In a recent edition of the Legal Beagle Podcast, which is available on YouTube and Anchor, Jonathan Negretti had the good fortune to be joined by Harry Plotkin, one of the best jury consultants in the U.S. Plotkin has picked over 1,000 juries that have delivered more than $500 million in verdicts. Here, he talks about how to get a fair and impartial jury and offers keys to winning a stunning verdict. He even gives a tip or two on how to get out of jury duty! To connect with him, visit YourNextJury.com.

This interview has been condensed and edited for clarity.

Jonathan Negretti: Let’s just start with a basic question: How do you pick a jury?

Harry Plotkin: I think there are two things you have to do when you’re picking a jury.

One of them is that you can’t be afraid to ask probing, tough questions. A lot of lawyers want to get in there and build rapport and be the nicest guy or girl in the courtroom, and have the jurors like them: “Gosh, these jurors are all so nice. I’m just going to keep them!” But you’ve got to ask them the tough questions and make sure that the jurors — even the ones that seem like they’re perfectly nice and reasonable — aren’t going to have some biases.

Number two, you can never let the jurors self-diagnose their biases. You have to ask them open-ended questions about how they feel and be willing to recognize when a juror may not be good for you — even though they tell you a million times, until they’re blue in the face, that they can be fair, follow the law, and have no issues.

Jonathan Negretti: When it comes to challenging a juror for cause — meaning, there’s a bias that they can’t put aside and give you that fair and impartial look at the case — how do you draw that out in a way that doesn’t offend the juror that you’re questioning, but also lets the court know that there is an inherent bias here?

Harry Plotkin: That’s when you’re getting someone off for cause. Obviously, that’s a different story. You got to convince them to self-diagnose their bias in that situation. I think when you start, you never use the word fair. You never try to suggest — especially if you’re on the plaintiff’s side — what bias is and frame what fairness is and what’s not fair on a jury. You can convince them, first of all, to talk about things that aren’t fair. As opposed to “Can you follow the law?” you instead say, “Being honest, who thinks this law doesn’t really seem fair — giving money for things like pain?”

With jurors, you never ask them can. The word that I always like to use is would. “Would you have a hard time following the law?” Jurors aren’t asked to follow the law. They’re asked to enforce the law. If you can frame it in a way that you’re saying, at the end of the day, “Would it be tough to enforce a law that you don’t believe or agree with in the first place?” That makes it a lot easier for jurors to say, “Yeah, that doesn’t seem like something I could or can do.—

There’s a million different ways to go about it, whether if this is a race and we are a step behind, or if the ball’s on the 50 yard line, it’s supposed to be right in the middle of the field, where are we? To me, I think the phrase that works the best is asking jurors, “Am I facing a real uphill battle convincing you to do … whatever it is?” Jurors feel very comfortable telling you, “I can be fair. I’m going to give you a fair shot. I’m going to listen to the evidence.” But you’re facing an uphill battle. When you can get them to quantify that, then you start getting into convincing the judge that this person is not totally impartial.

Jonathan Negretti: Talk to me more about this idea of money, because it is an uncomfortable conversation to have in a courtroom. How do you break down those barriers? How would you tell someone to discuss it freely? Because there are these cases where we’re seeking monetary justice. At the end of the day, that’s what the law allows.

Harry Plotkin: Sure. I mean, you can’t run from it. You can’t avoid asking those questions. And I think you’ve got to look the jury in the eye. The hardest part is to look them in the eye and ask for a lot of money, or tell them in voir dire, you’re going to ask for a lot of money, without them seeing you sweat. But you can’t run from it.

If it’s a case where you want to be up-front about how much you’re asking for, whether you want to give a specific dollar figure, like some lawyers like to do, or suggest generally it’s going to be many millions of dollars, more than a million dollars, or whatever it is. You have to acknowledge them: “I know that’s a lot of money. We know that. But we’re going to be seeking a lot of money for a lot of harm. What are your feelings about that?”

One thing that I always preach that I think is especially important with money in voir dire is a concept that I call “putting jurors on an island,” which means there’s no place to escape. There are no safe answers. If you ask them a yes or no question or a question that has a safe answer, you’ve got to ask them “Can you follow the law when it comes to damages?”

I’ll give you an example. This is one I love to ask about money, setting aside whether or not you think that you can follow the law and be fair about money: “What are your feelings about whether it seems fair and important — or maybe a little bit unfair and unnecessary — to give money for things like pain or mental suffering, or things that aren’t a financial loss?” You force them to give an answer when there are no real safe answers. If they give you a safe answer or they’re cagey, understand that they’re probably being cagey for a reason. Try to push them a little bit: “Well, I understand that, but what are your feelings about whether that seems fair or not fair to you?” When you put them on an island, it’s really hard for jurors to lie when they have to give an answer like that, in an open-ended way. It tells you a lot when they’re cagey, and it tells you a lot when they refuse to answer the question. You just get them talking about just the principle of fairness when it comes to money or whatever issues are in the trial.

Jonathan Negretti: Let’s dive into it right now about what you mean by “pre-habilitating” jurors.

Harry Plotkin: Right. It’s funny, I kind of developed my philosophy over the years, picking so many juries — 35 to 40 a year — and doing a ton more focus groups and talking to jurors. We used to talk about the idea that it’s called jury selection, but it’s really deselection. You’re really just deselecting. You always tell your plaintiff if there’s somebody who’s just this dynamite juror, you always have to tell your plaintiff that person’s not going to be on the jury; the defense is going to strike them. There’s nothing you can do.

