Amicus Curiae Brief — United States v. Burke

No. 91-42 DEC 23 199}

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1991

UNITED STATES OF AMERICA,

Petitioner,

Vv.

THERESE A. BURKE, ET AL.,

Respondents.

On Writ of Certiorari from the United States

Court of Appeals for the Sixth Circuit

AMICUS CURIAE BRIEF OF

NATIONAL EMPLOYMENT LAWYERS ASSOCIATION

IN SUPPORT OF RESPONDENTS

Robert B. Fitzpatrick *

Fitzpatrick & Verstegen

4801 Massachusetts Ave., N.W.

Suite 400

Washington, D.C. 20016-2087

(202) 364-8710

Counsel to Amicus Curiae NELA

* Counsel of Record

YY

QUESTION PRESENTED

Whether payments received in

settlement of claims under Title VII of

the Civil Rights Act of 1964 are

excluded from the claimant's gross

income under Section 104(a)(2) of the

Internal Revenue Code as "damages

received * * * on account of personal

injuries or sickness." (26 U.S.C.

104(a)(2)).

- ii -

Page

TABLE OF CONTENTS

QUESTION PRESENTED. «oo ccssseceseneee i

SABLE OF COMPENEB. «0 0ctccetesenn 11

TABLE OF AUTHORITIES 2c ccccccececeens 111

INTEREST OF AMICUS CURIAE.............. 2

ARGUMENT ..cccccccces coccccccccce eeccces 4

AN AWARD OR SETTLEMENT UNDER TITLE

VII OF THE CIVIL RIGHTS ACT OF 1964

CONSTI- TUTES DAMAGES RECEIVED "ON

ACCOUNT OF PERSONAL INJURIES" WITHIN

THE MEANING OF SECTION 104(a)(2) OF

THE INTERNAL REVENUE CODE.............. 4

A. Application of Section 104 (a) (2)

requires the Court to focus on

the nature of the Respondents’

CLORMs ccccces coccccceseeeeenseebus 6

B. The violation of one's statutory

right to be free of invidious

employment discrimination gave

rise to a claim for personal

ERJUEY «occ cccencestasbnenne 23

CUONCTAIS ION. oo oc veccceseueseuenel 36

- iii -

ABLES OF AUTHORITIES

Cases Page(s)

Vv. issioner, 290 F.2d

; '

283 (2d Cir. 1961), aff'g,

19 T.C.M. (CCH) 116 (1960).......-- 13,30

Arrowsmith v. Commissioner,

344 U.S. 6 (1952)....-- ch fF CR eS ee em 19 n.5

issioner, 87 T.C.

236 (1986), aff'd, 835 F.2d 67 ies ins

(3r@ Cir. 1987)...--- eee eeeees a7.

ivens v. Six Unknown Narcotics ;

Agents, 403 U.S. 399 (1971)...-.------ 2

Vv. ited States, 824 F.2d 528 a

(6th Cir. 1987) .....ceeceececscccceces

Vv issioner, 883 F.2d a

211 (3rd Cir. 1989)... -eeeeeeeeees 22,

Vv. iversi f Chicago, ’

441-U.S. 677 (1979) .-- ee eee eeerrerecss 2

j v. Williams, No.

86-526 (Oct. 1986 Term).......++-+--++: 3

Church v. Commissioner, 80 T.C. 1104 oe

(1983) ..- eee eeees anew ee eeeee eee 8

i v. Glenshaw Glass Co., "

348 U.S. 426 (1955)... cece rece eeeerreces

457 U.S. 440,

= eee eececeecoes 24 n.7

tet eceeece 0 :

- iv -

ABLES AUTHOR S-CONTINUE

ases Page(s)

Cooter & Gell v. Hartmarx Corp.,

BO. SP-27S (GSS. LSSD DORM) cc cccsccccecs 4

Curtis v. Loether, 415 U.S. 189

CSPrer cccecesecees xe ff @ @ © @ ne ff fe © © @© @ 34 n.9

Davis v. Passman, 442 U.S. 228

[EP eer se aceedewesées ee ef fe # © © © hee aA rT eM eR 24

English v. General Electric Co.,

WO. SP-1S2 (GSE. ISSS TOEM) cccccccccecs 4

Furnco Construction Co. v. Waters,

G36 Gis Hee Cee iu oa kekceedncen 24 n.7

Glynn _ v. Commissioner, 76 T.C. 116

(1981), aff'd, 676 F.2d 682 (list

GCOls BRS 4ibnesdebssececeaenceee 11, 30

Goodman v. Lukens Steel Co., 482 U.S.

