience, Schmidt), the vessel’s owner, retained a
stevedoring company to carry out the loading operations. Dur-
ing the course of those operations, several bales of cardboard
fell on a group of longshoremen who had been hired by the
stevedoring company, injuring two of them and killing a third.
The injured longshoremen and the widow of the deceased filed
suit pursuant to Title 33 U.S.C. § 905(b).
In the trial below, all three actions were consolidated for
trial. All charged the Petitioner, Schmidt, with negligence. At
trial, the District Court denied Respondents’ motions for
directed verdicts on the issue of contributory negligence, and
3
prohibited Respondents from introducing testimony on infla-
tion. The jury was also instructed that it could not consider the
effects of inflation in awarding damages. The jury returned
verdicts for Respondents, but also found Respondents to be
contributorily negligent and accordingly reduced the damages
award. Motions for a new trial and for judgment notwithstand-
ing the verdict were filed by the Respondents, and in due
course were considered and denied, Respondent Byrd then
appealed to the Court of Appeals for the Fifth Circuit which, on
March 12, 1981, reversed the trial court and ordered the dis-
trict court to enter judgment in the full amount of the damages
assessed. However, the court of appeals also held that the trial
court was correct in refusing to allow the jury to consider the
effects of inflation in assessing damages.
On rehearing, the Court of Appeals for the Fifth Circuit held
that, given certain guidelines, evidence cf wage increases due
to inflationary trends was admissible and remanded the case
for new trial. Subsequently, on the December 22, 1983, on
re-hearing, the Fifth Circuit modified its earlier holding,
mandating the use of the below-market discount rate method
alone in considering the effects of inflation.
REASON FOR GRANTING THE WRIT
The Fifth Circuit Court Of Appeals Disregarded The Man-
date Of The Supreme Court As Set Forth In Jones & Laugh-
lin Steel Corp. v. Pfeifer, __. U.S. —_, 103 S.Ct. 2541, 76
L.Ed. 768 (1983).
In adopting a single method of calculating damages, the
below-market discount rate, the Fifth Circuit has disregarded
the Supreme Court's warning in Jones & Laughlin Steel Corp.
v. Pfeifer, __. U.S. —__., 108 S.Ct. 2541, 76 L.Ed. 768 (1983),
that economic evidence is distinctly inconclusive regarding an
essential premise upon which this method is based. The Su-
preme Court recognized ‘hat due to changing circumstances,
none of the three methods, set forth as legally acceptable,
would be valid for all cases. The adoption by the Fifth Circuit of
4
only one of the three methods acceptable to the Supreme Court
forecloses the use in trial courts of the other methods accept-
able to the Supreme Court and precludes the admission of
evidence necessary to lay a predicate for the other methods,
which might lead to more realistic awards, which was the
purpose behind the ruling in Pfeifer. For these reasons Peti-
tioner submits that this decision conflicts with the decision of
the Supreme Court in Pfeifer.
CONCLUSION
For the above reason a writ of certiorari should be granted.
Respectfully submitted,
DEWEY R. VILLAREAL, JR.
FOWLER, WHITE, GILLEN, Boccs,
VILLAREAL & BANKER, P.A.
Counsel for Petitioner
Post Office Box 1438
Tampa, Florida 33601
(813) 228-7411
la
APPENDIX A
Anited States District Court
FOR THE MIDDLE DISTRICT OF FLORIDA—TAMPA DIV
Civil Action File No. 75-696-Civ-T-H
WILLIE MAE ByrD, individually, and as
Administratrix of the Estate of Lawrence Byrd, deceased,
and MIDLAND !NSURANCE COMPANY, a corporation
Vv.
HEINRICH SCHMIDT REEDEREI, a foreign corporation,
JUDGMENT
FILED
TAMPA, FLA.
APR 20 1978
WESLEY R. THIES
CLERK
This action came on for trial before the Court and a jury,
Honorable Wm. Terrell Hodges, United States District Judge,
presiding, and the issues having been duly tried and the jury
having duly rendered its verdict,
It is Ordered and Adjudged that the plaintiffs WILLIE MAE
ByrD, individually, and MIDLAND INSURANCE COMPANY, a
corporation, recover of the defendant HEINRICH SCHMIDT
REEDEREI, a foreign corporation, the sum of $50,000.00, with
interest thereon at the rate of 6% as provided by law, and their
costs of action; and that the plaintiffs WILLIE Mag Byrb, as
Administratrix of the Estate of Lawrence Byrd, deceased, and
MIDLAND INSURANCE COMPANY, a corporation, recover of the
defendant HE!NRICH SCHMIDT REEDEREI, a foreign corpora-
2a
tion, the sum of $12,500.00, with interest thereon at the rate of
6% as provided by law, and their costs of action.
Dated at Tampa, Florida, this 20th day of April, 1978.
Wesley R. Thies
WESLEY R. THIES
Clerk of the Court
By John F. Gay
JOHN F. Gay
Deputy Clerk
3a
APPENDIX B
United States Court of Appeals
Fifth Circuit, Unit B
March 12, 1981
No. 78-3064
Willie Mae Byrp, as Administratrix of
the Estate of Lawrence Byrd, deceased,
Plaintiff-Appellant-C ross-Appellee,
V.
Heinrich Schmidt REEDEREI,
Defendant-Appellee-Cross Appellant.
Widow brought action under Longshoremen’s and Harbor
Workers’ Compensation Act against shipowner. The United
States District Court for the Middle District of Florida, Terrell
Hodges, J., entered judgment on jury verdict, and appeal was
taken. The Court of Appeals, Kravitch, Circuit Judge, held
that: (1) holding longshoremen contributorily negligent for
failing to stop work after shipowner had been notified of dan-
gerous condition and failed to remedy such condition
impermissibly charged longshoremen with assumption of risk,
and (2) District Court did not err in instructing jury not to
consider effects of inflation in assessing damages.
Affirmed in part and reversed in part, and judgment vacated
and case remanded for entry of new judgment.
Joel D. Eaton, Walter H. Beckham, Jr., Miami, Fla., Roger
Vaughan, Wagner, Cunningham, Vaughan & Genders, Tam-
pa, Fla., for plaintiff-appellant, cross-appellee.
Fowler, White, Gillen, Boggs, Villareal & Banker, Natha-
niel G. W. Pieper, Dewery R. Villareal Jr., Tampa, Fla., for
defendant-appellee, cross-appellant.
4a
Appeals from the United States District Court for the Mid-
dle District of Florida.
Before KRAVITCH and FRANK M. JOHNSON, JR., Circuit
Judges and ALLGoop, District Judge.
KRAVITCH, Circuit Judge:
This action under the Longshoremen’s and Harbor Workers’
Compensation Act arises from the death of Lawrence Byrd, a
longshoreman killed while loading freight aboard a ship owned
by appellee, Heinrich Schmidt Reederei. The jury found
Reederei negligent and assessed total damages of appellant
Willie Mae Byrd. Byrd’s widow and the administratrix of his
estate, at $125,000. The jury also found Byrd 50% at fault. The
court rendered judgment for appellant Byrd in the amount of
$62,500, half the damages assessed. Two issues confront us: 1)
whether, as a matter of law under the Act [LHWCA] as
amended in 1972, a longshoreman may be found contributorily
negligent for failing to stop work after a shipowner has been
notified of a dangerous condition and fails to remedy it, and 2)
whether a jury instruction not to consider inflation in calculat-
ing damages was erroneous. We conclude that the court
improperly applied contributory negligence but did not err in
its jury instruction regarding inflation; Johnson v. Penrod
Drilling Co., 510 F.2d 234 (5th Cir. 1975) (en banc), prohibiting
instructions, contra, remains the law of this circuit. We affirm
in part, reverse in part and remand with directions that the
district court enter judgment for appellant in the full amount,
$125,000, found by the jury.
The facts are not in dispute. Shortly after midnight on July
28, 1975, the German ship M/V ANTARES arrived at Port
Manatee, Florida to be fully loaded with densely compacted old
cardboard cartons (hereafter, “OCC”). Reederei, the vessel’s
owner, had retained as stevedore Eller & Co. to carry out the
loading operations. Lawrence Byrd was one of several inde-
pendent longshoremen Eller & Co. hired at the local union hall
on the morning of July 28 to load the ship.
5a
The stevedoring hierarchy, insofar as it is relevant, was as
follows: Eller’s “ship superintendent: Michael O’Kash was in
charge. Below him were two “ship foremen,” Willie Doby and
Hugh Overton. Under the ship foreman were four “headers,”
each of whom was responsible for overseeing the loading of one
of the ship’s four holds, and the longshoring “gang” assigned to
that hold. Rudy Logan was the “header” in charge of the
number 3 hold; his gang consisted of nine men: two “landers” on
the pier, who tied the bales of OCC to the crane-like cargo
boom; a “winchman” operating the cargo boom on board the
deck; a “flagman” directing the winchman; a forklift operator in
the hold who placed the lowered bales into a stowed position;
three “pullers” in the hold who detached the bales from the
cargo boom’s hook after they were lowered; and an additional
longshoreman who rotated between the winch and forklift,
freeing one man from work.
The bales of OCC, each measuring five feet by five feet by
three and a half feet, tied with wire, and weighing approxi-
mately 1500 pounds, were thus lifted from the pier and lowered
through the narrow opening in the top of each hold by the cargo
boom, detached from the boom by the “pullers,” and moved to
the sides of the hold and stowed in stacks six high by the forklift
operator. Eller & Co. selected this method of stowage.
On July 28, Byrd, who had 22 years’ experience as a long-
shoreman and was qualified to be a header, was hired as a
puller and assigned to the number 3 hold. With him as pullers
were Lucious Holden and William Avant. Holden had five
years’ experience as a longshoreman and Avant slightly less
than that. With respect to complaints regarding working con-
ditions, the stevedoring hierarchy was strictly enforced: “pul-
lers” were to complain only to “headers” who in turn could
speak only to the ship foremen who, with O’Kash, could com-
plain directly to the vessel’s crew. Anyone, however, could
complain to the crew of very serious conditions.
The lines tying the ship to the pier descend from the ship to
the pier. As the ship is loaded, riding lower in the water, they
slacken, allowing the ship to roll and creating the possibility
6a
that stacked freight can fall. (With slack lines, the ship rolls
inshore each time a cargo boom lifts cargo from the pier.) The
lines must therefore be continually tightened during loading.
The parties agree that tight lines and a stabie ship are essential
to safe loading and that on board the ANTARES these condi-
tions were solely the responsibility of the ship’s crew and not of
the stevedore or of individual longshoremen, who were forbid-
den to touch the lines. The parties further agree that on July 28
the lines slackened throughout the day, the ship rolled con-
siderbly, and stevedore employees repeatedly complained of
this condition to the ship’s crews. Reederei also admits that
although the ship’s rolling and the complaints continued into
the afternoon, the crew tightened the lines only once, at ap-
proximately 10:15 a.m.
At 3:50 p.m., Byrd, Holden and Avant were in the number
three hold with the forklift operator awaiting delivery of addi-
tional bales. The men stood on the offshore side of the hold in
front of a number of bales which had already been stowed, since
this was their safest location when the cargo boom brought the
cargo in over the inshore side of the hatch. Without warning,
several bales fell from the stacks in the offshore wing toward
the center of the hold, striking the forklift and the three men.
Two bales fell on Byrd, crushing his chest. He died approxi-
mately 25 minutes later. Holden and Avant were injured.
In her complaint, appellant alleged that the shipowner’s
negligence was a proximate cause of her husband’s death.
Holden and Avant brought like suits: the three were con-
solidated for trial. Reederei denied liability and alleged
alternatively that the three men, having continued to work
under conditions they knew to be dangerous, were con-
tributorily negligent. The court denied plaintiffs’ motion for a
directed verdict on the contributory negligence issue, stating
that the evidence of plaintiffs’ negligence “may be slight or nil”
but that continuing to work under dangerous conditions after
protesting to no avail “could arguably constitute negligence.”
Hence, it submitted the question to the jury. Over plaintiffs’
objection, the court also charged the jury that they were not to
Ta
increase any damages awarded to plaintiffs because of an ex-
pectation of future inflation. The jury found Reederei negli-
gent, and Lawrence Byrd, Holden and Avant 50%, 20% and
10% at fault, respectively. It assessed appellant’s damages at
$125,000, and the court entered judgment for her in the
amount of $62,500. Willie Mae Byrd’s motions for a new trial
and for judgment notwithstanding the verdict were denied.
On appeal Byrd raises three issues: 1) that the trial court
erroneously denied her motions for a directed verdict and for
judgment notwithstanding the verdict on the issue of con-
tributory negligence, instead submitting it to the jury, 2)
alternatively, that the trial court erroneously denied her mo-
tion for new trial on the ground that the jury’s assignment of
three different percentages of fault to Byrd, Holden and Avant
and its finding that Byrd was equally at fault with the shipown-
er for failing to stop work were irrational and against the
manifest weight of the evidence, and 3) that the court erred in
refusing to allow the jury to consider the effects of inflation in
awarding damages.
Il.
Boeing Co. v. Shipman, 411 F.2d 365 (5th Cir. 1969) (en
banc) governs our review of motions for directed verdict. Un-
less there was “a conflict in substantial evidence,” 411 F.2d at
375, the court improperly submitted the question to the jury.
Appellant Byrd argues that there was no evidence favoring
appellee on this issue, because holding a longshoreman con-
tributorily negligent for failing to stop work after he has com-
plained to no avail of dangerous working conditions is tanta-
mount to holding that he assumed the risk, a now impermissi-
ble defense. Reederei counters that contributory negligence
properly applies in this situation, especially under the 1972
amendments to tre LHWCA. In this guise the issue is drawn;
Reederei does not argue that Byrd (or his co-workers Holden
and Avant) was negligent in any respect other than failing to
stop work.
8a
(1) We first note that there is no question that assumption
of the risk is not a permissible defense to actions brought under
the LHWCA, as was made clear in Gay v. Ocean Transport &
Trading, Ltd., 546 F.2d 1233, 1238 (5th Cir. 1977):
{C]ertain common land-based principles of state law are
not to be carried over into the federal law governing
a suits. Assumption of risk may not be utilized as a
efense....
Thus, our primary question is whether, as appellant claims,
the trial court impermissibly applied the assumption of risk
defense, albeit by another name — contributory negligence —
or whether, as appellee contends, this is merely a factual
inquiry to which contributory negligence properly applies.
In Schlemmer v. Buffalo, Rochester & Pittsburgh Railway
Co., 205 U.S. 1, 27S.Ct. 407, 51 L. Ed. 681 (1907), the Supreme
Court faced a similar question. A railroad employee was killed
while performing his job and the statute under which his ad-
ministrator sued abrogated an assumption of the risk defense.
Judgment was entered for the railroad on the ground that the
decedent had been contributorily negligent. Justice Holmes
thus addressed the same distinction we now consider:
[Tjhe risk is said to be assumed because a person who
freely and voluntarily encounters it has only himself to
thank if harm comes, on a general principle of our law.
Probably the modification of this general principle by
some judicial decisions and by statutes like § en
the defense] is due to an opinion that men who work wit
their hands have not always the freedom and equality of
position assumed by the doctrine of /aissez faire to exist.
Assumption of risk in this broad sense obviously shades
into negligence as commonly understood. Negligence con-
sists in conduct which common experience or the special
knowledge of the actor shows to be likely to produce the
result complained of, under the circumstances known to
the actor, that he is held answerable for that result, al-
though it was not certain, intended, or foreseen. He is held
to assume the risk upon the same ground. . . . [T]he prac-
tical difference of the two ideas is in the degree of their
proximity to the particular harm. The preliminary con-
9a
duct of getting into the dangerous employment or relation
is said to be accompanied by assumption of the risk. The
act more immediately leading to a specific accident is
called negligent. But the difference between the two is one
of degree rather than of kind; and when a statute ex-
onerates a servant from the former, if at the same time it
leaves the defense of contributory negligence still open to
the master ..., then, unless great care be taken, the
servant’s rights will be sacrificed by simply charging him
with assumption of the risk under another name... . We
cannot help thinking that this had happened in the present
ee
205 U.S. at 12-13, 27 S.Ct. at 409. Justice Holmes went on to
state that the danger was so great and “inevitably an clearly
attached to the risk which Schlemmer did not assume, that to
enforce the statute [abrogating assumption or risk] requires
that the judgment should be reversed.” 205 U.S. at 14, 27S.Ct.
at 410.
