O'Gilvie Minors v. United States (95-966), 519 U.S. 79 (1996)
[ Breyer ]
[ Scalia ]
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Nos. 95 966 and 95 977


on writs of certiorari to the united states court of appeals for the tenth circuit

[December 10, 1996]

Justice Scalia , with whom Justice O'Connor and

Section 104(a)(2), as it stood at the time relevant to these cases, provided an exclusion from income for "any damages received . . . on account of personal injuries or sickness." 26 U.S.C. § 104(a)(2) (1988 ed.). The Court is of the view that this phrase, in isolation, is just as susceptible of a meaning that includes only compensatory damages as it is of a broader meaning that includes punitive damages as well. Ante, at 3-4. I do not agree. The Court greatly understates the connection between an award of punitive damages and the personal injury complained of, describing it as nothing more than " but for" causality, ante, at 3. It seems to me that the personal injury is as proximate a cause of the punitive damages as it is of the compensatory damages; in both cases it is the reason the damages are awarded. That is why punitive damages are called damages. To be sure, punitive damages require intentional, blameworthy conduct, which can be said to be a coequal reason they are awarded. But negligent (or intentional) conduct occupies the same role of coequal causality with regard to compensatory damages. Both types of damages are "received on account of" the personal injury.

The nub of the matter, it seems to me, is this: If one were to be asked, by a lawyer from another legal system, "What damages can be received on account of personal injuries in the United States?" surely the correct answer would be "Compensatory damages and punitive damages--the former to compensate for the inflicting of the personal injuries, and the latter to punish for the inflicting of them." If, as the Court asserts, the phrase "damages received on account of personal injuries" can be used to refer only to the former category, that is only because people sometimes can be imprecise. The notion that Congress carefully and precisely used the phrase "damages received on account of personal injuries" to segregate out compensatory damages seems to me entirely fanciful. That is neither the exact nor the ordinary meaning of the phrase, and hence not the one that the statute should be understood to intend.

What I think to be the fair meaning of the phrase in isolation becomes even clearer when the phrase is considered in its statutory context. The Court proceeds too quickly from its erroneous premise of ambiguity to analysis of the history and policy behind §104(a)(2). Ante, at 5-8. Ambiguity in isolation, even if it existed, would not end the textual inquiry. Statutory construction, we have said, is a "holistic endeavor." United Sav. Assn. of Tex. v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 371 (1988). %A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme." Ibid.

Section 104(a)(2) appears immediately after another provision, §104(a)(1), which parallels §104(a)(2) in several respects but does not use the critical phrase "on account of":

"(a) [G]ross income does not include--

%(1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness;

%(2) the amount of any damages received . . . on account of personal injuries or sickness." (Emphasis added.)

Although §104(a)(1) excludes amounts received "as compensation for" personal injuries or sickness, while §104(a)(2) excludes amounts received "on account of " personal injuries or sickness, the Court reads the two phrases to mean precisely the same thing. That is not sound textual interpretation. "[W]hen the legislature uses certain language in one part of the statute and different language in another, the court assumes different meanings were intended." 2A N. Singer, Sutherland on Statutory Construction §46.07 (5th ed. 1992 and Supp. 1996). See, e.g., Russello v. United States, 464 U.S. 16, 23 (1983). This principle of construction has its limits, of course: Use of different terminology in differing contexts might have little significance. But here the contrasting phrases appear in adjoining provisions that address precisely the same subject matter and that even have identical grammatical structure.

The contrast between the two usages is even more striking in the original statute that enacted them. The Revenue Act of 1918 combined subsections (a)(1) and (a)(2) of §104, together with (a)(3) (which provides an exclusion from income for amounts received through accident or health insurance for personal injuries or sickness), into a single subsection, which provided:

" `Gross income' . . . [d]oes not include . . . :

%(6) Amounts received, through accident or health insurance or under workmen's compensation acts, as compensation for personal injuries or sickness, plus the amount of any damages received . . . on account of such injuries or sickness." §213(b)(6) of the Revenue Act of 1918, 40 Stat. 1065-66 (emphasis added).

