Free Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 1 of 9

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Case No. 01-cv-02199-MKS-OES MICHAEL E. CLAWSON and JARED L. DILLON, Plaintiffs, v. MOUNTAIN COAL COMPANY, L.L.C., ARCH WESTERN RESOURCES, L.L.C., and ARCH COAL, INC., Defendants.

PLAINTIFFS' RESPONSE TO DEFENDANTS' MOTION FOR PARTIAL RECONSIDERATION OF THE COURTS' ORDER RE: COLLTERAL SOURCES

The plaintiffs, Michael E. Clawson and Jared L. Dillon, through their undersigned counsel, Killian, Guthro & Jensen, P.C., hereby submit Plaintiffs' Response To Defendants' Motion For Partial Reconsideration Of The Courts' Order Re: Collateral Sources, and in support thereof, state as follows: I. THE COURTS' ORDER ALREADY ACCOUNTS FOR THE POSSIBILITY THAT SHORT TERM DISABILITY IS NOT A COLLATERAL SOURCE, AND THUS RECONSIDERATION IS UNNECESSARY At the May 3, 2005, hearing, the court declined to determine in advance what payments to the plaintiffs would be deducted from economic damages, and did not make a determination of which payments were collateral sources. The ruling was that the court would be making the final determination as to back pay. Therefore, the court has not yet ruled on whether short-term

1

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 2 of 9

disability (STD) is a collateral source, or on whether STD benefits should be deducted from economic damages. Defendants essentially assert the same arguments regarding STD not being a collateral source as they asserted in response to plaintiffs' motion to exclude collateral sources. Such arguments should be reserved for a post-trial hearing on economic damages, as suggested in the court's May 3, 2005, order on the subject. An advisory verdict by the jury on back pay damages does not provide a basis for altering the court's order. It is apparent from the court's order that the court was cognizant of the possibility one or more of a variety of payments would not qualify as a collateral source. The advisory verdict appears to have the purpose of providing a guide as to a gross back pay amount, which the court may or may not follow. If the court follows the advisory verdict it can then make a determination as to whether to subtract other payments, such as STD benefits. The defendants do not provide an adequate basis for the court to reconsider its order. The court has already accounted for defendants' concerns in its order. If the court, at a hearing after trial, determines that STD benefits are not a collateral source, it can subtract them from the award of back pay. Defendants provide no adequate reason why the amount of STD benefits plaintiffs received is relevant to the jury when it is the court that will be making the ultimate decisions about collateral sources and the amount of back pay. Because the court's order has already taken into consideration the defendants' arguments, this court should decline to reconsider its order.

2

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 3 of 9

II.

SHORT TERM DISABILITY PAYMENTS ARE A COLLATERAL SOURCE AND SHOULD NOT BE DEDUCTED FROM BACK PAY Plaintiffs maintain that the court should decide whether STD benefits are a collateral

source at a hearing after trial, as already called for in the court's earlier order. However, defendants have raised the issue again, and plaintiffs must address it again. Defendants still have not described or explained the funding mechanism for STD benefits, stating only that such benefits come from "Defendants" or "the Company." If the benefits are paid out of a separate fund they may not be collateral source benefits, even if the fund is maintained by the defendants. See Berg v. United States, 806 F.2d 978, 985-986 (10th Cir. 1986) (Separate fund created by the Federal Government was a collateral source in a FTCA case against the Federal Government). We do know that the pay checks were issued by Arch Western Resources and STD benefits were controlled by policies established by Arch Coal. If the benefits are paid by one of the parent companies, such as Arch Coal or Arch Western Resources, it is difficult to see how it would be anything but a collateral source if the judgment is only against Mountain Coal Company (MCC) as defendants argue should be the case. Defendants have maintained that these are separate entities, therefore, if the entity providing the STD benefits is not held liable, it is a third party to the other entities, just as an insurance company would be. Defendants have failed describe the workings and financing of the STD benefits, and have thus left it impossible for the court to reach a decision at this time. An evidentiary hearing on the issue with subpoenas to the relevant company officials will be essential to make the determination. Furthermore, STD benefits are a collateral source because they are earned by the plaintiffs, and thus constitute part of their compensation. As part of the plaintiffs' compensation