Several circuits have applied the same logic to cases similar
to the instant one brought under the LHWCA. Faced with
parallel facts, in Rivera v. Rederi A/B Nordstjernan, 456 F.2d
970 (1st Cir.), cert. denied, 409 U.S. 876, 93 S.Ct. 124, 34
L.Ed.2d 128 (1972), the First Circuit held that appellant long-
shoremen could not be charged with contributory negligence
for continuing to work, where they had complained of danger-
ous conditions and were told that the problem would be re-
medied and that they should return to work. “To say the
plaintiffs were contributorily negligent in these circumstances
would be to state that in continuing work they assumed the risk
of obeying orders. We will not allow assumption of risk to
masquerade as contributory negligence.” 456 F.2d at 974.
Similarly, the Second Circuit, under like circumstances in
Rivera v. Farreli Lines, Inc., 474 F.2d 255 (2d Cir. 1973), cert.
denied, 414 U.S. 822, 94 S.Ct. 122, 38 L.Ed.2d 55 (1974),
reached the same conclusion. There, a messman brought suit
against the shipowner for injuries he had suffered from falling
on a wet pantry floor covered with soapy water as a result of
defective drains. He had continually but unsuccessfully com-
plained of this condition to the ship’s officers. The shipowner
10a
defended on the ground that the messman’s continuing to work
in the light of such known dangers constituted contributory
negligence, and the jury so found. The Second Circuit respond-
ed:
The «‘stinction between assumption of risk and con-
tributory negligence is well established. In common law
days the knowledgeable acceptance by an employee of a
dangerous condition when and if such acceptance was
necessary for the performance of his duties was assump-
tion of msk. .. . Contributory negligence, on the other
hand, connotes some careless act or omission on the part of
the employee over and above that knowledgeable accept-
ance... . As the defense of assumption of risk has been
abolished by statute ... the first issue before us is
whether the charge permitted assumption of risk to go to
the jury in the guise of contributory negligence.
The only theory of contributory negligence the record
reveals. . . was the argument that te ant was careless
in moving in and about the pantry, knowing the sloppy
condition of the floors. This theory, however, was really
assumption of risk masquerading under another name,
because it allowed a finding of contributory negligence on
the strength of appellant’s knowledge that a dangerous
condition in his line of duty existed and his working in that
line of duty. . . . Thus the verdict must be set aside. . . .
474 F.2d at 257-58.
The Fourth Circuit, also, has concluded that holding an
employee contributorily negligent because he knew of a dan-
gerous condition and yet continued to work impermissibly
charged him with assumption of the risk. In Sessler v. Allied
Towing Corp., 538 F.2d 630 (4th Cir. 1976), a barge employee
used a “non-explosion proof” pump to remove gasoline from the
barge, and an explosion occurred. The court held that the
district court’s finding of contributory negligence on the part of
Sessler was “tantamount to holding Sessler negligent because
he realized his job was dangerous but did it anyway. Since the
{non-explosion proof] pump was the only pump available for his
work, he could avoid using it only by refusing todothejob... .
Viewed in this light, Sessler’s conduct is properly character-
lla
ized as assumption of risk, not contributory negligence.” 538
F.2d at 632. Earlier, in Smith v. United States, 336 F.2d 165
(4th Cir. 1964), the fact that the injured longshoreman had
known the ladder he used to exit a hold was defective was held
not to render him contributorily negligent; to do so would
charge him with “ ‘assumption of the risk under another
name.’ ” 336 F.2d at 168. Only if there had been a safe alterna-
tive route available to Smith could his choice of the known-to-
be unsafe ladder “possibly have indicated contributory fault.”
(2] Our decisions, while they do not parallel as closely the
facts before us, are in accord. In San Pedro Compania Arma-
doras, S. A. v. Yannacopoulos, 357 F.2d 737 (5th Cir. 1966), a
seaman was ordered to climb into a tank that had a defective
top. The top fell crushing his hand. Setting aside the district
court’s finding that Yannacopoulos was 50% contributorily
negligent, we wrote:
Since he had no choice but to use (the tank top] as it was, he
cannot be made to assume the risk of injury when using the
unseaworthy appliance in the regular discharge of his
duties. . . . To do so would permit the rejected doctrine of
assumption of risk to be applied under the label of con-
tributory negligence.
357 F.2d at 741. In Brock v. Coral Drilling, Inc., 477 F.2d 211
(5th Cir. 1973), we affirmed the trial court’s holding that Brock
had not been contributorily negligent for following orders to
unload cargo after he had complained of the hazardous condi-
tions present. In doing so, we recognized that “Brock’s deci-
sion must be evaluated in light of his economic dependence on
Coral for future employment.” 477 F.2d at 215. In Wedd v.
Dresser Industries, 536 F.2d 603 (5th Cir. 1976) a seaman sent
ashore to Alaska to pick up supplies requested appropriate
boots for the errand, was refused, and while ashore, slipped on
the ice and was injured. The trial court made no finding regard-
ing contributory negligence, and we remanded for considera-
tion of that issue hecause Webb might have been able to obtain
boots on his own. In doing so, however, we noted:
ate aperture for finding comparative fault on this basis
failing to minimize present dangers] is very narrow—the
12a
rule is confined to instances where there has been gener-
ous opportunities safely to correct the known dangerous
situation, and a heavy burden of proof rests with the
defendant. (footnote omitted)
536 F.2d at 609. Our review of these cases convinces us that
Byrd does not fit within this narrow aperture. He had no
opportunity to minimize the dangers caused by the
ANTARES ’ rolling other than to stop work. In our judgment,
holding him contributorily negligent for failing to do so,
impermissibly charges him with assumption of the risk.
Appellee asserts, however, that Mazzanti v. Lykes Bros.
Steamship Co., Inc., 524 F.2d 961 (5th Cir. 1975), the only case
upon which the district court relied in submitting the question
of appellant’s contributory negligence to the jury, is contra and
controls. We disagree. Mazzanti, a longshoreman, was injured
when he slipped and fell upon trash that had accumulated on
the deck area. The district court found Mazzanti 75% con-
tributorily negligent “becuase [he] should have reported the
condition of the area to the gang foreman who could have
requested that the area be cleaned by a cleanup crew or could
have requested that aid be sent to the longshoremen’s gang to
assist them in cleaning the area.” 524 F.2d at 962. After analyz-
ing the ship’s and Mazzanti’s varying opportunities to correct
the dangerous condition and concluding that the ship’s crew
was better able to do so than appellant, we directed that
Mazzanti’s contributory negligence be reduced to 50%. We also
stated: “The alternatives available to [Mazzanti] in lieu of
continuing work at the risk of harm to himself were to refuse to
work or to report the condition and hope that cleanup assist-
ance would be sent.” (footnote omitted) Jd. We conclude that
Mazzanti does not control because of a critical factual differ-
ence between that case and the instant: Mazzanti had not
reported the dangerous condition in order that it be corrected.
Here, longshoremen complained repeatedly.
[3] Appellee next argues that the above-cited cases (other
than Mazzanti) are inapposite in that they either concern
seamen, as opposed to longshoremen, or that they predate the
13a
1972 Amendments to the LHWCA and thus no longer apply.
Altheugh the 1972 Amendments to the Act effected several
fundamental changes in the nature of longshoremen’s compen-
sation, those changes did not alter the impermissibility of the
assumption of risk defense. Gay v. Ocean Transport & Trad-
ing, Ltd., swpra. Gay also makes clear that under the amend-
ments, seamen and longshoremen are to be treated alike for
these purposes. Thus, we pointed to the House of Representa-
tives Committee Report which stated:
(T]he Committee intends that the admiralty concept of
comparative negligence [governing seamen], rather than
the common law rule as to contributory negligence, =
apply in cases where the injured employee’s own ne
ety may have contributed to caus the injury.
e Committee intends that the ad ty rule which re.
cludes the defense of “assumption of risk” in an action by
an — employee shall also be applicable. (footnote
omitted
546 F.2d at 1237.
[4] Moreover, the Act is to be liberally construed to pro-
mote its compensatory purpose in favor of the injured employ-
ee. Alabama Dry Dock & Shipbuilding Co. v. Kininess, 554
F.2d 176 (5th Cir. 1977), cert. denied, 439 U.S. 903, 98 S.Ct.
299, 54 L.Ed.2d 190 (1978); Smith v. M/V Captain Fred, 546
F.2d 119 (5th Cir. 1977). See also United States v. Bender
Welding & Mach. Co., 558 F.2d 761 (5th Cir. 1977). This
reinforces the conclusion that the cases cited supra, prohibit-
ing application of the “assumption of risk” doctrine under the
rubric of contributory negligence, properly apply.
We conclude that the trial court erred in denying appellant’s
motion for directed verdict on the issue of contributory negli-
gence and in reducing appellant’s award of damages by 50%,
the proportion of negligence the jury attributed to Byrd.
Hence, we need not reach appellant’s second argument, that
the assignment of different percentages of contributory fault
to the three longshoremen was irrational, or that Byrd could
not, for not refusing to work, be charged with negligence equal
to that of Reederei.
l4a
Ill.
Appellant also challenges the instruction that the jury ex-
clude inflation from its damage calculations. Six years ago, in
Johnson v. Penrod Drilling Co., supra, we squarely faced this
question and held that juries should not be instructed to con-
sider “future inflationary or deflationary trends in computing
future lost earnings.” 510 F.2d at 241. That decision has been
criticized by members of our own bench. It is also inconsistent
with the decisions of the majority of other circuits that have
addressed the question without reference to state law and with
the holdings of the state courts, with one exception, in ur
jurisdiction. In addition, commentators generally have dis-
favored Penrod’s result. Nonetheless, as Judge Wisdom stated
in Davis v. Hill Engineering, Inc., 549 F.2d 314, 332 (5th Cir.
1977), “({uJntil Penrod is overruled . . . an inflation element
cannot be included in damage computations.” Thus, we decline
to discuss the merits of the controversy and instead address
the sole question before us: has Penrod been overruled?
{5] Anen banc decision of our court may be overruled only
by subsequent en banc consideration or by the United States
Supreme Court. No en banc court has again addressed this
question, but last year in Norfolk Western Railway v. Liepelt,
444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689 (1980), the Su-
preme Court held that the effect of income taxes could be
considered in determining damage awards. Responding to the
argument that the future prediction of tax consequences is “too
speculative and complex for a jury’s deliberations,” the Court
stated:
Admittedly there are many variables that may affect the
amount of wage earner’s future income tax liability. . . .
But future employment itself, future health, future per-
sonal expenditures, future interest rates and future tke
tion are also matters of estimate and prediction. . . . [T]he
ractical wisdom of the trial bar and the trial bench has
eveloped effective methods of presenting the essential
elements of an expert calculation in a form that is under-
standable by juries that are increasingly familiar with the
complexities of modern life. We therefore reject the no-
l5a
tion that the introduction of evidence describing a dece-
dent’s estimated after-tax earnings is too speculative or
complex for a jury. (footnote omitted; emphasis supplied)
444 U.S. at 494, 100 S.Ct. at 758. The Second Circuit recently
pointed to this language as indicating the Supreme Court’s
approval of the consideration of inflation in damage awards and
held that inflation could be so considered. Doca v. Marina
Mercante Nicaraguense, S.A., 634 F.2d 30 (2d Cir. 1980).
However, no Second Circuit decision contra bound the Doca
panel; it reached its conclusion only after reviewing decisions
of other courts, its prior decisions regarding the consideration
of inflation in assessing damages, and the merits of the con-
troversy. It did not hold that Liepelt compelled its result. We
are not similarly free, and we agree that Liepelt’s favorable
dicta is only that. Thus, until the Supreme Court speaks more
directly or we, as an en banc court decide otherwise, Penrod
still applies: the district court did not err in instructing the jury
not to consider the effects of inflation in assessing Byrd’s
damages.
Accordingly, we affirm in part and reverse in part. We
vacate the judgment and remand to the trial court to enter
judgment for appellant in the full amount, $125,000, assessed
by the jury.
l6a
APPENDIX C
United States Court of Appeals
Fifth Circuit
June 24, 1981
No. 78-3064
Willie Mae Byrp, as Administratrix of
the Estate of Lawrence Byrd, Deceased,
Plaintiff-Appellant, Cross-Appellee,
V.
Heinrich Schmidt REEDEREI,
Defendant-Appellee, Cross Appellant.
Appeal from the United States District Court for the Middle
District of Florida; Wm. Terrell Hodges, Judge.
Joel D. Eaton, Walter H. Beckham, Jr., Miami, Fla., Roger
Vaughan, Wagner, Cunning, Vaughan & Genders, Tampa,
Fla., for plaintiff-appellant, cross-appellee.
Fowler, White, Gillen, Boggs, Villareal & Banker, Natha-
niel G. W. Pieper, Dewey R. Villareal, Jr., Tampa, Fla., for
defendant-appellee, cross-appellant.
ON PETITION FOR REHEARING AND PETITION FOR
REHEARING EN BANC
(5 Cir., 1981, 638 F.2d 1300).
Before GopBOLD, Chief Judge, and Brown, AINSWORHT,
CHARLES CLARK, RONEY, GEE, TJOFLAT, HILL, Fay, Rusin,
VANCE, KRAVITCH, FRANK M. JOHNSON, Jr., GARZA, HENDER-
SON, REAVLEY, PoOLiITz, HATCHETT, ANDERSON, RANDALL,
TaTE, Sam D. JoHNsoN, THomas A. CLARK and WILLIAMS,
Circuit Judges.
17a
By THE CouRT:
A member of the Court in active service having requested a
poll on the application for rehearing en banc and a majority of
the judges in active service having voted in favor of granting a
rehearing en banc, 638 F.2d 1300, 5 Cir.
It Is ORDERED that the cause shall be reheard by the Court
en banc with oral argument on a date hereafter to be fixed. The
Clerk will specify a briefing schedule for the filing of sup-
plemental briefs.
18a
APPENDIX D
United States Court of Appeals
Fifth Circuit
Sept. 22, 1982
No. 78-3064
Willie Mae Byrp, individually and as administratrix of the
Estate of Lawrence Byrd, decease”
Plaintiff-Appellant, ('russ-Appellee,
Vv.
Heinrich Schmidt REEDEREI, a foreign corporation,
Defendant-Appellee, Cross Appellant.
Widow brought suit under the Longshoremen’s and Harbor
Workers’ Compensation Act against shipowner, seeking re-
covery for the alleged wrongful death of her husband. The
United States District Court for the Middle District of Florida,
at Tampa, Wm. Terrell Hodges, J., rendered judgment for
plaintiff in the amount of half the damages assessed, and an
appeal and cross appeal were taken. The Court of Appeals, 638
F.2d 1300, affirmed in part and reversed ir part. On rehearing
en banc, the Court of Appeals, Brown, Circuit Judge, held
that: (1) plaintiffs objection to jury charge, precluding consid-
eration of the effect of future inflation on an award of damages,
was properly before the Court of Appeals, since a reading of
the trial transcript showed that counsel for plaintiff attempted
to create a record to challenge or at least find an exception to
Penrod, and (2) under certain guidelines, evidence of wage
increases due to inflationary trends may be introduced at trials
in the Fifth Circuit.
Reversed and remanded.
Tjoflat, Circuit Judge, filed a concurring opinion.
19a
James C. Hill, Circuit Judge, filed a dissenting opinion in
which R. Lanier Anderson, III, Circuit Judge, joined.
Charles Clark, joined by Roney, Gee and Frank M. Johnson,
Jr., Circuit Judges, dissented.
Joel D. Eaton, Walter H. Beckham, Jr., Miami, Fla., Roger
Vaughan, Wagner, Cunning. Vaughan & Genders, Tampa,
Fla., for plaintiff-appellant cross-appellee.
Fowler, White, Gillen, Boggs, Villareal & Banker, Natha-
niel G. W. Pieper, Dewey R. Villareal Jr., Tampa, Fla., for
defendant-appellee cross-appellant.
Appeals from the United States District Court for the Mid-
die District of Florida.
ON REHEARING EN BANC
Before GopBOLD, Chief Judge, BRowN, CHARLES CLARK,
Roney, GEE, TJOFLAT, HILL, Fay, RuBIN, VANCE, KRAVITCH,
FRANK M. JOHNSON, Jr., HENDERSON, REAVLEY, POLITZ,
HATCHETT, ANDERSON, RANDALL, TATE, SAM D. JOHNSON,
Tuomas A. CLARK and WILLIAMS, Circuit Judges.