But the more and more I’ve been doing this — and especially in the last few years — I’ve realized there are ways to keep your good jurors. When you’ve got a ton of really good jurors and even if you have maybe one or two that aren’t great, you certainly can try to get them on your jury by passing. I don’t know if its quite the same in Arizona as it is here in California. But if you like the first 12 in the box and you say, “Your Honor, we accept the 12 as currently constituted,” you don’t lose your strike if the defense then strikes somebody. Now it’s a different make-up of 12. You still retain your strikes. But pre-habbing jurors, to me, is incredibly important and something I always do in almost every type of case. The better the case, the more I do it.

The way it works is, as plaintiffs, we get to go first. We get to approach jurors, address issues, and frame what bias is. I’ll use a real, simple example. Let’s say it’s a sexual abuse case. If you get up there, the defense is sitting there thinking, “Okay, as soon as I get up there, I’m going to identify every person who’s been a victim of sex abuse. Who has strong feelings about it? Who’s got a relative who’s a victim of sex abuse?” I’m going to say, “Hey, this probably hits too close to home. I mean, you have really strong feelings about this and probably you couldn’t be impartial.” They’re expecting all those people to say, “Yeah, you’re probably right.” Some of them will be crying. Those 12 people on the jury, or sometimes more, I’m going to get them all off for cause.

When you get up there first, and you address that, “Who here has been a victim of sexual abuse? Who here has friends and family has been a victim of sexual abuse? Who here has strong feelings about this issue? Who here has seen a school — say that you’re suing a school district — that really just did not do enough to keep students safe?” And you get all those people and they’ve all talked about it a little bit or at least raised their hand. You don’t have to spend a lot of time on it, you can just get them to raise their hands. And the defense is going, “Okay, they’re doing all my work for me. Here are 15 jurors who I’m going to get off for cause on my checklist.” And you go through each one of them and you say, “Now, having strong feelings or having these experiences doesn’t make you incapable of being fair. In fact, you know you can be perfectly fair.”

And I always tell jurors, “You are allowed to feel sympathy. There is no rule that says you can’t feel sympathy if everybody here is going to feel sympathy. That doesn’t make you an unfair juror. You’re allowed to get angry. If the evidence makes you angry at a defendant, you’re absolutely allowed to get angry at the evidence.”

With all of those folks who told me they’ve had these experiences, you go through one by one and say:

“Has that experience told you that sometimes schools don’t do enough to protect kids?”

“Yep.”

“And has that experience basically taught you that when schools do those kind of things, they should be held accountable?”

“Yeah, it has.”

“Perfect. That’s what the law says. So, my only question to you is, ‘Can you wait for the evidence and let the evidence tell you whether you have a reason to be upset at this defendant or not?'”

Most jurors — nine out of 10 — will say, “Yeah, I can do that.”

“You’re not going to just assume that they’re guilty without any evidence, right?”

“No, of course not.”

“If the evidence convinces you that this school did nothing wrong, you’re not going to find against them, anyway. That would that be fair to you?”

“No, of course not.”

“Okay, so you can be totally fair.”

And they can have the strongest feelings in the world. If you can go through one-by-one and basically reframe it and tell them, “You’ve been a victim of sexual abuse, but that doesn’t mean that you are going to just believe this without any evidence?” [Plotkin gestures.] ‘Yeah, yeah, I can be fair.”

As long as you arm them and say, “You’re allowed to feel sympathy and you’re allowed to get angry, but can you wait for the evidence to decide?” they go, “Oh, I get it, okay.”

One thing we talk about a lot is, I hear the complaint that pro-plaintiff jurors are just too honest — that they’re the ones who will always talk their way off the jury and say that they have a bias — and the pro-defense jurors who are the ones who say, “I can be fair.”

When you do this and you arm them with this way of thinking about it, you tend to keep those folks. They kind of go, “Oh, I get it. OK.” And when the defense gets up there, the jury will go, “I’m going to give you a fair shot. But I can tell ya, if the evidence convinces me your school or defendant did something wrong, I’m going to be pissed off. But I’m allowed to feel that way.” And there’s nothing they can say about it.

If the defense tries to say, “Well, if you can’t be fair, you may not keep all of them.” But if there’s 12 of them, and now the defense only gets two of them off, that’s 10 more people. In a state where you only have six peremptories (peremptory challenges), they’re not going to have enough peremptories to get rid of them. And in Arizona, you can convince six of those folks. They’re all on the jury.

That’s an incredibly important skill — I would actually bump it up to probably number one, if you have a good case with good facts. I’m doing that in a case next week against Lyft where, if you’ve had a negative experience with Lyft or a corporation, can you still be fair? Can you wait for the evidence and decide whether you have a reason to be angry or not?

Jonathan Negretti: I love that! That’s gold, Harry! You’re basically saying to the judge, who is really the final decider here, “Hey, look, we asked them to wait for the evidence. We explained that if the evidence does not prove that the plaintiff is more likely than not the prevailing party. If a school district did nothing wrong, you’re not going to find against them, if the evidence shows they did nothing wrong.”

I love that, because they’re going to say, “Yeah, of course. I’m not going to find that if they did something wrong, if the evidence doesn’t show that.”

How is the defense going to try to destroy that potential juror? It’s such a great way of pre-framing the entire jury selection — really putting yourself in a position to keep a lot of those really good jurors who could be advocates for you in that room when they go back and deliberate.

Harry Plotkin: I think one of the things that a defense relies on to get off jurors for cause is, I think they sort of trick jurors by making them think that if they are going to feel sympathy or they’re going to get upset by an issue, that that means that they can’t be fair.

