# Amicus Curiae Brief — United States v. Burke > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0167%3A12 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1992 - **Citation:** 504 U.S. 229 ## Text 09) | FILED No. 91-42 DEC 23 199) | In The OFFICE OF THE CLERK Supreme Court of the United States @ctuber Term, 19591 UNITED STATES OF AMERICA, Petitioner, Vv. THERESE A. BURKE, et ai., Respondents. BRIEF OF WOMEN EMPLOYED, 9TO5, NATIONAL ASSOCIATION OF WORKING WOMEN AND CHICAGO LAWYERS’ COMMITTEE FOR CIVIL RIGHTS UNDER LAW, INC. AS AMICI CURIAE IN SUPPORT OF RESPONDENTS Mary L. Mixva MIcnae- B. Erp STEPHEN G. SELIGER Katz, FrrEDMAN, SCHUR 122 South Michigan Avenue & EaG ie, CuTp. Suite 1850 7 South Dearborn Street Chicago, Illinois 60603 Suite 1700 (312) 427-4500 Chicago, Illinois 60603 R Les Camere (312) 263-6330 Hopkins & SuTTER Counsel of Record for the Three First National Plaza Amici Curiae Suite 4200 Chicago, Illinois 60602 (312) 558-4212 ARTHUR BENSON, III Mary K. O’MELVENY BENSON & McKay COMMUNICATION WORKERS 1000 Walnut Street OF AMERICA Suite 1125 501 3rd Street, N.W. Kansas City, Missouri 64106 Suite 810 (816) 842-7603 Washington, D.C. 20001 Of Counsel (202) 434-1213 Of Counsel ARMI® Legal Copies of America (312) 332-2764 BEST AVAILABLE COPY) i TABLE OF CONTENTS Page I snabnaeianeetenbianiitansdiavancinns li EE NE I II ccccecsecnccnesusinberssteccsnssipsasoesersiee l INTRODUCTION AND SUMMARY OF ARGUMENT .......... 2 iia oedema saaponanicbicmndegasnnets 4 l. Title VII Victims Have Suffered Personal RMSE ERE TIE Se Re ADORE a eo 4 Il. There is No Basis for the Service's Distinction Between “Physical” and “Nonphysical’”’ Injuries Under §104(a)(2) Or Its Requirement that Victims of Nonphysical Injuries Show that Their Recoveries Constitute a “Return of Capital.” .............::ccccscceeeeeseeeeeees 6 III. The Service’s Interpretation of §104(a)(2) Unfairly Discriminates Against Victims of Nonphysical a eauiaicibowndtnsoosieeseone 14 IV. The Possibility that Plaintiffs’ Recovery Here Was for “Work Performed” Provides No Basis for the Service's Ne ET es BS Dn ee OO TE EOC DOP 19 URI Cahatitchaccamasebonciedvuedsnsiiivtinisiesevmerenenentensiotennssesncesorianes 22 il TABLE OF AUTHORITIES CASES: Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974)............... 16 Anderson v. United States, 929 F.2d 648 (Fed. Cir. 1991)......... 12 Commissionerv.Glenshaw Glass Co., S48 U.S. 435 (IGG) .2.cccccerecesensccusvosassuussiie eee 10, il Commissioner v. Jacobsen, 336 U.S. 28 (1949) ............................ 7 Downey v. Commissioner, 97 T.C. 150 (1991) ...................... 12,13 Doyle v. Mitchell Brothers Co., 247 U.S. 179 (1918) .................... 8 EEOC, et al. v. AT&T Technologies, Inc., No. 78 C 3951 and No. 82 C 1562 (BU DDTBB)..ccccoccscscsmneossesennn ee 18 Eisner v. Macomber, 252 U.S. 189 (1920) ......................-..--.... 10 Ford Motor Company v. EEOC, 458 U.S. 219 (1982) ................ 16 Goodman v. Lukens Steel Co., 482 U.S. 656 (1987) ..................... 5 Hodge v. Commissioner, 64 T.C. 616 (1975)......... hieitaamomanat 13 Mallard v. U.S. District Court, 490 U.S. 296 (1989) ..................... 7 Metzger v. Commissioner, 88 T.C. 834 (1987), aff'd without published opinion, 845 F.2d 1013 (3d Cir. 1988)....... 12 McShane v. Commissioner, T.C. Memo 1987-151, 53 T.C.M. | BUD (1B 7) ..000 See e.g., Revenue Ruling 30-364. |\e2 CB. 294 (back pay is “wages,” interest is not). 18 substantial penalties.’ Negotiation of these matters is therefore a difficult and costly struggle for the parties. Moreover, the recent amendment of Title VII, discussed supra at 16, which expands the relief available under Title VII, will further complicate settlements, if the parties are required to engage in complex damage allocations acceptable to the Service. To cite just one example of the tax-based complexity that plagues Title VII cases, about one-third of the lengthy settlement agreement in a recently settled class action, plus a five-page “side letter,” deals solely or largely with tax matters."” The parties wrestled with such issues as (1) backpay vs. interest; (2) conditions under which the defendant would be willing to rely on the interest allocation and forego withholding and employment taxes; (3) the process for seeking a binding determination from the Service or an opinion of outside tax counsel prior to the distribution of money to the class members; (4) allocation of attorneys’ fees and costs as between backpay and interest; (5) how a windfall to the defendant would be avoided where the employer's share of employment taxes was paid out of the settlement shares of the thousands of class members who were also current employees of the defendant; and (6) many other tax-related issues. Tax issues consumed countless hours of the parties’ time and $80,000 was spent on tax counsel fees by the plaintiffs alone. o ‘An employer who pays “wages” and does withhold income taxes or the employee's half of FICA taxes is personally liable for the amounts that should have been withheld but were not. See 26 U.S.C. §§3102(b) (FICA), 3403 (income tax withholding). The employer is also liable for (1) FUTA tax, (2) the employer half of FICA tax, and (3) a 10 percent penalty for failure to make a timely deposit of all required FICA’ FUTA taxes and required income tax withholding. 