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"Update Discount of Future Damages"

MTLA Magazine
December 1988

Article Author: William E. Jepsen

Previous articles in this magazine have addressed the constitutionality of Minn. Stat. § 604.07, Discount, Future Damage Awards, see Minnesota Trial Lawyer, Vol. 12, No. 2 p. 8, and the application of the discount statute at the trial court level in light of the Supreme Court’s decision in Bianchi vs. Nordby, 409 N.W.2d 835, (Minn. 1987) see Minnesota Trial Lawyer, Vol. 12, No. 3, p. 10.

Since the decision in Bianchi, there have been two additional decisions by the Minnesota Court of Appeals, Kleeman vs. Cadwell and Johnson vs. Farmers Union Central Exchange, both decided on October 14, 1987.  In addition, there has been the trial court ruling in the case of Ashton vs. Group Health Plan, Inc.? Ramsey County District Court File No. 473431, wherein the Honorable Roland J. Faricy has determined that Minn. Stat. § 604.07 amounts to a limitation on special damages and, as such, is unconstitutional.  These decisions potentially impact each case that is presented at the trial court level.  It is the purpose of this article to address the issues at the trial court level in light of these recent decisions.  Four subjects will be discussed:  1. the status of constitutional challenge; 2. the submission of evidence and proper verdict forms at the trial court level; 3. appropriate jury instructions, and; 4. arguments of counsel.

Minn. Stat. § 604.07 has not been determined to be generally constitutional.  The decision in Kleeman vs. Cadwell, supra, is very limited.  The court specifically stated, “Respondent has not shown that Minn. Stat. § 604.07 is unconstitutional.”  The neck injury with limited ability to fully develop the constitutional issues.  In Kleeman, the court went out of its way to show that judicially approved methods of discount vary grossly from this legislative mandate.  The court went on to note and follows:

“While there may thus be a relationship of constitutional dimension between the discount rate and certainty of recovery of future damages in some case, the burden remains on Kleeman to show that uncertainty.”

In the case of Ashton vs. Group Health Plan, Inc., Ramsey County District Court File No. 473431, the Honorable Roland J. Faricy ordered a partial new trial on the issue of future medical expense.  The court had submitted the issue of future medical expense to the jury and advised the jury that the court would be discounting its future medical expense award to present value.  The jury in answer to special verdict questions determined that Bobbi Ashton would live an additional 62 years and incur special medical expenses of $2,289,433.08.  In post-verdict motions, the plaintiff presented economic testimony about the effect of the discount on this future damage award.  The court is ordering a new trial on the future medical expense issue stated:

“Plaintiff’s economist, Dr. Roger Walker, presented evidence to the court to illustrate that annualizing this amount, applying the 5.2% discount pursuant to Minn. Stat. § 604.07 and increasing the principle at 1.5% which according to Dr. Bobbi Ashton will experience a shortfall in monies available to purchase required future medical care by $1,386,476.45.  Dr. Walker further testified that medical services exceed inflation at a rate of 2.125% which over the 62 years amounted to an additional $1,933,286.40, which when subjected to the same formula results in an additional shortfall of approximately $1,170,000.00 for a total deficit of $2,257,269.90.

Minn. Stat § 604.07 amounts to a limitation on special damages, providing a formula which imposes its greatest injustice on the young and severely injured.  Such result offends the basic notions of fairness and justice.  Every state court which has addressed statutes restricting special damages has held them to be unconstitutional.”

The economic principles testified to by Dr. Walker in the Ashton case may well be present in non-medical expense cases.  Subdivision 3 of the act attempts to limit the presentation of evidence of future changes I earnings or earning capacity.  This portion of the act would have the evidence that is submitted to the jury be “limited to the present value of the future changes without regard to inflationary changes”.  This presents two major areas for constitutional challenge.  First, in light of the court’s opinion in Bianchi, supra, the court will be discounting to present value.  If the evidence upon which the jury bases its decision in regards to loss of future earning capacity is limited to evidence of a present value nature as mandated by subd. 3, then it must be concluded that the jury’s determination of loss of future earning capacity would be of a present value.  Any further reduction by the court would be a double reduction.

Second, the evidentiary restrictions of subd. 3 prohibit a plaintiff from introducing evidence that their wages or earning capacity would have progressed at a great than an inflationary rate, if that information or evidence is based upon general economic statistics.  In a major loss of earning capacity case, counsel should attempt to develop evidence similar to that presented by Dr. Walker in the Ashton case as it relates to loss of earning capacity.  If the evidence indicates a persons earnings will advance at a rate greater than the inflationary rate, the application of the act will in reality invade an injured person’s compensation for actual loss of future earnings or earning capacity and leave an injured person in a position that is less than fully compensated.

