June 16, 2008
JOSEPH C. SAITTA AND PATRICIA SAITTA, HIS WIFE, PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
THEODORE HILLER, D.C., DEFENDANT-APPELLANT/ CROSS-RESPONDENT, AND ART HEINRICH, M.D., DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-9276-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 14, 2008
Before Judges Sapp-Peterson and Newman.
In this chiropractic malpractice action, the jury returned a verdict compensating plaintiff Joseph Saitta with $235,000 for past lost wages, $0 for future lost wages, and $200,000 for pain and suffering. The jury apportioned fifty-eight percent of total liability to defendant Dr. Theodore Hiller and attributed the remaining forty-two percent to plaintiff's pre-existing condition. It found defendant Dr. Art Heinrich not liable and did not award damages to Patricia Saitta.
Defendant Hiller (references to defendant are to Hiller only) moved to mold the verdict or for remittitur, seeking a reduction of the jury award for past lost wages pursuant to the collateral-source statute, N.J.S.A. 2A:15-97, to reflect plaintiff's receipt of Social Security disability benefits and union pension benefits during the period for which he was compensated by the damages award.*fn1 The trial judge determined that a deduction for plaintiff's pension benefits would be inappropriate, but allowed a deduction for disability benefits less an amount reflecting Social Security contributions that plaintiff would have made during the relevant period and the taxes he paid on those benefits.
Defendant appeals from the court's order that plaintiff's pension benefits should not be deducted, while plaintiff cross-appeals to challenge the court's method of calculation of the deduction for social security disability benefits. We reverse the trial court's order with respect to its resolution of the pension issue and remand for further consideration in light of document production and testimony, if necessary. We affirm in part and reverse and remand in part with respect to the method of calculation of the deduction for social security disability benefits.
Our collateral-source statute, N.J.S.A. 2A:15-97, provides in relevant part:
In any civil action brought for personal injury or death, . . . if a plaintiff receives or is entitled to receive benefits for the injuries allegedly incurred from any other source other than a joint tortfeasor, the benefits, other than workers' compensation benefits or the proceeds from a life insurance policy, shall be disclosed to the court and the amount thereof which duplicates any benefit contained in the award shall be deducted from any award recovered by the plaintiff . . . .
The statute abrogated the common-law collateral-source rule, which allowed a tort victim to recover from a defendant notwithstanding the victim's collection of collateral benefits in order to "deny a wrongdoer the benefit of any rights that the victim might have against other entities based on contract, employment, or some other relation." Kiss v. Jacob, 138 N.J. 278, 281 (1994) (citing Patusco v. Prince Macaroni, Inc., 50 N.J. 365, 368 (1967)); see also Weber v. Morris & Essex Rr. Co., 36 N.J.L. 213, 215 (Sup. Ct. 1873) (explaining that, under the common-law rule, "[a] person committing a tort cannot set up in mitigation of damages that somebody else, with whom he had no connection, has either in whole or in part indemnified the party injured"). In disallowing double recovery in this respect, the statute sought "to protect and relieve the burden placed on insurance companies when a plaintiff's benefits are cumulative." Thomas v. Toys "R" Us, Inc., 282 N.J. Super. 569, 584 (App. Div. 1995) (citing Kiss v. Jacob, 268 N.J. Super. 235, 248 (App. Div. 1993), rev'd on other grounds, 138 N.J. 278 (1994)).
The collateral benefits contemplated by the statute are the same as those contemplated by the common-law rule it replaced, "includ[ing] those from life- or health-insurance policies, from employment contracts, from statutes such as worker's compensation acts and the Federal Employers' Liability Act, from gratuities, from social legislation such as social security and welfare, and from pensions under special retirement acts." Kiss, supra, 138 N.J. at 282 (citing Restatement (Second) of Torts § 920A cmt. c (1979)); see also Parker v. Esposito, 291 N.J. Super. 560, 565 (App. Div. 1996); Thomas, supra, 282 N.J. Super. at 584.