Gee Caer) s0s 5060568 besensnens TeTTLTT 5

Harbison-Walker Refractories, Inc. v.

Brieck, No. 87-271 (Oct. 1987

We 66046606660 6680 86 bbee een Seeenseeeae 4

Johnson v. Railway Express Agency,

Inc., 421 U.S. 454 (1975)..... TUeLTTT ET 29

Keller v. Commissioner, 62 T.C.M.

(2 i} re ee F<

Knuckles v. Commissioner, 23 T.C.M.

(CCH) 182 (1964), aff'd, 349 F.2a

G20 (10th Chir. 1965) ..ccccccccccccecss 30

- Y=

O R -CONTINUE

Cases Page(s)

Lorillard v. Pons, 434 U.S. 575

(1978).. *“e © fe © @ Ss eewenreayaRAMR SB eRe SS Se 10 Rea

Los Angeles Dept. of Water and

Power v t, 435 U.S. 702

(1978) . ce eee eee eeeeee Bas £ Ss Fee eS eS eR 24 —,

McDonald v. Commissioner, 9 B.T.A.

1340 (1928) .2. eee eee eeeeees ast =a Se we me Oe Ue 11

Melani v. Board of Higher Education

wW ity, 652 F.Supp 43

(S.D.N.Y. 1986). ese eco40aca0ucoan2eeoe02¢000808080 27-28

er v. Commissioner, 88 T.C.

Metzger v. Commissioner

834 (1987), aff'd mem., 845 F.2d

2033 (364 Cir. 1968) ...cccccces: 26-27, 29

Miller v. Commissioner, 93 TC 330

(1989), rev'd, Commissioner v.

Miller, 914 F.2d 586 (1990)......-- 15 n.4

Vv. ternational Paper Co.,

408 F.2d 283 (5th Cir. 1968).....--++- 35

R Vv. issioner, 79 T.C.

398 (1982), rev'd, 716

F.2d 693 (9th Cir. 1983)

rerrry, rc Terre ee Te 12-14,15n.4,18,20

Seay v. Commissioner, 58 T.C. 32

(1972) .. cee ee rerccneeces ane 2 & ee ee 2s ee eS 11

Thompson v. Commissioner, 866 F.2d

709 (4th Cir. 1989)....--eeeeeeees 21, 25

S OF A ORITIES-CONTINUED

Cases — |

Threlkeld v. Commissioner, 87 T.c

1294 (1986), aff'd, 848 F.2d 81

(6th Cir. BEE ce bb esesosccesece + iOris 20

’

United States v. Hilton Hotels

Corp., 397 U.S. 580 C ..) aa 2

Woodward v. Commissioner, 397 U.S.

5

72 CN His GGGG Ko divas asea cs ve ok n.5

Wulf v. City of Wichita, 883 F.2d 842

ee I ee 26

Statutes and Regulations

26 U.S.C. § 104(a) (2)............. Passim

29 U.8.C. § 21S (a) (3)... ccccccccces 31, 33

ot ee eee ae 31

Se ee ee 31-33

213(b) (6), 40 Stat. ios7 sn

te eee 06608 60 6660046464% 7, 8 n.2

ee a ed 66 6 owes hkceeedced 5, 29

ema ws e MN 445 066snaucen 16, 17, 28

Treas. Reg. 26 C.F.R. § 1.104-1(c)....10

- vii -

TABL O UTHOR ES-CONTINUED

iscellaneous

Cc. and B. Whalen, The Longest

Debate: A Legislative History

of the 1964 Civil Rights Act

(AGRE) oc cccccccccccsseccecesecereces 5 n.l

Rev. Rul. 85-143, 185-2 CB 55..... 15 n.4

H. Rep. No. 767, Revenue Act of 1918,

65th Cong., 2d Sess. (1918)

1939-1 C.B. (Part 2) 86,92..... eooeS Red

H. Rep. No. 1337, Internal Revenue

Code of 1954, 83d Cong.,

2d SeSS. 15 (1954)... cece ceccccees 8 n.2

Report of the Committee on the

Budget of House of Representatives

to Accompany H.R. 3299 Omnibus

Budget Reconciliation Act of 1989..9 n.3

Conference Report to Accompany H.R.

3299, Omnibus Budget Reconciliation

Act of 1989, H.R. Report No. 101-386

101lst Cong. 1st Sess. 622 (Nov. 21,

|:):3°) 9n.3

H.R. Report No. 914 Report of House

Judiciary Committee to Accompany H.R.

