The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_0042/91_0042.zo

Text File | 1992-05-25 | 16.3 KB | 307 lines

NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports.  Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D.C. 20543, of any typographical or other formal errors, in order that
corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
--------
No. 91-42
--------
UNITED STATES, PETITIONER v. THERESE A.
BURKE, CYNTHIA R. CENTER, and
LINDA G. GIBBS
on writ of certiorari to the united states court of
appeals for the sixth circuit
[May 26, 1992]

  Justice Blackmun delivered the opinion of the Court.
  In this case we decide whether a payment received in
settlement of a backpay claim under Title VII of the Civil
Rights Act of 1964, 78 Stat. 253, as amended, 42 Stat.
2000e et seq., is excludable from the recipient's gross
income under 104(a)(2) of the federal Internal Revenue
Code, 26 U. S. C. 104(a)(2), as ``damages received . . . on
account of personal injuries.''
                            I
  The relevant facts are not in dispute.  In 1984, Judy A.
Hutcheson, an employee of the Tennessee Valley Authority
(TVA), filed a Title VII action in the United States District
Court for the Eastern District of Tennessee alleging that
TVA had discriminated unlawfully in the payment of
salaries on the basis of sex.  The Office and Professional
Employees International Union, which represented the
affected employees, intervened.  Among the represented
employees were respondents Therese A. Burke, Cynthia R.
Center, and Linda G. Gibbs.
  The complaint alleged that TVA had increased the
salaries of employees in certain male-dominated pay
schedules, but had not increased the salaries of employees
in certain female-dominated schedules.  In addition, the
complaint alleged that TVA had lowered salaries in some
female-dominated schedules.  App. in No. 90-5607 (CA6)
(hereinafter App.), pp. 28-32 (Second Amended Complaint).
The plaintiffs sought injunctive relief as well as backpay for
all affected female employees.  Id., at 33-34.  The defen-
dants filed a counterclaim against the Union alleging,
among other things, fraud, misrepresentation, and breach
of contract.  Id., at 35.
  After the District Court denied cross-motions for summa-
ry judgment, the parties reached a settlement.  TVA agreed
to pay $4,200 to Hutcheson and a total of $5,000,000 for the
other affected employees, to be distributed under a formula
based on length of service and rates of pay.  Id., at 70-71,
76-77.  Although TVA did not withhold taxes on the $4,200
for Hutcheson, it did withhold, pursuant to the agreement,
federal income taxes on the amounts allocated to the other
affected employees, including the three respondents here.
  Respondents filed claims for refund for the taxes withheld
from the settlement payments.  The Internal Revenue
Service (IRS) disallowed those claims.  Respondents then
brought a refund action in the United States District Court
for the Eastern District of Tennessee, claiming that the
settlement payments should be excluded from their respec-
tive gross incomes under 104(a)(2) of the Internal Revenue
Code as ``damages received (whether by suit or agreement
and whether as lump sums or as periodic payments) on
account of personal injuries or sickness.''  The District
Court ruled that, because respondents sought and obtained
only backwages due them as a result of TVA's discriminato-
ry underpayments rather than compensatory or other
damages, the settlement proceeds could not be excluded
from gross income as ``damages received . . . on account of
personal injuries.''  90-1 USTC -50,203 (1990).
  The United States Court of Appeals for the Sixth Circuit,
by a divided vote, reversed.  929 F. 2d 1119 (1991).  The
Court of Appeals concluded that exclusion under 104(a)(2)
turns on whether the injury and the claim are ``personal
and tort-like in nature.'' Id., at 1121. ``If the answer is
affirmative,'' the court held, ``then that is the beginning and
end of the inquiry'' (internal quotation omitted).  Id., at
1123.  The court concluded that TVA's unlawful sex
discrimination constituted a personal, tort-like injury to
respondents, and rejected the Government's attempt to
distinguish Title VII, which authorizes no compensatory or
punitive damages, from other statutes thought to redress
personal injuries.  See id., at 1121-1123.  Thus, the court
held, the award of backpay pursuant to Title VII was
excludable from gross income under 104(a)(2).