Defendant argues that plaintiff's union pension benefits must be counted as a collateral benefit in that plaintiff received the benefits in lieu of salary during the period for which he recovered damages. Plaintiff contends instead that, unlike a disability insurance policy and like an individual retirement account (IRA), the pension benefits were similar to an investment to which plaintiff regularly contributed and the receipt of which was not designed to compensate him specifically for his loss from disability, as was the damages award. The trial court determined that only "specific pensions allocated to lost income" are covered under the statute and that whether the statute would apply to plaintiff's pension was speculative.
In Kiss v. Jacob, supra, the Court referred specifically to "pensions under special retirement acts" when enumerating the types of benefits to which the statute would apply, but did not purport to enumerate an exclusive list of those collateral benefits covered by the statute. See 138 N.J. at 282 (stating only that the benefits contemplated by the statute merely "include[d]" those listed). The Court summarized its list according to that set forth in the Restatement, which additionally includes employment benefits, including those "arising out of the employment contract or a union contract." Restatement (Second) of Torts § 920A cmt. c(2). In general, whether any particular benefit is covered by the statute depends on the extent to which it compensates for "the injuries allegedly incurred" and genuinely duplicates a damages award. See N.J.S.A. 2A:15-97. Plaintiff's pension qualifies as a potential collateral benefit insofar as, like any pension benefit, it is collected in lieu of receiving a salary. However, whether that benefit genuinely "duplicates" his award for lost wages depends largely on the nature of the pension.
The trial court's comment accurately described defendant's argument as speculative, given the lack of adequate evidence in the record concerning plaintiff's pension, notwithstanding plaintiff's characterization of the plan as "similar to IRAs." A defendant has the burden to prove mitigation of damages, see, e.g., O'Lone v. Dep't of Human Servs., 357 N.J. Super. 170, 178 (App. Div. 2003) (employer had burden of proving that former employee could have sought substitute employment and thereby mitigated damages (citing Goodman v. London Metals Exch., Inc., 86 N.J. 19, 40 (1981))), and the statute here specifies that both parties may produce evidence regarding collateral benefits, N.J.S.A. 2A:15-97. Nonetheless, we have concluded that the ultimate burden of producing evidence relevant to plaintiff's collection of collateral benefit payments falls on the plaintiff. Thomas, supra, 282 N.J. Super. at 585. The lack of evidence in the record should not be held against defendant.
On remand, plaintiff should be required to produce documents from the union describing his pension, under what circumstances payments would be collected and how payments are calculated. We also note that plaintiff's federal tax returns for "Total pensions and annuities" for 2003 under line 16b report income of $57,714 whereas in the 2004 federal tax return the income for "Pensions and annuities" under line 16b is $25,714. This difference should be explored to ascertain if they comprise benefits collected from only one union pension or from any other sources.
In this connection, we note that no tax return was produced for the years 2002 and the most recent year of 2006. The returns for the others were prepared by a CPA, Virginia Buczkowski, 99 North Street, Bayonne, New Jersey 07002-1239. If Ms. Buczkowski or another accountant prepared the returns for the years 2002 and 2006, she may very well have retained copies of the returns which could be obtained. Instead of assuming the income for the years 2002 and 2006, the court would have the reported income figures for each of these years. We leave it to the trial court to address. We also defer to the trial court's discretion in determining whether any testimony or a hearing would be necessary to examine the issue presented on a complete record.
Plaintiff applied for and received Social Security disability benefit payments in lieu of wages from his employer during the time period for which he was awarded past lost wages in this action. Pursuant to N.J.S.A. 2A:15-97, the amount of such collateral benefit payments must be deducted from the relevant damages award insofar as those benefits are duplicative of the award. Woodger v. Christ Hosp., 364 N.J. Super. 144, 151 (App. Div. 2003) (citing Parker, supra, 291 N.J. Super. at 565-66; Thomas, supra, 282 N.J. Super. at 589). The parties do not disagree on the deduction, only on the proper method of calculation of that deduction.
The collateral-source statute specifies that a deduction from a damages award to account for collateral benefits duplicating that award must be made "less any premium paid to an insurer directly by the plaintiff . . . for the policy period during which the benefits are payable." N.J.S.A. 2A:15-97. This court has determined that a plaintiff, who might make substantial contributions over a lifetime of work toward the Social Security benefits the plaintiff would ultimately receive either during retirement or disability, should be credited against a collateral-source deduction for those benefits with an amount representing Social Security contributions the plaintiff would have made during the relevant period. Woodger, supra, 364 N.J. Super. at 153-54.