As in Ashton, if the plaintiff is presenting a case where there are substantial future medical expenses or lost earnings or earning capacity, competent economic testimony about the shortfall in the award of future damages if statutorily discounted should be presented.  Both the loss of future medical expense and the loss of future earnings or earning capacity if solidly presented by the evidence should fall into the area in which the court of appeals noted in the Kleeman case that there “may thus be a relationship of constitutional dimension between the discount rate and certainty of recovery of future damages in some cases”.

In addition, counsel should continue to urge the trial court and the appellate courts of this state to determine this act to be unconstitutional because of its negative impact on the vitality of our jury fact finding system.  As noted in previous articles n this magazine, the Minnesota Supreme Court has long stood by the principle that calculating future general damages with mathematical certainty leads to an absurdity, Ahlstro vs. Minneapolis, St. Paul and Sault St. Marie Railroad Company, 244 Minn. 1, 688 N.W.2d 873 (1955).  While the court in Kleeman, supra, said it was distinguishing the case of Haugen vs. Town of Waltham, 292 N.W.2d 737 (Minn. 1980), counsel should continue to argue that Haugen stands for broader principles that Kleeman allowed.  The opinion in Kleeman indicates that the court has espoused a standard of review under Article I, Section 8, of the Minnesota Constitution.  However, as noted in a law review article, The Use and Interpretation of Article 1, Section 8 of Minnesota Constitution 1861-1984, Michelson, 10 Wm. Mitchell L. Rev. 667 (1984), there is not a single standard of review under this part of the Bill of Rights.  Counsel should continue to argue that our Bill of Rights in the State Constitution is a statement of rights for the citizens of this state which the legislature may not infringe.  The status of the Bill of Rights in state constitutions varies from state to state.  Some state have clearly established the State Constitutional Bill of Rights as an established area of rights which the legislature may not infringe.  Minnesota has not chose this strong statement.  However, the Supreme Court has maintained flexibility under Article 1, Section 8.  As in Haugen, the Supreme Court used the flexibility it has maintained under Article 1, Section 8, to prohibit the legislature from forcing the court to make decisions which as a practical matter could not be made and which may lead to multiple inconsistent judicial determinations.  The court in Haugen used “The Right to a Certain Remedy” broadly to protect the integrity of the judicial fact finding process from a legislative act that negatively impacted this judicial process.

With the mounting knowledge obtained from the various decisions at the trial court and court of appeals and supreme court level, it will become increasingly apparent that Minn. Stat. § 604.07 is having an effect upon our jury trial system.  In Kleeman, the court concluded that the legislature passed this act “to introduce greater certainty into the calculations of future damages and to obviate expert testimony on interest rates and inflation.”  The effect of the act is much greater than the intended purpose.  As noted by Justice Simonett in his special concurrence in Bianchi, there should be great concern about the effect of the act on the validity of our civil jury fact finding system.  If jury verdict forms become esoteric, the court should have the authority to act.  Counsel should continue to argue that this act is causing verdict forms to become esoteric and that the court should exercise the authority it has to strike down such a law.  Thee court of appeals decision in Kleeman is a warning of future problems in terms of the presentation of evidence and verdict forms.  The court in Kleeman state:

“The ‘finding” that damages will be evenly distributed is merely an administrative device which insured adequate compensation in the absence of special verdict by the jury determining that damages are not evenly distributed.  The parties remained free to present evidence of uneven distribution and request that the case be submitted to the jury on that basis.”

The court in Kleeman is inviting trial attorneys to present evidence of uneven future damages.  If there is evidence of uneven future damages, the jury should be allowed to analyze the uneven nature of these damages.  If the damages will be greater in the near future and less in the far distant future, the “average annuity” method of discounting approved in Kleeman would result in an unfair and over discounting of the injured person’s future damage award.  There is a potential conflict between the position suggested by the court of appeals in Kleeman and the concerns of the Justice Simonett in Bianchi.  There is a solution to this potential conflict.  The solution is the long established law of this state.  As noted by Justice Simonett in Bianchi? supra:

“This is not to deny the reality of future damages, nor the need for fair and adequate awards; but it needs to be recognized that the law, in projecting the future, necessarily deals with reasonable approximations, attempts to refine these approximations in a search for absolute accuracy leads instead to artificiality.”

