faithful service to the railroad company, and also contributed to a portion of the RRB benefits personally through payroll deductions and since the worker would then qualify for the benefits based upon his or her age and physical condition, regardless of whether a lawsuit had been filed, courts felt it would be unfair for juries to consider the worker's RRB benefits' due to a work related injury.
Despite over 60 years of court decisions holding that the amount of money a jury awarded an injured railroad worker should not be reduced by the worker's receipt (or even qualification for) RRB benefits, the
railroads are currently trying to get courts to ignore this precedent and reduce railroad worker jury verdicts by the amount of money the railroad contributed to the railroad worker's RRB pension.
We recently won a case for a 60 year old maintenance of way rail worker in North Carolina. After the jury returned the verdict in our favor, CSX filed a motion asking the judge to reduce the jury verdict by
over $7,000.00 which was the sum our client received in RRB Tier II benefits while he was receiving an occupational disability (due to the same accident). After both sides submitted briefs to the judge and
appeared at a hearing, the judge granted CSX's motion and reduced our client's jury verdict/recovery as the railroad had asked.
Needless to say, we quickly appealed to the North Carolina (NC) Court of Appeals and after numerous briefs and oral argument, the North Carolina Court of Appeals reversed the trial court judge, deciding that
our client's verdict had been inappropriately reduced by the trial judge.
LEGAL BRIEF EXCERPTS RELATING TO RRB SET-OFF CLAIM BY RAILROADS
Is a railroad defendant entitled to a set off against adverse jury verdicts based on the plaintiff’s receipt of an occupational disability pension funded in part by the railroad’s contribution to the Tier II portion of the employee’s Railroad Retirement benefits? Because the railroads contribute a larger portion (85 percent) to the Tier II benefits under the Railroad Retirement Act (RRA) than the employee, are those benefits no longer a “collateral source” and a proper basis for set off? Does an injured railroad employee enjoy an improper “windfall” by receiving a verdict that provides compensation for past wage loss as well as Railroad Retirement benefits occupational disability annuity benefits when the Railroad Retirement benefits, which are primarily paid for by the defendant railroad, provide a second recovery for past wages lost during a portion of the time considered by the jury? The proper response to all of these questions is “no”; however, railroads are making a concerted effort to convince trial and appellate courts the answers should be “yes.” The defense of set off is being aggressively pursued by railroads in Federal Employers’ Liability Act (FELA) claims. The arguments advanced in support of set off by the railroads are based on the 1974 Congressional reorganization of funding under the RRA, which resulted in the current two tiers of Railroad Retirement benefits.
Railroads argue they contribute a much larger share (85 percent) to the Tier II benefits than the employee under the 1974 Act. Consequently, the Tier II benefits are no longer “a collateral source” and “replicate a private pension plan” which entitles them to a set off for the portion they have contributed to the Tier II fund during the employee’s receipt of an occupational disability pension under the RRA. The reorganization of the RRA in 1974 is a “red herring” and should not be recognized as a basis for any set off based upon the language of the FELA and the federal common law prohibiting set off in such situations.
Statutory Prohibition of Set off
The passage of the FELA, 45 U.S.C. § 51, et seq., has been recognized as an “avowed departure” from the rules of common law, including defenses. The FELA provides for the defense of set off in very limited circumstances:
Any contract, rule, regulation, or device whatsoever, the purpose or intent of which shall be to enable any common carrier to exempt itself from any liability created by this chapter, shall to that extent be void: Provided, That [sic] in any action brought against such common carrier under or by virtue of any provision of this act, such common carrier may set off therein any sum it has contributed or paid to any insurance, relief benefit, or indemnity that may have been paid to the injured employee or the person entitled thereto on account of the injury or death for which said action was brought.
Courts have uniformly held that disability and retirement pensions under the RRA do not qualify for set off under 45 U.S.C. § 55 because the payments are not made “on account of death or injury.” The purpose of the RRA is to provide annuity, pension, and death benefits to railroad employees. As a social tax system, its purpose has never been to indemnify railroads from legal liability. Absent the purpose of indemnification from legal liabilities, pension payments made under the Railroad Retirement System should not be set off against a plaintiff’s damages.
The railroad employee’s entitlement to a Railroad Retirement Board occupational disability is based upon years of service and a “physical or mental condition” that prevents the employee from engaging in any regular railroad occupation. There is no requirement that the disability arise from an on duty injury or due to the employer’s negligence. Thus, there is no justification for a set off due to the employee’s receipt of such benefits.
The Supreme Court opinion in Eichel v. New York Central Railroad Co., which characterizes Railroad Retirement benefits as “collateral source,” relies in part upon an analysis of the interplay of the Railroad Retirement benefits and the remedies afforded by the FELA as discussed in New York, New Haven & Hartford Railroad Co. v. Leary. The Leary analysis was embraced by the Supreme Court in Eichel with regards to the FELA, but not the RRA.