26 U.S.C. §6656. “ EEOC, et al. v. AT&T Technologies, Inc., No. 78 C 3951 and No. 82 C 1542 (N.D.I1L) is a federal sex discrimination class action on behalf of approximately 13,000 women, alleging that the defendant carried out discriminatory policies against women taking maternity leaves from employment. The parties’ settlement negotiations related to taxation issues began in earnest in February of 1991 and were not completed until July. The settlement was approved by the court on December 9, 1991. 19 In short, the Service's position, if adopted by the Court, would perpetuate drawn out and costly disputes in which plaintiffs attempt to characterize amounts of money as being one thing, in order to save the cost of taxes for both parties, and defendants, fearing tax liability, insist on the conservative position that all or much of the settlement consists of taxable “back wages,” from which the Service is entitled to take its cut. Settlements are more expensive and tax issues may operate to discourage the parties from settlement, resulting in more protracted litigation. These costly and complex impediments to settlement would be elim- inated if this Court simply gives §104(a)(2) its plain and intended meaning. Discrimination cases could then be settled just like any other personal injury case, without costly disputes over tax issues.'! Discrimination victims would receive the same tax treatment as other tort victims. IV. The Possibility that Plaintiffs’ Recovery Here Was for “Work Performed” Provides No Basis for the Service’s Position in this Case. The Service repeatedly emphasizes that plaintiffs’ recovery in this case was “for work already performed.” Petitioner’s Brief at 18-20, 21. The Service likens this to a suit for wage deficiencies or a wage differential. Jd. at 5 (citing Opinion of the District Court, Pet. App. 32a). This characterization, however, even if it accurately describes the remedy provided in the case -: If backpay for discrimination is not taxable, then the only arguably taxable items that could be recovered in such cases would be interest and, after 1991, punitive damages. Simplicity is best achieved, however, by holding that a// amounts received (except punitive damages) are not taxable. Alternatively, the parties could treat a settlement as an amount of damages without interest. See McShane v. Commissioner, T.C. Memo 1987-151, 53 T.C.M. 409 (1987). However, this may require sophisticated consideration by the parties of the tax issues. Punitive damages are not an issue because they are simply not agreed to by defendants as part of settlements, even in cases where they could be awarded at trial. 20 before the Court,'2 cannot support the Service’s general approach to Title VII and other nonphysical injury recoveries. First, amici note that there is little basis for characterizing invidious wage discrimination as anything other than a personal injury. An employee who is paid less because she is female or black has been discriminated against and the wrong committed is to her person. See 42 U.S.C. §2000e-2(a). Compare 29 U.S.C. §206 (minimum wage requirements). In addition, a wage differ- ential often forms one component of a physical injury case, where, for example, a physical injury requires a plaintiff to obtain a lower paying job because he can no longer perform a job he held prior to his injury. Presumably the Service would agree that this recovery would be excluded by §104(a)(2). Thus, neither the injury involved nor the remedy provided offers any basis for depriving plaintiffs here of the §104(a)(2) exclusion. Moreover, to describe any backpay in a discrimination case as compensation “for services” is simply to mischaracterize the nature of the Title VII rernedy. The backpay is not a liability that the employer incurred in order to obtain services. The reason for the payment of compensation is the employer’s illegal discrimination, not the work the plaintiff performed. More importantly, even if backpay could be viewed in some sense, in some cases, as “compensation for services” under Code §61(a)(1), this does not address the §104(a)(2) analysis. Items included in the general concept of income, or even specifically listed in §§61(a)(1) through (15), are included in “gross income” only “{e]xcept as otherwise provided in this subtitle,” e.g., except as otherwise provided in §104(a)(2).'