This court concluded in Woodger that the plaintiff there would be "entitled to a credit for the maximum social security contributions due from a taxpayer for the same period for which her disability payments have been deducted as collateral source payments." Id. at 147. Plaintiff has seized upon that language to argue that he should be credited for the maximum possible contributions that would have been due for any taxpayer, rather than the substantially smaller contributions that would have been due for himself, during the period he collected the benefit payments to be deducted.
The remainder of this court's opinion in Woodger belies plaintiff's interpretation of this single sentence. There, we reasoned:
Because the portion of the total social security contributions attributable to disability benefits [rather than that attributable to retirement or survivor benefits] eludes precise calculation, we conclude that the most reasonable, direct and fair accommodation is to credit the plaintiff with the employee's social security contribution at the maximum employee contribution rate for each year . . . for which the disability benefit deduction has been made.
[Woodger, supra, 364 N.J. Super. at 154 (emphasis added).]
Thus, we determined not, as plaintiff contends, to credit the plaintiff with the maximum possible contributions due for an employee, but with contributions due for that employee at the maximum applicable rate. Ibid.; see also Mandile v. Clark Material Handling Co., 303 F. Supp. 2d 531, 534 (D.N.J. 2004) (calculating credit based on withholding listed on employee's own W-2). The trial court here properly calculated plaintiff's credit against the collateral-source deduction, consistently with our holding in Woodger, at the applicable employee contribution rate of 6.2 percent and using the plaintiff's own final gross annual salary.
We note that, although Woodger compels the use of defendant's suggested method of calculation, defendant nonetheless maintains that Woodger is distinguishable from this case primarily on the basis that a deduction of damages for future, rather than past, lost wages was at issue there. Defendant presumes that Woodger provides that plaintiff's suggested maximum-possible-contribution calculation would be applicable in that context, but that the method is inapplicable here, only because contributions may be calculated with precision based on documentary evidence and, were it available, expert testimony.
Defendant is correct that this court's method of calculation in Woodger remedied an inability to calculate the appropriate credit with accuracy, but nowhere was this court concerned with the relevant possible precision of calculations of contributions on future and past lost wages. Indeed, Social Security contributions due on past lost wages are no more susceptible to precise calculation than are future lost wages; even if the calculation would involve fewer variables, not all variables can be eliminated.
Instead, as the trial court here pointed out, this court in Woodger sought to remedy the inherent inability to precisely calculate the proportion of Social Security contributions attributable to defendant's access to Social Security disability benefits rather than to retirement or survivor benefits. Speaking for this court in Woodger, Judge Pressler explained it this way:
As we understand the social security law, disability and retirement benefits are in the same amount, subject to the same federal income tax, and an employee who receives disability benefits prior to retirement will have his benefits automatically redenominated as old-age benefits when reaching retirement age.
From the foregoing thumbnail sketch, we think it plain that the social security contributions made by employees over their working lives pay, in effect, for considerably more than the limited period of disability payments that may be included as a collateral benefit . . . . The totality of those contributions, equaled by the employer, pay for continued disability benefits, if any, after the initial review of the disability award; they pay for the retirement benefit the employee will receive upon reaching retirement age whether or not disability benefits continue to that time; and they pay for death and survivor benefits.
[Woodger, supra, 364 N.J. Super. at 153 (citations omitted).]
We resolved this difficulty of apportionment by simply allowing a credit for the full (maximum) rate of contribution. Id. at 154. Contrary to defendant's argument, the method in Woodger is no less applicable to calculations of contributions for past than for future lost wages, nor is the method in Woodger inconsistent with defendant's preferred method of calculation, as the trial court recognized. On this aspect of the social security disability deduction, we affirm.
Pursuant to N.J.S.A. 2A:15-97, defendant is entitled to a collateral-source deduction from a damages award only insofar as collateral benefits are duplicative of the award. Woodger, supra, 364 N.J. Super. at 151 (citing Parker, supra, 291 N.J. Super. at 565-66; Thomas, supra, 282 N.J. Super. at 589). Consequently, the deduction for disability benefits must be adjusted to reflect the after-tax benefit payments received to properly offset against damages awarded based on plaintiff's after-tax lost wages. See id. at 152 (stating that "plaintiff's net 'collateral' proceeds rather than the gross proceeds . . . are deducted from the tort recovery").