  The dissent in the Court of Appeals, 929 F. 2d, at 1124,
took the view that the settlement of respondents' claims for
earned but unpaid wage differentials-wages that would
have been paid and would have been subjected to tax
absent TVA's unlawful discrimination-did not constitute
compensation for ``loss due to a tort,'' as required under
104(a)(2).  See id., at 1126.
  We granted certiorari to resolve a conflict among the
Courts of Appeals concerning the exclusion of Title VII
backpay awards from gross income under 104(a)(2).  ___
U. S. ___ (1991).
                           II
                            A
  The definition of gross income under the Internal Reve-
nue Code sweeps broadly.  Section 61(a), 26 U. S. C. 61(a),
provides that ``gross income means all income from whatev-
er source derived,'' subject only to the exclusions specifically
enumerated elsewhere in the Code.  As this Court has
recognized, Congress intended through 61(a) and its
statutory precursors to exert ``the full measure of its taxing
power,'' Helvering v. Clifford, 309 U. S. 331, 334 (1940), and
to bring within the definition of income any ``accessio[n] to
wealth.''  Commissioner v. Glenshaw Glass Co., 348 U. S.
426, 431 (1955).  There is no dispute that the settlement
awards in this case would constitute gross income within
the reach of 61(a).  See Brief for Respondents 9-10.
  The question, however, is whether the awards qualify for
special exclusion from gross income under 104(a), which
provides in relevant part that ``gross income does not
include-
``(2) the amount of any damages received (whether by
suit or agreement and whether as lump sums or
periodic payments) on account of personal injuries or
sickness . . . .''

  Neither the text nor the legislative history of 104(a)(2)
offers any explanation of the term ``personal injuries.''
Since 1960, however, IRS regulations formally have linked
identification of a personal injury for purposes of 104(a)(2)
to traditional tort principles: ``The term `damages received
(whether by suit or agreement)' means an amount received
. . . through prosecution of a legal suit or action based upon
tort or tort type rights, or through a settlement agreement
entered into in lieu of such prosecution.''  25 Fed. Reg.
11490 (1960); 26 CFR 1.104-1(c) (1991).  See Threlkeld v.
Commissioner, 87 T.C. 1294, 1305 (1986) (``The essential
element of an exclusion under section 104(a)(2) is that the
income involved must derive from some sort of tort claim
against the payor. . . . As a result, common law tort law
concepts are helpful in deciding whether a taxpayer is being
compensated for a `personal injury''') (internal quotation
omitted), aff'd, 848 F. 2d 81 (CA6 1988).
  A -tort- has been defined broadly as a -civil wrong, other
than breach of contract, for which the court will provide a
remedy in the form of an action for damages.-  See W.
Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and
Keeton on the Law of Torts 2 (1984).  Remedial principles
thus figure prominently in the definition and conceptualiza-
tion of torts.  See R. Heuston, Salmond on the Law of Torts
9 (12th ed. 1957) (noting that -an action for damages- is -an
essential characteristic of every true tort,- and that, even
where other relief, such as an injunction, may be available,
-in all such cases it is solely by virtue of the right to
damages that the wrong complained of is to be classed as a
tort-).  Indeed, one of the hallmarks of traditional tort
liability is the availability of a broad range of damages to
compensate the plaintiff ``fairly for injuries caused by the
violation of his legal rights.''  Carey v. Piphus, 435 U. S.