I think there are two critical things you have to say: 1) You have to tell them you are allowed to feel something. The law never says you can’t feel sympathy. You don’t have to leave sympathy at the door, as long as it’s not driving the car. 2.) It’s convincing people that you’re allowed to get upset if the evidence gives you reason to get upset at somebody. You’re allowed to get upset at the plaintiff if you think that they’re lying to you. You’re allowed to respond to the evidence — as long as you’re not reacting to just the accusations, themselves.

Sometimes an analogy they’ll use is, “How many of you folks have strong feelings about murder? Does that mean you couldn’t be a judge in a murder trial? I mean, of course you could!” The question here is not whether or not sexual abuse is okay. The question here is not about whether building a defective product, or running a red light and causing an accident, is okay. The question here is did it happen in this case?

And so, if you tell folks those kind of things, you really get them. I’ve seen it a million times where your really good jurors go — and you can just see it — “Oh, I get it. Okay, I’m here to do justice in this case, but I’m going to be fair.” And it’s true. We just want jurors to be fair. We don’t necessarily want people who are going to just find for us, no matter what. We don’t want to lose those folks who really get pissed off by the wrongdoing that defendants do.

You’re going to lose a couple, probably. There’s are couple who are just going to be too modest or don’t want to be on the jury. The defense can get up there and ask them, “Well, but are you more probably prone to believing accusations than everybody else?” You may have a couple that feel that way. Every juror that you keep that otherwise you would have lost is another strike you’ve taken away from the defense.

Jonathan Negretti: How do you figure out what kind of value a juror may have — one that aligns with the plaintiff?

Harry Plotkin: If there’s some critical thing that your client or the defendant did, and you want to convince jurors that they would have done the opposite — just talking to them about their own experiences or their own approaches and making sure it’s exactly the same. Just re-reminding them of something that later on in the trial they’re going to say, “Oh, that’s what the plaintiff did? I do that all the time.”

There are lot of things that jurors may judge your client unfairly about if you haven’t made them think about it. But if you get them to think about it, they feel differently.

A great example is delay in treatment. This crash happened, they didn’t go to the ER, they waived off medical treatment, and didn’t see a doctor for a month. And now this person has claimed that they have some permanent back injury and they went back to work two days later?

The first impression jurors may have is that seems kind of suspicious. That doesn’t seem right. But you talk to them in voir dire: “How many of you are the types of folks who try to avoid going to the doctor if you notice some issue? And you try to see if it’s going to get better — you may wait a week or more.” You talk to them about it. Eight out of 10 jurors would probably tell “Yeah, I don’t rush to the doctor right away. My family has to drag me.” Does that mean that you didn’t have an injury or pain to begin with? So you talk to them about those things. They think “That’s what I do.” And then when they hear it in trial they go, “Oh, that makes sense.”

In voir dire, if you want to, you can then link it — if a judge allows it. You could say:

“Now one of the things that you’re going to have to decide is whether it meant anything that my client didn’t go see a doctor for three weeks after this crash.”

Anyone is going to think, “Gosh, if he didn’t, then that must mean he wasn’t hurt?” Only if you’ve already talked to them about their approach, do they say, “Oh, that’s the same thing with going back to a job.”

“How many of you have ever gone to work when you were sick or in pain and just toughed it out?”

“Yeah, I do that all the time. Of course.”

“Well, one of the things you’re going to hear is, ‘My client continued to work after this accident.’ He’s going to tell you it’s because he felt like he had to keep working and tough it out. Is anyone going to think, Gosh, if he went back to work, he can’t be that hurt?“

Once you kind a made them think about their own experiences, then they realize they’re not going to hold that against him.

Those are the kind of things I’m talking about — pre-conditioning them with their own lives. Doing it theoretically doesn’t really work. Jurors think they’re being manipulated. But if you talk to them about what they do, obviously, there’s no better way to convince them than to convince them with themselves.

Jonathan Negretti: Harry, you’ve worked with some of the best attorneys in the country. You’ve had stunning verdicts returned on the cases that you’ve consulted on. Boil it down to one thing. What’s the one thing — that consistency among all of that — that helps to create these, these outcomes?

Harry Plotkin: That’s a great question. I always say that there are four things that really matter in terms of success in trial. They all matter, but there’s an order of importance to them.

No. 4 is how is, basically, how likeable your plaintiff is. How trustworthy are they?

No. 3 are the facts. This is what surprises people. If you have great facts and maybe a lousy plaintiff, you’re usually going to win that case. I’d rather have good facts and an imperfect plaintiff than the best plaintiff in the world and some not-so-great facts.

No. 2 is the quality of the attorney.

No. 1 is the quality of your jury. If you have a lousy jury that just doesn’t like lawsuits and is not receptive — you could have the best lawyer in the world, the best facts, the best plaintiff — it doesn’t matter, you’re not going anywhere. It’s dead on arrival if you have a bad jury.

Jury selection is so important. In every case that has gone really well, we’ve had at least a receptive jury.

But I think the quality of the lawyer is underrated. I would rather go to trial and, and bet on a case with a really terrific lawyer with some challenging facts than an inexperienced lawyer or a lawyer who’s not that great with the best facts in the world. The reason for that I think is that credibility is so important. Credibility of the lawyer is so critically important.

There are a million ways to try a case. There’s no one style that works. Here in California, there are so many great lawyers with so many different styles. Nick Rowley has an amazing style that’s totally different than the style of someone like Gary Dordick or Ricardo Echeverria here in California. There’s no one style that works. But, the one thing that I think is consistent is their ability to build credibility with the jury. To be honest with the jury. To come across as reasonable even when they’re asking for a lot. I think that’s something that you just can’t replace.