3

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 4 of 9

for the time in which they were employed, STD benefits should not decrease their back pay. Under Colorado law, the law governing the contract of employment between defendants and plaintiffs in this case, benefits such as disability insurance are considered to be earned by the employee, even if no contributions are made by the employee. Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070, 1075, 1078 (Colo. 1992) (also see the Rovira Concurrence at 1080-81). Thus, the employee's work is consideration for the benefits made available by the employer. Id. Colorado is not alone in this view of employee benefits. See In re Aircraft Disaster Near Chicago, 803 F.2d 304, 307-308 (7th Cir. 1986) (Describing Arizona law as being that employee benefits are as much compensation as pay, and are earned by the employee). Defendants cite Sandia Corp. for the proposition that STD benefits in this case should not be treated as a collateral source but should be treated like severance pay, which was not a collateral source in Sandia Corp.. However, because the STD benefits were earned by the plaintiffs, they are much more like the vacation benefits discussed in the same case. Equal Employment Opportunity Commission v. Sandia Corp., 639 F.2d 600, 626 (10th Cir. 1980). In Sandia Corp. the defendant argued that vacation allowances received by the employees should be deducted from back pay. Id. The Tenth Circuit stated, "In[]as[]much as this vacation time had been earned, there is no good[]reason for its being an offset where back pay is awarded." Id. The plaintiffs earned the STD benefits, and just like the vacation allowance, there is no good reason to deduct it from back pay. Finally, defendants argue that because the STD payments show up as income on tax documents, they must not be a collateral source. The argument seems to be that because the defendants were required to report the STD payments as income, the same as they would do with

4

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 5 of 9

wages, STD must not be a collateral source and should be deducted from back pay. However, a basic review of tax law shows this to be an incorrect argument. 26 U.S.C. § 61 provides that "gross income means all income from whatever source derived . . . ." 26 U.S.C. § 106 excludes from income employer provided coverage for health or accident insurance plans. However, under 26 U.S.C. § 105, the employee must include in gross income any amounts derived from accident or health insurance when coverage is provided by the employer either directly or through payment of premiums to an insurance company. Therefore, plaintiffs were required to report STD benefits as income regardless of whether they were paid directly by the employer or through an insurance company. The fact that defendants chose to report the STD payments through the employee's regular W-2 form does not change the underlying analysis or change the nature of the payments. III. DIFFICULTY IN PRESENTING EVIDENCE DOES NOT CHANGE THE RULES OF EVIDENCE Although the Federal Rules of Evidence are to be "construed to secure fairness," mere difficulty in presentation should not result in admitting irrelevant and prejudicial evidence. While "fairness" may require accounting for the difficulty in presenting evidence, it is neither fair nor just to admit evidence that has no bearing on the decision to be made by the jury, and is likely to impermissibly prejudice the jury. Defendants allege that it will be more difficult to segregate information on STD than it is to segregate information on other collaterals sources. Defendants then conclude that for this reason, information on STD benefits should be admitted. There is no support for defendants' argument that because there is a difficulty in presenting evidence, the rules of evidence should be violated or disregarded. Defendants do not cite a single authority in their argument on this point.

5

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 6 of 9

As part of defendants' argument on the subject they assert potential confusion on this issue because of the alleged difficulty in segregating out STD benefits. This argument does not have force because the risk of confusion is much less where it is the court that is making the decision, rather than the jury. Even with an advisory verdict, it is the court that makes the final decision on collateral sources and on back pay. Further, the risk associated with the alleged difficulty of segregating STD benefits is on the plaintiffs. If STD benefits have been included in the plaintiffs' regular pay, the plaintiffs will have to live with the mistake or request amendment at trial. If payments which are not STD benefits have been accidentally excluded from regular pay, if convinced of such, plaintiffs can so stipulate or defendants can demonstrate this with exhibits and cross-examination in impeachment of the plaintiffs' damages case. This is what they have purportedly done for the court in their motion, and defendants should be able to make such a presentation to the jury or at a hearing before the court. The court should dismiss defendants' difficulty argument as a reason for changing its order. IV. EVEN IF THE COURT DETERMINES THAT STD BENEFITS ARE NOT A COLLATERAL SOURCE, EVIDENCE OF STD BENEFITS SHOULD BE EXCLUDED FROM PRESENTATION TO THE JURY AS BEING UNDULY PREJUDICIAL F.R.E. 403 allows for the exclusion of evidence where its probative value is substantially outweighed by the danger of unfair prejudice. In this case, at trial, the probative value of STD benefits is substantially outweighed by the danger of unfair prejudice to the plaintiffs. "The major reason for excluding collateral source evidence is the concern that juries will be more likely to find no liability if they know that plaintiff has received some compensation." Green v. Denver & Rio Grande R.R., 59 F.3d 1029, 1033 (10th Cir. 1995) (failure to exclude collateral source reversible error even on a finding of no liability). The main concern in the admission of