JOHN R. Brown, Circuit Judge:
{1] Willie Mae Byrd was the plaintiff in a third party action
for the wrongful death of her husband, Lawrence Byrd, arising
under the LHWCA, 33 U.S.C. §§ 901 et seg., and general
maritime law. Mr. Byrd was killed when 3,000 pounds of card-
board cartons fell from the hold of a ship owned by the defend-
ant, Heinrich Schmidt Reederei, and crushed his chest. At
trial, the District Court denied Byrd’s motion for directed
verdict on the issue of contributory negligence, and also prohi-
bited her from introducing testimony on inflation. The jury
returned a verdict for $125,000, but found Mr. Byrd 50%
contributorily negligent and reduced the award to $62,500. A
panel of this Court, 638 F.2d 1300, reversed the District
Court’s denial of a motion for directed verdict and ordered the
trial court to enter judgment for Byrd in the full amount of the
damages assessed. The trial court also rejected the issue of
20a
whetier future inflation may be considered by the jury when
assessing an award of future damages on the basis of this
Court’s decision in Johnson v. Penrod Drilling Co., 510 F.2d
234 (5th Cir. 1975) (en banc). In an opinion issued concurrently
with the present opinion, Culver v. Slater, 688 F.2d 280 (5th
Cir. 1982), this Court held that, under certain guidelines,
evidence of wage increases due to inflationary trends may be
introduced at trials in this Circuit. Therefore, we remand this
case for a new trial on Byrd’s damages, in accordance with the
principles of Culver, unreduced by any percentage for the
contributory negligence of Mr. Byrd.
{2] Several arguments raised by the defendant in this case
merit discussion. The defendant argues that this Court may
not properly reach the inflation issue because Byrd did not
introduce or proffer evidence upon which inflation could be
considered. Given that Byrd was prohibited at trial from in-
troducing testimony upon future inflationary trends, and in
light of the instruction that the jury was not to consider infla-
tion in determining future damages, both limitations created
by Penrod, we need not closely examine either the probative
weight of the evidence presented on inflation or the sub-
sequent absence of a detailed recitation of reasons underlying
Byrd’s objection to the jury instructions. See F.R. Civ. P51. In
cross-examining the defendant’s investment expert, Byrd at-
tempted to ask questions about the effect of inflation rates on
the bond market. The District Court, on the basis of Penrod,
sustained the objections to that line of questioning. At that
time, counsel for Byrd tried, to no avail, either to distinguish
Penrod or to explain that doubts have arisen in the Circuit with
regard to evidence on inflation. The court granted a recess, and
the following discussion took place between counsel for Byrd
and the trial judge:
THE CourT: . .. What you started . . . to pursue was the
effect of inflation on the market generally. And at that point I
sustained the objection, and would—and would and do sustain
the objection.
2la
CounsEL: Alright, sir. Your Honor, I wish to proffer for the
record some information. . . because to, in effect, require this
person to reduce their investment for the future but not let
them take into consideration the increase in value, the loss of
the borrowing, the loss of the purchasing power of the dollar, is
in effect to give a double reduction.
The reason this money—the reason that a person pays these
dollars for a thousand dollar bond has to do with inflation. And
to let that go in to reduce this person’s recovery because they
believe they will be able to get this amount of money in the
future, in effect, causes a double reduction. Because at the end
of 2007 that one thousand dollars she gets back will be worth
five hundred dollars.
«x = « «x x
[COUNSEL FOR DEFENDANT: But hasn’t that been laid to rest
in Penrod?]
THE Court: I understand—and he does, too—in the en banc
decision of the Fifth Circuit.
- «x «x x «
COUNSEL: Well, let me proffer in the presence of the witness
and ask if this is correct before the jury physically comes in the
door. I believe that may be sufficient, Your Honor.
I believe the witness has told me that the current U.S.
Government estimated rate of inflation is six and a half toseven
percent for the coming year, that his company’s estimated rate
of inflation is seven and a half percent; that the lowest rate he,
himself, has ever heard of in the past is between three and a
half or four percent . . . and that in his opinion, based upon
reading and other knowledge in the field, he believes the best
that — can hope for in the future is a five percent rate of
inflation. . . . We would proffer all that in evidence as indicat-
ing the minimum amount of rate of inflation that the plaintiffs
should be entitled to, regardless, and we would take three and
a half percent if that were proper.
22a
THE Court: Well, the proffer is in the record. It’s not in
evidence.
Reading the trial transcript, we are convinced that counsel
for Byrd was attempting to create a record to challenge or at
least find an exception to Penrod. Byrd’s later objection to the
instruction that the jury should not employ an estimated rate
of inflation to increase damages must be viewed in the context
of Penrod’s shackles. While it is true that counsel for Byrd did
not offer a lengthy explanation for his objection to the instruc-
tion, we find that the matter was sufficiently presented to the
judge at trial and that all parties understood the dilemma—
Byrd wanted the jury to consider inflation, and Penrod stood in
the way. See Culver, supra. In short, we find that Byrd’s
objection to the jury charge is properly before this Court under
F.R.Civ.P. 51.
REVERSED AND REMANDED
TJOFLAT, Circuit Judge, concurring:
Although I agree with the majority that the time has now
arrived for reconsideration of Johnson v. Penrod Drilling
Company, 510 F.2d 234 (5th Cir. 1975), I write separately to
make clear that the majority opinion should be read as doing
nothing more than overruling Penroa’s flat proscription of
competent, otherwise admissible evidence on inflation. Hence-
forth, the Federal Rules of Evidence alone will govern the
admissibility of such evidence, and render appropriate a jury
instruction on inflation commensurate with the evidence pre-
sented.
Appellees are justified in pointing out that neither the Pre-
trial Stipulation, Record, vol. 1, at 13, nor the Pre-trial Order,
Record, vol. 1, at 14, gives any indication that the plaintiffs
sought to raise the inflation issue at trial. Indeed, plaintiffs
rested their case without an offer of proof on inflation, which
clearly would have been the most appropriate way to preserve
23a
the Penrod question for appeal. Although appellants did not do
all that they should have done to preserve the inflation issue,
their proffer was sufficient to satisfy the Federal Rules of
Evidence. See Fed. R. Evid. 103(a)(2). The proffer made during
the cross-examination of the defendant’s investment expert,
Gerald Powers, was probably sufficient to establish a ground-
work for appeal, although it should not be considered as a guide
for the district courts.
On cross-examination, plaintiffs’ counsel asked Powers:
“Are you familiar with the general rates of inflation as pre-
dicted by the Federal Government?” Record, vol. 7, at 172.
The court sustained the defendant’s general objection. After
an extended colloquy on whether the defendant had “opened
the door” to inflation questions on cross-examination by put-
ting the issue before the jury on direct, the court ruled that he
had not, and then sustained the objection to further inflation
inquiry on Penrod grounds. It should be emphasized that at no
time did the defendant make a specific objection to the line of
questining, or the subsequent proffer, as improper because
they were beyond the scope of the direct examination. Contra-
ry to the claim in the Supplemental Brief of Defendant on
Rehearing En Banc at 7, the record shows that counsel’s
argumentation went exclusively to whether defendant had
opened the door to questioning otherwise clearly barred by the
Penrod rule of exclusion. Similarly, the record demonstrates
that the court excluded such evidence solely on Penrod
grounds, without any consideration of the potential objection
that plaintiffs had rested their case and could not now delve
into these matters. Record, vol. 7, at 172, 179, 181.
At that point, plaintiffs’ counsel made a speaking proffer, in
the presence of the witness, as to the rationale for including
inflation in a damages award and various estimated rates of
inflation. See Record, vol. 7, at 179-80, 182-83; Majority Opin-
ion at 326. Defendant did not object contemporaneously to the
adequacy of the proffer and did not challenge the qualifications
of the expert to give this testimony. Nor did he seek re-direct
examination on this offer of proof or offer any rebuttal of the
24a
witness’ “testimony” or its probative value. Thus, all these
potential objections to plaintiffs’ offer of proof must be con-
sidered to have been waived. See Fed.R.Evid. 103(a)(2). We
agree, therefore, with the majority that counsel for plaintiffs
did succeed in creating a record to “challenge or at least find an
exception to Penrod,” Majority Opinion at 326, although their
effort to do so was tardy.
Il.
I emphasize the limited nature of the court’s holding today:
evidence concerning the impact of inflation on recoveries of lost
future wages will be admitted insofar as it conforms to the
Federal Rules of Evidence, and a jury instruction on inflation
will be appropriate if a predicate of competent, relevant and
otherwise admissible evidence has been established. As the
Ninth Circuit Court of Appeals has written, “[{W]e allow the
trier of fact in awarding damages to take into account only such
estimates of future changes in the purchasing power of money
as are based on sound and substantiated economic evidence,
and as can be postulated with some reliability.” United States
v. English, 521 F.2d 63, 75-76 (1975).
Specifically, the trial court should ensure that the expert
testimony concerning inflation meets the requirement of Fed-
.R. Evid. 702: :
If scientific, technical or other specialized knowledge will
assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert
by en skill, experience, training, or education,
may testify thereto in the form of an opinion or otherwise.
Once rule 702 has been satis ‘ied, the trial court should also
exercise sound discretion to ensure compliance with Fed. R. E-
vid. 403:
Although relevant, evidence may be excluded if its proha-
tive value is substantially outweighed by the danger of
25a
unfair prejudice, confusion of the issues, or misleading the
jury. ...
This rule is particularly important with a complex issue such as
inflation, where confusing expert testimony might well hinder
rather than assist the trier of fact. The application of these
evidentiary filters is critical if today’s holding is to enhance the
accuracy of damages awards in this circuit.
JAMES C. HILL, Circuit Judge, with whom T. LANIER ANDER-
son, III, Circuit Judge, joins, dissenting:
For the reasons set forth in my opinion in Culver v. Slater,
688 F.2d 280 (5th Cir. 1982) (en banc), issued this date, I
dissent from so much of the court’s decision as authorizes a
procedure other than that used in Feldman v. Allegheny Air-
lines, Inc., 382 F.Supp. 1271 (D.Conn. 1974), aff'd in relevant
part, 524 F.2d 384 (2d Cir. 1975).
For the reasons set forth in their dissenting opinions in
79-3985, Culver v. Slater, Judges CHARLES CLARK, joined by
RoONEY, GEE and FRANK M. JOHNSON, Jr., also dissent.
APPENDIX E
United States Court of Appeals
Fifth Circuit
Sept. 22, 1982
No. 78-3985
Ruth CuLven, et al.,
Plaintiffs-Appellants, Cross-Appellees,
v.
SLATER Boat Co., et al.,
Defendants-Appellees, Cross Appellants.
EUROPIRATES INTERNATIONAL, INC., et al.,
Defendants-Appellees and Cross-Appellees-Appellants,
v.
ODECO DRILLING, et al.,
Defendants-Appellees Cross Appellants.
Wife and children of foreman of anchor-pulling crew brought
maritime personal injury case arising out of foreman’s death.
The United States District Court for the Eastern District of
Louisiana, Charles Schwartz, Jr., J., entered judgment from
which appeals and cross appeals were taken. The Court of
Appeals affirmed as modified, 644 F.2d 460. On rehearing en
banc, the Court of Appeals, Brown, Circuit Judge, overruling
a previous case, held that: (1) prohibition of any consideration
of inflationary factors in ascertaining damages award for loss of
future wages is unfair to plaintiffs and would be overruled, and
(2) in ascertainment of damages for loss of future wages, plain-
tiffs should be permitted to establish by factual economic and
labor data, and expert testimony, that their income would
probably continue to increase in response to inflation in future
26a
years if they continue to work, and likewise, using economic
and labor data and expert testimony, defendant should be
permitted to rebut such evidence.
Reversed and remanded.
James C. Hill, Circuit Judge, filed opinion concurring in part
and dissenting in part, in which R. Lanier Anderson, III,
Circuit Judge, joined.
Charles Clark, Circuit Judge, dissented and filed opinion in
which Roney and Gee, Circuit Judges, joined.
Gee, Tjoflat and Frank M. Johnson, Jr., Circuit Judges,
dissented and filed opinions.
W. James Kronzer, W. W. Watkins, Houston, Tex.,
Frederick J. Gisevius, Jane M. Gisevius, New Orleans, La.,
for Ruth Culver et al.
Leonard Fuhrer, Alexandria, La., for amicus curiae Louis
Ober.
Patrick A. Juneau, Jr., Lafayette, La., for amicus curiae
Penrod Drilling.
Richmond M. Eustis, New Orleans, La., for Slater Enter-
prises, Europirates, Ete.
Drury, Lozes & Curry, Felicien P. Lozes, New Orleans,
La., for Gulf Overseas Ser. Corp.
J. Walter Ward, New Orleans, La., for Ocean Drilling.
Mat M. Gray, III, New Oeleans, La., for St. Paul Fire.
Appeals from the United States District Court for the East-
ern District of Louisiana.
ON REHEARING EN BANC
Before GoDBOLD, Chief Judge, BRowN, CHARLES CLARK,
RonEY, GEE, TJOFLAT, HILL, Fay, RuBin, VANCE, KRAVITCH,
FRANK M. JOHNSON, Jr., HENDERSON, REAVLEY, POLITz,
27a
HATCHETT, ANDERSON, RANDALL, TATE, SAM D. JOHNSON,
Tuomas A. CLARK and WILLIAMS, Circuit Judges.
JOHN R. Brown, Circuit Judge:
This case comes before us on rehearing en banc to consider
whether the holding of this Court in Johnson v. Penrod Drill-
ing Co., 510 F.2d 234 (5th Cir. 1975) (en banc), that neither
proof, nor argument, nor jury instructions concerning in-
flationary factors may be considered or used in maritime,
Jones Act, and FELA personal injury and wrongful death
actions, should be overruled. After careful consideration of
this singular issue, we overrule Penrod and remand this case to
the District Court.
Si
Bound by Penrod
The facts leading up to this appeal have already been out-
lined by this Court in the panel’s ovinion, 644 F.2d 460, 462-63
(5th Cir. 1981). Briefly, Curtis Culver was killed while working
on a vessel owned by Slater Boat Company. The vessel upon
which the accident took place was engaged in moving the
drilling barge OCEAN QUEEN from its location on the Outer
Continental Shelf to a new location. The fatal injury occurred
before the barge was actually moved. Culver’s widow and
children brought suit under the Jones Act, 46 U.S.C. § 688, the
Death on the High Seas Act (DOHSA), 46 U.S.C. § 761 et seq.,
and the general maritime tort and negligence theory. The jury
found negligence on the part of Gulf Overseas Marine Corpora-
tion (Culver’s employer), Euro-Pirates International (the
charterer of the vessel), and Ocean Drilling & Exploration
Company (the owner of a barge involved in the fatality), and no
contributory negligence on the part of Culver.
On the issue of damages, the District Court allowed testi-
mony concerning discount rates and the earning power of
money invested in low risk bonds. The jury was instructed to
“discount the total amount” of any award by a percentage that
represented an appropriate rate of interest. In answer to the
28a
spcial interrogatory submitted asking what discount percen-
tage rave was applicabie, the jury filled in “25%”. The trial
judge, on the basis that the jury obviously misunderstood the
interrogatory, substituted 9.125%, the only other rate put into
evidewnce by the defendant. In accordance with Penrod, the
District Court did not allow testimony, charges, or in-
terrogatories to be submitted on the effects of inflation on
probable loss of future income.
In short, Culver was not permitted to show any likely in-
crease in future earnings due to inflation. But the award was to
be discounted by an interest factor reflecting anticipated infla-
tion.
Culver initially appealed the judgment, raising five issues:
(i) should Penrod be overruled?; (ii) if Penrod is not overruled,
should evidence of probable non-inflationary future wage in-
creases (e.g., merit raises) be prohibited?; (iii) can a District
Court disregard a jury finding regarding the discount rate and
apply one based on opinion testimony?; (iv) was the testimony
of culver’s adverse witness sufficiently clear that the court
could apply that witness’ opinion of the discount rate?; and (v)
ean a District Court enter a final judgment for damages appli-
cable to all beneficiaries in a maritime death action that is
incapable of apportionment among the various beneficiaries?
Cross-appeals were brought by all of the defendants raising
several additional issues.
Oral argument was heard by a panel of this Court, and the
District Court judgment was affirmed as slightly modified.
Specifically, the panel considered itself bound by Penrod’s
holding that “the influence on future damages of possible infla-
tion or deflation is too speculative a matter for juridcal
determination,” 644 F.2d at 643, quoting Penrod, 510 F.2d at
241. And in accordance with Byrd v. Reederei, 638 F.2d 1300
(5th Cir. 1981) (rehearing en banc granted), the panel rejected
Culver’s argument that the Supreme Court overruled Penrod
in Norfolk & Western Railway v. Liepelt, 444 U.S. 490, 100
S.Ct. 755, 62 L. Ed.2d 689 (1980). Likewise, the panel found no
29a
error in the trial judge’s refusal to allow Culver to argue likely
future wage increases on the basis of merit, because no evi-
dence was offered to show that such an argument was war-
ranted and in addition, such evidence was “merely an indirect
way of putting inflation factors into evidence before the jury
{which is] not allowed under Penrod.” 644 F.2d at 464.