247, 257 (1978).  Although these damages often are de-
scribed in compensatory terms, see Memphis Community
School Dist. v. Stachura, 477 U. S. 299, 306 (1986), in many
cases they are larger than the amount necessary to reim-
burse actual monetary loss sustained or even anticipated by
the plaintiff, and thus redress intangible elements of injury
that are ``deemed important, even though not pecuniary in
[their] immediate consequence[s].''  D. Dobbs, Remedies 136
(1973).  Cf. Molzof v. United States, ___ U. S. ___, ___
(1992) (slip op. 4-5) (compensatory awards that exceed
actual loss are not prohibited as ``punitive'' damages under
the Federal Tort Claims Act).
  For example, the victim of a physical injury may be
permitted, under the relevant state law, to recover damages
not only for lost wages, medical expenses, and diminished
future earning capacity on account of the injury, but also
for emotional distress and pain and suffering.  See Dobbs,
at 540-551; Threlkeld v. Commissioner, 87 T.C., at 1300.
Similarly, the victim of a ``dignitary'' or nonphysical tort
such as defamation may recover not only for any actual
pecuniary loss (e.g., loss of business or customers), but for
``impairment of reputation and standing in the community,
personal humiliation, and mental anguish and suffering.''
Gertz v. Robert Welch, Inc., 418 U. S. 323, 350 (1974).  See
also Dobbs, at 510-520.  Furthermore, punitive or exempla-
ry damages are generally available in those instances where
the defendant's misconduct was intentional or reckless.  See
id., at 204-208; Molzof v. United States, supra.
  We thus agree with the Court of Appeals' analysis insofar
as it focused, for purposes of 104(a)(2), on the nature of
the claim underlying respondents' damages award.  See 929
F. 2d, at 1121; Threlkeld v. Commissioner, 87 T.C., at 1305.
Respondents, for their part, agree that this is the appropri-
ate inquiry, as does the dissent.  See Brief for Respondents
9-12; post, at 2.  In order to come within the 104(a)(2)
income exclusion, respondents therefore must show that
Title VII, the legal basis for their recovery of backpay,
redresses a tort-like personal injury in accord with the
foregoing principles.  We turn next to this inquiry.
                            B
  Title VII of the Civil Rights Act of 1964 makes it an
unlawful employment practice for an employer ``to discrimi-
nate against any individual with respect to his compensa-
tion, terms, conditions, or privileges of employment, because
of such individual's race, color, religion, sex, or national
origin.''  42 U. S. C. 2000e-2(a)(1).  If administrative
remedies are unsuccessful, an aggrieved employee may file
suit in a district court, 2000e-5(f)(1), although the Courts
of Appeals have held that Title VII plaintiffs, unlike
ordinary tort plaintiffs, are not entitled to a jury trial.  See,
e.g., Johnson v. Georgia Highway Express, Inc., 417 F.2d
1122, 1125 (CA5 1969).  See also Curtis v. Loether, 415 U.S.
189, 192-193 (1974) (describing availability of jury trials for
common law forms of action); id., at 196-197, n. 13 (citing
Title VII cases).  If the court finds that the employer has
engaged in an unlawful employment practice, it may enjoin
the practice and ``order such affirmative action as may be
appropriate, which may include, but is not limited to,
reinstatement or hiring of employees, with or without back
pay . . . or any other equitable relief as the court deems
appropriate.''  2000e-5(g).
  It is beyond question that discrimination in employment
on the basis of sex, race, or any of the other classifications
protected by Title VII is, as respondents argue and this
Court consistently has held, an invidious practice that
causes grave harm to its victims.  See Brief for Respondents
35-39; Griggs v. Duke Power Co., 401 U. S. 424 (1971).  The
fact that employment discrimination causes harm to
individuals does not automatically imply, however, that
there exists a tort-like ``personal injury'' for purposes of
federal income tax law.
  Indeed, in contrast to the tort remedies for physical and
nonphysical injuries discussed above, Title VII does not
allow awards for compensatory or punitive damages;
instead, it limits available remedies to backpay, injunctions,
and other equitable relief.  See 2000e-5(g); Patterson v.
