The opinion of the court was delivered by: MOTLEY
This interpleader action was filed by plaintiff-stakeholder Gould, Inc. (Gould) to determine the distribution of $100,000.00. Gould no longer contests its liability as to the $100,000.00 fund; pursuant to a consent order, the distribution of the fund is not in dispute either. The sole issues tha remain are: (1) the claim by a single claimant-defendant that the $100,000.00 fund is subject to interest; and (2) Gould's claim for costs and attorneys' fees on defendant-claimant's claim for interest. Before the court now are motions for summary judgment by both plaintiff-stakeholder and defendant-claimant as to interest on the $100,000.00. Defendant-claimant Pension Benefit Guaranty Corporation (PBGC) seeks approximately $85,000.00 in interest. Gould in turn denies that it owes any interest on the $100,000.00. For the reasons set forth below, Gould's motion for summary judgment is granted,and defendant-claimant's motion for summary judgment is denied. Gould's motion for costs is granted.
The $100,000.00 involved in this action represents Gould's guaranty of the obligations which Sonotone Corporation, a New York corporation, incurred in settling a dispute over the funding of Sonotone's pension plan. From 1969 through 1973, Gould and its wholly-owned subsidiary were the sole shareholders of Sonotone. After Gould sold its Sonotone stock to Pindyck Corporation (Pindyck), a dispute developed between Sonotone and Amalgamated Local 475, International Union of Electrical, Radio & Machine Workers, AFL-CIO (Union), which is a predecessor in interest of defendant-claimant PBGC. The dispute focused on Sonotone's failure to make required contributions to the employees' pension plan. That dispute was the subject of an arbitration in March 1975. The arbitrator found that Sonotone had failed to make certain contributions to the pension plan since 1966, and the Union was granted an award against Sonotone.
In November 1975, the Union sued Sonotone in New York state court to have the arbitration award confirmed and a judgment entered. In 1976, Sonotone, Gould, the Union and Pindyck entered into a settlement agreement. The agreement provided that Gould guaranteed Sontone's obligations pursuant to this settlement to the extent of $100,000.00. The agreement further provided that Sonotone was to pay $188,000.00 into the pension fund.
Pursuant to the settlement agreement, the pension plan was to receive yearly payments from Sonotone commencing April 1976. The plan did not receive any of the scheduled payments; and in 1978, the Union sued Sonotone, Pindyck, and Gould to enforce the settlement agreement. In November 1978, Gould entered into an agreement with the law firm representing the defendant-claimant Union (the Guazzo firm) whereby Gouuld would pay $100,000.00 to the Union pursuant to its guaranty. In return for this payment, Gould was to receive releases from the Union and the individual claimants.
Pursuant to its agreement with the Guazzo firm, Gould forwarded draft releases to the Guazzo firm in January 1979. From January through the fall of 1979, Gould received assurances from the Guazzo firm that the firm was procuring the releases of the individual claimants. In the summer of 1979, the firm requested that Gould pay each claimant his prorated share of the $100,000.00, rather than paying the Union a lump sum.The parties then redrafted the releases to conform with this request. The law firm did not mention or suggest that Gould pay interest on the $100,000.00 throughout these protracted negotiations.
While the Guazzo firm continued to procure the last few releases in March 1980, PBGC (the trustee of the pension plan) notified Gould that it might claim a right to Gould's $100,000.00 guaranty of Sonotone's obligations. In its communications with Gould, PBGC requested that Gould not distribute any of the funds until Gould received further word from PBGC. PBGC formally claimed a right to the $100,000.00 in a letter dated April 3, 1981. PBGC did not claim any right to interest on this money.
Shortly thereafter, Gould filed the instant interpleader action. PBGC counterclaimed for interest. Gould and the defendants-claimants who appeared then filed a consent order on May 24, 1982, pursuant to which the defendant-claimants agreed that they would discharge Gould from all liability with respect to its guaranty upon Gould's tendering $100,000.00 to the Clerk of this Court (without prejudice to PBGC's claim for interest). PBGC signed a proposed order prepared by Gould's attorneys under which Gould would pay the Clerk $75,000.00 payable to PBGC, which the Clerk would immediately tender to PBGC, and a $25,000.00 check payable to the Clerk and to be invested in treasury bills and disbursable only upon order of the court. The other defendants-claimants have ceded to PBGC their claims to the extent of $100,000.00, plus any possible right to interest. This order was filed in May 1982.
At this time, Gould seeks attorneys' fees and costs as part of its motion for summary judgment. Gould has relinquished an earlier claim for $12,000.00 which it alleged it had already paid pursuant to its guaranty. PBGC seeks interest on the $100,000.00, to be computed at the average annual prime rate on $37,600.00 from April 16, 1976, on $37,600.00 from April 16, 1977, and on $24,800.00 from April 16, 1978.
In reply papers in its motion for summary judgment, PBGC for the first itme raised the argument that section 514(a) of ERISA, Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1144(a), preempts the New York state laws which cover pension plans. Thus, defendant-claimant contends that New York's rule on prejudgment interest awarded to pension plans is superseded by ERISA and that this court has the discretionary power to create federal common law on the subject since ERISA is silent on how prejudgment interest would be computed.
In response, Gould contends that ERISA does not preempt state law in the instant case because New York's law on prejudgment interest has only an indirect effect on pension plans. Furthermore, Gould contends that the state law is a law of general application dealing with an important area of state concern. In the alternative, Gould contends that the lack of any general federal standard for interest would require the application of state law even if ERISA did preempt the state law governing interest.
Pursuant to the March 11, 1976 Agreement, Gould guaranteed the obligations of Sonotone to the extent of $100,000.00. Under New York law, interest on a surety is available only upon the surety's default. Aetna Casualty & Surety Co. v. B.B.B. Construction Corporation, 173 F.2d 307, 308-309 (2d Cir.), cert. denied, 337 U.S. 917, 93 L. Ed. 1726, 69 S. Ct. 1158 ...