7152 88th Cong., 1st sess. (Nov. 20,

1963) reprinted in Legislative

History of Titles VII and XI of

Civi j s Act o 964, p.20

published by EEOC.....--+++eeeeee: 34 n.8

- viii -

e) 0) S-CONTINUED

re) '

H.R. Report No. 101-247, 101st

Cong., 1st Sess. 1354-55 (Sept.

20,

1989) . cee eee eee ener ereerees

Page(s)

heouew n.3

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1991

No. 91-42

UNITED STATES OF AMERICA, PETITIONER,

Vv.

THERESE A. BURKE, ET AL.,

RESPONDENTS.

On Writ of Certiorari from the United States

Court of Appeals for the Sixth Circuit

BRIEF OF

NATIONAL EMPLOYMENT LAWYERS ASSOCIATION

AS AMICUS CURIAE

The National Employment Lawyers

Association, with the written consent of

the parties, respectfully submits this

brief as Amicus Curiae in support of the

2

Respondents. The letters of consent

have beer filed with the Clerk of the

Court.

INTEREST OF AMICUS CURIAE

Amicus urges the Court to follow

the well established nature of the claim

test in interpreting section 104(a) (2)

of the Internal Revenue Code, and to

thus affirm the holding of the Sixth

Circuit that awards and settlements in

statutory employment discrimination

cases are excludable from gross income

as damages received on account of

personal injuries.

The National Employment Lawyers

Association ("NELA"), formerly the

Plaintiff Employment Lawyers

Association, is a voluntary organization

of over 1,200 attorneys who specialize

in the representation of the individual

3

in controversies arising out of the

workplace. NELA has devoted itself to

supporting remedial civil rights

legislation in Congress, and in the

state and federal courts. NELA's

membership and its governing body is

composed of experts in state and federal

equal employment opportunity statutes as

well as wrongful discharge law. NELA

has a direct interest in the law

governing the construction and

application of the civil rights statutes

as NELA members' clients litigate under

these statutes regularly. NELA is well-

qualified to brief the Court on the

implications of its decision in this

case, having participated as amicus

curiae in numerous other cases involving

the employment discrimination laws.

4

Williams, No. 86-526 (Oct. 1986 Term);

-W i — P

Brieck, No. 87-271 (Oct. 1987 Term);

English v. General Electric Co., No. 89-

152 (Oct. 1989 Term); Cooter & Gell v.

Hartmarx Corp., No. 89-275 (Oct. 1989

Term). a

ARGUMENT

AN AWARD OR SETTLEMENT UNDER

TITLE VII OF THE CIVIL RIGHTS

ACT CONSTITUTES DAMAGES

RECEIVED “ON ACCOUNT OF

PERSONAL INJURIES" WITHIN THE

MEANING OF SECTION 104(a) (2)

OF THE INTERNAL REVENUE CODE

Introduction

This Court's focus should be on the

nature of the claim for which

compensation is being received by the

taxpayer, not the harm or consequences

of the alleged wrongdoing. Adhering to

this proper focus, the Court must

determine whether a statutory employment

5

discrimination claim seeks redress for

personal injuries or otherwise. In

Goodman _v. Lukens Steel Co., 482 U.S.

656 (1987), the Court held that a claim

for employment discrimination under 42

U.S.C. Sec. 1981 “is a fundamental

injury to the individual rights of a

person." 482 U.S. at 661. Claims for

employment discrimination pursued under

Title VII of the Civil Rights Act of

1964, like those before the Court in the

case sub judice, should be treated no

differently. Such claims arise under a

law whose purpose "is to promote ...a

deeper respect for human dignity."'

\

Remarks of President Lyndon B.

Johnson on July 2, 1964 upon

the signing of the Civil

Rights Act of 1964, reprinted

in Charles and Barbara Whalen,

"The Longest Debate: A

Legislative History of the

1964 Civil Rights Act" 232

(1985).

6

Thus, awards and settlements in

statutory employment discrimination

cases should be excluded from gross

income as damages received on account of

personal injuries. Any other result

would increase transactional costs and

diminish the prospects of settlement --

a result that would be inconsistent with

the strong legislative directive that

efforts be made to conciliate such

disputes.

A. Application of Section 104(a) (2)

requires the Court to focus on the

nature of the Respondents' claim

Section 61(a) of the Internal

Revenue Code of 1954 (26 U.S.C.)

provides that, except as otherwise

provided in the Code, gross income means

"all income from whatever source

derived." Accordingly, any funds or

other accessions to wealth received by a

4

taxpayer are presumed to be gross

income, unless the taxpayer can

demonstrate that the accession fits into

one of the specific exclusions created

by other sections of the Code.