The amazing thing to me about trial lawyers and plaintiff trial lawyers is that you could have the greatest reputation and track record in the world, but you have to bring it each and every time. Every time you get in front of a new jury, you’re starting from scratch. It doesn’t matter what you’ve done in the past. You can’t ever rest on your laurels. You’ve got to do it each and every time. You can’t mail it in. And so, I think the most important part is just that building credibility from the beginning. If you have a lawyer who knows how to do that, that’s the most important thing.

Jonathan Negretti: How do you be yourself and build credibility? What would you tell young attorneys who are not like the guys you mentioned, but they want to go to trial, to help their clients. But they may not how to “be me” in that courtroom?

Harry Plotkin: I always tell them you got to be yourself. You’re never going to be able to copy some of these other lawyers. You should never try, because it’s not going to come across as genuine.

You just have to find out. You have to, first of all, be yourself and then figure out, as you go through and practice, how to be the best version of yourself. Are you really emotional? Are you really factual? Whatever you are, whatever your style is, jurors can sense when someone’s being genuine and when someone’s being reasonable. You have to find out opportunities early on in the case, whether it’s from the very beginning in jury selection, in opening, to show them that you were reasonable. Some of those things include like ways to show them that you’re trying to be fair. It may be convincing a juror who is biased for you that you don’t want them — instead of trying to scramble to rehabilitate them and keep them on the jury and say, “It sounds like given your experience that you really wouldn’t be fair to the other side.” Letting them go is one thing to build a ton of credibility with the jury.

Not arguing with the jurors in jury selection, and not pushing anything on them in jury selection, really builds a lot of credibility. They expect lawyers from the get-go to be manipulative and tell them what to think. If you don’t do that, you’re just listening to them — and thanking the bad jurors who hate lawsuits — that builds credibility. When your opening statement finds ways to tell the story, framing it carefully, but never telling jurors what to believe before they’ve come to that conclusion.

The best way to destroy your credibility is to get up there and basically say, “This defendant is a liar and irresponsible.” The juror will be going, “Whoa, you can’t tell me to think that!”

I would say find your style. You don’t have to be loud. You don’t have to be persuasive in an obvious way. I think actually doing that could be to your detriment. You need to find ways to be reasonable and show your jurors that you’re listening to them.

I think showing your jurors in voir dire in an opening statement that you understand what the other side is saying, and you understand the weaknesses of your case, and you’re talking about them with them. That shows them “This person’s reasonable.”

If you find every opportunity to build credibility and show them that you’re focused on what the truth is — you just want a fair jury and a fair result — “Here’s why our case should prevail, even though there are issues with the case.” There is no one specific way to do it. Find opportunities to show them you’re reasonable. And always be yourself. Don’t ever copy somebody else, because that’s always going to come across as disingenuous.

This week, Los Angeles County prosecutors filed two counts of vehicular manslaughter against the operator of a self-driving Tesla, which ran a red light, crashed into another car, and instantly killed two people.

This Tesla Autopilot manslaughter case is the first felony prosecution in the U.S. of a driver accused of causing a fatality while operating a vehicle with an engaged driver-assist system.

The fatal crash itself occurred on December 29, 2019. A Tesla Model S, driven by Kevin George Aziz Riad, who was utilizing Tesla’s Autopilot system, ran through a red light crashing into a Honda Civic that was being driven by Gilberto Alcazar Lopez. Mr. Lopez and his passenger, Maria Guadalupe Nieves-Lopez, were killed instantly.

Mr. Riad has pleaded not guilty. According to the Los Angeles Times, the family of Mr. and Mrs. Lopez will be following the criminal case closely as they pursue a civil case against Mr. Riad and Tesla.

The case raises larger questions. While there is a possibility that Mr. Riad is responsible for what occurred, what is Tesla’s share of responsibility in this crash? As the use of vehicle automation becomes ubiquitous on roadways, don’t automakers have a growing ethical, moral, and legal responsibility when their technology fails?

Answers are abundant in the data extracted from vehicles involved in self-driving car crashes. However, automakers, especially Tesla, are reluctant to share that data. Even more troubling is that our government agencies aren’t holding these automakers accountable and demanding more transparency.

NHTSA, the National Highway Traffic Safety Administration, seems to be giving automakers a free pass when it comes to liability. Although NHTSA ordered some, but not all, automakers to report crash data on automated vehicles, it has also issued a statement saying that crashes involving automated technology are the human driver’s responsibility.

This statement insulates automakers and points the finger outward instead of inward. It shifts the responsibility paradigm away from the product and back onto the consumer in a way that is inapposite to product liability law.

Other government agencies are also failing to hold automakers responsible. The California Department of Motor Vehicles allowed Tesla to opt out of a requirement that autonomous technology companies report crashes and system failures to the agency.

Shouldn’t state and federal governments be doing everything in their power to lean in on car makers, to prevent accidents like these?

Without more transparency, we will have a hard time evolving to a place where autonomous technology is truly safe.

In his book, Factfulness, Hans Rosling surveyed airplane crashes between the 1930s through 2016. Rosling discovered that plane crash deaths had decreased significantly during that span. Probing why, he found that flight authorities across the world had met in 1944 in Chicago — the Chicago Convention on International Civil Aviation — to agree to use a common form for incident reports. Once authorities agreed to share information about flight incidents, they made it possible for all participants in the entire aviation industry to learn from each other’s mistakes. Crashes involving plane fatalities have plummeted to an almost non-existent level.

If we do not learn from our past, the past will assuredly repeat itself. Tesla autopilot manslaughter cases could become commonplace.

If auto manufacturers do not voluntarily disclose data regarding self-driving car crashes, in an effort to safeguard the public, then our government agencies must demand this data.

If our government agencies won’t demand self-driving car crash data, then plaintiff attorneys must pursue this data through our judicial system. Our focus should be on bettering technology and public safety, not increasing company profits at the risk of human lives.