The contrast between the first exclusion and the second could not be more clear. Had Congress intended the latter provision to cover only damages received "as compensation for" personal injuries or sickness, it could have written "amounts received, through accident or health insurance, under workmen's compensation acts, or in damages, as compensation for personal injuries or sickness." Instead, it tacked on an additional phrase "plus the amount of, etc." with no apparent purpose except to make clear that not only compensatory damages were covered by the exclusion.

The Court maintains, however, that the Government's reading of §104(a)(2) is "more faithful to [its] history." Ante, at 5. The "history" to which the Court refers is not statutory history of the sort just discussed--prior enactments approved by earlier Congresses and revised or amended by later ones to produce the current text. Indeed, it is not "history" from within even a small portion of Congress, since the House Committee Report the Court cites, standing by itself, is uninformative, saying only that "[u]nder the present law it is doubtful whether . . . damages received on account of [personal] injuries or sickness are required to be included in gross income." H. R. Rep. No. 767, 65th Cong., 2d Sess., 9-10 (1918). The Court makes this snippet of legislative history relevant by citing as pertinent an antecedent Treasury Department decision, which concludes on the basis of recent judicial decisions that amounts received from prosecution or compromise of a personal injury suit are not taxable because they are a return of capital. Ante, at 5-6 (citing T. D. 2747, 20 Treas. Dec. Int. Rev. 457 (1918)).

One might expect the Court to conclude from this that the Members of Congress (on the unrealistic assumption that they knew about the Executive Branch opinion) meant the statutory language to cover only return of capital, the source of the "doubt" to which the Committee Report referred. But of course the Court cannot draw that logical conclusion, since even if it is applied only to compensatory damages the statute obviously and undeniably covers more than mere return of "human capital," namely, reimbursement for lost income, which would be a large proportion (indeed perhaps the majority) of any damages award. The Court concedes this is so, but asserts that this inconsistency is not enough "to support cutting the statute totally free from its original moorings," ante, at 7, by which I assume it means the Treasury Decision, however erroneous it might have been as to the "capital" nature of compensatory damages. But the Treasury Decision was no more explicitly limited to compensatory damages than is the statute before us. It exempted from taxation "an amount received by an individual as the result of a suit or compromise for personal injuries." T. D. 2747, 20 Treas. Dec. Int. Rev. 457 (1918). The Court's entire thesis of taxability rests upon the proposition that this Treasury Decision, which overlooked the obvious fact that "an amount received . . . as the result of a suit or compromise for personal injuries" almost always includes compensation for lost future income, did not overlook the obvious fact that such an amount sometimes includes "smart money."

So, to trace the Court's reasoning: The statute must exclude punitive damages because the Committee Report must have had in mind a 1918 Treasury Decision, whose text no more supports exclusion of punitive damages than does the text of the statute itself, but which must have meant to exclude punitive damages since it was based on the "return of capital" theory, though, inconsistently with that theory, it did not exclude the much more common category of compensation for lost income. Congress supposedly knew all of this, and a reasonably diligent lawyer could figure it out by mistrusting the inclusive language of the statute, consulting the Committee Report, surmising that the Treasury Decision of 1918 underlay that Report, mistrusting the inclusive language of the Treasury Decision, and discerning that Treasury could have overlooked lost income compensatories, but could not have overlooked punitives. I think not. The sure and proper guide, it seems to me, is the language of the statute, inclusive by nature and doubly inclusive by contrast with surrounding provisions.

