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CHENOWETH v. SCHAAF

January 9, 1984

RICHARD A. CHENOWETH, Executor of the Estate of Reid B. Babcox, Sr., Deceased, Plaintiff
v.
JOHN T. SCHAAF, M.D., HAMOT MEDICAL CENTER, and GEORGE BANDOW, M.D., Defendants



The opinion of the court was delivered by: WEBER

 However, a warning is given to counsel who cite our prior decisions with careless rapture because they are prior decisions of the trial court. The specific facts of each case are highly important in determining the results. In Gatenby we had combined causes of action under the Wrongful Death Act and the Survival Act. The main thrust of the evidence in Gatenby was the damages to two dependent widows and dependent minor children under the Wrongful Death Act from the death of two husbands and fathers who were in the midst of careers offering future advancement, early retirement and pension rights, and a high expectation of substantial earnings after early civil service retirement. The admitted evidence of future earning power was also relevant to damages under the Survival Act.

 In Krakar the situation was different as to both facts and the action was solely for damages under the Survival Act. There the decedents were a 74 year old retired pensioner and his 61 year old wife, still employed but anticipating retirement and pension. There we held pension and social security benefits admissible to be considered with other factors in the calculation of pecuniary loss. One factor leading to this conclusion is that such income is a substitute for earning power because the receipt of retirement benefits and/or social security benefits represents an option between continuing work and accepting retirement income.

 We now turn to the facts at hand in the present case to determine the admissibility of certain evidence relating to damages in a case brought under both the Wrongful Death Act and a Survival Act cause of action.

 Plaintiff's decedent was 70 years of age at the time of his death in September 1981. During his working years he was employed by Babcox Publications and two related corporations as Executive Vice-President of each, a business founded by his father and carried on by himself and his brother. On March 12, 1979, he entered into three practically identical contracts with the three corporations, each signed by T. B. Babcox as the President of each corporation, and by decedent and his wife. The contracts recited his experience and knowledge of the affairs of the company and his contacts in the industry. Each recited prior employment contracts under which he was to receive deferred compensation and death and disability benefits after his retirement. The contracts provided that after his retirement he would continue to hold himself available to render consultative, advisory and appropriate special services; that he not be required to devote the major part of his time to such services, nor to be available at reasonable vacation periods, nor during periods of any illness, disability or incapacity. The contract also contained by decedent and his wife an agreement not to compete, or be employed by any competitor. Decedent and his wife agreed that these contracts replaced and abrogated all prior contracts under which he held pension rights, and disability and death benefits. Decedent was to be paid $107,000 per year under these contracts, in monthly installments. The contracts covered a period of ten years, and in the event of his death the payments would continue to be made to his wife, if living, or to his lineal descendants. The nature of the contracts is revealed by the provision for tax treatment. The employer is to deduct these payments as expenses on its books and decedent and his wife will report the payments as compensation. This follows the standard forms suggested in certain tax advice texts which show how the purchaser of a business interest can deduct his capital investment as an expense and the seller can reduce or spread out the tax on the capital gain of a sale. The agreements are obviously a part of a transaction on the sale of a business interest.

 
The plaintiff's decedent's contract with his employer is admissible to prove his earnings capacity, however its post mortem provisions constitute supplemental retirement benefits, and are therefore inadmissible pursuant to the collateral source rule.

 The trouble with this is the same problem referred to in the old World War I song:

 
How're you gonna keep them down on the farm, After they've seen Paree?

 Plaintiff's counsel wants to tell the jury that decedent was receiving $107,000 per year at the time of his death, but doesn't want them to hear that his wife or other dependent beneficiaries did not lose that income by reason of his death. Because of the rule that Wrongful Death Act damages are calculated on the basis of the economic loss suffered by the statutory beneficiaries, showing such provisions would demonstrate that decedent's death was not an economic loss, but rather an economic benefit because the cost of decedent's own maintenance would not have to be deducted.

 Plaintiff's argument must be treated in two parts. First: is the income from these contracts proper evidence of earning power? We think not.

 While in Krakar, supra, we admitted evidence of social security and pension benefits, we noted at 323 F. Supp. p. 159:

 
These rulings are limited to such pension income as terminates upon death and has no application to income from capital investments because this is not related to earning capacity and the income producing capital is not destroyed by ...

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