This interview with Robert Wood is part of Jonathan Negretti’s Legal Beagle Podcast, which is available on the Negretti & Associates YouTube channel and on Anchor.fm. The following transcript has been edited for brevity and clarity.

At Negretti & Associates, from time to time we get asked about the taxability of someone’s settlement or award if their case goes on to trial and they have a positive outcome. The answer is a resounding “maybe and possibly.” Determining the taxability of settlements can be a little tricky. The answer depends on the claims made in the settled case and what eventually produced an award.

With questions in mind, I sought out one of the top experts in our country regarding the taxability of settlements and awards: Mr. Robert Wood of law firm Wood, LLP in San Francisco. Robert has been featured across the country by various media outlets. He is the author of the book Taxation of Damage Awards and Settlement Payments. He also has written articles in Forbes and served as a contributor on Fox News. He is probably one of the best people to go to to ask about this question that we often get asked by our clients.

Jonathan Negretti: I’ll ask this umbrella question: Why is it important to know about the taxability of settlements and awards?

Robert Wood: In general, any time that money changes hands — whether it’s a legal settlement or something else — there are potential tax issues. If a plaintiff is receiving an amount, obviously, they’re typically well aware of what the legal fees are, if it’s a contingent-fee case. But, when they’re looking at their net amount, it’s important to know if the net amount is before-tax, after-tax, or some of both. I’d say probably just about every plaintiff who’s getting money wants to know what the tax treatment is.

Jonathan Negretti: Let’s talk about that tax treatment. I know it has a lot to do with the “origin of the claim.” In fact, you reference this as an important thing that should be considered — or, at least, the IRS will consider it when looking at settlements and awards are taxed. What does it mean — origin of the claim?

Robert Wood: It’s kind of an annoying doctrine because it’s cited in all the cases and gets applied by courts and the IRS, but I don’t think it’s terribly easy to understand. It’s possible to come out different ways, depending on your viewpoint. It basically means, “What is the case all about? What are you trying to get? What are you trying to collect? What is your legal claim about?”

For example, if your employer shorted you and didn’t pay you wages that he or she owes you, it’s easy to see that the amount that you collect in the settlement is probably wages. It would probably be treated the way it would have been treated, had you gotten paid correctly in the first place. That’s the concept. But most legal disputes are really messy and full of different claims, so it’s not always as straightforward as I just suggested.

– Robert Wood, “Five Key IRS Rules on How Lawsuit Settlements Are Taxed” in Forbes, July 1, 2019

Jonathan Negretti: So, in that situation, in which someone were to get wages for monies owed to them, it makes sense to me that that would be taxed, because you would be taxed anyway.

What about a situation where someone is in a car crash, and they get a combination of things? They get money for medical bills. They get money for lost wages for the time that they’re out of work. And then they get money for pain and suffering. Looking at those three different categories, how could they be treated by the IRS?

Robert Wood: That’s a great example, because it sort of proves that what I just said is either not correct or at least subject to exceptions. The personal injury case, the auto accident case — any kind of physical injury case is a good example.

The plaintiff’s goal is not to pay tax on any of it. That’s probably realistic in that kind of a case. There is a Tax Code section — it’s one of the most important in this area — Section 104 of the Internal Revenue Code. It basically says if you get a recovery for physical injuries, physical sickness, or related emotional distress, then it’s tax-free.

The question you asked me about wages is good to circle back to here. As you said it, the victim of this crash — the plaintiff — gets one of the elements of damages: wage loss — money that he should have gotten because he was working and he couldn’t go to work because of the accident. In some ways, you think, Well, wait a minute, isn’t that taxable? It shouldn’t be taxable as wages because it’s really a substitute for the wages he would’ve gotten. But Section 104, this Tax Code section, basically says the origin of this claim is the auto accident. It’s true that somebody who has a very high-paying job probably gets a larger auto accident recovery than somebody who has a low-paying job. But that’s not treated as wages. If it’s all compensatory, not punitive damages, it should all be tax free in your example.

Jonathan Negretti: Why is there a difference between compensatory damages and punitive damages?

Robert Wood: It’s historical. There have been arguments about this for decades. It was finally resolved in 1995, when the Tax Code was amended to say that punitive damages are always taxed. There was also a Supreme Court case about the same time that said the same thing. So there’s no more debate. I don’t know if it’s fair or not, but the theory was that punitive damages, by definition, aren’t to compensate you.

If, in your car crash example, you got injured and you get money for all of those injuries, that’s compensatory, it’s tax-free. On the other hand, if you got a bunch more money for punitive damages — because the auto maker made a defective automobile and the jury wanted to punish the company — that’s taxable, because the Supreme Court and Congress said punitive damages are never to compensate somebody.

Of course, what this does, if you have a case that goes to jury, and you have a verdict, it makes punitive damages a lot more painful. And it encourages settlement, I think. There can be tricky issues when cases are settling on appeal.

Jonathan Negretti: Let’s go back. You said that if someone’s hiring an attorney on a contingency basis, there may be different taxable amounts there, I want to make sure I understand this because I’ve heard two different things.

Let’s say the total settlement is $100,000 and the attorney got paid 40 percent. So $40,000 comes right off the top. The taxable amount to the client is $60,000. I’ve heard other people say, “No, that’s not right. It’s the full $100,000.” What do you say in that situation, Robert?

Robert Wood: Every plaintiff wants to know about this. I’d say a lot of people think, probably correctly, that it’s sort of counterintuitive. It really depends on the type of case. There were disputes for many decades over how attorneys’ fees would be treated in contingency cases.