Justice Simonett used this language directly after his reference to Ahlmstrom, supra, where the Minnesota Supreme Court determined that precise calculation of a future award of pain, suffering and disability would “plunge the already subjective determination into absurdity by demanding accurate mathematical computation”.

This law places the court alternatively between having the judge be a finder of fact by making the allocation of the future damage award or, when evidence of uneven future damages is presented, having the jury be presented with extremely long special verdict forms.  The Supreme Court of this state must be able to exercise control over the method of submission of fact issues to the jury.  When a legislative enactment interferes with this system, the court must act to control its own house.  Counsel should continue to argue the unconstitutionality of this act.  The Kleeman and Johnson cases are not being reviewed by the Supreme Court.

Injuries which are stable and non-degenerative, leaving a person limited in daily activities, arguably have a decreasing affect upon a person’s life s they age.  As a person ages, they become less active.  As they become less active, the effect upon the person’s life of a disabling injury becomes less.  Thus, the damage is greater in the near future than in the far distant future.   If the evidence indicates that this is the effect upon an injured person, counsel should request that the court submit an appropriate jury verdict form which will allow the jury to analyze how future damages will actually be incurred so that they may be appropriately discounted to a present value taking into consideration the uneven nature of the future damage.  This may lead to a per year line item type of special verdict form.  It may also lead to the submission of a verdict form allowing analysis of future damages in five or ten year increments which the court would then annualize throughout each five or ten year increment.

In a previous article, Discount of Future Damage Awards to Present Value, Where are we Today?, Minnesota Trial Lawyer, Vol. 12, No. 3, proposed special verdict interrogatories were suggested.  These same special verdict interrogatories are sufficient, but only in cases where there is not an implication that the future damages will be incurred unevenly.  The important factor in submission of any special verdict form is that the form itself be clear on its face that the damage determination and the year determination are related.  If a future damage item is to be submitted to the jury in two questions, amount and years, the jury should be asked the following two questions:

1. Over what period of time, if any, will the plaintiff sustain future pain, suffering and disability?

Answer: _______ years

2. What amount of money will fairly and adequately compensate the plaintiff for pain, suffering and disability for the full number of years you have determined in the preceding interrogatory?

Answer: $_________.

If the court determines that there is evidence that future damages may be incurred unevenly, there are a number of possible variations of proposed special verdict forms.  The first form is a per year verdict.  In this form the jury would be asked a question generally as follows:

What amount of money will fairly and adequately compensate the plaintiff for pain and suffering and disability in each of the following years?

Answer: 1988 - $____________
  1989 - $____________

 If the court determines that there was evidence that the future damages may be uneven, it could, as an alternative, submit the future damage issues for varying time periods.  However, this action by the court involves fact finding in itself.  The appropriate time period is a finding of fact.  If the evidence was indicative of certain time periods or if there was agreement by counsel of certain time periods, the issue could be submitted to the jury, assuming a 30 year life expectancy in a form as follows:

What amount of money will fairly and adequately compensate the plaintiff for the pain, suffering, and disability he/she will incur during the entire ten year period from 1988 to 1998?

Answer: $__________

What amount of money will fairly and adequately compensate the plaintiff for pain, suffering and disability for the 20 year time period from 1998 to the year 2018?

Answer: $__________

The court could then annualize the damage award during these distinct time periods by applying the “administrative device” suggested by the court in Kleeman.

The submission of evidence and verdict forms is the heart of the ongoing controversy surrounding this act.  As noted above, the court in Kleeman recognized that if the evidence indicates the future damages will be incurred unevenly, an appropriate jury verdict form should be submitted to the jury so that it may analyze when future damages will be incurred.  If the plaintiff’s future damages are incurred over a 30 year period, with most of the damage in the first 10 years, the present value of the future damage award is much larger.

Assume facts suggesting 50% of the damages incurred in the first 10 years and the remainder over the remaining 20 years and a determination that fair compensation for the pain and suffering is $30,000.  These facts can be contrasted to the findings in the Kleeman case where $30,000 for future pain and suffering was determined to be a level amount over all 30 years.  Given the assumed facts, $15,000 of the damage would be incurred in the first 10 years or at a rate of $1,500 per year.  This would be discounted at 5.2% using a discount factor of 7.64728 to a present value of $11,470.92.  The remaining $15,000 spread evenly over years 11 through 30 at $750 per year has a present value of $5,539.66.  The total present value of such an award would be $17,010.58.  This is almost $2,000 higher than the present value of $30,000 distributed evenly over 30 years as in the Kleeman case.