Culver filed a petition for panel rehearsing, and a separate
petition for rehearing en banc, as required by ur rules, raising
two closely related issues: (i) should Penrod be overruled and
(ii) does Penrod prohibit a trier of fact in this Circuit to receive
evidence of non-inflationary factors, such as probable merit
raises and productivity increases, in arriving at future losses?
This Court, voting for rehearing en banc, determined that the
time was ripe for reconsideration of the rule in Penrod pertain-
ing to the “inflation factor” in damages awards. Although
Culver’s brief to this court on rehearing en banc addressed
primarily issue (i), whether proof and argument concerning
inflationary factors should be permitted in this Circuit, issue
(ii) is also involved since automatic exclusion of evidence of
probable merit raises has resulted from a misreading of Pen-
rod. The defendants argue that Penrod should be upheld, and,
in addition, contend that Culver waived the right to relief on
the inflation issue by failing to make an offer of proof regarding
the likelihood of inflation.
A.
{1} Briefly, we will address the defendants’ claim that Cul-
ver waived the right to raise the issue of inflation by his failure
to make a formal proffer at trial. The defendants called as a
witness an investment banker who specialized in bonds. On
cross-examination, Culver’s attorney attempted to ask
whether people earned more money over the years of their
employment due only to productivity. An objection to the
question was sustained. After several more questions, all
counsel approached the bench where the jdge made it clear
that the type of evidence excluded by Penrod woul not be
permitted in court. The jury was then temporarily excused,
30a
and Culver’s attorney told the judge that he wanted to ask the
expert whether the principal of a bond would be worth less in
the future. The trial judge replied that deflation was as likely
as inflation, and any testimony as to such factors would be pure
speculation. The judge concluded that “I will not permit you to
intorduce any evidence before the jury relative to inflation in
view of the present law that I am bound by which is the Penrod
case.” Before closing argument, and before the jury returned,
the judge explained that:
Plaintiff's counsel will not be permitted to argue that the
jury should take into consideration inflation, nor will it be
permitted to make an indirect argument which would
achieve the same purpose of permitting him to argue
inflation by attempting to indicate that it could be ex-
pected that plaintiff would receive job promotions or merit
increases.
Again, the judge mentioned the prohibitions of Penrod. Given
this flat prohibition against introducing testimony (or making
argument) as to future inflationary trends on the basis of
Penrod, it makes no sense to argue that Culver may not raise
this issue on appeal simply because he did not proffer an expert
on inflation. Reading the trial transcript, it is obvious that a
record was being created to challenge or at least find an excep-
tion to Penrod. We find that the matter was sufficiently pre-
sented to the judge at trial and that all parties understood the
dilemma—Culver wanted the jury to consider inflation, and
Penrod stood in the way.
B.
The most problematic issue on this appeal remains: Should
Penrod be opverruled so as to allow parties to present proof
and argument concerning inflationary factors to the trier of
fact? Our analysis will begin with a brief review of the Penrod
decision. In order to illustrate graphically the implications of
Penrod and why it has to be overruled, we will discuss many of
the cases in this Circuit where Penrod’s prohibitions were
effective. Next, we will summarize the criticisms of Penrod
which come from other circuits as well as commentators. As
3la
our analysis proceeds, it will become clear that the problem is
one of fairness to plaintiffs as well as defendants in the trial
process. Personal injury awards, once they have been calcu-
lated on the basis of projected income and life expectancy, are
padi immediately to the plaintiff. It is well-known that if a
plaintiff (or his beneficiaries) receives a lump-sum award,
totaling the income that the plaintiff would have received
throughout the rest of his work life, that money can be invested
so as to yield a far greater amount than the initial award. This
would be unfairly liberal to the plaintiff. Consequently, the law
traditionally permits introduction of testimony, usually by an
expert in financial matters, that the lump-sum should be dis-
counted by a factor equal to the interest rate which could likely
be earned on a relatively safe investment by an unsophisti-
cated investor. The total projected earnings are thus reduced
to the present cash value. However, it will be demonstrated
that in an inflationary economy, discounting an award in this
manner results in unfairness to a plaintiff or his beneficiaries.
When a discount rate is applied to an award in an economy
where wage-earners typically receive cost of living increases
each year due to inflation, the plaintiff will not be adequately
compensated for his loss of future income—inflation will erode
the value of the award, and no adjustment for cost of living can
be made even though wages continue to increase throughout
the economy. On the other hand, if courts respond to this
dilemma by refusing to apply a discount rate, as some have, the
result would be unfairness to defendants. Quite simply, plain-
tiffs are to be compensated, by a culpable tortfeasor, but
should not be over- or under-compensated. Likewise, defend-
ants found liable should pay no more or less than the amount a
plaintiff lost because of the injury. Keeping in mind the goal of
fairness to both sides of a controversy, this opinion will con-
sider alternatives and possible guidelines for use in this Cir-
cuit. We will establish a flexible approach to the problem which
should result in fairness regardless of the economic circum-
stances that exist at the time of trial. In the process, we
overrule Penrod.
32a
Il.
Prolegomena
It is crucial to keep in mind that this is really an economic,
and not a legal, problem. The likelihood of future wage in-
creases, whether given om the basis of productivity, merit
advancement, or inflation, or a combination of them, does not
have anything to do with the law. The legal question whether
such matters should be considered by the courts is a found-
ational policy question, the answer to which will be influenced
by recourse to the financial and economic community. At trial,
the issue may well be a legal credibility of witnesses or com-
petency of evidence, but a pronouncement that inflation is
speculative or that workers will or will not receive productivity
and merit raises is essentially an economic statement, not a
declaration of law.
If we consider, as an example, a person totally and
permanently injured by a defendant’s negligence, the injured
worker is entitled to the equivalent of his lost future earnings.
The law decides that much, and the question remains how
much money should be given to him now. Once a lump-sum
determintion is made, it is clearly unfair to give him the whole
amount, because even an unsophisticated investor could earn a
great deal in interest. However, in predicting how much
money this worker will likely receive throughout the remain-
der of his work-life, we must consider the likely increase in
wages he would have received. These will include possible
advancements from one position to another, any raises due to
company productivity, or other merit increases. In addition, in
an inflationary economy, we must consider projected cost of
living increases which are given by an employer to offset in
part the effects of inflation. Each of these factors must be
carefully distinguished, since they arise from wholly different
causes. Although these factors may not all be present in a
particular case, each must be considered in computing the total
amount of likely earnings before a discount rate is applied to
reduce that amount ot its present cash value because of invest-
33a
ment potential. The goal, albeit ideal, is that if the injured
worker has a 20-year work-life expectancy, and he invests his
lump-sum award in relatively risk-free investments, he will
receive in the nineteenth and in the twentieth year roughly the
same amount as if he had worked each of those years. The goal
is not, it must be made clear at the outset, to protect the
lump-sum award from the effect of inflation. Rather, before
determining how much now needs to be paid, the goal is to
assure the plaintiff the equivalent of the total of all of his future
wages, including those likely to be given/received in the form
of cost of living increases in response to inflation.
III.
The Prohibitions of Penrod
In Johnson v. Penrod Drilling Co., 510 F.2d 234 (5th Cir.
1975) (en banc), we recognized “the likelihood that inflatin
could become a predictable condition for the future,” but we
were not able to “so surely discern the shadow of inflation as a
coming event as to warrant requiring its inclusion in a present
rule for calculating future damages.” 510 F.2d at 236. Quoting
the full initial panel opinion in Penrod, we expressly dis-
approved “the district court’s attempt to take into account, in
computing the plaintiffs’ future lost earnings, inflationary
trends in this nation’s economy for the next several decades.”
510 F.2d at 241. The “influence on future damages of possible
inflation or deflatiion is too speculative a matter for judicial
determination.” Jd. Therefore, triers of fact “should not be
instructed to take into account future infaationary or
deflationary trends in computing future lost earnings, nor
should the jury be advised to consider such alternative descrip-
tions of inflationary and deflationary trends as the purchasing
power of the dollar or the consumer price index.” /d.
The defendants and others have suggested that Penrod
could be “modified”, “explained”, or watered down by this
Court, but not overruled, so that adjustments could be made in
individual cases where the influence of inflation was not
34a
speculative. However, if fairness requires that we allow some
evidence of inflation properly to compensate plaintiffs and
avoid windfalls to defendants, any hope of “distinguishing” or
“explaining away” Penrod crumbles in the face of Penrod’s
own words—-inflation and deflation are too speculative for
judicial determination, triers of fact should not take into ac-
count future inflationary or deflationary trends, juries should
not consider changes in the purchasing power of dollars or the
consumer price index, and judges should not undertake to
instruct juries on such ideas. The prohibition on such evidence
could not be clearer.
To argue, as the defendants do, that Penrod forecloses only
consideration of futwre economic trends, while it allows evi-
dence of past inflation, is to miss the point. The significant basis
for predicting future inflation or deflation is past inflation or
deflation. And the effect of past inflation alone, under a rule
forbidding consideration of likely future inflation, leaves eco-
nomically eclipsed a significant portion of the amount of money
the wage-earner may receive in the future.
Even if it were possiblet isolate Penrod and analyze its
terms in an academic vacuum, to reach the conclusion that
evidence of inflation is permissible in the Fifth Circuit so long
as the jury is not permitted to “speculate” as to the “influence”
on future damages of “possible” inflation or deflation, the re-
sult of this exercise would be unworkable as a practical matter.
For in practice, Penrod has placed a prison-like wall between
any evidence of likely inflationary or deflationary trends (and
argument or instruction thereon) and the courtrooms of the
Fifth Circuit. Our decisions since 1975 on this issue have mere-
ly served to place barbed wire on top of the wall. Moreover, it is
likely that in other cases, as in this one, evidence of probable
increases in wages due to merit or productivity has been kept
out of the jury room unwittingly because of Penrod’s prohibi-
tions. Economic data is readily available concerning past aver-
age annual wage increases of workers in the United States, and
such data is often broken down into particular professions and
geographic areas. But it is difficult to determine the percen-
35a
tage of those increases given for merit-productivity and distin-
guish the percentage representing cost of living increases in
response to inflation. Many plaintiffs have thus been unable to
scale Penrod’s wall and introduce evidence of non-inflationary
wage increases, even though such increases are theoretically
unaffected by inflation, and thus evidence of such increases
should not have been prohitibed.
IV.
Penrod in Practice
In our determination of whether Penrod ought to be over-
ruled, it is important not only to consider what Penrod says,
but also what this Court through the years since 1975 has saidit
says. We will look first to the recent cases arising in this Circuit
applying Penrod. In Davis v. Hill Engineering, Inc., 549 F.2d
314 (5th Cir. 1977), this Court reduced the District Court’s
award of $628,991 to $425,321 for the total loss of the plaintiffs
future earning capacity, because the District Court increased
the basic damage award, prior to discounting to present value,
to offset wage and price inflation. The plaintiff's expert was
unimpeached, and the defendants had no opposing expert. The
trial judge was thus free to rely on the expert’s testimony, and
was apparently convinced of the need to allow over $200,000 to
offset expected wage increases due to inflation. 549 F.2d at
331. Nevertheless, we held that until Penrod is overruled,
an inflation element cannot be included in damage
computations, either in the form of [i] calculating loss of
future earnings without discounting to present value or of
[ii] a basic damage award, prior to discount-
ing, with a figure representin the p joy inflation
rate. The former [i] is the Beaulieu [v. Elliott, 434 P.2d
665, 671 (Alaska 1967)] method, the latter [ii] the District
Court’s method in this case.
549 F.2d at 332 (brackets added). Judge Wisdom Acknowl-
edged that other circuits consider inflation as a factor in
computing future earnings damages, an approach that “more
accurately [reflects] loss of future earnings than does a dis-
36a
counted figure because it prevents inflation from eroding the
damage award.” 549 F.2d at 332. Alas, he conceded, his hands
were tied by Penrod. Id.
In Jn the Matter of S/S HELENA, 529 F.2d 744, 753 (5th Cir.
1976), this Court remanded for recalculation the District
Court’s damages award because an inflationary rate was as-
sumed and applied. In determining the damages for loss of
support payable to the wives of deceased crew members of a
vessel, the trial judge stated:
I have to some degree offset discount to present value by
the effects of inflation and a likely rise in decedent’s earn-
ings resulting from increases in the general wage level. I
have assumed a discount rate of 5%, and a three per cent
inflationary level thus making the net discount rate 2%.
529 F.2d at 753, quoting 329 F. Supp. 652 at 660. Other calcula-
tions of the damages for loss of support also “seemed to be
based on the inflation and present value factors, the expert
testimony of an economist as to expected future earnings, and
the present cost of annuities that would pay monthly amounts
increasing at the estimated rate of inflation.” 529 F.2d at 753.
Quoting Penrod, we remanded to District Court for a more
detailed calculation of the damages. On remand, the District
Court filed supplemental responses heeding our instructions,
and Penrod was again faithfully followed. Matter of S/S
HELENA, sub nom. Sincere Navigation Corp. v. United
States, 547 F.2d 255, 256 (5th Cir. 1977). The element of
inflation was eliminated and the damages recomputed. /d.
In Higginbotham v. Mobil Oil Corporation, 545 F.2d 422,
433-35 (5th Cir. 1977), rev’d and remanded on other grounds,
436 U.S. 618, 98 S.Ct. 2010, 56 L.Ed.2d 581 (1978), this Court
reviewed the District Court’s use of a 5% annual straight line
estimated salary increase to calculate the probable future
earnings of the deceased. Although the trial judge stated that
he did not take into consideration “the decreasing purchasing
power of the dollar,” we held that under Penrod “the plaintiff
must bear the difficult burden of proving what portion of the
increases would have beeen given other than as an automobile
37a
hedge against inflation.” 545 F.2d 434-35. The defendants,
wielding the mighty sword of Penrod, made the factually un-
supported argument that “it is common experience that annual
‘raises’ are for the most part cost of living wages,” therefore a
5% straight line annual increase amounted to a hidden
inflation-based award. 545 F.2d at 434. While common experi-
ence likewise tells us that some portion of pay raises reflect
performance and experience, the plaintiffs expert failed to
distinguish between cost of living or inflationary increases and
rewards for experience or productivity. 545 F.2d at 435. Thus
we rejected the District Court’s award based on the 5% future
earnings factor, and remanded to give the plaintiff an oppor-
tunity to walk the straight and narrow of Penrod. Judge, now
Chief Judge, Godbold, in his partial dissent, observed that in
“innumerable other contexts we accept the events of the past
as the basis for an inference as to what the future will hold.” 545
F.2d at 437 (Godbold, J.). “Yet we would not permit considera-
tion of evidence that a particular plaintiff had received a $200
per year increase in pay every year for 20 years, unless he
could divide it up into ‘productivity’ pay and ‘economic change
pay.’” Id. (Godbold, J.).
In this single area of projecting future earnings we deny
ourselves the best evidence available on the asserted
ground that it is not sufficiently reliable, and, in the name
or reliability we mandate the artificial conclusion that one
will earn the rest of his life what he is earning on the day he
is killed or injured. The only thing certain about this is that
it is certain to be wrong.
Id. (Godbold, J.).
In Menard v. Penrod Drilling Company, 538 F.2d 1084,
1089 (5th Cir. 1976), the plaintiff's economic expert estimated
that, apart from the possibility that plaintiff might advance
through the ranks of his employer, a worker “would have to get
at least 2% per year, on the average, increase to maintain the
same buying that he has to-day.” A discount rate of 442% was
selected by the expert. Jd. Because no objection was made, the
jury was actually permitted to consider future inflation as a
factor in calculating damages. One member of this Court’s
38a
panel observed that although this was not plain error under
Penrod had an objection been made. /d. (Gee, J., concurring).
Continuing our historical journey into the past, this Court in
Lacaze v. Olendorff, 526 F.2d 1213, 1222 (5th Cir. 1976), reh’g
en banc granted, 526 F.2d at 1223, found error in the trial
court’s overruling an objection to expert testimony on future
lost earnings because the expert included a 3% inflation rate in
his calculations. On the basis of Penrod the case was reversed
and remanded on the issue of damages. 526 F.2d at 1223.