The Court poses the question, ante, at 7, "why Congress might have wanted the exclusion [in §104(a)(2)] to have covered . . . punitive damages." If an answer is needed (and the text being as clear as it is, I think it is not), surely it suffices to surmise that Congress was following the Treasury Decision, which had inadvertently embraced punitive damages just as it had inadvertently embraced future income compensatory damages. Or if some reason free of human error must be found, I see nothing wrong with what the Court itself suggests but rejects out of hand: Excluding punitive as well as compensatory damages from gross income "avoids such administrative problems as separating punitive from compensatory portions of a global settlement." Ante, at 9. How substantial that particular problem is is suggested by the statistics which show that 73 percent of tort cases in state court are disposed of by settlement, and between 92 and 99 percent of tort cases in federal court are disposed of by either settlement or some other means (such as summary judgment) prior to trial. See B. Ostrom & N. Kauder, Examining the Work of State Courts, 1994, p. 34 (1996); Administrative Office of the United States, L. Mecham, Judicial Business of the United States Courts: 1995 Report of the Director 162-164. What is at issue, of course, is not just imposing on the parties the necessity of allocating the settlement between compensatory and punitive damages (with the concomitant suggestion of intentional wrongdoing that any allocation to punitive damages entails), but also imposing on the Internal Revenue Service the necessity of reviewing that allocation, since there would always be strong incentive to inflate the tax free compensatory portion. The Court's only response to the suggestion that this is an adequate reason (if one is required) for including punitive damages in the exemption is that "[t]he administrative problem of distinguishing punitive from compensatory elements is likely to be less serious than, say, distinguishing among the compensatory elements of a settlement." Ante, at 9-10. Perhaps so; and it may also be more simple than splitting the atom; but that in no way refutes the point that it is complicated enough to explain the inclusion of punitive damages in an exemption that has already abandoned the purity of a "return of capital" rationale.

The remaining argument offered by the Court is that our decision in Commissioner v. Schleier, 515 U. S. ___ (1995), came "close to resolving"--in the Government's favor--the question whether §104(a)(2) permits the exclusion of punitive damages. Ante, at 4. I disagree. In Schleier we were faced with the question whether backpay and liquidated damages under the Age Discrimination in Employment Act of 1967 (ADEA) were "damages received . . . on account of personal injuries or sickness" for purposes of §104(a)(2)'s exclusion. As the dissent accurately observed, 515 U. S., at ___ (slip op., at 6) (opinion of O'Connor, J.), "the key to the Court's analysis" was the determination that an ADEA cause of action did not necessarily entail "personal injury or sickness," so that the damages awarded for that cause of action could hardly be awarded "on account of personal injuries or sickness." See id., at __ (slip op., at 7). In the case at hand, we said, "respondent's unlawful termination may have caused some psychological or `personal' injury comparable to the intangible pain and suffering caused by an automobile accident," but "it is clear that no part of respondent's recovery of back wages is attributable to that injury." Ibid. The respondent countered that at least "the liquidated damages portion of his settlement" could be linked to that psychological injury. Ibid. And it was in response to that argument that we made the statement which the Court seeks to press into service for today's opinion. ADEA liquidated damages, we said, were punitive in nature, rather than compensatory. Id., at ___, and n. 5 (slip op., at 8-9, and n. 5).

The Court recites this statement as though the point of it was that punitive damages could not be received "on account of" personal injuries, whereas in fact the point was quite different: Since the damages were punishment for the conduct that gave rise to the (non personal injury) cause of action, they could not be "linked to" the incidental psychological injury. In the present cases, of course, there is no question that a personal injury occurred and that this personal injury is what entitled petitioners to compensatory and punitive damages. We neither decided nor intimated in Schleier whether punitive damages that are indisputably "linked to" personal injuries or sickness are received "on account of" such injuries or sickness. Indeed, it would have been odd for us to resolve that question (or even come "close to resolving" it) without any discussion of the numerous considerations of text, history and policy highlighted by today's opinion. If one were to search our opinions for a dictum bearing upon the present issue, much closer is the statement in United States v. Burke, 504 U.S. 229 (1992), that a statute confers "tort or tort type rights" (qualifying a plaintiff's recovery for the §104(a)(2) exemption) if it entitles the plaintiff to "a jury trial at which `both equitable and legal relief, including compensatory and, under certain circumstances, punitive damages' may be awarded. " Id., at 240 (quoting Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 460 (1975)).

But all of this is really by the way. Because the statutory text unambiguously covers punitive damages that are awarded on account of personal injuries, I conclude that petitioners were entitled to deduct the amounts at issue here. This makes it unnecessary for me to reach the question, discussed ante, at 12-13, whether the government's refund action against the O'Gilvie children was commenced within the two year period specified by 26 U.S.C. § 6532(b). I note, however, that the Court's resolution of these cases also does not demand that this issue be addressed, except to the extent of rejecting the proposition that the statutory period begins to run with the mailing of a refund check. So long as that is not the trigger, there is no need to decide whether the proper trigger is receipt of the check or some later event, such as the check's clearance.

For the reasons stated, I respectfully dissent from the judgment of the Court.