Commissioner v. Glenshaw Glass Co., 348

U.S. 426, 430-431 (1955).

The exclusion at issue here is

found in Section 104(a)(2) of the Code,

which provides that gross income does

not include "the amount of any damages

received (whether by suit or agreement)

on account of personal injuries or

sickness." This exclusion remains

substantially the same as its original

predecessor which was enacted as part of

the Revenue Act of 1918, Pub. L. 65-254,

Ch. 18, section 213(b) (6), 40 Stat.

1057, 1065-66. While Congress has

failed to ever precisely define the

8

phrase “personal injuries or sickness, "*

it has chosen to retain the exclusion

through its numerous overhauls and

3(.. .continued)

reforms of the Internal Revenue Code.°

Neither the legislative

history of the Revenue Act of

1918, H. Rep. No. 767, 65th

Cong., 2d Sess. (1918) 1939-1

C.B. (Part 2) 86, 92, nor that

of the Internal Revenue Code

of 1954, H. Rep. No. 1337, 83d

Cong., 2d Sess. 15 (1954); S.

Rep. No. 1622, 83d Cong., 2d

Sess. 15-16 (1954) contains

any such definition.

In 1989, the Treasury

Department proposed that IRC §

104(a)(2) be amended to permit

only damages for physical

injury to be excluded from

income. Under the

Department's proposed

amendment, damages for

nonphysical torts would have

been no longer excluded from

income taxation. The

Department's proposal was

rejected. The Conference

Report stated as follows:

Under present law,

damages recovered on

account of personal

injury are excluded

(continued...)

from gross income.

In some cases,

courts have held

that this exclusion

is available even

though there is no

physical injury, for

example, in cases

involving employment

discrimination.

Conference Report to

accompany H.R. 3299, Omnibus

Budget Reconciliation Act of

1989, H.R. Report No. 101-386,

101lst Cong., list Sess. 622

(November 21, 1989). See also

Report of the Committee on the

Budget of House of

Representatives to accompany

H.R. 3299, Omnibus Budget

Reconciliation Act of 1989,

H.R. Report No. 101-247 101st

Cong., 1st Sess. 1354-55

(Sept. 20, 1989):

"Under present law, gross

income does not include

any damages received .

- on account of personal

injuries or sickness."

(Sec. 104)). Courts have

interpreted this

exclusion broadly in some

cases to cover awards for

- personal injury that do

not relate to a physical

(continued...)

10

The Treasury Regulations amplify

the section 104(a)(2) exclusion by

defining "damages received on account of

personal injuries" to mean "an amount

received ... . through prosecution of

a legal suit or action based upon tort

or tort-types rights, or through a

settlement entered into in lieu of such

prosecution." Treas. Reg. section 1.104-

l(c). This Regulation indicates that

the excludability of damages depends

3(.. continued)

injury or sickness. For

example, some courts have

held that the exclusion

applies to damages in

cases involving

employment discrimination

Cf. Lorillard v. Pons, 434

U.S. 575, 580 (1978) ("Congress is

presumed to be aware of an

administrative or judicial

interpretation of a statute and to

adopt that interpretation when it

re-enacts a statute without

change.")

11

upon the nature and origin of the

underlying claim. The Tax Court has

historically stated that the correct

test in determining whether damages fall

within the section 104(a)(2) exclusion

is te look to the origin of the claim.

See, e.g., Glynn v. Commissioner, 76

T.C. 116, 119 (1981), aff'd, 676 F.2d

682 (lst Cir. 1982); Seay v.

Commissioner, 58 T.C. 32 (1972);

McDonald v. Commissioner, 9 B.T.A. 1340

(1928). In application, however, the

Tax Court has frequently deviated from

its own test and has looked to the

consequences of a tort or tort-type

claim rather than the origin of the

claim.

While the Tax Court has interpreted

the exclusion to cover compensatory

damages for both physical and

12

nonphysical injury to the person, Church

v. Commissioner, 80 T.C. 1104, 1106

(1983), in cases involving nonphysical

injury the Tax Court, until recently,

has held that only those damages which

actually reimburse for such nonphysical

personal injury, as opposed to damages

paid for earnings lost because of such

injury, are excludable under section

104(a)(2) of the Code. See, e.g.,

Roemer v. Commissioner, 79 T.C. 398

(1982), rev'd, 716 F.2d 693 (9th Cir.