In Weakley v. Fischblach & Moore, Inc., 515 F.2d 1260 (5th
Cir. 1975), a diversity suit aris'ng out of an electrical explosion
in Texas, we affirmed the judgment of the District Court even
though the jury considered both future productivity and future
inflation in assessing a $300,000 award for lost earning capac-
ity. For this Court, Judge Wisdom observed that although this
“Court has writ large its disapproval of calculating future
damages by reference to predictions of future inflation,” Texas
law applied, and juries in Texas are permitted to weight evi-
dence for future damages, 515 F.2d at 1266-67, citing Penrod.
In a similar federal cause of action we may be certain that this
Court would have reversed a judgment based on such a
“speculative” jury finding.
Again, specificaly on the basis of Penrod, we concluded in
Petition of M/V ELAINE JONES, 513 F.2d 911, 912 (5th Cir.
1975) cert. denied, 423 U.S. 840, 96 S.Ct. 71, 46 L.Ed.2d 60
(1975), that the District Court erred by including a 2% per year
cost of living increase in the computation of loss of future
earnings. We announced that “the trier of fact should not be
instructed to take into account future inflationary or
deflationary trends in computing future lost earnings.”
In Standefere v. United States, 511 F.2d 101 (5th Cir. 1975),
the District Court, sitting without a jury, awarded damages to
a plaintiff for loss of future earnings and included an inflationa-
ry factor of 5.5%; in addition, the award of future medical
expenses included an inflationary factor of 4.5%. Because Pen-
rod foreclosed any consideration of inflation in computing such
39a
damages, the District Court’s decision was reversed and re-
manded for a recomputation of damages.
Robertson v. Douglas Steamship Company, 510 F.2d 829
(5th Cir. 1975), stands as yet another example of how we
applied the Penrod strait-jacket. In accordance with the trial
court’s instructions, the jury divided the plaintiff's award into
(i) the amount of basic damages and (ii) the amount of damages
sustained “as a result of loss of future wage increases or infla-
tion or decrease in the purchasing power of money.” 510 F.2d
at 836-37. Of course, the second part of the award wa
sreversed, even though it is possible that a portion of that
element was awarded due to likely merit or productivity in-
creases not based upon inflation or cost of living adjustments.
Thus we see that although Penrod was not intended to elimi-
nate evidence of future wage increases on the basis of merit or
productivity, the practical effect of Penrod is often to throw
the baby of future merit increases out with the inflationary
washtub waters.
Finally, on the very day that Penrod was published, this
Court, in Law v. Sea Drilling Corporation, 510 F.2d 242,
251-52 (5th Cir. 1975) on reh’ing, 523 F.2d 793 (5th Cir. 1975),
held that the District Court’s allowance for additional in-
flationary cost of living increases in the decedent’s income over
the years before his death, upon which the trial judge based his
reasonable expectation that the decedent’s income would have
continued to rise, probably reflected increases due to both
merit and productivity and not just cost of living increases.
Nevertheless, because an element of inflation was considered,
Penrod was dispositive.
In all of the above discussed cases, this Court by both its
actions and its words, flatly prohibited any consideration of
inflation, whether in evidence presented, in jury instructions
or in final argument, without regard to the cogency or
persuasiveness of the evidence offered to prove that inflation,
to some extent, will likely occur. Swept unthinkingly before
Penrod also were merit-productivity increases. Thus stands
the law in this Circuit, until today.
40a
In our attempt to assess the impact of Penrod in this Circuit,
not only is it necessary to consider our own appellate opinions,
as we have done above, but it is also helpful to review some of
the District Court opinions where the tentacles of Penrod were
perceived and predictably effective. Jn Complaint of Metcalf,
530 F.Supp. 446 (S.D. Tex. 1981), the District Court stated
emphatically that in its award for loss of earnings in the future,
any “future inflationary or deflationary effect on earnings is
not to be considered.” 530 F.Supp. at 458, citing Penrod.
Likewise, in Kratzer v. Capital Marine Supply, Inc., 490
F.Supp. 222 (M.D. La. 1980), affd 645 F.2d 477 (1981), the
plaintiff produced an economist who testified as to lost wages
predicated upon an inflation factor and an increased productiv-
ity factor. The District Court simply cited Penrod and stated
that there “was no evidentiary justification for these factors,
and the Court declines to accept them, and as noted, utilized a
discount figure of 6 percent with no other factors in computing
lost wages.” Again, we see how Penrod often operates to
prohobit not only evidence of likely of inflation, but also evi-
dence of likely merit or productivity wage increases. In
McLean v. United States, 446 F.Supp. 9 (E.D. La. 1977), the
plaintiff carefully met his burden of proof by establishing a
“productivity” factor of 5.7% on the basis of past merit and
change in job title increases over his pervious years of employ-
ment. Because that factor was in no way compensation for
inflation, evidence thereof was admissible under Penrod. 446
F.Supp. at 13, 14. In Thompson v. Offshore Co., 440 F.Supp.
752 (S.D. Tex. 1977), the District Court announced that in
calculating a decedent’s future earnings, any future inflationa-
ry effect on wages is not to be considered. 440 F.Supp. at 762.
Finally, in Hamilton v. Canal Barge Co., 395 F.Supp. 978
(E.D. La. 1975), allowance for inflation or increased cost of
living was denied in light of Penrod, and for the additional
reason that the diminution in the purchasing power of an
award, caused by inflation, is not an item of damage caused by
death or by prepayment of future wages. 395 F.Supp. at 987.
However, the District Court did allow a 4% annual increase
factor on the basis of skill and productivity. Jd.
4la
Nesmith v. Texaco, Inc., 491 F.Supp. 561 (W.D. La. 1980),
stands out as an anomaly to the law of Penrod. In startling
contrast to the usual acceptance of Penrod’s rejection of evi-
dence of inflation, the District Court interpreted Norfolk &
Western Railway v. Liepelt, 444 U.S. 490, 100 S.Ct., 755, 62
L.Ed.2d 689 (1980), to say that “in arriving at an award for
future loss of earnings the very factors disapproved in [Pen-
rod] should now be considered.” 491 F.Supp. at 564. While the
court was “mindful of the fact that this interpretation of Liepelt
may be erroneous, and [Penrod] may still bar the door to
speculative damages as to factors other than income taxes in a
case of future loss from personal injuries,” the plaintiff was
permitted to present expert testimony that the growth rate for
wages based upon inflationary factors in the plaintiffs job and
geographic area will be approximately 6% over the next 30
years. 491 F.Supp. 564, 565 n.4. This attempt to break the
bonds of Penrod resulted in an appeal, disposition of which is
being held pending the outcome of the present opinion and
Byrd, see note 1.
The cases discussed in this section demonstrate the absolute
prohibition on any consideration of inflationary or cost of living
trends in the courts of this Circuit. District Court judges have
found themselves under a duty, imposed by Penrod, to prevent
experts in their testimony, and attorneys in their arguments,
from even mentioning economic trends that would effect future
wage increases. Likewise, in their instructions to the jury,
District judges have been careful not to mention inflation as a
factor in computing damages, or, where inflation was men-
tioned, the purpose was to explain to the jury that they should
not consider inflation in their computations. In those cases
where the jury was permitted to consider the effect of future °
inflation on damage awards, either because they heard testi-
mony by an expert or because they heard testimony by an
expert or because the trial judge instructed them to consider
inflation, wer have reversed the judgment and, in most cases,
remanded for a new trial. In non-jury cases, the District Court
judges have not been permitted to consider inflation in their
42a
assessment of damages. Even where plaintiffs have clearly
limited their evidence (as to inflation) to likely cost of living
increases, thereby carefully avoiding any inference that the
total award should be somehow “protected” from inflation
irrespective of wage increases, the evidence has been rejected.
In short, Penrod in practice has been a firm, inflexible stand-
ard that we have been unable to explain or interpret away. The
standard is simple: no evidence of inflation may be presented to
the trier of fact, regardless of how expert the testimony, how
understandable the presentation, or how fair to the parties.
Argument of counsel is also forbidden, as is jury instruction by
the Court. This standard has at times been so overwhelming
that it has prohibited evidence that should have been allowed,
such as evidence of likely wage increases based upon merit or
productivity, either on a misreading of Penrod or a perceived
(and sometimes actual) impossibility of separating out in-
flationary elements from admissible merit-productivity in-
creases. Quite possibly, an employer may take into account
rising inflation in his decision to grant promotions, and it would
be impossible for anyone, expert or otherwise, to distinguish
that part due to merit only and determine the percentage
amount of the raise due wholly to non-inflationary factors.
We
Penrod and Other Circuits
Worthy of our consideration is how our sister circuits per-
ceive Penrod. In 1975 the Eighth Circuit, citing Penrod, was
able to say that the
federal circuits that have faced the issue in cases involving
federally created claims, governed by federal rather than
state law, have for the most part rejected testimony, jury
instructions or trial court consideration of future in-
flationary trends in damage assessment.
Johnson v. Serra, 521 F.2d 1289, 1295-96 (8th Cir. 1975), aff'd
on remand, 586 F.2d 1291 (8th Cir. 1978). More recently,
however, in the trend toward increasing consideration of infla-
tion, Taenzler +. Burlington Northern, 608 F.2d 796, 800 n.9
43a
(8th Cir. 1979), cited Penrod but declined to follow its ap-
proach. Expert testimony on future wage increases, when
limited to future trends in earnings of a parcitular group of
employees, thus avoiding the excessively general national in-
flation rate, was found to be acceptable in trial courts. 608 F.2d
at 801.
Feldman v. Allegheny Airlines, Inc., 524 F.2d 384 (2d Cir.
1975), a case arising under Connecticut law, cited with approv-
al Judge Friendly’s earlier assessment of inflation:
There are few who do not regard some degree of continu-
ing inflation as here to stay and would be willing to trans-
late their own earning power into a fixed annuity, and it is
scarcely to be expected that the average personal injury
plaintiff will have the acumen to find investments that are
proof against both inflation and depression—a task for-
midable for the most expert investor.
524 F.2d at 388, citing McWeeney v. New York, New Haven
and Hartford Railroad, 282 F.2d 34, 38 (2d Cir. 1960) (Friend-
ly, J.). The computation by trial Judge Blumenfeld of the
discount rate by offsetting the anticipated rate of earnings on a
prudent unsophisticated investment by an inflation factor was
approved. This computation, subtracting the assumed infla-
tion rate from the rate of interest on a safe investment (the
traditional discount rate), yields an “inflation-adjusted dis-
‘count rate.” Judge Friendly, a member of the panel in Feld-
man, was not completely satisfied with this result—Penrod’s
emphasis on “the plethora of uncertainties” that accompany
testimony regarding inflationary trends was contrasted with
the trial court’s apparent construction of “an iron-clad guaran-
ty against the unkonwn and unknowable futur effects of infla-
tion.” 524 F.2d at 392 (Friendly, J.) concurring). Such protec-
tion against inflation is not enjoyed by the millions of Amer-
icans on fixed pension or investment income, or even by the
average worker whose wages do not keep up with inflation.
This highlights a weakness in the Feldman approach: it as-
sumes that wage increases will mirror inflation. /d. Judge
Friendly thus predicted that Feldman “will not constitute a
44a
precedent on the inflation problem in a case arising under
federal law.” 524 F.2d at 393, (Friendly, J. concurring).
More recently, in a suit brought by an injured cargo checker
against a stevedore and a shipowner (neither was his employ-
er), pursuant to the LHWCA, 33 U.S.C. §§ 901 et seq., the
Second Circuit carefully considered the question whether and
to what extent an award for lost future wages should be ad-
justed because of inflation. Doca v. Marina Mercante Nicar-
aguense, S.A., 634 F.2d 30 (2d Cir. 1980), cert. denied, 451
U.S. 971, 101 S.Ct. 2049, 68 L. Ed.2d 351 (1981). Penrod as well
as similar cases in the Third and First Circuits were identified
as unsound minority views, 634 F.2d at 36. Broad agreement
was perceived among economists that inflation “is a dominant
factor on the current economic scene and, despite episodic
recessions, is likely to be so for the foreseeable future.” 634
F.2d at 37.
The District Court in Doca, 474 F Supp. 751, 758(S.D.N.Y.
1979), found that the plaintiff was entitled to recover $352,560,
“representing his future loss of earnings considering both
probability of continued inflation and a discount to present
value.” The extent to which inflation was considered was un-
specified, and no computation was provided by the District
Court. 634 F.2d at 34. On appeal, the plaintiff urged that the
trial judge used a discount factor of 1%, an inference drawn by
comparing the difference between the award given and the
plaintiff's own projection of future lost wages. 634 F.2d at 34 &
n.4. The defendants objected to the court’s computation on the
grounds of lack of evidence to support an estimate of future
inflation and argued that any adjustment for inflation is imper-
missible. 634 F.2d at 34-35.
The Second Circuit in Doca described two basic approaches
as to how inflation could be considered. First, the question of
inflation rate may be submitted to the fact finder in one of three
ways: (i) by allowing expert opinion, (ii) by requiring the fact
finder to apply its own knowledge, or (iii) by permitting the fact
finder to apply its own knowledge together wiih expert testi-
45a
mony. Each of the three contemplate that a separate
determination as to inflation is to be made in each case. Second,
a rule of law may be adopted that focuses on the somewhat
constant relationship between inflation and interest rates, as
in the Alaska Supreme Court’s view that the inflation rate
should be assumed to equal the interest rate, thereby eliminat-
ing the discount to present value. 634 F.2d at 38-39. The Doca
Court was not prepared to specify any particular methodology:
If litigants prefer to offer evidence as to future rates of
both inflation and interest, they are entitledtodoso....
We emphasize that we are not requiring the use of an
inflation-adjusted discount rate. . . . Litigants are free to
account for inflation in other ways, or, if they use the
adjusted discount rate approach, to offer evidence of a
rate [other] than 2%.
634 F.2d at 39-40. The District Court’s award was remanded
for reconsideration for two reasons: (i) if a 1% adjusted dis-
count rate was used, it was too low since 2% is the “true cost of
money appropriate for use in a computation to determine the
present value of lost future wages,” and (ii) the District Court
took into account a post-trial wage increase based upon cost of
living, therefore duplicative consideration was given to the
impact of inflation. 634 F.2d at 40.
Feldman, supra, approved the use of an “inflation-adjusted
discount rate” of 1.5%. 524 F.2d at 387. The purpose of the
method used in Feldman, and approved as one possible techni-
que in Doca, was to determine the “real yield” of money—that
portion of interest gained on virtually risk-free investments
which represents only the real growth of the investment and
not the losses due to future inflation. The theory is that the
“real yield” of money is roughly 2% in any year, because in
periods of high inflation, interest rates will be a bit higher, and
in low inflationary periods, the interest rates will still be a litt!
above the rate of inflation.
Doca recognized the disagreement among economists over
the validity of the assumption that the real rate of interest is
constant and consequently independent of inflation, but noted
46a
that various economic studies of similar time frames have
estimated that the real rate of interest was between 1.5% and
3%. 634 F.2d at 39 n.10.
VI.
Penrod and Some Commentators
In 1977, one commentator—with an error in timing—
predicted that “the Fifth Circuit soon could decide . . . that
Penrod is ‘substantively indefensible.’ ” This was precipitated
by Judge Wisdom’s concurring opinion in Freeport Sulphur
Co. v. SSS HERMOSA, 526 F.2d 300, 311 (5th Cir. 1976)
(Wisdom, J., concurring). Judge Wisdom there expressed his
dissatisfaction with Penrod and identified the inconsistency in
this Circuit’s insistence upon discounting while ignoring in-
flationary effects. Jd. The policy concerns of Penrod, (i) achiev-
ing complete compensation, (ii) preventing speculation, and
(iii) simplifying trial procedures, would be served better by
adopting an approach that considered the effect of inflation on
damage awards. /d.
Penrod has also been labeled a source of serious judicial
error. Kane, /nflation, tight money, and Penrod: the cost of
judicial error, Texas Trial Lawyers Forum, April-June, 1980,
at 3-5. In Penrod, we stated that “if future inflation does cause
higher wages, experience predictably demonstrates that high-
er interest rates on investments which have always accompa-
nied inflation will also occur and this factor will mitigate the
failure to include an inflationary surcharge in wage rate
calculations.” 510 F.2d at 236.
The obvious flaw in this line of reasoning lies in the fact
that while interest rates do rise in response to accelerating
inflation, a higher interst rate only reduces the present
value of a future loss, thus further penalizing the plaintiff.
The problem for the plaintiff is compounded when the
series of future income = cannot be proportionally
increased for the same tion that drove up the interest
rate.
Kane, supra, at 3-4.
474
Spiraling inflation during the years since Penrod has in-
directly led to much of the criticism of our 1975 opinion. Al-
though consumer prices have fallen in the early months of 1982,
which might signal the beginning of the end to “spiraling”
inflation, this does not demonstrate that Penrod is not primari-
ly its spectacular unfairness in periods of extremely high infla-
tion. To the contrary, the danger of Penrod lies in its unwilling-
ness to consider the effect of inflation on future wages at all.