The Supreme Court decided this issue in 2005 in the case Commissioner v. Banks. The court said, in your example, that’s $100,000 payment to the client — even though the lawyer probably received the full settlement proceeds and then deducted his or her fee of $40,000 and sent 60% to the client. The client probably only sees $60,000 and certainly doesn’t want to be taxed on any more than the $60,000. But the Supreme Court said, as a general rule — there are questions about whether there are exceptions here — that’s $100,000 of income or receipt to the client.

That doesn’t mean the client has to pay tax. In fact, generally speaking, it’s possible for the client to deduct or offset somehow. But there’s great debate on that. And it matters what kind of case it is. It’s been harder to do that since 2018.

Jonathan Negretti: Could that create a situation where there’s almost double taxation going on? Let’s just say the client in that situation had $100,000 of income attributed to them. The attorney has to pay tax on the 40 percent.

Robert Wood: Yeah, absolutely. I get phone calls from angry clients or perspective clients and angry lawyers, and they say that — sometimes not as nicely as you just did! They say this is unconstitutional. It’s unbelievable. It’s double taxation. That’s absolutely right. I mean, it’s very common in the tax system for money to be taxed multiple times.

And so, if the $100,000 comes in — and it’s because of this Banks case — let’s assume it’s all taxable. It’s all gross income to the client. The lawyer has gross income on the $40,000. That $40,000 is taxed to two different people.

The goal, of course, is for the client to offset or deduct it somehow. Usually this is possible, but not always. Yes, it’s possible that the same money is taxed to two different people. But, so far, there’s been no case that actually says that’s unconstitutional and strikes [the case] down.

Jonathan Negretti: Can you talk to me a bit about this concept of allocating damages? This is something you talked about in your Forbes article and why that might be beneficial and helpful in a situation where tax could be problematic. Can you just kind of explain that a little bit more?

Robert Wood: One of the most important things in the tax treatment of settlements or judgements — by the way, the same rules apply, the origin of the claim doctrine that you asked me about, and really most of the other concepts we’ll talk about today are all equally applicable to settlements and judgments — from my viewpoint as a tax lawyer, settlements are always better because there’s always more flexibility.

[With judgments], you really don’t know what you’re going to get. You know what the jury verdict says, but you don’t know what kind of tax forms you’re going to get. Sometimes you don’t even know if the company is going to withhold taxes.

Settlements are better, in terms of shaping what you want. One of the points that you want to think about is dividing-up the income or dividing-up the payments. Very frequently, it might be multiple things.

In your auto accident example, you mentioned medical expenses. But let’s say it’s an employment dispute, where you have a bunch of discrimination claims — they paid you less, they treated you badly. Often, in employment cases, there’s some amount that’s wages that are subject to withholding and then there’s some amount that is on a Form 1099, meaning no taxes are taken out. It’s kind of emotional distress money, for example. That’s not wages.

Sometimes lawyers’ fees are paid separately. Sometimes in employment cases you’re asking for some money to be treated for personal physical sickness or physical injury. This happens a lot in sexual harassment cases, where someone is saying I shouldn’t have to pay tax at all on that amount. It’s good to try to iron that out at settlement time, if you can.

Jonathan Negretti: Do the provisions that end up in a settlement agreement create any sort of binding requirement that the IRS must follow? I almost feel silly asking this question, but I’ve been asked by clients, so that’s why I’m asking you.

Robert Wood: It’s not a silly question. When you’re entering into a settlement agreement, it’s a legal document. It’s certainly binding on the parties. If the employer, in that example, says, “We’re not going to issue a 1099 for this, or we’re going to withhold only on this $100,000 and not on that other $100,000,” that’s binding on the parties. But it does not bind the government, the IRS. It doesn’t bind the state tax authorities. But I’d still say it’s important and it gives you a leg up on your preferred tax treatment.

Jonathan Negretti: What we are seeing more and more recently are confidentiality agreements in settlement agreements between parties. There’s a mixed opinion between the plaintiff’s bar and the defense bar on whether there should be consideration paid for the confidentiality. What are your thoughts on that?

Robert Wood: I’d say that there’s been a lot of confusion over confidentiality provisions — or the tax treatment of them. First of all, in my long, many-decade career as a tax lawyer, I’ve seen a lot of settlement agreements. I don’t know that I’ve ever seen one that doesn’t have some kind of confidentiality provision. Sometimes they go on and talk about not publishing anything or not talking to the newspapers. Sometimes it’s quite explicit. But there’s always something that says it’s private — at least in my experience. I don’t think you need to have a separate dollar amount stated. Sometimes people do that.

I think a lot of the question on this came about because of an unfortunate tax case involving Dennis Rodman, called the Amos case. That was the name of the plaintiff. It was kind of a little PI case where there was a photographer named Amos, who Dennis Rodman kicked at a basketball game. The guy was kicked in the groin — at least, that’s what he alleged. The guy sued, and it settled for, as I recall, $200,000. And so, the settlement agreement said $100,000 for being kicked in the groin — that’s physical injury, it shouldn’t be taxed — and then $100,000 for confidentiality, because Dennis Rodman’s handlers wanted to make sure it wasn’t discussed.

Somehow, the IRS went after the $100,000 for confidentiality. There’s a tax case that says, “Well, that’s not for the being kicked in the groin. That’s taxable.” I think, ever since then, there’s been this fear that confidentiality is taxable. Sometimes people put in a really small dollar amount. You know, “I’m paying $500,000 to make the case go away and I’m also paying you know, $50 or $5,000 for confidentiality.” I think it’s kind of silly, to me. If it’s 100 percent a physical injury case, you just say everything’s confidential. I think the danger is if you start putting numbers. Some people want liquidated damages clauses. There’s no really easy answer. But I think that was the genesis of that whole line of worry.

