Georgia Injury Lawyer Blog

The United States Court Of Appeals for the 5th Circuit has ruled that a whistleblower who accepted a settlement for his claims, including $3.5 million in "additional damages," can't exclude that amount from his income as compensation for personal injuries. He case is Green v. Commissioner, U.S. Court of Appeals, 5th Circuit No. 06-60597. Nov. 7, 2007.

The taxpayer received the money in settling a retaliation lawsuit against a state department from which he was fired. A jury had awarded him $3.4 million in compensatory damages and $10 million in punitive damages. After many attempts top collect the judgment from the state failed, the suit finally settled. The plaintiff then attempted to exclude $3.5 million designated as "additional damages" from his taxable income.
The IRS countered that the "additional damages" were not damages received on account of personal injury or sickness, and therefore were taxable income.

Acknowledging the claims underlying the plaintiff’s claims were tort-like, the Court nevertheless agreed with the IRS. "Ultimately, the character of the payment hinges on the payor's dominant reason for making the payment," the court held. " The “amount of compensatory damages awarded by the jury in the whistleblower lawsuit for the loss of earning capacity and past and future mental anguish and suffering, [$3.5 million], mirrored exactly the amount of compensatory damages paid under … the settlement agreement. The logical import, then, is that the remainder of the settlement, including the amounts paid under [the "additional damages" provision], was intended to compensate [the taxpayer] for the remainder of the judgment - consisting only of punitive damages and interest."
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The Associated Press is reporting that the U.S. Department of Justice is weighing whether to intervene in a lawsuit that accuses insurance companies of overbilling the federal government for flood damage from Hurricane Katrina. A team of lawyers filed the "whistleblower" action in April 2006 on behalf of two sisters who worked for a company that helped State Farm Insurance Co. adjust policyholder claims on the Mississippi Gulf Coast after the August 2005 storm.

The whistleblower statute required that the lawsuit remain under seal so the United States Justice Department could investigate and consider intervening in the case. U.S. Magistrate Judge Robert Walker in Gulfport, Miss., ordered the case unsealed Monday, even though the federal government had argued that its disclosure would "compromise (its) ability to conduct an adequate civil investigation of this case."

State Farm, Nationwide Insurance Co., Allstate Insurance Co., USAA Insurance Co., and several engineering firms that contracted with the companies are named as defendants in the suit. The lawsuit accuses the insurance companies of pressuring engineers to falsify reports so storm damage could be blamed on flood water instead of wind, which would shift the financial burden to the National Flood Insurance Program. The insurance companies contend their homeowner policies cover damage from wind but not rising water, including storm surge. Insurers sell separate flood insurance policies that are subsidized by the federal government.

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As has been widely reported in the media, in order to increase profits and decrease expenses, many United States corporations have converted their traditional pension retirement plans to 401(K) plans. Under the traditional pension plans offered to most employees by corporations in the past, employees would obtain retirement benefits after a certain number of years of service. Benefits were typically calculated based upon the number of years of the employment with the company and based on the employee’s annual pay. Some of the new plans that are being offered corporate America, however, involve cash balance plans which combines some of the attributes of a private 401(K) plan and a pension plan. Regrettably, many companies are converting the old defined benefit retirement plans to cash balance defined benefit plans at employee expense. Litigation has already commenced in Federal District Court in a variety of jurisdictions in which it is alleged that companies have improperly calculated employee benefits under the new cash balance plans and during the conversion process have essentially defrauded employees by reducing the benefits they would otherwise have received.

If you are any member of your family is recently retired and the company for whom they were employed has converted a defined benefit retirement plan to a cash balance defined benefit plan, such an employee or family member may wish to consult with an attorney to make sure that the calculation of their retirement benefits is made according to the requirements of the law. Regrettably, even though the law requires an accurate accounting for the conversion process, given the large amounts of money involved, some corporations have attempted to cheat their employees by calculating benefits in a manner favorable to the corporate entity and not to the employee. This practice needs to be addressed in litigation and as indicated, litigation has already commenced in several districts in which the regrettable practice of improper calculation of the employee benefits has occurred.

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Posted In: Whistleblower Cases

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