Penrod stands for the inflexible proposition or deflation at all,
whether high or low or nonexistent, in predicting wage loss. At
the same time, defendants are freely allowed to show the
highest inflation-induced interest rates available on relatively
safe investments. Unfortunately, any evidence of the fact that
wages will likely increase to combat the eroding effects of
inflation remains eclipsed by the Court-declared spectre of
speculation.
What we seek, in response to criticism from both within and
without the Circuit, is fairness with regard to the presentation
of economic data by either side in the legal controversies that
our federal courts face. The principles that we adopt to facili-
tate this goal must be flexible enough to remain workable in
any economic climate. To this end, the remainder of this opin-
ion will explore the alternatives and adopt those that meet the
standards of economic flexibilit Y and fairness to plaintiffs and
defendants alike.
VII.
The Real Rate of Interest: A Possible Solution
In laymen’s terms, the real rate of interest mirros the rate of
interest that lenders would charge in an inflationless society.
Interest rates are much higher because of the expectation of
inflation and the uncertainty as to its extent. Thus, the real
rate of interest becomes more difficult to calculate. For ex-
ample,
You lend [or invest] $100 for . . . 30 years, at a rate of
interst of 5 percent per year. The $5 interest paid to on
_ annually ally wits rise or fall in purchasing power dependi
48a
upon whether or not the general price level of various
goods and services falls or rises. If the price level should
increase during the first year by 3 percent, this means that
of the 5 percent interest ($5 each year) about 3 percentage
points (or $3 in real terms) is eroded away by the higher
prices you must pay for goods and services. In effect, in
real terms _ have gotten only about 2 percent interest
on your $100 loan [or investment].
A. Alchian & W. Allen, University Economics 193 (3d ed.
1972). Thus, the lender who correctly anticipated the rise in
price level would have set a higher nominal interest rate on the
loan, perhaps 8%, to allow 3% for the anticipated rise in prices
and 5% for interest in terms of real purchasing power. /d.
Accordingly, the nominal or advertised interst rate reflects
both the basic or real rate of interest (which would exist absent
any inflation anticipations) and an adjustment for the antici-
pated rise in price levels.
In theory, the real rate of interest represents a possible
standard for determining the proper and fair discount rate to
be applied to damages resulting from the loss of future income.
For courts using this method, the rate of inflation, however
calculated, is subtracted from the interest rate for some rela-
tively risk-free investment, and the remainder is the real rate
of interest, or discount rate, to be applied to the damages
award. In practice, of course, the problem becomes more diffi-
cult. Even where parties to a controversy are able to establish
both a projected inflation rate and an interest rate on some
risk-free investment, using legally acceptable indexes nd
tables, the fact remains that the goal of the exercise is to
compensate the plaintiff for the income the worker would in all
probability actually receive in future years. It is well-
recognized that the average wage increases of many workers
in the United States have not kept up consistently with infla-
tion. This factor, then, must be applied to increase (e.g., from
2% to 4%) the discount rate so that the plaintiff, whose wages
have not kept up and likely will not keep up with inflation, will
not receive increases based upon inflation. On the other hand,
if the average annual increase in wages in a particular profes-
49a
sion has risen above the inflation rate, the plaintiff should not
be limited to increases based upon the inflation rate. This
factor highlights the major weakness of the “real rate of the
interest” approach.
A simpler and more accurate approach to the problem is
found where the plaintiff shows, by expert testimony or other-
wise, all of the increases in wages he is likely to receive during
his work-life expectancy. Likely increases in wages due to cost
of living increases, merit or productivity increases, or promo-
tion increases could all be separately established by the plain-
tiff in computing the total amount of lost wages. For most
occupations, it is easy to find economic data of general wage
increases, which include increases due to cost of living, merit,
and productivity. The more difficult task of breaking down the
data into the reasons for the increase, e.g. cost of living or
merit increases, is not necessary in this simpler method. Then,
the defendant has the opportunity to establish, by expert
testimony or otherwise, the discount rate which reflects the
rate of interest in a relatively safe investment, which is applied
to the award to reduce it to present value. If this methodology
is followed, the rate of inflation itself is only indirectly reflected
(i) in the cost of living increases projected by the plaintiff
(which may be more or less than the rate of inflation), and (ii) in
the discount rate established by the defendant (which includes
both the real rate of interest and the predicted effect of infla-
tion). The result of such a calculation should not differ greatly
from the result obtained through the Feldman approach. How-
ever, unlike the Feldman approach, this alternative method
would more accurately represent the future wages lost by a
particular plaintiff, in a particular occupation, in a particular
geographic area.
VIII.
Economic Predictions and the Courts’ Serbonian Bog
We agree with the critics that Penrod represents an idea
whose time has passed. In an era of inflation, which has been
with us for over forty years, it is quite clear that plaintiffs are
50a
unfairly penalized by their absolute inability to present evi-
dence of a historical fact—inflation. The likely effect of in-
flationary trends upon future wages is forbidden even though
Penrod allows evidence from defendants regarding the appli-
cable discount rate which has been increased by the very
inflation so roundly excluded.
However, we are less than satisfied with the so-called Alas-
ka Rule, which by assuming that the discount rate and the
inflation rate are virtually identical, unncecessarily penalizes
defendants because, as noted above in our discussion of the real
estate of interest, interest rates on relatively safe investments
will typically ride several percentage points above the rate of
inflation. In addition, tied as it is to changes in the Consumer
Price Index (CPI), the result would unfairly award the plaintiff
the difference between the changes in the CPI and the actual or
average increase in wages.
We are much impressed with, but certainly not willing to
embrace uncritically, Feldman’s approval of an inflation-
adjusted discount rate in the neighborhood of 1.5%. 524 F.2d at
387-88. This view represents a compromise between the Alas-
ka rule’s penalizing of defendants and Penrod’s penalizing of
plaintiffs. However, fixing the inflation-adjusted discount rate
at 1.5%, or even 2% or 3%, would subject this Court to critic-
isms not unlike those aimed at Penrod and even the Alaska
rule. In the dynamic and ever-changing world of finance and
economics, we as judges cannot rule out that the interest rate
on risk-free investments might equal the inflation rate during a
certain period such that the Alaska Rule is vindicated. Indeed,
the logic behind the Alaska Rule is that in an economy of ups
and downs, “it will all come out in the wash”—the interest rate
and the inflation rate being, on the average, roughly equiva-
lent. However, any standard which is inflexible in a dynamic
economy will likely be unable to cope with the problem of
preventing windfalls either to plaintiff or defendant. Although
a perfect method may never be found, we must attempt to
create standards that are fair to both sides of the controversy,
with the trier of fact being allowed to receive and act upon
5la
credible evidence of othe economic facts bearing, pro and con,
on the competing theories.
The methodological basis of Feldman must be clearly under-
stood as our analysis proceeds. Quite simply, and perhaps even
simplistically, Feldman is a backward-looking, past-
performance approach:
(1) It begins by considering the effective annual interest
rate payable on a certain relatively risk-free investment each
year during a particular past period of years, for example,
1940-1980. For each of those years during the period chosen,
the average annual percentage change in the Consumer Price
Index (CPI) (see note 25, supra) is determined using historical
data.
(2) Subtracting the average annual percental change in
the CPI for each year from the effective annual interest on the
investment for that same year yields the actual or “real” rate of
interest that an investor would gain during that year in terms
of the buying power of the dollars invested. Because a single
year in the past several decades might be unreliable, all of the
real rates of interest are averaged. The result of such an
analysis, for almost any relatively risk-free investment during
any 10 or 15 year period in the past several decades, will be
approximately 1-3%.
(3) This inflation-adjusted discount rate, the result of
subtracting changes in the CPI from safe investment interest
rates, is then projected over the plaintiffs expected work-life
by applying the inflation-adjusted discount rate to each year’s
estimated salary to reduce the future annual salaries to their
present value. The discount factor applied to each year would
be different because the present value of a dollar received in
the future, e.g., ten or twenty years from trial-date, is much
less than the present value of a dollar received on the date of
trial. Indeed, one dollar received even one year from now is
worth less than one dollar today.
(4) If wages will increase due to promotion, merit, or
peoductivity, then instead of using the plaintiffs current
52a
wages as the amount to be discounted to present value for each
future year of expected work-life, each future year’s wage is
computed by finding wat a person in the promoted position
would likely be earning in the respective year. All the years are
then added together to reach the lump-sum award. This
computation is not limited to the single promotion or merit
increase that the plaintiff would have received during the year
of his injury, but may involve several increases during the
plaintiff's work-life expectancy. For example, if the plaintiff is
a stock-boy with a 30-year work-life expectancy, and he likely
would be promoted in 10 years to stock manager, and in 10
more years to store manager, which is the highest position he
would predictably attain, then the trier of fact would compute
the trial-date salary of stock manager and store manager. The
stock-boy’s salary for each of the first 10 years would be re-
duced to its present value, the stock manager’s salary for each
of the second 10 years would be reduced to its present value,
and the store manager’s salary for each of the third 10 years
would be reduced to its present value. All these results are
added to find the lump sum award.
In light of our discussion, supra, of the theory of the “real
rate of interest,” several critical remarks are appropriate.
First, the purpose of an inflation-adjusted discount rate, which
simply means that the discount rate (proposed on the basis of
safe investment) should be reduced by the rate of inflation
eroding the profit on such an investment, is fully to compensate
the plaintiff such that if the lump-sum award given in court is
invested, the plaintiff will be able to receive, as nearly as
possible, the amount of assumed income that would have been
received each year in the future if no injury had occurred.
However, the Feldman approach assumes that the plain-
tiffs past and future income would increase, as it has, roughly,
in the past forty years, along with the CPI. The difficulty with
this assumption is that annual wage increases may not keep up
with inflation as reflected in the CPI, and, tothe contrary, such
increases in average earnings in some occupations might be
much greater than inflation. Second, the American economy
53a
may change radically in the next several years. As evidence
becomes available that the next 20 or 30 years, then the Fe/d-
man approach is less helpful. Nevertheless, despite these cri-
ticisms, the Feldman approach represents a fair and flexible
alternative that is clearly superior, and more economically
sound, than either Penrod or the Alaska Rule.
Lest we lose sight of the forest of practice in these trees of
theory, our analysis must move to a practical example.
IX.
A Helpful Hypothetical
“The war against inflation is a grim affair.” Justice Douglas,
Davies Warehouse Co. v. Bowles, 321 U.S. 144 at 158, 64S.Ct.
474 at 482, 88 L.Ed. 635.
We may now consider two hypothetical situations illustrat-
ing that the process of computing likely wage increases, due to
the effects of inflation and other factors, need not depend upon
suspect speculation, the use of strange formulae, or intricate
expert prognoses.
First, assume that a plaintiff is totally and permanently
disabled and that after allowable deductions for income taxes,
social security taxes, and union dues, and after adding various
fringe benefits, where applicable, his/her loss of future earn-
ings would be $10,000 per year for the balance of a work-life
expectancy of 18 years, or a gross expectancy of $180,000. This
plaintiff could purchase for approximately $78,000 enough
United States Bonds to allow him or her to receive $10,000 each
year from 1981 through 1998. Government Bonds are relative-
ly risk-free invesments for an unsophisticated investor, be-
cause they typically require no reinvesting of funds over the
next 18 years provided that no bonds are redeemed in advance
of their maturity. This rough computation takes into account
the interest that would be paid on the bonds, as well as the
estimated income taxes on the interest received each year by
the plaintiff, such that the plaintiff receives $10,000 spendable
dollars each year. The economic fact that the plaintiff needs
54a
only $78,000 to ensure that he or she will receive the assumed
$180,000 in lost future wages is, of course, the legal justifica-
tion for applying a discount rate. Significantly, this model
assumes that the plaintiff would have received no wage in-
creases, for whatever reason, in the next 18 years.
Second, assume a projected 5.12% annual increase in wages
based upon past increases in the national average weekly
wage, such that this plaintiff's salary increases from $10,000 in
the first year, to $10,512 in the second year, to $11,050 in the
third year, and so on until an annual salary of $23,314 is reached
in 1998. The total amount earned by the plaintiff, assuming this
increase in wages, would be $284,494. Of course, this estimate
assumes that the plaintiff would experience wage increases,
either on the basis of performance and experience or due tocost
of living increases, at the national average (5.12%) of workers
over the past several decades. Using the same calculations as
above for a risk-free U.S. Bond portfolio, it can be estimated
that approximately $120,000 would produce the $284,000 in
wages lost with the 5.12% per year increase considered.
In summary, in the first hypothetical situation above, the
plaintiff would introduce evidence that his/her annual take-
home pay is $10,000 and that he/she would probably have
worked for 18 more years. The defendant would simply prove
that it would take about $78,000, safely invested, to assure that
projected loss of income. In the second hypothetical situation,
which is much more realistic in terms of our national economy,
the plaintiff not only shows present income and work-life ex-
pectancy, but also presents evidence that his/her salary will
likely increase, just like average wages have increased in the
past, at the annual rate of 5.12% due to inflationary (cost of
living increases) and non-inflationary (merit, productivity,
etc.) factors. The defendant in its response again can establish
that approximately $120,000, safely invested, would allow the
plaintiff to spend each year an amount roughly equivalent to
his/her projected annual salary.
Comparing the above two hypothetical situations with the
approach in other jurisdictions, it is clear that under the Alaska
“7
ova
Rule, the plaintiff would receive a lump sum of $180,000 in both
situations, because inflation (and cost of living increases) are
presumed equal to the discount rate (i.e., safe investments).
No discount rate is applied, an obvious windfall to the plaintiff
who could, using safe investments, produce $414,000 over the
next 18 years. Under Penrod, the first situation was common:
lump-sum awards were discounted while no evidence of cost of
living increases, which account for most of the 5.12% figure in
the second situation, was permitted. Under Feldman’s
inflation-adjusted discount rate (real rate of interest) ap-
proach, past average wage increases are not considered, but
past annual inflation rates are subtracted from past annual
interest rates on safe investments to determine the discount
rate. The plaintiff in this situation would receive $156,725.26.
(2, 3) Given the likely availability of relatively risk-free
investments to the unsophisticated investor, and given a duna-
mic economy, it is not our purpose to establish a single metho-
dology. Nor. are we attempting to decide today what precie
types of economic data should be found competent by the
courts as parties attempt to prove up, or discount, probable
future lost wages. We do hold, however, that Penrod’s prohibi-
tion of any consideration of inflationary factors is unfair to
plaintiffs and is therefore overruled. The basis for that holding
is not that “inflation is here to stay,” for we are not capable of
making such an economic prediction. The critical error of Pen-
rod was its failure to recognize the effects of inflation on wages
in this country over the past several decades, as they would
bear upon the actual dollar amount of money a person would
receive over a future period of time. Given that wage-earners
have typically received cost of living wage increases on the
basis of inflation, plaintiffs should be permitted to establish by
factual economic and labor data, and expert testimony, that
their income would probably continue to increase in response
to inflation in future years if they continued to work. Likewise,
using economic and labor data and expert testimony, the de-
fendant should be permitted to rebut such evidence.
56a
Significantly, economic and labor data regarding increases
in wages and inflation are not always complex and mysterious
so as to require highly skilled economists to interpret them. On
the contrary, most of the tables prepared by the Department of
Labor, Bureau of Labor Statistics, are readily availble and
easy to understand, and, more importantly, are considered
accurate for most purposes. The availability of such statistics is
import because an injured plaintiff (or his beneficiaries) is
never to recover damages simply because inflation is likely to
erode an award, but only lost wages, and insofar as wages will
likely increase in the future, evidence of inflation is permitted
to show what future wages wille be.
[4,5] Various methods are available that allow the plaintiff
to ensure consideration of the effects of future inflation on lost
wages. We have already discussed the inflation-adjusted dis-
count rate (or real rate of interest) used in Feldman. Although
we find such an approach acceptable, and certainly superior to
the Penrod or Alaska Rule approach, we must emphasize that
defendants must be permitted to demonstrate the likelihood
that the plaintiff's wages have not kept up, nor will they likely
keep up, with inflation. Given this additional factor, the Feld-
man approach becomes less simple. Another approach, illus-
trated in our hypothetical above, allows the plaintiff to present
evidence of average annual national, local, or occupational
wage increases over the past sever decades, and thereby to
present an average annual increase in wages due to merit,
productivity, promotion, or cost of living increases. This may,
in some cases, be a simpler approach. Other approaches will
likewise be found acceptable, insofar as they permit the plain-
tiff to show likely wage increases, due to inflation or any other
reason, and at the same time allow defendants to present
evidence of relatively risk-free investments in the economy
that would allow a plaintiff to replace lost income in future
years.
