RESPONDENT: United States
LOCATION: Larned State Hospital
DOCKET NO.: 95-966
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Tenth Circuit
CITATION: 519 US 79 (1996)
ARGUED: Oct 09, 1996
DECIDED: Dec 10, 1996
Cornelia T. L. Pillard - Department of Justice, argued the cause for the respondents
Kent L. Jones - on behalf of the Respondent
Linda D. King - on behalf of the Petitioner in No. 95-977
Stephen R. McAllister - Argued the cause for petitioners in 95-966
Facts of the case
After her death from toxic shock syndrome, Betty O'Gilvie's husband and two children received a jury award of $1,525,000 actual damages and $10 million punitive damages in a tort suit based on Kansas law against the maker of the product that caused Betty's death. The O'Gilvie's paid income tax on the portion of the award that represented punitive damages, but then sought a refund. Subsequently, Betty O'Gilvie's husband sued the Government for a refund and the Government sued the O'Gilvie children to recover the refund it had made earlier. In finding for the O'Gilvies, the District Court found that 26 USC section 104(a)(2), as read in 1988, excluded from gross income the "amount of any damages received... on account of personal injuries or sickness." The Court of Appeals reversed.
Does the exclusionary provision of 26 USC section 104(a)(2), which excludes from gross income the "amount of any damages received... on account of personal injuries or sickness," apply to punitive damages received by a plaintiff in a tort suit for personal injuries?
Media for O'Gilvie v. United States
Audio Transcription for Oral Argument - October 09, 1996 in O'Gilvie v. United States
William H. Rehnquist:
We'll hear argument now in Number 95-966, Kevin O'Gilvie and Stephanie O'Gilvie, Minors v. United States, and 95-977, Kelly O'Gilvie v. The United States.
Stephen R. McAllister:
Mr. Chief Justice and may it please the Court:
The minor children of the decedent in the wrongful death suit underlying this case have raised before this Court two independent and potentially dispositive legal issues.
The first is whether the punitive damages that the children received in connection with the death of their mother are excludable from gross income as any damages received on account of personal injuries.
The statute on its face does not contemplate a distinction between punitive and compensatory damages.
The statute says any damages, a word that the United States frequently does not include in its quotations of the statute in its brief in this Court.
Certainly, there was a longstanding... has been a longstanding understanding in tort law that there is a difference between punitive and compensatory damages, and this Court has often stated that Congress is presumed to have known the state of the common law when it enacts statutes.
Congress easily could have said only compensatory damages received on account of personal injuries should be excluded, but it did not do so.
It said, any damages received on account of personal injuries should be excluded.
In fact, when Congress has wanted to draw a distinction between punitive and compensatory damages it has expressly done so, for example, in the Federal Tort Claims Act, in which Congress precluded liability of the United States for punitive damages arising from the tortious conduct of its employees and, indeed, the IRS itself has at times read this statute in precisely the way we contend it should be read, to exclude any and all damages that are recovered in connection with a personal injury suit.
William H. Rehnquist:
Well, of course, you've now used the term, in connection with, but the statute says on account of, and it's my impression the Government's position is that punitive damages are not on account of the personal injuries.
Stephen R. McAllister:
That is certainly the Government's contention, Your Honor, and we believe that's wrong for several reasons.
First of all, if you look back to the language of the statute as originally enacted in 1918, the substance of it has not changed, but the organization and the order has changed to some extent.
The original provision in 1918 basically excluded accident or health insurance benefits or Worker's Comp benefits which the sentence then said, received as compensation for personal injuries, plus any damages received on account of personal injuries whether by suit or agreement, so that the statute itself, when you look at how it was originally enacted, it was a very odd way that Congress intended all of those things to be limited to compensation, to list certain things followed by the phrase, received as compensation for personal injuries, and then to go on and say, plus any damages received on account of personal injuries.
Furthermore, when this Court talked about the on account of language in its decision in Schleier recently the Court talked about whether the damages were attributable to an underlying personal injury, or whether the underlying personal injury affected the amount.
The Court concluded that liquidated damages under the Age Discrimination and Employment Act did not satisfy either of those conditions, but punitive damages are different.
Punitive damages do satisfy those conditions in a couple of ways.
First of all, as this Court recognized recently in BMW v. Gore, punitive damages both the availability and the appropriate amount in most jurisdictions depends on considerations of the underlying harm, the nature of the harm, the extent of the harm.
Gore recognizes as much when it talks about the first factor, for example, the reprehensibility of the conduct, talks about personal injury is more egregious than property damage, a physical injury in essence is more serious than perhaps a dignitary injury, and most jurisdictions, if not all, recognize those concepts as far as punitive damages are concerned in determining whether they're appropriate and then what amount is necessary.
Furthermore, it's the rule in virtually all jurisdictions, again, if not all, and the traditional rule is that there can be no award of punitive damages in the absence of proof of actual harm and generally in the absence of proof of actual damages, that there needs to be an actual compensatory award made before punitive damages are allowed at all, and for those reasons, even within the attributable-to language and the affecting the amount language that this Court endorsed in Schleier, the punitive damages in this case satisfy that test in a way that the liquidated damages under the Age Discrimination in Employment Act did not.
Furthermore, punitive damages, as we've suggested, do sometimes serve compensatory purposes, so even if the Court is to view it in that fashion, historically that was clearly the case.
We've cited the Black's Law Dictionary from the time period when this statute was enacted, which clearly contemplates that in some situations they serve a compensatory purpose.
But even more recently, in the 1996 amendment to this statute Congress recognized that sometimes what the States call punitive damages may, in fact, serve compensatory purposes, and that recognition is in the new section 104(c), in which Congress has said in the new 104(a)(2) punitive damages are no longer excluded, except, it says in subsection (c), in a wrongful death suit where only punitive damages are allowed, and the jurisdiction of which I'm aware is Alabama.
There may be a couple of others.
Congress has said in that circumstance those punitive damages are excluded, apparently because--
Where is that set forth?
I wish there were some place where the whole text of the current code is set forth, including that amendment, and there was an '89 amendment?
Stephen R. McAllister:
--There's an '89 amendment, Your Honor, which altered the scope of the original.