United States Lines appeals and McCrann cross-appeals from judgment entered on an order of the United States District Court for the Southern District of New York, Morris E. Lasker, Judge, awarding McCrann $420,044.39 in damages for personal injuries, including prejudgment interest of $168,387.39. Affirmed.
Before: KAUFMAN, KEARSE and ALTIMARI, Circuit Judges.
As any student of elementary economics knows, time has monetary value for some purposes. A dollar in hand today is worth more than a dollar to be paid a year from today, and a dollar a year from today is worth more than a dollar to be received in two years. This basic principle of finance is employed by courts daily in calculating appropriate damage awards, to ensure that parties receive neither an undeserved windfall nor an unfair penalty. Yet it is remarkable how basic economic concepts can become convoluted by the parties when large sums are at stake.
In the case now before us, we are confronted with two questions concerning the proper means of calculating damages in a personal injury action. The parties challenge the methods employed by the district court to determine the applicable rates for discounting the judgment to present value and for calculating prejudgment interest. Plaintiff contends that the discount rate employed was excessive, while defendant argues that the rate used to calculate prejudgment interest was too high. After briefly stating the facts, we shall demonstrate that the well-settled practices of this Court require rejecting both the appeal and cross-appeal. We therefore affirm the judgment of the district court.
Dennis McCrann ("appellee") was an American seaman who sailed as an electrician aboard the S.S. American Champion, a vessel owned by United States Lines, Inc. ("appellant"). On November 29, 1979, appellee sustained injuries to his neck and right elbow when he slipped and fell on a deck covered with a mixture of oil and water. He commenced this action on January 27, 1981, seeking compensatory and punitive damages pursuant to the Jones Act, 46 U.S.C. § 688, and general maritime law.
After a bench trial, the district court found that McCrann's injuries were due to appellant's negligence and the unseaworthiness of appellant's vessel. Specifically, Judge Lasker found that water leakage through supposedly watertight doors on the vessel had caused McCrann to slip and injure himself. The court also determined that appellee's injuries rendered him unfit for employment in his former capacity as a seaman-electrician, and awarded him $275,544 in compensatory damages for past and future loss of earnings. On October 25, 1985, the trial court awarded appellee an additional $20,000 in damages for pain and suffering.
On May 8, 1986, Judge Lasker ordered McCrann's projected earnings to be discounted to present value, and added prejudgment interest to the award. The court employed a rate of 2% to discount the total lost earnings back to the date of injury, and calculated prejudgment interest at a rate of 10.397%. An amended judgment was filed on May 21, 1986, awarding appellee $420,044.39, including prejudgment interest of $168,387.39. Appellant filed a notice of appeal and appellee cross appealed.
Before addressing the contentions of the parties, a brief review of the basic concepts involved in calculating damage awards for lost wages is in order. We begin with the principle that a tortfeasor should be required to put his victim in the same economic position that he would have occupied had he not been injured. Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 533, 76 L. Ed. 2d 768, 103 S. Ct. 2541 (1983). When an injury renders a worker unfit to continue in his trade, the court must first calculate his projected salary for each year that he could have worked. Assuming ten more years of gainful employment at $10,000 per year, however, the worker would realize a windfall if he received a judgment of $100,000, since that sum could earn substantial amounts of interest in the bank. Therefore, the court would reduce the judgment by awarding plaintiff the present value of each year's payments. Invested at an interest rate of 6% compounded monthly, $9434 grows to $10,000 at the end of one year, and $8900 grows to $10,000 after two years. Discounting each year's payments and then adding up the total of the discounted amounts, the court would award the present value of the future income stream. Taliercio v. Compania Empressa Lineas Argentina, 761 F.2d 126, 129 (2d Cir. 1985), following Jones & Laughlin Steel Corp., 462 U.S. at 538. In this example, the plaintiff would receive $73,601.*fn1
If the award were disbursed at the precise moment of injury, and if the economy were free of inflation, this calculation would represent a fair award of damages. However, neither of these assumptions holds true. Therefore, certain adjustments must be made. Consider inflation first. Just as the defendant would be unfairly penalized if required to pay the full $100,000 today, rather than the discounted sum of $73,601, so would the plaintiff be undercompensated if the court failed to account for the effects of inflation on his award. Therefore, courts will either subtract the estimated rate of inflation from the prevailing market rate of interest before discounting the judgment to present value or account for the effects of inflation in projecting the plaintiff's wages. Doca v. Marina Mercante Nicaraguense, S.A., 634 F.2d 30, 34-38 (2d Cir. 1980), cert. denied, 451 U.S. 971, 101 S. Ct. 2049, 68 L. Ed. 2d 351 (1981). Assuming an inflation rate of 4% and a prevailing interest rate of 6%, the discount rate would be reduced to 2%, and the damage award would now come to $89,826.
Finally, we must account for the additional factor of prejudgment interest. In theory, the tortfeasor incurs his obligation to make the plaintiff whole the instant that the injury occurs. In reality, of course, the plaintiff must wait until the litigation has run its course before realizing a judgment. Since the plaintiff was entitled to the interest income on the damage award from the date of injury to the payment of judgment, courts award prejudgment interest to address the disparity. Independent Bulk Transport, Inc. v. Vessel "Moraina Abaco," 676 F.2d 23, 26 (2d Cir. 1982); see also Taliercio, 761 F.2d at 129. If a year passed between the moment of injury and the date of judgment, and the prevailing interest rate was 6%, our hypothetical plaintiff would receive an additional $5,479, bringing his final award to $95,305.
Equipped with these basic concepts, we can now turn to the merits of the appeal. The district court determined that McCrann's past and future loss of earnings amounted to $275,444, before discounting or adjusting for inflation. In arriving at this sum, the court took into consideration his salary at the time of injury, his remaining work expectancy of 16 years, and his projected ability to mitigate damages. Judge Lasker then discounted that sum at the rate of 2% per year, relying on this Court's instruction in Doca to use 2% absent evidence of a more appropriate rate. Finally he awarded prejudgment interest on the discounted figure and the $20,000 pain and suffering award, ...