In its analysis in Leary, the First Circuit clearly reasoned that set offs for Railroad Retirement benefits were not authorized by the FELA:
We think these age and service requirements for disability payments remove those payments from the coverage of § 55 of the Federal Employers’ Liability Act. Accident indemnity strictly speaking does not seem to be within the Congressional intent discussed in the Retirement Act of 1937. Thus, this is not a set off authorized by § 55 because we think the retirement fund is not an ‘insurance, relief benefit, or indemnity’ within the meaning of that section. ¼ The retirement fund is supported by tax collections from the employer and employee, and to a limited extent by the general public. The benefits received under such a system of social legislation are not directly attributable to the contributions of the employer, so they cannot be considered in mitigation of the damages caused by the employer.
There is no statutory justification for the award of a set off to a defendant railroad based upon an injured employee’s receipt of Railroad Retirement Board benefits. To the contrary, courts interpreting the FELA have applied rules of strict statutory construction and limited remedies available under the RRA to those explicitly identified in the statute, thereby excluding a set off in this context.
The Character and Nature of Railroad Retirement Benefits Prohibit Set off
The railroads’ argument that the funds they contribute to the Railroad Retirement benefits on behalf of employees are not from a “collateral source” misses a very basic consideration uniformly recognized by courts applying the collateral source rule. “[C]ourts have been virtually unanimous in their refusal to make the source of funding the determining factor in deciding whether fringe benefits should be considered as emanating from the employer or a ‘collateral source.’”Based upon the character of the Railroad Retirement benefit contributions (paid regardless of source of disability) and nature (funding is mandatory under statute and contributed to by employer and employee), courts which have previously considered whether Railroad Retirement benefits are subject to set off against FELA verdicts have consistently prohibited such a set off. The earliest consideration of a motion by a railroad for an offset against a FELA verdict for sums paid into the Railroad Retirement benefits appears to be McCarthy v. Palmer.
The court in McCarthy denied the railroad’s request for an offset, holding that the Railroad Retirement benefits received by the employee were excluded from offset under the collateral source rule. The court in McCarthy based its application of the collateral source rule to the employee’s Railroad Retirement benefits on the fact that the benefits were based upon the employee’s age and the benefits were payable to the employee regardless of the cause of his disability. The court stated that “there is not nexus between the purpose for which the contributions in this regard were made and the purpose for which damages in this negligence action are awarded.”
A similar motion was also denied in Hetrick v. Reading Co., in which the court explained its evaluation of the legal basis for such a motion for offset balanced against the legislative purpose of the FELA and RRA. In denying the railroad’s motion, the court stated:
The objects of the two pieces of legislation are entirely foreign to each other, and we are of the view that there never was a legislative intent that a jury giving consideration to the last named elements [perceiving loss in diminished earning capacity and pain and suffering in FELA awards] was to draw into its calculations the annuities provided for by the Retirement Act so that payments made by the employer under the latter legislation would be returned to it. Under these circumstances we do not feel that the annuity was ever intended to restore injured employees to a theoretical status quo, but on the contrary was intended to make secure in society those employees suffering injury after thirty years of service, or perhaps because of thirty years of service. Recovery under the Liability Act in such case is beside the point, because that is an attempted restorative alone.
While federal courts have allowed set offs to defendants based on fringe benefits a plaintiff has received which are unrelated to service to the defendant or nonvested in the plaintiff, the same courts have protected plaintiffs from the defendants attempts to obtain set offs from funds which have vested with the plaintiff independent of the underlying cause of action. For example, the courts allowed the federal government to offset a Federal Tort Claim Act (FTCA) verdict with a portion of the plaintiff’s veteran’s benefits in U.S. v. Brooks. However, the courts denied the federal government a set off in a later FTCA claim against the plaintiff’s Civil Service Retirement Act benefits after distinguishing between gratuitous benefits (subject to set off) and compulsory benefit programs involving contributions from employers and employees (not subject to set off).The decision handed down in Price v. U.S. by the federal district court is particularly relevant to the consideration of set off and explicitly rejects the applicability of the earlier opinion of Brooks to fringe benefit plans in which contributions are made by the plaintiff and are mandatory. The district court in Price noted that Brooks involved only “certain veteran’s benefits which are, without exception, deemed to be gratuities which the Government may withdraw or modify at will as the recipient has no property or vested right in such benefits.” Price on the other hand involved a claim for an offset by the U.S. government against the plaintiff’s recovery under the Federal Tort Claims Act against Price’s receipt of disability benefits under the Civil Service Retirement Act of 1956. The plan was compulsory for Price and funded by contributions from the government and the employee. The court also noted there was no statutory authority for the set off.