Jonathan Negretti: I totally agree. In fact, that’s the case that is discussed most often when this comes up and whether there should be consideration — and what the tax implication would be of that consideration if there was some taxable event after that.

Robert Wood: Yeah. I’m only a tax lawyer, but when I’ve seen people do that, one thing I would say is, “Well, look, we’re only putting $50 for confidentiality because we only want to pay tax on $50.” But doesn’t that mean that somebody could just violate it and then say, “Here you go. Here’s your $50?

Jonathan Negretti: That’s a really good point. How strong is that confidentiality agreement if it was $50?

Robert Wood: Yeah.

Jonathan Negretti: When it comes to lawyers who do not have the tax expertise that you do, and they want to make sure they’re counseling their clients correctly — clients are coming to them asking them these questions and they want to get you to the right person or the right people … because I don’t want to say the wrong thing and put you in a situation where you’re upset with me a year from now, when you’re filing your taxes — what are your words of wisdom? How should that be handled? Now we’re speaking to our audience of attorneys. What kind of advice would you give them, to put people in the best position to get the proper advice about these taxable events?

Robert Wood: There’s no easy answer to that, unfortunately. I’ve been an expert witness in malpractice type cases. And, I think, on the plaintiff’s side, which is the place where you’d usually see this, lawyers are, as you just said, trying to help the client. I think it’s a slippery slope. Many people don’t want to say, “Look, if you mention the word tax, I can’t talk to you. Taxes are always important.”

I think, probably, the best advice is to tell the client to get tax advice. Try to connect them to someone. Of course, there’s, I suppose, potential referral liability. But saying, “Look, I’m not a tax person, this person is. You’re on your own, but I’ll try to cooperate any, in any way I can” — I think that’s never a bad result. I think what may be the worst mistake is a well-meaning one: to try to provide tax advice and then to do it incompetently. No matter how well-intentioned you are, that can obviously blow up in your face.

Jonathan Negretti: You mentioned emotional distress. I read a lot about this because I was confused myself on how this becomes taxable. Can you talk a little bit more about that? Forget about the origin of the claim being a car crash. Let’s just say emotional distress damages related to any other type of claim. Why would that be taxable? How does that become a red flag for people when it comes to a settlement involving emotional distress?

Robert Wood: Sure. There’s still lots of confusion from clients. But I’d say I get a fair number of queries from lawyers who seem surprised — who say things like, “We’re treating that as emotional distress, so that’s not taxable.” Of course, that statement is wrong, or at least incomplete. Some of it is historical.

Up until 1996 — this is another one of these important dates — Section 104, the Tax Code section I mentioned, said that money for personal injuries was tax-free. In 1996, Congress changed the statute to say personal physical injuries. Up until 1996, it was quite true that emotional distress money was non taxable. That is no longer true. I mean, it’s maddening. There really is still no definition in the Tax Code or from the IRS about exactly what “physical” means.

So, on the emotional distress point, when the Tax Code was changed in ’96, there is a famous committee report — you know, one of these big, thick reports — where Congress and the people writing the law said, “When we say physical, we don’t mean just. Emotional distress is physical. Even if you have physical symptoms like stomach aches, headaches, insomnia, those are emotional distress things. And we don’t think they’re physical.” That is actually in a footnote. That’s some important learning. But there’s still a lot of gray area about exactly what’s physical and what’s merely emotional.

Jonathan Negretti: When someone’s unpacking all of this, and let’s say they’re bringing a claim for all these different forms of damages, is this where getting a tax attorney involved to help them understand the allocation of damages or just understand why some of these may be taxable, some may not?

Robert Wood: It is. There are not taxes to be saved in every single case, but in most cases, there are. Back to the $100,000 legal fee issue [with the $40,000 contingency fee], sometimes it’s simply to make darn sure that someone knows whether it’s clear that the legal fees are deductible or not, and, if so, how deductible?

In terms of the, the physical injury exclusion, it’s almost always worth getting some advice.

Back to your malpractice question about what lawyers should do, I mean, most lawyers, I guess, will say, “Look, we’re not tax people. We can’t give you tax advice, but you should get some.” Some go a step further and say, “You know, here are three you could call.” And some go a step further than that and say, “Look, I can’t provide tax advice, but to make sure that you’re getting advice, I’m willing to pay for an hour of time with so and so.” I think that’s a little uncommon. But some people do it. In any case, making sure that the client knows to get ahead of it is smart.

Jonathan Negretti: I read this settlement taxability form. You won’t be able to see it on your screen, but it’s from the IRS Publication and it talks about the taxability of settlements. I’m sure you’ve seen it. One of the things I found very interesting, as it related to medical expenses, is whether or not there was itemized deduction taken. It makes sense to me, when I read through this, why that would be taxable or non taxable, depending on the deduction. But can you explain to our audience why that would be a factor to be considered as they look at their settlements?

Robert Wood: Sure. And I am familiar with that document. There’s an IRS publication that’s called [Lawsuits, Awards, and Settlements Audit Techniques Guide]. It’s essentially for IRS people about how they should audit this issue. It’s worth looking at. The IRS updates it periodically.

The issue you’re asking about, I guess, is something that I would lump into a tax doctrine called The Tax Benefit Rule. As the name suggests, it essentially means if you got a tax benefit for something, then that may get recaptured. If you’ve been deducting medical expenses, for example, on your tax return — and typically that means probably big medical expenses — and then you get reimbursed for those down the road at some point, some years later in a settlement, the IRS can look back at those prior tax returns and see that you deducted them. Even though, normally, this kind of thing wouldn’t be taxed, they’re going to recapture the tax benefit that you got from the past. That’s the concept.