57a
» &
Jury Instructions
{6, 7] Where the case is tried to a jury, instructions are
required. Without attempting to writ or construct a suggested
charge, we point out that the instructions may take several
different forms depending on the permissible methodology
used.
If the Feldman approach is used with its inflation-adjusted
discount rate (real rate of interest), the jury must make three
separate determinations. First, they must consider and deter-
mine all of the future income losses on the basis of the plaintiff's
present income on the basis of the plaintiffs present income
and, in addition, any increases that the plaintiff would likely
have received due to merit, productivity, or promotion, but not
inflation. In determining future merit raises or promotions, it
should be made clear to the jury that any portion of such
increases due to inflation or cost of living raises should not be
added into the aggregate sum. Second, the jury must deter-
mine, on the basis of the evidence presented to them, the likely
increase in the CPI (the acceptable inflation indicator under
Feldman). Third, the rate of interest available on some safe
investment must be determined. On the basis of the second and
third findings, the trial judge will then be in a position to
determine the inflation-adjusted discount rate (real rate of
interest) by subtracting the projected change in the CPI from
the investment interest rate. The result is the discount rate to
be applied to reduce the lost future income to its present value
to determine the amount of the award.
[8-10] On the other hand, if the plaintiff shows all likely
wage increases due to inflation and other factors (as in the
hypothetical above where a 5.12% annual increase was used),
which allows the defendant to show what amount of money is
necessary, using a relatively risk-free investment, to ensure
that the plaintiff will receive those projected future wages
losses, the jury should be instructed to answer two basic ques-
tions. First, the amound of lost future earnings must be deter-
58a
mined and must include all likely increases due to inflationary
factors such as cost of living increases as well as non-
inflationary factors such as merit or promotion raises. It must
be made clear that the jury is to project only those increases
that the plaintiff would actually have received, with reasonable
likelihood. All projected future lost earnings are then aggre-
gated by the jury without considering any discount to present
value. Second, the jury must determine the likely earning
capacity of an invested award. The answer to this question may
take two forms: (1) Where the parties have introduced evi-
dence of the probable availability of particular interest rates,
or rates of return, on reasonably safe investments, the jury
should find and fix the particular rate of interest available to
the plaintiff. This finding would then serve as the discount rate
to be applied by the judge to the aggregated lost earnings to
reduce that sum to its present value. (2) If the parties wish to
show, instead of an interest rate, an amount of dollars that, if
invested in government bonds or some other safe investment,
would fully compensate the plaintiff for all projected lost future
wages, then the jury should consider that evidence and find a
particular amount of money that they believe could produce
the aggregate lost earnings, which they previously deter-
mined. It would then be possible for the judge to determine the
amount to be awarded by either (1) applying the discount rate
found by the jury to the aggregate lost earnings to reduce that
amount to its present value, or (2) adopting the jury’s finding as
to the amount of money which, if invested, would produce in
future years the plaintiffs projected lost earnings.
{11} In the jury instructions, and, of course, in the final
arrangements, it should be clear that the purpose of the award
for future lost wages is not to protect the plaintiff from future
inflation. The goal is simply to replace for future wages actual-
ly lost. If the plaintiff's income in future years will be greater
due to likely cost of living increases, then the plaintiff is enti-
tled to those increases. But if the plaintiff's wages are likely to
increase at a rate less than inflation (cost of living) the plaintiffs
is only entitled to such wage increases and not an increase
59a
based on the rate of inflation. Jurors are thus entitled to
consider and determine the actual likely wages that the plain-
tiff would have received but for the disabling event.
XI.
The Search for Federal Uniformity
The Third Circuit recently held, in Pfeifer v. Jones & Laugh-
lin Steel Corp., 67% F.2d 453, 461 (3d Cir. 1982) that the “The
total offset method” of measuring damages for loss of future
earnings, in which the discount factor used to reduce future
earnings to present value is presumed offset by future infla-
tion, applies in negligence actions against a vessel owner under
the L.H.W.C.A_., 33 U.S.C. §§ 901 et seq. As discussed above,
this is an adoption of the Alaska Rule, although the Court did
not describe it as such. Recognizing that inflation has become
an established phenomenon in our economy that must be con-
sidered in awarding damages for future lost earnings, the court
stated that a uniform federal rule must be established and
applied in maritime cases. 678 F.2d at 457. Toward this end,
the Alaska Rule was embraced because it contributes to judi-
cial efficiency and eliminates the necessity for economic
speculation, thereby introducing greater certainty as well as
facilitating settlement of personal injury claims.
The Seventh Circuit recently chimed in, holding that the
trier of fact co9uid take inflation into account in computing
damage awards. In O’Shea v. Riverway Towing Co., 677 F.2d
1194, at 1200 (7th Cir. 1982), Professor, now Judge Posner,
citing with disapproval the panel opinion in Culver, declared
that “it is illogical and indefensible to build inflation into the
discount rate yet ignore it in calculating the lost future wages
that are to be discounted. That results in systematic under-
compensation.” We can but agree.
{12] Weshare the concern for unformity in the federal law
of damages in maritime cases. Although we find it imprudent
to adopt the Alaska Rule, because it is fraught with the same
inflexibility that Penrod exhibited, we approve the use of any
60a
of the methods outlined for calculating future wage losses that
results in fairness to plaintiffs and defendants. We see no
reason to make the economic judgment, as did the Third Cir-
cuit in Pfeifer, that the rate of future inflation will be equiva-
lent to future interest rates.
One important aspect of the problem of uniformity in federal
maritime law is illustrated in Gulf Offshore Co. v. Mobil Oil
Corp., 453 U.S. 473, 101 S.Ct. 2870, 69 L.Ed.2d 784 (1981). It
was held that (i) federal courts do not have exclusive jurisdic-
tion over personal injury and indemnity cases under the Outer
Continental Shelf Lands Act (OCSLA). 43 U.S.C. §§ 1331 et
8eq., and (ii) the issue of whether the jury should be instructed
that personal injury damages are not subject to federal income
taxation required remand to the state courts for determination
under Louisiana law—agreed to be controlling in the case. 453
U.S. at 483-488, 101 S.Ct. at 2877-2880, 69 L.Ed.2d at 795-98.
On remand, the Texas Court of Civil Appeals held that
Louisiana law does not require a jury instruction that damage
awards are not subject to income taxation. 628 S.W.2d 171, 174
(Tex. Civ. App.—Houston [14th] 1982). Moreover, the Texas
court found that the Supreme Court’s holding in Liepelt, su-
pra, that a defendnat in a FELA death case is entitled to an
instruction that damage awards are not subject to federal
income taxation, did not displace the Louisiana rule in this
OCSLA case.
factors
wage losses brings this Circuit, we believe, more in line with
prevailing view throughout the nation.
6la
XII.
Summary and Conclusions
Our goal in this opinion is to formulate a simple principle,
without being simplistic, that will permit the determination of
damages caused by future loss of wages such that neither the
plaintiff nor the defendant is penalized (or given a windfall) by
economic theory or reality. To begin with, we reject the
suggestion that the discount rate, based upon safe invest-
ments, is roughly equal to the wage increases that an individ-
ual ill receive. On any weekday in trial courts throughout the
nation, a discount rate can be established using voernment
securities or savings certificates, as examples of safe invest-
ments, for any amount of damages. However, the average
wage increases for a particular occupation and, if appropriate,
in a particular area of the country. Thus it would be unfair and
unreasonable to rule as a legal matter in advance that the
discount rate equals wage increases, or, likewise, to say as a
legal matter that the wage increases of a particular plaintiff are
equal to the rise in the consumer price index or the average
economy-wide wage increases for all workers. Our first con-
clusion, therefore, is that parties should be allowed, in future
earnings damages cases, to present evidence not only of the
interest rate available on safe investments, but also the likely
wage increases that would have been obtained by the particu-
lar plaintiff in his occupastion, whether these likely increases
are due to cost of living, promotions, merit raises or productiv-
ity. Significantly, this is only part of the solution, because the
more difficult question is how the likely wage increases are to
be established or determined.
[13] We have discussed several acceptable methods that
are useful in the consideration of the likely effect of inflation on
future wages in a case involving total and permanent dis-
ability. Two may be summarized. In the first, the present-day
value of the earnings that the plaintiff would likely have re-
ceived may be calculated in three steps:
(1) Using the average annual rate of increase in the plain-
tiffs own salary in the years prior to the incapacitating event,
62a
or in the alternative, using the average wage increase of work-
ers nationally or in the decedent’s occupation and geographic
area over, for example, the ten years prior to his injury, the
parties can project the annual earnings for the remainder of the
plaintiff's estimated income-generating years. A lump sum of
likely lifetime earnings is the result of these calculations. This
total would include wage increases due to cost of living in-
creases, merit, or productivity, as they are received by the
average worker or, if the plaintiffs own past wages are used,
by the plaintiff.
(2) The above lifetime earnings are converted to an aver-
age annual income by dividing the lump sum by the number of
income-generating years.
(3) The present value of the plaintiff's average annual in-
come is then computed by determining how much money must
be invested at the present time to yield each year the average
income for the remaining income-generating years. This
calculation can take the form of applying a traditional discount
rate, and it will be based upon relatively safe investments such
as Treasury Bills or bonds, or similar instruments.
A second approach is the Feldman inflation-adjusted dis-
count rate, which is based upon the real rate of interest. The
steps followed in Feldman to ensure that the plaintiff was
compensated for future wage losses due to inflation are as
follows:
(1) Using historical economical data, the court establishes
the effective annual interest rate payable on some safe invest-
ment for each year during a particular period of years, e.g.
1940-1980.
(2) For each of the years during that period, the average
annual percentage change in the CPI is established.
(3) The average annual percentage change in the CPI for
each year is subtracted from the effective annual interest rate
on the chosen investment for that same year, thus establishing
a series of real rates of interest, or the inflation-adjusted
discount rates.
63a
(4) All of the real rates of interest are averaged, and the
resulting percentage rate represents the inflation-adjusted
discount rate to be applied to the plaintiff's lump-sum award.
(5) In computing the lump-sum total, the plaintiff is per-
mitted to show all likely future wage increases due to promo-
tions, merit or productivity raises, or any other non-
inflationary factor. If promotions are likely, then the annual
salary of a worker presently in that promoted position should
be used.to compute the plaintiff's projected income for the
years he/she will be in the promoted position. If the plaintiff
can show no likely promotions or raises, then in the number of
years remaining in his/her work-life expectancy, the plaintiffs
present income is assumed as the projected salary for each
year.
(6) The inflation-adjusted discount rate is then applied to
reduce each projected annual salary to its present value, and
the total of these future discounted annual salaries is the
amount to be awarded.
The above methodologies are only suggested approaches,
and not strait-jackets, for courts to use in determining future
earnings. The methdologies do illustrate, however, the issues
upon which evidence may be presented in this Circuit now that
Penrod is overruled. In response to the plaintiffs evidence on
inflation, defendants will continue to be permitted to introduce
evidence of the interest rate available on risk-free invest-
ments, and plaintiffs will continue to be able to rebut that
evidence. Plaintiffs will now also be able to introduce evidence,
not only on inflation, but more importantly on the likely wage
increases in the decedent’s or injured party’s occupation, bas-
ing their calculation on past average wage increases and future
inflation, with all parties and trial courts keeping in mind that
wage increases are influenced by, but not necessarily depen-
dent upon or identical to, inflation.
Postlude
Having devoted substantial consideration to the economic
problems inherent in properly taking inflation into account, we
fda
now emphasize that in most cases the apparent difficulties
should not arise. As complicated as this subject appears to be,
it is a place for vigorous pre-trial discussion and handling
between the trial judge and the attorneys. In the great major-
ity of cases, we believe, the parties can and will be able to
stipulate to the methodology, discount rate, inflation rate, the
admissibility of economic data, tables, etc. and other technical
aspects, as well as to any particular issues of fact underlying
the calculations. In a jury trial, this should include, to the
maximum extent possible, agreement as to specific issues, the
form and manner of their submission, appropriate jury instruc-
tions and interrogatories and any objections thereto.
And, to the extent complete stipulation is not reasonably
possible the formalized pre-trial effort should assure that the
areas of dispute are considerably reduced and certainly well
defined.
If the trial court can bring the parties together in this
fashion, economic technicalities should not trouble the jury
and, we fervently hope, the issues, if any, for appellate review
will be sharply presented on an adequate evidentiary record
preserving identifiably distinct legal problems.
To eliminate doubts we also declare that this decision is
immediately effective to control cases (i) now being tried, (ii)
tried hereafter and (iii) those heretofore tried and now on, or
subject to, appeal in which the issue has been properly and
adequately raised. And while not fundamentally a Penrod
problem, the question whether to allow pre-judgment interest
may well arise in some cases. In those instances where the
substantive law permits a court to award pre-judgement in-
terest, the court must discount the damage figure back to the
date of the event, i.e. injury or death, and may award pre-
judgment interest for the period between the event and judg-
ment. See Havis v. Petroleum Helicopters, 664 F.2d 54 (5th
Cir. 1981). See generally Linke, Assessing the Pecuniary
Value of Human Capital, supra; Annot., Award of Prejudg-
ment Interest in Admiralty Suits, 34 A.L.R. Fed. 126, 228-38
(1977).
65a
On the basis of the above analysis, we overrule Penrod, and
remand the present controversy to the District Court on the
issue of damages. The panel opinion is adopted in all other
respects.
REVERSED AND REMANDED.
James C. HILL, Circuit Judge, with whom R. LANIER
ANDERSON, III, Circuit Judge, joins, concurring in part and
dissenting in part:
“BUT, ON THE OTHER HAND....”
Given the task of interpreting and applying the law, our
court embarks upon a survey of economics. We took the case to
reconsider and reevaluate the holding of this court in Johnson
v. Penrod Drilling Co., 510 F.2d 234 (5th Cir. 1975) (en banc). I
agree with my colleagues that Penrod is wrong, but I find it
wrong because it is only half right.
In Penrod we correctly held that, in forecasting future earn-
ings, the jurors should not be allowed to apply their opinions as
to what effects future inflation would have on wages or other
earnings. The lesson of Penrod is that no value ought to be
based upon speculation and that the forecasts of lay jurors on
the subject of inflation cannot be made anything better than
speculation. We thus limit plaintiffs proof of lost wages to a
projection of wages currently earned or capable of being
earned paid in dollars of current value. We recognize that a
defendant ought not be required to pay the full value of such an
annuity in a present lump sum equal to the total of all wages yet
to be earned. Payments for future earnings are to be dis-
counted to their present value, and this is just and proper.
However, we did not address the discount rate other than
glibly to state, “the calculated gross future earnings must be
reduced to present value by the use of an appropriate interest
rate prevailing at the time and place of trial.” 510 F.2d at 237
(emphasis added).
Inasmuch as the plaintiffs must not, in my opinion (and as
Penrod held), be permitted to seek an increased award because
66a
of anticipated inflation, the defendant should not be entitled, in
discounting future payments, to use an interest rate insofar as
it is based upon anticipated inflation. Predictions of inflation or
deflation ought to be taken out of both sides of the equation. In
Part VII of the majority opinion, “The Real Rate of Interest: A
Possible Solution,” we have the solution I prefer. It was ex-
pressed by Judge Blumenfield in Feldman v. Allegheny Air-
lines, Inc., 524 F.2d 384 (2d Cir. 1975). It requires and permits
the least speculation and provides the nearest approach to
fairness to all parties of all the methods suggested for dealing
with issues which are a magnet for speculation and are invita-
tions to unfairness—to plaintiff, defendant, judge, and jury.
The majority does not disapprove the Feldman approach;
however, it prefers an alternative measn of remedying the
imbalance Penrod creates. It endorses allowing the jury to
consider the effect of inflation in the calculation of damages,
the plaintiff's side of the equation. For the reasons expressed
quite well by Judge Johnson, in dissent, I believe that ap-
proach to be far too speculative.
I suggest that a careful perusal of the opinion for the major-
ity is all that is needed for one to conclude that judges and
jurors ought not embark upon—or be instructed to embark
upon—the crystal-ball gazing necessary to economic forecast-
ing. Were a trial judge to instruct a jury by verbatim recitation
of parts I-IX of the majority opinion, the judge would have
committed the error of a totally confusing instruction. Yet
even properly instructed as Part X suggests might be done,
the court would be indulging in the unrealistic assumption that
the jurors would, in deliberation, go through the economic
analysis of the first nine parts of the opinion. Further, we
would assume that, having done so, the conclusions of the
jurors would, somehow, be more nearly accurate than the
prognostications of acknowledged economic experts have been
over the past several decades, during which time the experts
have often been in total disagreement, and, as Judge Johnson
points out, often totally wrong!
