# Amicus Curiae Brief — United States v. Burke

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 229

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0167%3A15. Public record. Not legal advice.