Our Record of Success

Plaintiff v. Defendant Railroad Company

DBMS secured a victory on behalf of a railroad company before the Illinois Appellate Court. Correcting its earlier ruling, the appellate court ruled that the Railroad Retirement Tax Act (RRTA), which funds benefits provided to railroad employees under the Railroad Retirement Act (RRA), requires it to set off funds from any lost earnings and benefits portion of an employee’s Federal Employers’ Liability Act (FELA) award.

This is the first Illinois reviewing court decision to hold that a railroad defendant is entitled to a setoff for taxes owed on lost wages paid to employees and that a FELA award for lost wages is taxable RRTA compensation.

This appeal arose from a negligence suit filed in the Circuit Court of Cook County, where a jury awarded a railroad employee damages for personal injuries, including past and future lost wages. The trial court denied the defendant’s motion to set off from the judgment the amount of the employment benefit taxes it was required to withhold pursuant to the RRTA.

DBMS then appealed on behalf of the railroad to the First District of the Illinois Appellate Court. DBMS argued that federal law imposes unique employment benefit taxes on a lost earnings award to railroad employees and that federal law obligated the railroad to withhold the employee’s share of that tax obligation from the amount paid to satisfy the judgment. DBMS also argued that the earnings and benefits award constituted taxable creditable compensation which would increase the employee’s retirement benefits and that the RRTA requires the employer to withhold and to remit its employee’s share of the amount owed to the Internal Revenue Service.

In affirming the trial court’s ruling, the appellate court relied on a case from the Eighth Circuit Court of Appeals, which found the RRTA excludes FELA lost wage awards from the definition of taxable compensation. DBMS then petitioned the Supreme Court of Illinois for leave to appeal the appellate court’s ruling. While the petition was pending, the United States Supreme Court reversed the Eighth Circuit opinion and defined compensation under the RRTA to encompass pay for periods of absence from active service.

DBMS notified the Illinois Supreme Court of the reversal and argued the U.S. Supreme Court’s decision required reversal of the appellate court’s decision and the trial court’s ruling. The Supreme Court of Illinois directed the appellate court to vacate its judgment and consider the effect of the U.S. Supreme Court’s reversal of the Eighth Circuit case.

The appellate court vacated its prior ruling, reversed the trial court’s decision, and remanded the case for further proceedings regarding the setoff. As a result of this ruling, Illinois precedent permits railroad companies to set off funds from a lost earnings and benefits portion of an employee’s FELA award, which promotes the financial stability of the national railroad retirement system.