1983) (holding that compensatory damages

received in libel suit for injury to

professional reputation were includable

in gross income); compare Church v.

Commissioner, 80 T.C. 1104 (1983)

(damages received by Arizona attorney

general in defamation suit were for

injuries to his personal reputation and

13

therefore excludable under section

104 (a) (2)).

The validity of the Tax Court's

approach in examining the consequences

stemming from a tortious action, instead

of focusing on the origin of the claim,

in the case of a nonphysical injury was

first questioned by the Second Circuit

in its review of Agar v. Commissioner,

290 F.2d 283, 284 (1961), aff'g, 19

T.C.M. (CCH) 116 (1960). Thereafter,

the Court of Appeals for the Ninth

Circuit reversed the Tax Court's

position in Roemer, pointing out that

when an individual recovers a lump-sum

award for a physical personal injury the

entire award is properly excluded under

section 104(a)(2) even when the

predominant result of the injury is loss

of income, and concluded that any

14

different approach for a nonphysical

injury -- such as defamation -- would be

illogical. Roemer, 716 F.2d at 697.

The Roemer court held that all

compensatory damages, however computed,

in a claim alleging a personal tort were

excludable under section 104(a)(2) of

the Code.*

15

The Roemer court stated the

In response to the Ninth

Circuit's opinion in Roemer,

the Internal Revenue Service

issued Rev. Rul. 85-143, 185-2

CB 55, stating that it would

continue to follow the

rationale of the Tax Court's

Roemer opinion, distinguishing

between injury to personal

reputation and business

reputation.

The Tax Court in Roemer also

held that the entirety of the

punitive damage award was

taxable. The Ninth Circuit

overturned this holding,

stating that when Congress

enacted section 104(a)(2) to

make tax-free “any damages"

arising from personal injury,

this meant all damages,

including punitive damages.

Several years later, the Tax

Court) sitting en banc, ruled

ina 14-2 decision that

punitive damages under section

104(a)(2) are excludable.

Miller v. Commissioner, 93 TC

330 (1989). Thereafter, the

Fourth Circuit reversed the

Tax Court's holding.

Commissioner v. Miller, 914

F.2d 586 (1990). The

rationale of the Fourth

Circuit was that punitive

damages serve no compensatory

function. This rationale is

squarely contrary to the Ninth

(continued...)

16

rule thusly:

The nonpersonal consequences

of a personal injury, such as

a loss of future income, are

often the most persuasive

means of proving the extent of

the injury that was suffered.

The personal nature of an

injury should not be defined

by its effect.

716 F.2d at 699.

In Bent v. Commissioner, 87 T.C.

236 (1986), aff'd, 835 F.2d 67 (3d Cir.

1987), Judge Chabot of the Tax Court,

without discussing Roemer, reached a

result identical to that reached by the

Ninth Circuit. The decision held that

damages, measured primarily by lost

wages, paid to a professor in settlement

of a claim brought under 42 U.S.C.

section 1983 for violation by a local

“(...continued)

Circuit's in Roemer. See also

Keller v. Commissioner, 62

T.C.M. (CCH) 401 (1991).

17

school district of the petitioner's

First Amendment right to freedom of

speech, were excludable under section

104(a)(2) of the Code. This result was

reached after a review of various

Supreme Court decisions discussed

therein which held that section 1983

creates a species of tort liability for

personal injury. In affirming the Tax

Court, the court of appeals rejected the

Commissioner's argument that because the

settlement received by Bent contained an

amount based upon his lost wages, that

sum was compensation not excludable

under section 104(a)(2), stating "an

award of damages for the violation of a

constitutional right may be measured in

whole or in part by the amount of lost

wages." Bent, 835 F.2d at 70.

. 18

Finally, in Threlkeld v.

Commissioner, 87 T.C. 1294 (1986),

aff'd, 848 F.2d 81 (6th Cir. 1988), a

decision reviewed by the full Tax Court,

that Court announced by a vote of 15 to

1 that it was abandoning the position it

had taken in Roemer and other cases,

i.e., that the consequences of a

nonphysical personal injury (such as

damage to personal reputation as opposed

to professional reputation) determine

excludability under section 104(a) (2).

Rather, the Tax Court held that the sole

basis for excludability will be whether

the claim for which the damages are

paid, however, such damages are

computed, is one for personal injury.’

This test for excludability

under section 104(a)(2) which

is adopted in the Regulations

is consistent with the "origin

of the claim" inquiry

(continued...)

19

In Threlkeld, the Tax Court held that

damages awarded in a claim for malicious

prosecution under state law were

excludable under section 104(a)(2) even

though they were paid for damage to

professional reputation because

malicious prosecution is a tort claim

for personal injury under state law.

