E-Alert Case Updates

RRA Benefits Are A “Collateral Source” That May Not Be Considered In Determining a FELA Award

Michael D. Sloas v. CSX Transportation, Inc.
No. 09-1249 (4th Cir. 2010)
By Lydia S. Hu, Associate
Semmes, Bowen & Semmes (www.semmes.com)

The United States Court of Appeals for the Fourth Circuit held that the Railroad Retirement Act (“RRA”) benefits are a “collateral source” and may not set off an award under the Federal Employers Liability Act (“FELA”).

Plaintiff, a sheet metal worker, employed by Defendant CSX Transportation, Inc. (“CSX”), injured his back while attempting to remove a damaged valve. Plaintiff applied for and received disability benefits under the RRA, codified at 45 U.S.C. § 231, et seq., and sued for negligence under FELA, codified at 45 U.S.C. § 51, et seq. The jury returned a verdict in Plaintiff’s favor.

CSX filed a Motion to Alter or Amend the judgment pursuant to FEDERAL RULE OF CIVIL PROCEDURE RULE 59(e) and argued that CSX was entitled to a setoff against the judgment equal to the amount of disability payments received by Plaintiff from the RRA. CSX argued that without a setoff, it would pay twice for the same injury – once by virtue of its mandatory contribution to the RRA and again through the judgment.

The district court denied CSX’s Motion to Alter or Amend, prompting CSX’s appeal. The Court of Appeals reviewed the district court’s denial on an abuse of discretion standard, which required reversal if the lower court made an error of law. The “collateral source” rule aided the appellate court’s analysis. This rule provides that compensation to an injured party from a collateral source should be disregarded in assessing tort damages. Accordingly, if the RRA benefits are a collateral source, then the court need not consider RRA benefits in calculating the FELA judgment amount.

Determining whether a payment is a collateral source required the Fourth Circuit to analyze the purpose of the payment. Even though a benefit may be paid by the tortfeasor to the injured, the payment will not automatically be deemed a non-collateral source such that it will offset a tort judgment. If the tortfeasor provided the benefit specifically to compensate for the injury or to indemnify itself from liability, then the injury is not a collateral source, and should be considered to offset a judgment. With this rule of law in mind, the court explored the purpose of the RRA.

CSX argued that the benefits which Plaintiff received from RRA are known as “Tier II” and are analogous to a private employer paid pension and “are in substantial part directly attributable to the contributions of the employer.” Tier II operates like a “‘private pension’ tied to an employee’s ‘earnings and career service.’” According to CSX’s economic expert, Plaintiff was paid disability benefits in an amount of $2,107.49 pursuant to RRA Tier II.

The administration of the RRA is assigned to a federal agency known as the Railroad Retirement Board. This agency determines an employee’s eligibility for benefits and the amount, if any, to be paid. The benefits are funded through the Railroad Retirement Tax Act, which requires employers to withhold taxes from paychecks.

Like any scheme of social insurance, the amount of taxes paid on behalf of a particular employee does not necessarily correlate with the amount of benefits to which the employee may become entitled. In fact, not all employees become eligible for benefits. But neither the employee nor the carrier is entitled to a refund of . . . taxes paid on behalf of an employee who never qualifies for benefits.

See Sloas v. CSX Transportation, No. 09-1249, at p. 15.

Accordingly, the Fourth Circuit concluded that CSX’s employer contributions are not made voluntarily to indemnify itself against possible liabilities under FELA. Instead, CSX made mandatory tax contributions to administer a social welfare program. These facts support a finding that the RRA benefits are a collateral source. Thus, the RRA benefits may not be considered when determining a FELA award. The Fourth Circuit affirmed the lower court.