Jonathan Negretti: Gotcha. There is a section in the same publication that may put some of our listeners to sleep, but I think this is fascinating and I wanted to explore it with you. It’s talking about loss and value of property — and we’re getting into basis points. We often bring what are called diminished value claims on behalf of clients, and this is a situation where a client’s vehicle gets damaged. It isn’t a total loss, but now the vehicle is worth less than it was worth at the time of the crash. The taxability of this comes into play. Can you explain just maybe in a lay person’s way how adjusted basis works and why this needs to be important when someone recaptures a loss in value on their property?

Robert Wood: Sure. I mean, it’s a great point. It is a little confusing — or it can it be. And it comes up in a variety of types of cases. Essentially, for example, investment loss type cases, where you had a brokerage account and had $500,000 in it, and the broker mismanaged it or something, and it’s now down to $200,000, you get some of that money back. It’s kind of your own money. Is there some tax on that? The answer would be, “It kind of depends.”

For example, [to] the concept you just raised, Jonathan, is your basis $500,000, or was your basis $0, meaning you hadn’t paid tax on any of this, and you get some money back. You need to know things like basis. Just to use your example, if you have a basis of $50,000 that you paid for your car, it’s damaged and it’s now worth $20,000 and you get a settlement — they’re going to give you $10,000 toward your car — I would say your basis was $50,000 and now it just went down to $40,000, because you’ve got a payment that you could treat as income. I think it would be fair in that example to say it’s not really income because it’s just a recovery of some of my basis in my car — the $50,000 I originally spent.

That same concept applies in a lot of other kinds of property cases, like construction defect cases. You know, “I had you build this house for me. It’s now defective in certain ways. I paid X for it. It’s now worth less than X. I want to get reimbursed.” And most people wouldn’t want to have to treat that as income.

Jonathan Negretti: I’m going to ask you an off the wall question, because I got asked this and I have to know, from your perspective, what you think. This client and I — we were trying to prove up wages and wage loss. The defense attorneys wanted to look at tax returns. The client said, “If Trump doesn’t have to disclose his tax returns, neither do I.” I understand from a perspective of we have the burden, we have to prove that, but forget that for a minute. Robert, what is your thought on the confidentiality or privacy as it relates to tax returns? And I’m not talking about Trump now. I’m just talking in general about people saying, “My tax returns are private, I don’t have to share those.” What, what are your thoughts there?

Robert Wood: I think your client’s right. I mean, there are fights. I would say in cases that I’m advising on — or in some cases that I’m an expert witness on, which may not be a malpractice case, it may be some kind of contract dispute, where there are tax issues that I’m supposed to address — a lot of times, as a lawyer, if I’m involved in a case, I would say things like, “Gee, do you, do we have tax returns?” Because they always tell you something.

A majority of the time, at least in my experience, defendants can’t get plaintiff’s tax returns, precisely because of privacy. I suppose Trump probably helped that effort, as you say, because more than a few people would say, “Heck, if Trump doesn’t have to do it, I don’t either.” Very frequently when I have seen them in cases, they’ve been heavily redacted. This really isn’t the tax point, but my understanding is if the plaintiff has directly put an issue in sort of controversy, for example, that the tax return is the best evidence of that, then they can be fair game in some redacted portion or form. I think that’s my answer, at least.

Contact Negretti & Associates with Questions

Negretti & Associates is licensed to practice personal injury law in Arizona, California, and Colorado. Have a question about the taxability of settlements? For a free consultation regarding your case, contact us online, call us at 1-833-827-3535, or send us a text.

What does the phrase “open and obvious defense” mean — particularly in premises liability law?

Without context, the phrase can be confusing. On the surface, the two words “open” and “obvious” don’t seem to go together.

In law, “open and obvious” typically comes into play in slip and fall cases. An open and obvious defense is something that a property owner would use to escape liability — to avoid being held responsible for another party’s fall.

A property owner has a legal duty to protect people against known — and sometimes unknown — dangers on their property.

Using an open and obvious defense, a property owner might claim that the danger encountered was out in the open and so obvious that the injured party could have avoided it.

How an Open and Obvious Defense Might Be Applied

To help illustrate this point, let’s consider hypothetical example. Imagine walking in a fantasy world and suddenly falling into a giant rabbit hole on somebody’s property.

If you saw the giant rabbit hole and then proceeded to fall into it, the property owner might have a legitimate claim that the hole was open and obvious. The hole was out in the open and was so obvious that, as you walked toward it, you shouldn’t have slipped and fallen into it.

In reality, matters are often quite different. Commonly, the question of whether something was actually open and obvious is unclear and confusing.

So, let’s change one fact in the fantasy hypothetical above. Everything else stays the same except for the fact that this fall happened at night in the dark.

There you are, walking in the dark and you suddenly fall into a giant rabbit hole. In that situation, you could argue that there nothing open or obvious about the hole. You couldn’t see it.

But what if there were a warning sign in front of the hole? What if the sign read, “WARNING: Giant Rabbit Hole Ahead.” In this case, the property owner would argue that they warned you about the hole. You might argue that you couldn’t see the warning sign because it was dark.

Dealing with an Open and Obvious Defense? Contact Negretti & Associates

As you can see, you can go down a giant rabbit hole wrestling with whether a danger is open and obvious. It’s a defense that is subject to wide interpretation.

For this reason, if you’ve been involved in a slip-and-fall case, it’s important to work with an experienced attorney who is familiar with your state’s premises liability laws, including the open and obvious defense.

Negretti & Associates handles premises law cases in Arizona, California, and Colorado. If your accident case has elements that aren’t so open or obvious, contact our team of premises liability lawyers. Contact us online, call us at 1-833-827-3535, or send us a text.