The Tax Court specifically

discussed the inappropriateness of

distinguishing between personal and

professional damages in personal injury

cases involving nonphysical injury

whereas it had never made such a

°(...continued)

developed by the Supreme Court

for determining the tax

treatment of certain items;

see e.g., Arrowsmith v.

Commissioner, 344 U.S. 6

(1952); Woodward v.

Commissioner, 397 U.S. 572

(1970); United States v.

Hilton Hotels Corp., 397 U.S.

580 (1970).

20

distinction in cases involving physical

injury. Threlkeld, 87 T.C. at 1300-

1301. And, after noting that the

beginning and the end of the inquiry

should be whether damages received are

paid on account of "personal injuries",

87 T.C. at 1299, the court stated

In conclusion, we

emphasize that the question of

interpretation presented by

the language of section

104(a)(2) presents conceptual

challenges. We also recognize

that focusing upon the nature

of the taxpayer's injury

instead of the nature of the

consequences flowing from that

injury will often be

difficult. However, this is

no more difficult in most

cases than the type of inquiry

previously required by the

line of cases, culminating in

Roemer, which distinguished

the nature of the consequences

resulting from a claim.

Furthermore, the approach that

we will now apply in all

cases, whether the injury

claimed is personal, more

accurately reflects the

inquiry required by the plain

meaning of the statute.

Exclusion. under section 104

The fact that the recovery in a

tort-type case is, in whole or in part,

of monies that should have been paid for

work actually performed is not a

reasoned basis for treating the recovery

as taxable. Once again, such an

analysis focuses on the nature of the

recovery and not the nature of the wrong

being redressed which is the proper

focus. Thus, the Court should reject

cases like Bowman v. United States, 824

F.2d 528 (6th Cir. 1987) and Thompson v.

Commissioner, 866 F.2d 709 (4th Cir.

1989), which focus on the fact that the

recovery was for work actually

performed. Rather, it is the Third

a

22

Circuit that had it right in Byrne v.

Commissioner, 883 F.2d 211, 214 (1989),

when it stated:

The relevant inquiry ... is

whether the settlement was

received on account of

personal or non-personal

injuries, not whether the

damages compensate the

taxpayer for economic losses.°

. In Byrne, the Third Circuit

held that all of the damages

arising from settling claims

for breach of the federal Fair

Labor Standards Act and for

wrongful discharge under New

Jersey law - not just part of

them - were tax-free personal

injury damages. In her

complaint to the Equal

Employment Opportunity

Commission, Ms. Byrne alleged

that she had been fired for

reporting discriminatory

compensation practices. She

recovered a $20,000

settlement, of which the Tax

Court allocated half to

taxable lost wages resulting

from the firing. On appeal,

the Third Circuit upheld Ms.

Byrne's argument that,

although her damages were a

fraction of lost income, they

should be excluded under

section 104(a) (2).

The Government argues that the

respondents’ claim is merely a claim

that their economic interests have been

injured. Its argument ignores the

realities of discrimination that are

well kfiown to this Court.

Discrimination -- to be treated

differently because of one's gender or

one's race -- is an affront to human

dignity. Here, the Court is confronted

with a classic case of biased

stereotypical thinking -- male employees

are worth more than female employees.

Such prejudice not only deprives female

employees of their true worth in terms

24

of salary, it also is an insult to them

as individuals.’

The Supreme Court has consistently

held that the constitutional right to be

free of sex discrimination is a personal

right. Cannon v. University of Chicago,

441 U.S. 677, 691 n. 13 (1979). Gender

discrimination, which both the Equal Pay

Act and Title VII were enacted to

redress, was analyzed in detail by the

Court in Davis v. Passman, 442 U.S. 228

(1979). In Davis, the Court held that

the equal protection component of the

Due Process Clause of the Fifth

This Court has emphasized that

"(tjhe principal focus of the

statute is the protection of

the individual employee ..."

Connecticut v. Teal, 457 U.S.

440, 455 (1982). See also

Waters, 438 U.S. 567, 579

(1978); Los Angeles Dept. of

Water & Power v. Manhart, 435

U.S. 702, 708 (1978).

25

Amendment to the Constitution provides

federal congressional employees a

federal constitutional right to be free

of gender discrimination in employment.