McLean Credit Union, 491 U. S. 164, 182, n. 4 (1989)
(noting that a plaintiff in a Title VII action is ``limited to a
recovery of backpay''); Great American Fed. Sav. & Loan
Assn. v. Novotny, 442 U. S. 366, 374-375 (1979); Sparrow
v. Commissioner, ___ U. S. App. D.C. ___, ___ -___, 949 F.
2d 434, 437-438 (1991) (collecting cases).  An employee
wrongfully discharged on the basis of sex thus may recover
only an amount equal to the wages the employee would
have earned from the date of discharge to the date of
reinstatement, along with lost fringe benefits such as
vacation pay and pension benefits; similarly, an employee
wrongfully denied a promotion on the basis of sex, or, as in
this case, wrongfully discriminated against in salary on the
basis of sex, may recover only the differential between the
appropriate pay and actual pay for services performed, as
well as lost benefits.
  The Court previously has observed that Title VII focuses
on ``legal injuries of an economic character,'' see Albemarle
Paper Co. v. Moody, 422 U. S. 405, 418 (1975), consisting
specifically of the unlawful deprivation of full wages earned
or due for services performed, or the unlawful deprivation
of the opportunity to earn wages through wrongful termina-
tion.  The remedy, correspondingly, consists of restoring
victims, through backpay awards and injunctive relief, to
the wage and employment positions they would have
occupied absent the unlawful discrimination.  See id., at
421 (citing 118 Cong. Rec. 7168 (1972)).  Nothing in this
remedial scheme purports to recompense a Title VII
plaintiff for any of the other traditional harms associated
with personal injury, such as pain and suffering, emotional
distress, harm to reputation, or other consequential
damages (e.g., a ruined credit rating).  See Walker v. Ford
Motor Co., 684 F. 2d 1355, 1364-1365, n. 16 (CA11 1982).
  No doubt discrimination could constitute a ``personal
injury'' for purposes of 104(a)(2) if the relevant cause of
action evidenced a tort-like conception of injury and
remedy.  Cf. Curtis v. Loether, 415 U. S. 189, 195-196, n. 10
(1974) (noting that ``under the logic of the common law
development of a law of insult and indignity, racial discrim-
ination might be treated as a dignitary tort'' (internal
quotation omitted)).  Indeed, the circumscribed remedies
available under Title VII stand in marked contrast not only
to those available under traditional tort law, but under
other federal antidiscrimination statutes, as well.  For
example, 42 U. S. C. 1981 permits victims of race-based
employment discrimination to obtain a jury trial at which
``both equitable and legal relief, including compensatory
and, under certain circumstances, punitive damages may be
awarded.''  Johnson v. Railway Express Agency, Inc., 421
U. S. 454, 460 (1975).  The Court similarly has observed
that Title VIII of the Civil Rights Act of 1968, whose fair
housing provisions allow for jury trials and for awards of
compensatory and punitive damages, ``sounds basically in
tort'' and ``contrasts sharply'' with the relief available under
Title VII.  Curtis v. Loether, 415 U. S., at 195, 197; 42
U. S. C. 3613(c).
  Notwithstanding a common-law tradition of broad tort
damages and the existence of other federal antidis-
crimination statutes offering similarly broad remedies,
Congress declined to recompense Title VII plaintiffs for
anything beyond the wages properly due them-wages that,
if paid in the ordinary course, would have been fully
taxable.  See L. Frolik, Federal Tax Aspects of Injury,
Damage, and Loss 70 (1987).  Thus, we cannot say that a
statute such as Title VII, whose sole remedial focus is
the award of backwages, redresses a tort-like personal
injury within the meaning of 104(a)(2) and the applicable
regulations.
  Accordingly, we hold that the backpay awards received by
respondents in settlement of their Title VII claims are not
excludable from gross income as ``damages received . . . on
account of personal injuries'' under 104(a)(2).  The
judgment of the Court of Appeals is reversed.

                                     It is so ordered.