The district court held in Price that an employee purchased a substantial right in retirement plans through mandatory contributions and such plans were distinguishable from those without contributions by plaintiffs. The court concluded that the application of the Brooks holding was “dubious” in such cases.
In dicta, the holding excluding Civil Service Retirement Act benefits from negligence set offs was analogized to, and came to include, RRA benefits:
The Civil Service Retirement Act, like the Railroad Retirement Act counterpart, is designed, with respect to its disability provisions ‘to protect against risk of permanent loss of earnings through disability¼.’ Congress, under the Civil Service Retirement Act, has seen fit to provide for a cessation of disability benefits upon certain conditions dependent upon the earnings of the party receiving such benefits. To require an advance credit by way of offset upon a judgment under the Federal Tort Claims Act would do violence to the social and economic security of all federal employees similarly situated.
The appellate decision in Price affirmed the rationale of the district court in denying a set off to the U.S., specifically stating it is the nature and not the source of the benefits which determine the applicability of a set off.
A similar result was handed down by the Indiana Court of Appeals recently which addresses the specific issue of the appropriateness of allowing a defendant railroad to offset an FELA verdict by Railroad Retirement benefits received by the injured employee in CSX Transportation, Inc. v. Gardner. The Gardner court analyzed the basis of the defendant’s motion for offset (i.e., contribution to the RRA Fund), the nature of the collateral source rule, the nature of the funds, the accepted factors for determining the applicability of the collateral source rule, and concluded that a set off should not be granted in such a situation.
The Gardner court identified five factors utilized by federal courts to determine whether payments are “fringe benefits” or the result of payments made by a tortfeasor intending to indemnify itself from future liability. The former is subject to the collateral source rule exclusion the latter is not. The five factors identified by the Gardner Court are:
(1) whether the employee makes any contribution to funding of the disability payment; (2) whether the plan arises as a result of a collective bargaining agreement; (3) whether the plan and payments there under cover both work related and non-work related injuries; (4) whether payments from the plan are contingent upon length of service of the employee; and (5) whether the plan contains any specific language contemplating a set-off of benefits received under the plan against a judgment received in a tort action.
After a detailed analysis of each of the above-mentioned factors (which the court concluded are all contrary to allowing offset), the court in Gardner concluded that due to the nature of Railroad Retirement benefits “setoff is not allowed under federal common law.”
Once it reached the conclusion that set off of Railroad Retirement benefits is not appropriate under the federal law, the court analyzed whether there is any congressional intent for such a set off independent of, or contrary to, the federal common law. After analyzing several cases from various federal circuits, the court concluded “[i]t is clear the Congress intended the RRA to further the public policy of protecting railroad employees who become disabled on or off the job, and not to protect or reduce the liability of a negligent employer” and rejected CSX’s motion for offset.
Courts have uniformly held the source of funding should not be the determining factor when analyzing whether fringe benefits are from a “collateral source.” Efforts to justify set off regardless of the purpose of the fringe benefits sought to be set off should fail for the reasons discussed above: (1) statutory prohibition by 45 U.S.C. § 55; (2) federal common law; and (3) absence of legislative authority for such a defense.
While the absence of legislative authority is specifically discussed in several of the cases referenced above, it is also supported by a common sense analysis of the facts that the railroads rely upon so heavily in making the pitch for a set off based on the 1974 reorganization of the RRA. The Eichel opinion holding Railroad Retirement benefits are from a collateral source for FELA purposes was handed down in 1963. The litany of cases holding set off was not supported by the RRA and prohibited under the FELA began with McCarthy in 1939. These decisions were presumably known to Congress, the railroads, and the unions at the time of the 1974 reorganization of the RRA, yet Congress did not provide for a set off in the language of the 1974 RRA. The absence of such statutory language demonstrates an absence of legislative intent for a set off in this context.
Additionally, the remedies available to the parties under the FELA have been strictly construed by the Supreme Court. Thus, recognizing the defense of set off based upon a plaintiff’s receipt of Railroad Retirement benefits would in essence be the enacting of legislation by the judiciary. There simply is no direct authority justifying the defense of set off in this setting. Plaintiffs should be prepared to aggressively and thoroughly contest such a defense through a demonstration of the overwhelming judicial and legislative authority contrary to the defendant’s arguments.
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Our law firm has a long history of representing railroad victims, including conductors, engineers, track maintenance, carman and all crafts, as well as those suffering wrongful death of family member due to railroad accidents/diseases/injuries. Shapiro & Appleton& Duffan personal injury law firm is based in Virginia practicing primarily in the southeastern U.S. and handles only injury law, including car, truck, railroad, and medical negligence cases and more. The firm's website is: www.hsinjurylaw.com , the firm edits two injury law blogs: Virginia Beach Injuryboard & Norfolk Injuryboard, and also hosts a video library covering many FAQ’s on personal injury subjects.