The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.
This case is currently before the Court on the parties' various Objections to the Report and Recommendation of Magistrate Judge Barbara A. Lee dated March 26, 1993. I have received and considered both the Report and Recommendation and the objections to it. For the reasons that follow, I accept it in part and modify it in part.
The facts of this case have been set forth in this Court's prior Memorandum Opinion and Order on summary judgment dated November 20, 1991, familiarity with which is assumed. In that opinion, this Court granted plaintiffs' motion for summary judgment, holding that Alan and Theresa Unger had breached their fiduciary duties imposed by the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). The Court held the defendants jointly and severally liable in the amount of $ 447,160.48, plus interest and granted reasonable attorney's fees and costs against Alan Unger but denied an award of attorney's fees against Theresa Unger. Upon motion for reconsideration, the Court held defendants jointly and severally liable for an additional $ 52,384.18, plus interest, bringing the total amount of liability to $ 499,544.66, plus interest. Thereafter, this Court referred the case to Magistrate Judge Lee for a report and recommendation on the amount of attorney's fees and prejudgment interest to be awarded.
The issues this Court must decide upon de novo review of Magistrate Judge Lee's Report and Recommendation involve the rate to be applied in computing the prejudgment interest, whether the interest should be simple or compound, and the amount of attorneys' fees to be awarded.
While the court in its discretion may award prejudgment interest in cases against fiduciaries under § 1109, no statutory provision sets forth the interest rate to be applied when granting such an award. In contrast, in cases brought against employers for delinquent contributions under 29 U.S.C. § 1145 courts are required to calculate prejudgment interest according to section 6621 of Title 26, if the plan itself does not provide the applicable rate. Section 6621 contains the provision of the Internal Revenue Code which determines the rate of interest applied to overpayments and underpayments of income taxes to the federal government. Prior to the effective date of the 1986 amendment to that section, the rate of interest under § 6621 was equivalent to the adjusted prime rate. Pursuant to the 1986 amendment, effective January 1, 1987, the interest rate under § 6621 is the Federal short-term rate plus two percentage points (for an overpayment of taxes) or three percentage points (for an underpayment of taxes).
As Magistrate Judge Lee noted, § 6621 of Title 26 is not mandatorily applicable to an award of prejudgment interest in cases against fiduciaries under § 1109 of Title 29. Of the few reported cases in which a court has specified the rate of interest to applied in computing an award of prejudgment interest under § 1109, several courts have applied in their discretion the interest rate set forth in § 6621. See e.g. McLaughlin v. Cohen, 686 F. Supp. 454, 458 (S.D.N.Y. 1988); Whitfield v. Tomasso, 682 F. Supp. 1287, 1307 (E.D.N.Y. 1988); Benvenuto v. Schneider, 678 F. Supp. 51, 55 (E.D.N.Y. 1988); Marshall v. Snyder, 1 EBC 1878, 1888-89 (E.D.N.Y. 1979); Martin v. Harline, 15 EBC 1138, 1153 (D. Utah 1992).
The Second Circuit has never specifically determined the rate of interest courts should apply to awards of prejudgment interest in cases against fiduciaries under ERISA. Recently, the Second Circuit has provided some guidance to courts confronting this issue. There is no strict formula for determining the rate of interest to be applied. Instead,
"assessing the appropriate amount of interest requires a comparison of what the plan earned during the time in question and what it would have earned had the money lost due to the breach been available. One must look to the return on investments held by the plan to determine the appropriate interest rate to be applied under § 409."
In Diduck, the Second Circuit reversed the district court's award of prejudgment interest computed pursuant to 26 U.S.C. § 6621 in a case against ...