° The fact that damages ‘: Amici’s understanding is that the settlement proceeds were not awarded or distributed on a backpay basis, nor was any attempt made to provide an appropriate differential to each plaintiff to provide her with a nondiscriminatory rate ot pay. The specific nature of the award in this case, however, is most propery addressed by the parties. ‘3 Other kinds of “compensativn tur services” are also excluded by “other provisions” of subtitle A, such as health insurance (§106). Similarly, other items specifically listed in $6l\a) are, nevertheless, in some circumstances, excluded under anvther provision of subtitle A. E.g., discharge of indebtedness income under §$61(a)(12) and 108. 21 i received may also be viewed as “compensation for services,” provides absolutely no support for the government’s position. However, even if a distinction is to be drawn in wage differential cases under §104(a)(2), the Service’s proposed interpretation of that Section must still be rejected. After repeatedly stressing the fact that plaintiffs’ recovery here was for work already performed, the Service argues that there is no distinction between salary discrimination cases and cases involving discriminatory firing or failure to hire. Petitioner’s Brief at 26, n.20. The Service seeks a wholesale limitation on, and two-tiered additional burden approach to, all nonphysical injuries under §104(a)(2) and that approach must be rejected. One court of appeals has drawn a distinction, under §104(a)(2), for a salary discrimination case, but on very narrow grounds. In Thompson v. Commissioner, 866 F.2d 705 (4th Cir. 1989), the Fourth Circuit held that a wage differential award under the Equal Pay Act of 1963, 29 U.S.C. §206(d), and under Title VII did not fall within the §104(a)(2) exclusion. The court reasoned that plaintiff “received compensation for services rendered whereas a tort plaintiff receives compensation for the inability to earn an income due to the tortious action of a defendant.” 866 F.2d at 712. Amici respectfully disagree with the decision in Thompson for the reasons stated supra at 20- 21. As other courts have recognized, however, even under the court’s analysis in Thompson, recovery of backpay by a termi- nated employee or an employee who was not hired would still be excluded by §104(a)(2). Redfield, supra, 940 F.2d at 546; Rickel, supra, 900 F.2d at 664, n.16. The government’s disingenuous description of the recovery in this case — pay for “work performed” — should not be permitted to color this Court’s analysis of the general nature of the “personal injury” of illegal discrimination. Cases involving illegal pay differences for “work performed” are a small fraction of the cases to which the Court’s opinion in this case may be applied. Persons who are discharged, not hired, or not promoted to higher positions represent the bulk of discrimination victims. In the physical injury case there is no doubt that damages representing wages that should have been earned, but were not because of the injury, are excludable from tax. Victims of illegal discrimination are 29 in precisely the same position and are entitled to the same treatment. By selecting this case as its vehicle for Supreme Court review, and by its description of the recovery as pay for work performed, the Service attempts to color the Court’s analysis and, if the Court reverses, perhaps also to obtain a rationale for denying the benefits of §104(a)(2) to the more typical discrimination claimants who cannot be said, in any sense whatsoever, to be receiving pay for work performed. Amici respectfully request this Court to decline the Service’s invitation to use this case as a vehicle for such an emasculation of the §104(a)(2) exclusion. CONCLUSION The judgment of the court of appeals should be affirmed. Respectfully submitted, Mary L. Mikva STEPHEN G. SELIGER 122 South Michigan Avenue Suite 1850 Chicago, Illinois 60603 (312) 427-4500 R. Lee Curistieé Hopkins & SUTTER Three First National Plaza Suite 4200 Chicago, Illinois 60602 (312) 558-4212 ARTHUR BENSON, III Benson & McKay 1000 Walnut Street Suite 1125 Kansas City, Missouri 64106 (816) 842-7603 Of Counsel Micuae B. Erp Katz, FRIEDMAN, SCHUR & EaG.e, CuTp. 7 South Dearborn Street Suite 1700 Chicago, Dlinois 60603 (312) 263-6330 Counsel of Record for the Amici Curiae Mary K. O'MELVENY COMMUNICATION WORKERS or AMERICA 501 3rd Street, N.W. Suite 810 Washington, D.C. 20001 (202) 434-1213 Of Counsel --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0167%3A12. Public record. Not legal advice.