6

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 7 of 9

outside payments is not so much relevance as undue prejudice; the misuse of the evidence by the jury. The United States Supreme Court has held that the introduction of evidence of collateral sources, even when relevant, may be reversible error. Eichel v. New York Central Railroad Co., 375 U.S. 253 (1963). In that case the defendants attempted to use the collection of disability benefits under the Railroad Retirement Act as evidence of a motive for feigning disability. Id. at 254-255. The court held that "the likelihood of misuse by the jury outweighs the value of this evidence." Id. at 255. The court explained its decision as follows: We have recently had occasion to be reminded that evidence of collateral benefits is readily subject to misuse by a jury. Tipton v. Socony Mobile Oil Co., Inc. 375 U.S. 34. It has long been recognized that evidence showing that the defendant is insured creates a substantial likelihood of misuse. Similarly, we must recognize that the petitioner's receipt of collateral social insurance benefits involves a substantial likelihood of prejudicial impact. Id. at 255 (Footnotes omitted). The Eichel case demonstrates that even when relevant, payment by collateral sources may be unduly prejudicial. Even if STD payments are not found to be a collateral source, they should still be excluded as being unduly prejudicial. STD benefits have minimal probative value. Although the jury will be giving an advisory verdict on back pay, it is the court that will decide what, if any, payments will be deducted from back pay. There is no reason this should not apply to STD payments as well. The potential for the misuse of such payments is very high, as demonstrated above. Even if STD is found to not be a collateral source, the determination will be based on a technical legal rule, which may not be explained to the jury - See F.R.E. 103(c) - and one the jury is unlikely to understand or appreciate. The payment of STD benefits has the same essential effect as any collateral source. The plaintiffs received money from some source, as a result of his "disability," thus the jury is less likely to find liability or award

7

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 8 of 9

appropriate damages. Even if STD benefits are found not to be a collateral source, the court should exclude such evidence because the probative value of such evidence is miniscule when compared with the potential undue prejudice. See F.R.E. 403. CONCLUSION The court should not alter its ruling regarding the exclusion of STD benefits. The ruling already accounted for the potential that STD benefits would be deducted from back pay, thus there is no reason to change the ruling based on an advisory jury verdict on back pay. STD benefits are a collateral source because they are earned by the employee, and already belong to the employee. Thus, STD benefits are like earned vacation allowances, which the Tenth Circuit has refused to deduct from back pay. The potential for difficulty in presenting evidence of damages without presenting evidence of STD is not so great that the court should deviate from the rules of evidence on the subject. Finally, even if STD benefits are not collateral in this case, they should be excluded as being unduly prejudicial under F.R.E. 403. THEREFORE, plaintiffs respectfully request that the court deny defendants' motion. RESPECTFULLY SUBMITTED this 10th day of August, 2005.

s/Damon Davis J. Keith Killian Joanna C. Jensen Damon Davis Killian, Guthro & Jensen, P.C. 225 N. 5th Street Grand Junction, CO 81501 Telephone: (970) 241-0707 FAX: (970) 242-8375 E-mail: [email protected] Attorney for Plaintiffs Michael E. Clawson and Jared L. Dillon

8

Case 1:01-cv-02199-MSK-MEH

Document 361

Filed 08/10/2005

Page 9 of 9

UNITED STATES DISTRICT COURT FOR THE DISTRIT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on August 10, 2005, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses: [email protected] [email protected] and, I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants in the manner (mail, hand-delivery, etc.) indicated by the non-participant's name: Mr. Michael Clawson 38506 Back River Road Paonia, CO 81428 Mr. Jared Dillon 35404 Back River Road Hotchkiss, CO 81419 Mail

Mail

s/Damon Davis Damon Davis Attorney for Plaintiffs Killian, Guthro & Jensen, P.C. 225 N. 5th Street Grand Junction, CO 81501 Telephone: (970) 241-0707 Fax: (970) 242-8375 [email protected]

9