Feldman v. Allegheny Airlines, Inc.
524 F.2d 384 (1975)
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Rule of Law:
In a wrongful death action, a court may account for the effect of future inflation on an award for lost future earnings by reducing the discount rate to a 'real' interest rate that reflects the difference between the market interest rate and the inflation rate.
Facts:
- Nancy Feldman, a 25-year-old passenger, died on June 7, 1971, when an Allegheny Airlines flight crashed while approaching New Haven Airport.
- Allegheny Airlines conceded liability for the crash.
- At the time of her death, Mrs. Feldman and her husband, Reid Laurence Feldman, had just relocated to Washington, D.C., following his graduation from law school.
- Mrs. Feldman had been accepted to George Washington Law School for the upcoming fall semester and had made inquiries about employment opportunities.
- Evidence suggested that Mrs. Feldman intended to work for forty years until age 65, with the exception of an eight-year period when she planned to work only part-time while raising a family.
Procedural Posture:
- Reid Laurence Feldman, as administrator of his wife's estate, filed a wrongful death action against Allegheny Airlines in the United States District Court for the District of Connecticut.
- With liability conceded by the airline, the issue of damages was submitted to the district court for a bench trial.
- The district court awarded the estate a judgment of $444,056.
- Allegheny Airlines, as appellant, appealed the judgment to the United States Court of Appeals for the Second Circuit.
- Reid Laurence Feldman, as appellee, filed a cross-appeal.
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Issue:
In a wrongful death action under Connecticut law, does a court err in calculating the present value of future lost earnings by using a discount rate that has been adjusted downward to account for the effects of future inflation?
Opinions:
Majority - Lasker, District Judge
No, a court does not err by using an inflation-adjusted discount rate. The district court's decision to account for future inflation by offsetting the anticipated rate of investment return by an inflation factor is permissible under Connecticut law. The reasoning is that because Connecticut law on this issue is unsettled, it was appropriate for the district court to hypothesize that the state's highest court would approve such a method, especially since Connecticut law already requires the deduction of future income taxes from damage awards. However, the district court did err in two respects: 1) by automatically valuing Mrs. Feldman's non-working time during her child-rearing years at the level of her full professional salary, rather than separately assessing her loss of enjoyment of life's activities, and 2) by substantially underestimating her necessary personal living expenses. The case is remanded for recalculation of these specific damage components.
Concurring - Friendly, Circuit Judge
Judge Friendly concurred with significant doubt, agreeing with the majority's result but questioning the underlying reasoning. He argued that predicting inflation over several decades is inherently speculative and creates a 'delusive exactness.' He pointed out the inconsistency of projecting massive salary inflation without also projecting a corresponding increase in the progressive income tax rate, which would have reduced the award. Despite these grave reservations about the methodology and the court's role in deciding novel state law questions, he reluctantly joined the majority to avoid prolonging the litigation, while noting the decision should not serve as a precedent in cases arising under federal law.
Analysis:
This decision is significant for endorsing a specific economic methodology for incorporating inflation into damage awards in tort cases. By approving the 'inflation-adjusted discount rate' or 'real interest rate' method, the court provided a framework that contrasts with either ignoring inflation as too speculative or attempting to project future wage increases. This ruling influenced how economic expert testimony is used in wrongful death and personal injury litigation, adding a key precedent to the ongoing legal and economic debate over how to achieve fair compensation in an inflationary economy.
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