Plaintiff contends that the court should have used the marginal tax rate applicable to his and his wife's joint gross income to calculate the tax on his benefits in order to avoid giving defendant "credit for the plaintiff's deductions and for the other income that his household received." Defendant, with whom the trial court agreed, argues instead that the court should calculate plaintiff's credit against the collateral-source deduction based on an "average" of the effective income tax rates for each year during which plaintiff collected benefits duplicating the damages award. The trial court calculated plaintiff's credit using a simple average of the effective federal and state tax rates on plaintiffs' joint taxable income for each year in which he collected the collateral benefits. In its calculation, the court reasonably assumed that income for each of those years for which returns were missing from the record would be similar to that for the preceding or following year.
As a preliminary matter, Social Security benefits are exempt from taxation in New Jersey, see, e.g., 2007 Form NJ-1040 Instructions, at 19, and appropriately were not included as income on plaintiff's state tax returns. Insofar as the calculations of the trial court credited plaintiff for New Jersey state taxes that he did not in fact pay on his disability benefits, those calculations are inconsistent with the statute.
Plaintiff's disability benefits are federally taxable, however, and the deduction for those benefits must be adjusted to accurately represent plaintiff's net collateral proceeds after taxes. Plaintiff's method of calculation using the marginal rate on his and his wife's joint gross income, unless that gross income were coincidentally subject to the same marginal rate as their joint taxable income, overestimates the actual taxes paid on plaintiff's benefit payments such that plaintiff would impermissibly be afforded a double recovery for a portion of his damages award. Defendant's preferred method of calculation based on an average, rather than the higher marginal, rate, on the other hand, not only would tend to underestimate the actual taxes paid on plaintiff's benefit payments and thus impermissibly cause plaintiff to forfeit a portion of his damages award, but unnecessarily relies on an improperly calculated estimate of the average of effective tax rates, which are themselves only estimates.
At least for those years for which tax returns are available, plaintiff's net collateral benefits received may be precisely calculated as the difference between the actual amount of benefits he collected and the actual amount he paid in taxes due to his receipt of those benefits. The amount he paid in taxes due to receipt of those benefits, in turn, may be precisely calculated as the difference between plaintiff's tax burden including those benefits as income and that excluding those benefits.
Plaintiff's taxes on joint income including the disability benefits as income have already been calculated and stated on his tax returns. We need only recalculate his taxes excluding the benefits as income for the same years and apply the difference between the two calculations as a credit against the collateral-source deduction. Plaintiff's net collateral benefits during the two years for which tax returns are missing from the record (unless they are produced on remand) may be estimated in the same manner using the implicit findings of the trial court regarding plaintiff's income for those years. Generally, actual taxes paid will reflect the marginal rate on a plaintiff's taxable income and rounded according to tables provided by the Internal Revenue Service, though some deviations may occur, as here, where income includes capital gains or ordinary dividends, which are taxed at separate rates from other income.
The difference in tax burden due to a single type of collateral benefit may be calculated precisely as in Table 1, infra. Highlighted years are those for which no returns were produced.
Actual Returns Benefits Claimed Less Benefits Effective Tax on Benefits
YearTaxable IncomeTaxTotalTaxableTaxable IncomeTax
Records reflected that the total amount of disability benefits actually collected by plaintiff after deductions was $87,044, a figure accepted by the trial court and the parties. Assuming that income information for the missing year 2002 was the same as that of 2003, that information for the missing year 2006 was the same as that for 2005, and that plaintiff's reported information was accurate throughout, we may calculate that the total taxes paid due to plaintiff's receipt of the disability benefits was $14,325. Plaintiff's net collateral proceeds, therefore, were $72,719, exclusive of the credit for contributions, supra, already correctly calculated by the court. We reverse the court's calculation with respect to this aspect of the social security disability benefit deduction.
Reversed and remanded for further proceedings consistent with this opinion as to Part I.; affirmed as to Part II., A.; and reversed and remanded as to Part II.B. Jurisdiction is not retained.