The fact that this act is leading to these conclusions does not mean that the author of this article is in favor of extremely long and complex verdict forms.  It is the act that leads to this type of submission.  Many cases will be submitted to the trial courts of this state with evidence indicating uneven future damages.  Many trial judges will be confronted with the problem of submitting an appropriate special verdict form which leaves the jury deciding the fact issues.  The court concluded that on the facts submitted in Kleeman, the judges annualizing the future damages award was “merely an administrative device”.  There will be many cases submitted to the trial courts where the evidence does not leave the trial judge able to annualize future damages merely as an administrative device.

The third area of concern is the instruction by the court.  Many defense counselors are suggesting no instruction or, if the court is going to advise the jury, that they give a very brief instruction.  This is incorrect.  The trial court in Bianchi gave a simple one line instruction.  In Bianchi the court advised the jury that:

“You are specifically instructed that any adjustments for discount to present value, inflation, or other similar economic factors will be made by the court to the extent required by law.”

This instruction was found not to be reversible error by the Supreme Court.  Not being “reversible error” and a fair and reasonable instruction are often two different matters.  Our system of justice relies upon our jurors to be wise and knowledgeable people.  As such, they should be told specifically what he court will be doing.  Also, counsel should be able to argue to the jury specifically what the court will be doing.  The article contained in Vol. 12, No. 3 of the Minnesota Trial Lawyer, referred to above, contained a sample trial memorandum regarding the ability of counsel to comment upon the effect of the discount.  Counsel should consider using this or a similar memorandum in requesting permission to comment upon the effect of the discount together with an appropriate instruction from the court.

It appears the jury in Bianchi did not understand the effect of its decision.  The short and simple instruction was not adequate.  A more appropriate instruction might be:

“I will be reducing your award to a present value based on a formula prescribed by law.  This discount is intended to reflect the fact that the award of future damages will be invested and receive a rate of return. You should not make any reduction in your damage determination to reflect the fact that you future damage award will, in fact, earn interest in the future.  I will be reducing your future damage award to take care of that.  Your future damage award should be based upon the amounts you determine to be fair and reasonable for the actual compensation necessary for the future damages that you determine have been proven by a preponderance of the evidence.”

Counsel should submit a trial memorandum requesting the jury to be instructed on the effect of the discount, allowing counsel to comment upon the effect of the discount in final argument and submitting a proposed special verdict form.  Counsel should indicate to the court at the beginning of trial if there is any expected evidence that will be submitted from which it could be concluded that the future damages will be uneven.  If there is to be evidence that the future damages are to be uneven, the appropriate special verdict form should be prepared which will allow the jury to analyze the future damages and allocate them unevenly if that is the conclusion the jury should reach.

Finally, the development of this act has resulted in reflection by many trial lawyers upon the past damages injured people have already suffered.  In the past, many trial lawyers have focused their attention on the future damages to the detriment of the presentation of adequate proof of past damages already suffered.  Plaintiff’s counsel must review the evidence carefully.  Past damages awards can be very significant.  Thought should be given to highlighting the items the jury instructions direct the jury to consider.  Final argument should draw attention to the past damages the injured party has suffered, draw the jury’s attention to the full nature and extent of the medical treatment the injured party has necessarily incurred as a result of their injury.  Final arguments should review the entire treatment record, the physical therapist’s notes and any other record of treatment the injured person was forced to undergo.

If the injured person has been required to face the reality of a permanent injury and permanent disability, the personal and emotional harm caused by having to deal with permanent injury and disability must be reviewed with the jury.  Also, if the injured person has been forced to make changes in daily life activities, both at home and at work, the impact of living through these changes and dealing with these major life changes should be addressed and brought to the jury’s attention.

In conclusion, counsel should continue to challenge the application of this most unfair and unjust law.  Should the law continue to be applied, counsel must seek a submission of the issues to the jury which will allow adequate consideration of each individual’s case based upon the facts of that individual case.  Finally, counsel must be prepared to adequately assist the court in applying the law in each individual case and in arguing to the jury the magnitude of the past damage and future damages an injured person will incur.  This involves preparation of thorough trial memorandums, requested instructions and proposed jury verdict forms together with the presentation of effective evidence and appropriate and thorough final argument.  In each case that this law is applied, there is injustice.  Counsel should not allow any lack of preparation or thorough presentation to further erode the rights of the injured.