67a
I cannot fully agree with the conclusions of Judge Johnson's
dissent, though, because it rejects the Feldman approach in
favor of the Alaska Rule, which treats inflation and discount
rates as offsetting each other totally and therefore canceling
each other out. As the majority and Judge Johnson’s dissent
both recognize, the Alaska Rule results in an unjust enrich-
ment to a plaintiff who receives a present undiscounted award
for losses not to be realized for years to come; the defendant is
wrongfully required to pay more than is due. In contrast, the
Feldman approach is theoretically proper because it accounts
for the value of the use of capital by applying the real rate of
interest as the discount rate.
The dissent asserts that the discount rate under the Feld-
man rule ought to be established as a matter of law and
contends that determining the real estate of return would
involve too much guesswork. I envision the rate as the factual
matter. I acknowledge that a full blown trial to ascertain the
real discount rate might be fraught with much of the same
confusing economic expert clashes of opinion that I find deplor-
able in the procedures envisioned by much of the majority
opinion. However, realistically, I do not anticipate great trou-
ble on this score. The “real discount rate” or “real interest rate”
is a small figure when compared to rates of inflation or interest
rates including inflationary factors. While there may be
marked academic differences in its establishment, it seems to
come out from all calculations within one or two percentage
points. Thus, it may be 1.5% to some and 3% to others, but the
total dollar impact upon the expected verdict in a given case is
so relatively small that litigants will likely find it hardly worth
the cost of the expert testimony necessary to disputatiousness.
In the vast majority of cases, once the rule is established, the
rate will be agreed upon and stipulated. In those cases, once
the rule is established, the rate will be agreed upon and stipu-
lated. In those case where agreement on an appropriate dis-
count rate is not reached, experienced trial judges can be
expected to help the parties. One might require, pretrial, a
clear statement of the contentions of each so that the expenses
68a
of the party prevailing on that issue, incurred in the proof of it,
can be charged to any party found to have disputed groundless-
ly.
This is not the perfect solution, but I suggest it is the best.
Interest rates are obviously not made up purely and simply by
adding a constant and unchanging charge expected for the use
of money to the amount to be charged in anticipation of infla-
tion. The law of supply and demand no doubt plays a role. When
massive government deficits require governmental institu-
tions to enter upon the money market place for massive
borrowing, the demand for limited capital funds will cause the
real charge for the use of those funds to increase somewhat
above the percentage that would be charged were the demand
smaller. Thus, the “real interest rate” may move upwards or
downwards over a period of years depending upon the supply
of capital savings compared to the demand for borrowing. A
discount at the current real interest rate might not represent
the discount that would have occurred some years ago or that
will be taking place some years hence. This bit of uncertainty
may be tolerated, however, in the type of case we are here
considering where some uncertainty (life expectancy, future
health and earning capacity, etc.) is necessarily acceptable; we
accept some uncertainty because there must be a way to ap-
proach justice in these cases. It is a rare case in which the
parties do not stipulate to life expectancy and the expected
duration of earning capacity. I anticipate that the same ap-
proach would be taken the establishment of a real rate of
interest.
For these reasons, I concur in the judgment. I would pro-
nounce our reaffirmance of the Penrod rule forbidding evi-
dence of inflation or consideration of inflation by the jurors in
predicting future earnings. I would disapprove of its insofar as,
in dicta or otherwise, it permits the discount of future earnings
at an interest rate “prevailing at the time and place of trial” —
an interest rate including a hedge against inflation.
69a
Preferring the second choice of both the majority and Judge
Johnson, I would simply require district courts to apply the
Feldman rule.
CHARLES CLARK, Circuit Judge, with whom Roney and GEE,
Circuit Judges, join, dissenting:
Seven years ago Johnson v. Penrod Drilling Company told
litigants, lawyers and trial judges in this circuit that simplicity
and efficiency of trial procedures and instructions were the
path to justice in jury trials of future damage cases. This court
en banc said predictions as to inflation rates and income tax
effects were too contingent, too variable, and too speculative
for jury consideration. In Liepelt, the Supreme Court required
that juries be told to consider the effect of present income tax
laws on future damages. Today’s decision goes much further.
It puts back in these trials the pre-1975 debates which had
developed between economics experts and the prolix instruc-
tions on the use of complex formulae they generated. Because
these trappings only serve to suppress the common sense
assessment of damages by lay jurors, I respectfully dissent.
Penrod held that to attain simplicity and efficiency future
earnings were to be reduced to present value by the use of the
“interest rate prevailing at the time and place of trial.” The
majority sees this as deducting an inflationary increment that
unfairly penalizes the damaged party. It would eliminate the
perceived inequity by adding a balancing inflationary factor to
future damages. Judge Johnson’s dissent, on the other hand,
would solve this problem by eliminating the discount. The
majority’s remedy compounds the speculative and complicates
trial procedures. Its professed goal of formulating “a simple
principle” is lost in a fog of words and figures. The remedy of
Judge Johnson’s dissent, though clear and uncluttered, always
deprives the damaging party of more than the cost of the
wrong. I respectfully assert Penrod presents no “inequity” or
“problem” and remains a better solution than either.
What is overlooked or misunderstood in casting Penrod
aside is that its use of the prevailing interest rate at the time
70a
and place of trial to discount present awards of future dollars
works in terms of marketplace realities. No one wins. No one
loses. No one speculates. Under Penrod the plaintiffs future
losses are based on fact, not speculation. The prevailing in-
terest rate is not only simple to prove, but, because it is real
and current, it is also available to the plaintiff for the invest-
ment of the funds he has received. The majority’s speculation
that it is not available is just that—speculation. Whatever
factors (inflation, money supply and the like) that make the
rate high or low for discount purposes are available for invest-
ment purposes. If it is not so, then the rate is not the true
prevailing rate.
Even the recent history of this young nation reveals that
economic cycles come and go—oft times with dramatic, unpre-
dicted swiftness. Most economic alchemists claim they can
refine a “real” or “true” rate of interest from the base figures.
The trouble is they don’t agree on its amount. Penrod did not
require a search for this rare value because it would lead into a
maze of expert opinion and instruction as confounding as the
search the majority requires.
It is said that death and taxes are the only things certain in
this world. They are bound to soon be joined by confusing jury
instructions because, as the law develops, more and more
judges are able to convince themselves that more and more
words can clafiry the obscure and simplify the complex. As
Judge Johnson’s dissent aptly demonstrates, the majority
opinion is autogenous perfect, but I insist it is the fairest
workable way to justice in these cases.
Trial courts have taken Penrod further than it was intended
to go by denying plaintiffs the right to prove and recover
predictable future wage increases for merit, productivity or
longevity. I agree this should be corrected in this case. |
respetfully dissent from the remainder of today’s mandate.
GEE, Circuit Judge, dissenting:
I join in Chief Judge Clark’s dissenting opinion, adding only
that the majority approach throws open the gates of fairyland,
Tla
where in future there will be fought mighty battles in the air
between experts opining learnedly under oath upon the in-
trinsically unknowable. Persons unable—as Judge Johnson’s
opinion illustrates—to forecast reliably what the inflation (or
deflation) rate will be one year ahead will swear to what it will
be in forty. It seems especially ironic that we decide future
rates of inflation sufficiently susceptible of knowledge to in-
dulge sworn speculation about them today at the very time
when it has become possible to believe that shortly they may
become insignificant.
TJOFLAT, Circuit Judge, dissenting:
Appellants ask this court to abrogate the rule of Starnes &
Johnson v. Penrod Drilling Company, 510 F.2d 234, 241 (5th
Cir. 1975) (en banc) that “the influence on future damages of
possible inflation or deflation is too speculative a matter for
judicial determination.” Because appellants, in their case in
chief, failed to proffer competent, admissible evidence of the
impact of inflation on lost, future wages and because a jury
cannot consider this issue without such evidence, appellants
cannot benefit from a holding of this court overturning the
decision in Penrod. Appellants are not entitled to the new trial
on damages the majority prescribes, and therefore I must
respectfully dissent.
I.
In Penrod Drilling Company, this court—in the face of
competent expert testimony from two economists on the issue
of inflation—adopted a rule that excluded any evidence or jury
instructions concerning the impact of inflation on damage
awards because “we still cannot so surely discern the shadow of
inflation as a coming event to warrant requiring its inclusion in
a present rule for calculating future damages.” Penrod, supra,
510 F.2d at 236. Thus, regardless of the qualifications of an
expert or the basis for his testimony, we proscribed any effort
to factor in the impact of inflation on recoveries for future
losses. As Judge Brown points out for the majority, the “Pen-
rod rule” as subsequently interpreted by this circuit has
72a
amounted to a “flat prohibit{ion] (of) any consideration of infla-
tion.” Majority Opinion, at 290.
In this case, the appellants sought, and were refused, a jury
instruction concerning the impact of inflation on damages
awards. Record, vol. 4, at 865, 867-68. On appeal, they urge us
to change the Penrod rule barring such an instruction and to
hold that competent evidence of inflation may be considered by
a fact-finder in calculating lost earnings. However, appellants
established no foundation whatsoever in the record for such an
instruction. Indeed, they did not proffer or even attempt to
proffer a scintilla of evidence in their case in chief concerning
inflation; for strategic reasons they did not want the jury to
hear such evidence. They now have the audacity to claim in
their brief to the court en banc that the trial judge “would not
permit any proof, or even a bill or a proffer of proof (sic)
concerning inflation or deflation, or the rapidly decreasing
value of a dollar. He would not permit it for the record, for
proof on this appeal, or for any other purpose.” Plaintiffs-
Appellants Post-Submission Brief at 5. The record reveals that
this claim is false. The Penrod issue is therefore not before us.
The district court held a pretrial conference in this case and
entered a comprehensive pretrial order which set forth, among
other things, contested issues of fact and law. Nowhere in that
order is there any indication that the plaintiffs wanted the jury
to consider inflation in calculating damages. Record, vol. 2, at
333-49.
Although the plaintiffs listed “Dr. Seymour Goodman,” an
economist, as a potential witness, they did not indicate that his
testimony would bear on inflation. Jd. at 346. In fact, Dr.
Goodman was not called, and plaintiffs called not witness to
testify on inflation. Plaintiffs made no proffer of any kind on
inflation during their case in chief. Their claim that the trial
judge would not permit them to do so is therefore unfounded.
This is made clear by a colloquy that occurred between the
court and counsel during the plaintiffs’ cross-examination of a
73a
defense expert witness, Hattier. It was during the cross-
examination of Hattier that plaintiffs first attempted to inject
inflation into the case. Record, vol. 7, at 745-48.
By plaintiffs’ admission, their choice not to call their expert,
Goodman, during their case in chief was purely tactical: “The
reason that the Culvers did not call their ‘expert’ actuary was
to avoid putting the high discount rate before the jury... .”
Plaintiffs-Appellants Post-Submission Brief at 5. Thus, plain-
tiffs deliverately did not make a proffer concerning inflation.
The defense called Hattier as a bond expert for the sole and
narrow purpose of establishing an appropriate discount rate in
accordance with Chesapeake & Ohio Railway v. Kelly, 241
U.S. 485, 36 S.Ct. 630, 60 L.Ed. 1117 (1916). When counsel for
plaintiffs attempted to ask Hattier on cross-examination about
“inflationary trends” and the value of the principal of a thirty-
year government bond at maturity, the court sustained a
general objection from defendants. Record, vol. 7, at 742.
Shortly thereafter, plaintiffs’ counsel approached the bench
and sought to proffer the testimony he thought Hattier could
give concerning inflation, a subject upon which he did not
testify on direct nor for which he had been qualified by counsel.
The court properly resisted plaintiffs’ attempt to make defend-
ants’ expert its own:
Make whatever proffer you want. Let me tell you this. In
the first place, you just make your proffer, make your
statement here, but let met teii you this is excludable
because he didn’t go into this on his direct examination. It
is improper cross-examination. You rested your case and
you can’t bring this witness back as part of your ease in
chief. You offered no evidence on that in the case in chief.
Record, vol. 7, at 745. Plaintiffs’ counsel then stated that he
wished to ask Hattier about inflationary trends, the impact of
inflation on bonds and other investments, etc. Record, vol. 7,
at 746-48. Counsel offered no proof that Hattier would so
testify, or, more fundamentally, that he was qualified to give
such expert opinion testimony under the Federal Rules of
Evidence. See Fed. R. Evid. 702.
74a
At the conclusion of this brief proffer, the trial judge made it
clear that such evidence would not be admitted for two, inde-
pendent reasons: “you can’t use the cross-examination of this
witness as part of your case in chief,” Record, vol. 7, at 747,
and “I will not permit you to introduce any evidence before the
jury relative to inflation in view of the present law that I am
bound by which is the Penrod case.” Record, vol. 7, at 748. It
was “(flor those two reasons [that] the attempt to elicit that
testimony in the presence of the jury is denied.” Record, vol. 7,
at 747.
The trial then ended without further testimony and without
any attempt by plaintiffs to reopen their case to introduce
inflation testimony. The issue of lost future earnings was thus
presented to the jury on evidence concerning the life and work
expectancies of plaintiffs’ decedent, and the hourly wage for a
Superintendent of pushers of an anchor pulling crews, the
decedent’s job at the time of his death. There was no evidence
concerning the effect of inflation on future earnings. A charge
conference preceded counsel’s closing arguments to the jury.
The record is unclear as to whether plaintiffs sought a jury
instruction allowing the jury to take inflation into account in
their damages award, but I assume one was requested because
the court told counsel that it could not argue inflation to the
jury. Record, vol. 8, at 764-65.
The net effect of plaintiffs’ trial strategy was that a party
which made a tactical decision not to offer evidence on inflation
nonetheless sought an inflation instruction asking the jury, I
Suppose, to call upon its genius, general knowledge and pre-
vious information to arrive at the inflation component of its
damages award. The district court properly refused such an
instruction. The refusal of the court to give it is the only error
the appellants now present to this en banc court.
Il.
Whatever may be said about Penrod and the merits of the
rule concerning inflation, one thing is clear: juries cannot be
left in the wilderness to speculate about the future effects of
75a
inflation on lost wages where the record contains no evidence
on that subject. To reach this conclusion we need not decide
whether in a case that presents competent, probative evidence
of inflation, Penrod shoud be overruled, thus permitting the
jury to consider such evidence in calculating prospective wage
losses.
The majority attempts to excuse the failure of appellants to
preserve the Penrod issue by stating: “Given this flat prohibi-
tion against introducing testimony (or making argument) as to
future inflationary trends on the basis of Penrod, it makes no
sense to argue that Culver may not raise this issue on appeal
simply because he (sic) did not proffer an expert on inflation.”
Majority Opinion, at 285. (Emphasis added.) This implicitly
acknowledges the appellants’ failure to take the necessary
steps to preserve an issue for appeal, see Fed. R. Civ. P. 46,
but asserts that because the trial court prevented Culver from
making a record we must overlook this failure.
The majority’s statement that the trial court prevented
plaintiffs from “introducing testimony” is simply incorrect. As
I have pointed out, the plaintiffs, for purely tactical reasons,
rested their case without even attempting to introduce infla-
tion evidence. They made no attempt to preserve the Penrod
issue for appeal. All they preserved for the Court of Appeals is
the right to a jury instruction on the impact of inflation on
future wages in a case where they deliberately refrained from
introducing evidence on inflation. Such an instruction without
any record evidence regarding inflation would invite the
lawyers in closing argument to call upon the jury simply to
invent an inflation figure out of thin air. I cannot countenance
this result.
What the majority forgets—in its haste to reach the Penrod
issue and change our rule concerning inflation—is the responsi-
bility of this court to do justice for the litigants in the case
before it. No one needs to be reminded that “The judicia) power
shall extend to all Cases, in Law and Equity, arising under this
Constitution, the Laws of the United States, and Treaties
made, or which shall be made, under their Authority”; U.S.
76a
Const. art. III, § 2. The requirement of a “case or controversy”
prior to the exercise of the judicial power is designed precisely
to prevent what has occurred here: abstract judicial law-
making in the absence of facts and parties with a dispute
requiring its exercise. Here, the Penrod issue is not properly
before us, and to raise it without a proper foundation is both to
run roughshod over the constitutional restraints on our power
and to require the defendants to submit to the retrial of anissue
properly laid to rest in the district court.
The district court acted well within its discretion in prevent-
ing the plaintiffs from making a defense expert their own
witness on cross-examination, see F
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