The Court described the right as

personal, stating "it is petitioner,

after all, who must suffer the effects

of such discrimination." 442 U.S. at

235 n. 10 (citations omitted). And, as

the Tax Court reasoned in its decision

in Thompson v. Commissioner, "[s]Jince

the right to be free from gender or sex

discrimination is a personal right as

the Supreme Court has held, it follows

that payments of damages made for

violation of that right are damages for

personal injuries." 89 T.C. at 649.

See also Bivens v. Six Unknown Narcotics

Agents, 403 U.S. 399 (1971) (violation

of the Fourth Amendment right to be free

26

of unreasonable search and seizure

compared to the common law tort of

trespass and held to be actionable in

damages); Wulf v. City of Wichita, 883

F.2d 842, 872-73 (10th Cir. 1989)

(court, focusing on the nature of the

claim, held that a settlement award in a

civil rights action for wrongful

discharge in violation of the First

Amendment was nontaxable).

The injuries suffered by

respondents are similar to those

incurred by the petitioner in Metzger v.

Commissioner, 88 T.C. 834 (1987), aff'd

mem., 845 F.2d 1013 (3d Cir. 1988).

Metzger, an associate professor of

Spanish, had been denied tenure and had

her teaching contract terminated. She

filed various state and federal claims

in various fora, including a Title VII

—-

27

claim, alleging breach of contract and

violation of her constitutional and

statutory rights to be free from

discrimination based on her gender and

national origin. Metzger settled her

claims for $75,000, half of which was

designated in the settlement agreement

as wages for federal income tax

withholding purposes only. Metzger

excluded the balance from her income

under section 104(a)(2) as damages for

personal injuries.

The Tax Court upheld this

exclusion, stating that the majority of

the settled claims (i.e., her

discrimination claims) were tort or

tort-type claims and that at least the

amount excluded by Metzger constituted

damages on account of personal injuries.

88 T.C. at 858. See also, Melani: v. New

28

York City Board of Education, 652

F.Supp. 43 (S.D.N.Y. 1986) (those

portions of amounts paid in settlement

of a class action sex discrimination

suit which are allocable to 42 U.S.C.

section 1983 claims are excludable under

section 104(a)(2)); Bent, 835 F.2d 67

(damage award for the violation of the

right to freedom of speech -- a

constitutional right -- constitutes

damages for personal injury).

The right to be free from gender

discrimination is a personal statutory

right. Thus, just as violation of First

Amendment rights causes personal injury,

Bent, 835 F.2d 67, so must violation of

this right to live and work without

being disadvantaged solely by reason of

gender. The injury suffered by

respondents as victims of sex

29

discrimination is personal; its

character does not vary according to the

statutory schemes available to them for

the injury's redress. In Johnson v.

Railw ess c a» 4324 B.8.

454, 457-61 (1975), the Court, in

comparing 42 U.S.C. § 1981 to Title VII,

concluded that the nature of the

injuries suffered under both statutes

are essentially the same. See Metzger,

88 T.C. at 856 (discussing Johnson).

Absent proof of sex discrimination,

respondents would not have received the

wage differential award. For this

reason, this case is distinguishable

from the express or implied contract

cases in which a factual determination

was made that an amount was intended to

settle a contract claim rather than a

tort or tort-type claim. See, e.g.,

30

Agar, 290 F.2d 283 (2nd Cir. 1961)

(claim for additional compensation for

years of service); Glynn, 76 T.C. 116

(payment for accrued sick leave) ;

Knuckles v. Commissioner, 23 T.C.M.

(CCH) 182 (1964), aff'd, 349 F.2d 610

(10th Cir. 1965) (payment in settlement

of employment contract claim).

Employment discrimination claims are

tort-type claims; whereas, common law

claims for breach of employment

contract, written or implied, are not.

Awards and settlements under the former

are non-taxable; whereas those for

breach of an employment contract are

taxable. Thus, one who pursues a claim

for breach of implied contract based on

an employer's employee manual and

receives monies in a judgment or

31

settlement thereof must include that

amount in gross income.

In addition, the position that

Claims of discrimination under Title VII

are tort-type claims is reinforced by

the decision of the Third Circuit Court

of Appeals in Byrne v. Commissioner, 883

F.2d 211 (3d Cir. 1989). In Byrne, one

of the claims raised was that the

plaintiff's employer violated the

retaliation provision (section 215(a) (3)

of the Fair Labor Standards Act (FLSA),

29 U.S.C. § 215(a)(3)) by allegedly

discharging her because she cooperated

in an EEOC investigation of alleged

Equal Pay Act (EPA), 29 U.S.C. § 206(b),

violations. Under section 216(b) of the

FLSA, 29 U.S.C. § 216(b), the remedies

for violating section 215(a)(3) are very

Similar to the remedies available under

32

Title VIi ("employment, reinstatement,

promotion and the payment of wages lost

and an additional equal amount as

liquidated"). The Third Circuit Court

of Appeals held that an action for

damages under section 216(b):

is a claim asserting the

violation of personal injury

tort or tort-type right,

rather than for an economic

right arising out of contract.

