Opinion
Civil No. 1:99CV139
April, 2000
ORDER OF DISMISSAL
THIS MATTER is before the Court on the parties' cross-motions to enforce a settlement agreement reached during mediation. The Defendant's motion is granted.
Plaintiff brought suit pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000, et. seq., alleging racial discrimination in the form of failure to promote. During mediation, the parties agreed to a settlement; however, when the Defendant withheld federal and state taxes from the settlement check, the Plaintiff refused to accept it. The Memorandum of Mediated Settlement does not state the nature of the claim settled, providing only that the Plaintiff "shall execute such releases as required by Defendant, in a form acceptable to Defendant, and shall file a Voluntary Dismissal. . . ." Memorandum of Mediated Settlement, attached to Plaintiff's Motion to Enforce Mediated Settlement Agreement, filed April 6, 2000.
[I]n contrast to the tort remedies for physical and nonphysical injuries . . ., Title VII does not allow awards for compensatory or punitive damages; instead it limits available remedies to backpay, injunctions, and other equitable relief. . . . [A]n employee wrongfully denied a promotion on the basis of [race], . . . may recover only the differential between the appropriate pay and actual pay for services performed, as well as lost benefits. The Court previously has observed that Title VII focuses on "legal injuries of an economic character," consisting specifically of the unlawful deprivation of full wages earned or due for services performed, or the unlawful deprivation of the opportunity to earn wages through wrongful termination. The remedy, correspondingly, consists of restoring victims, through backpay awards and injunctive relief, to the wage and employment positions the would have occupied absent the unlawful discrimination. Nothing in this remedial scheme purports to recompense a Title VII plaintiff for any of the other traditional harms associated with personal injury, such as pain and suffering, emotional distress, harm to reputation, or other consequential damages. . . . Congress declined to recompense Title VII plaintiffs for anything beyond the wages properly due them-wages that, if paid in the ordinary course, would have been fully taxable. . . . Accordingly, we hold that the backpay awards received by respondents in settlement of their Title VII claims are not excludable from gross income. . . .
United States v. Burke, 504 U.S. 229, 238-242 (1992) (quoting Albemarle Paper Co. v. Moody, 422 U.S. 405, 418 (1975)) (other citations and footnotes omitted). Here, Plaintiff argues that the settlement represents payment for wages he would have earned had he been promoted; thus, since he did not actually provide services for those wages, they should be excludable income. However, "[w]hen a settlement agreement lacks express language stating what the settlement amount was paid to settle, the most important factor for courts to consider is the intent of the payor." Pipitone v. United States, 180 F.3d 859, 864 (7th Cir. 1999). Moreover, the "withholding of taxes [by the payor] is a significant factor suggesting the employer intended a payment to constitute [wages]." Id. (citing Nagourney v. Commissioner, 57 T.C.M. (CCH) 954, 957 (1989), aff'd without op., 904 F.2d 700 (4th Cir. 1990)).
It is clear the Defendant intended the settlement to end the lawsuit for Title VII relief; thus, it is settled that the sum received in settlement was taxable income. Id. (holding severance pay for one year is taxable). The fact that the settlement was for wages which would have been earned if Plaintiff had been properly promoted is a distinction without a difference.
Plaintiff also argues that whether the income is taxable or not, the Defendant was not obligated to make the withholdings. However, this argument, which relies on a case involving breach of contract, is inapposite to these facts. The Plaintiff's relief, if any, lies in the administrative proceedings before the Internal Revenue Service and/or Tax Court. The settlement amount was taxable and therefore the employer was obligated by Internal Revenue laws to make the withholdings. See, Pipitone, supra; Hemelt v. United States, 122 F.3d 204 (4th Cir. 1997).
IT IS, THEREFORE, ORDERED that the Plaintiff's motion to enforce settlement is hereby DENIED; and
IT IS FURTHER ORDERED that the Defendant's motion to enforce settlement is hereby GRANTED; and
IT IS FURTHER ORDERED that this matter is hereby DISMISSED WITH PREJUDICE.
THIS the __________ day of April, 2000.