We reach this conclusion

because a suit alleges the

violation of a duty owed the

plaintiff by the defendant

employer which arises by

operation of the Act. This

duty is independent of any

duty an employer might owe his

employee pursuant to an

express or implied employment

contract; it arises by

operation of law. Thus, the

statutory claim seeks to

remedy a statutory violation

that the law has defined as

wrongful. See Black's Law

Dictionary 1660 (rev. 4th ed.

1968) ("Tort" defined as a

"wrong independent of

contract" and "a violation of

some duty owing to plaintiff,

and generally such duty must

arise by operation of law and

not by mere agreement of the

33

parties."). It is more tort-

like than contract-like, and

we therefore hold that the

settlement of a claim than an

employer has violated section

215(a)(3) of the Fair Labor

Standards Act is the

settlement of a personal

injury Claim, as that term is

used in section 104(a)(2), and

that the proceeds of the

settlement are excludable from

federal income tax.

Byrne, 883 F.2d at 215

While the holding in Byrne is

limited to claims under section 216(b)

of the FLSA, the proposition that the

injury arises out of a legal duty owed

to the employee by the employer which is

independent of any contract or agreement

between the parties, is equally

applicable to claims under the various

civil rights acts, including Title VII.

Replete throughout the Congress’

consideration of the legislative

proposal that culminated in its historic

34

passage of the Civil Rights Act of 1964

were references to "the injustices and

humiliations of racial and other

discrimination.®

That a Title VII employment

discrimination cases involves an affront

to human dignity and is thus in the

nature of a "dignitary tort" was

eloquently stated by Judge Gewin of the

Fifth Circuit in one of the first

reported Title VII appellate decisions:

In conclusion, it may be observed

that on the surface the present

case concerns only the meaning of

certain statutory provisions. But

. H.R. Report No. 914, Report of

House Judiciary Committee

accompany H.R. 7152, 88th

Cong., 1st Sess. (Nov. 20,

1963) reprinted in Legislative

History of Titles VII and xI

of Civil Rights Act of 1964 at

p. 2018 published by Equal

Employment Opportunity

Commission.

Cu is_v. Loether, 415 U.S.

1ls., 195-96 n. 10 (1974).

35

beneath the legal facade a faint

hope is discernible rising like a

distant star over a swamp of

uncertainty and perhaps of despair.

Those who love their work may

sometimes forget that a successful

human community requires the

performance of may vapid and

colorless tasks. Even the most

tedious physical labor is endurable

and in a sense enjoyable, however,

when the laborer knows that his

work will be appreciated and his

progress rewarded. ‘Work without

hope,' said Coleridge, 'draws

nectar in a sieve, And hope without

an object cannot live.' The ethic

which permeates the American dream

is that a person may advance as far

as his talents and his merit will

carry him. And it is unthinkable

that a citizen of this great

country should be relegated to

unremitting toil with never a

glimmer of light in the midnight of

it all."

Miller v. International Paper Co., 408

F.2d 283, 294 (5th Cir. 1968) (footnote

omitted).

36 37

CONCLUSION

For the foregoing reasons, this

CA OF SERVIC

Court should affirm the holding below. I, Robert B. Fitzpatrick, Esq.,

hereby certify that on this 26th day of

By: VEY December, 1991, caused to be mailed

Robert B. Fitzpatrick *

first class, postage prepaid, two copies

j j & Verstegen 5 E , 3

Fitzpatrick g of the Amicus Curiae Brief of National

Spring Valley Executive Center

4801 Massachusetts Ave., N.W. Employment Lawyers Association in

ite 400

mtr Hs «0 D.C. 20016-2087 Support of Respondents and on December

(202) 364-8710 31, 1991 two copies of the corrected

Counsel to Amicus Curiae Amicus Curiae Brief to the following:

ional Employment Lawyers

gaan Bm i - Honorable Kenneth W. Starr

Solicitor General of the U.S.

* Counsel of Record Department of Justice

10th & Constitution Ave., N.W.

Washington, D.C. 20530

Lucinda Finley, Esq.

Professor of Law

O'Brian Hall

Suny School of Law - Buffalo

Buffalo, New York 14260