Price, $ 7,465,000, and the Fund's November 27, 1990, purchase price, $ 24,000,000: that is, $ 16,535,000.
IV. Prejudgment Interest
The award of prejudgment interest in cases against fiduciaries is a matter of judicial discretion, the purpose being not to penalize the trustee but to make plan participants whole. Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 286 (2d Cir. 1992). An award of prejudgment interest is appropriate here. As noted above, ERISA provides that a fiduciary shall be personally liable for "any losses to the plan resulting from [his] breach," 29 U.S.C. § 1109(a). Moreover, our Court of Appeals has held that to satisfy this standard, plan participants must be restored to the position they would have occupied absent the breach. Donovan, 754 F.2d at 1056. The rate of interest, then, should make up the difference between "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." Diduck, 974 F.2d at 286.
To this end, the courts have often employed the rate used by the Internal Revenue Service ("IRS"), set forth at 26 U.S.C. § 6621. That is the rate the Government advocates here. As this Court has noted in the past, the IRS rate provides an "objective measure of the value of money." Russo v. Unger, 845 F. Supp. 124, 127 (S.D.N.Y. 1994) (Haight, J.) (citation and internal quotation marks omitted).
It is true that the IRS rate was at one time held to be excessive in certain cases. The Court of Appeals in Diduck reversed the district court's award of prejudgment interest computed at the IRS rate in a case against a fiduciary. However, as noted in Russo, 845 F. Supp. at 127, the Diduck court evaluated an application of § 6621 when that statute tied the IRS rate to the prime rate, noting that "prime is not an appropriate measure where a plan typically does not earn that sort of a return on its investments." Diduck, 974 F.2d at 286. The IRS rate is now tied to the short-term Government lending rate, not the prime rate, and this rate, as it would apply to the period of the Mason Tenders Funds' damage, is squarely within the range of what may fairly be considered a normal return on investment.
It is true that the Government has offered no evidence of the actual return earned on the Funds' investments during the period of their injury nor any suggestion of what might have been a plausible investment strategy for the Funds. However, Fater does not contest the reasonableness of the IRS rate, nor does he suggest that the rate fails to correspond to any actual rate of return earned by the funds. Diduck, 974 F.2d at 286 (citing Donovan, 754 F.2d at 1056). Inasmuch as the IRS § 6621 rate cannot be said to be excessive on its face, but is rather firmly within the range of reasonable return on investment, and given that the Court of Appeals has held that where plaintiffs offer several plausible investment strategies and corresponding rates of return, defendants bear the burden of showing that a plan would not have earned the highest of these rates, the IRS rate is an appropriate means of approximating the return that the Funds would have earned. It is, therefore, an appropriate rate for the calculation of prejudgment interest.
Finally, it must be determined whether compound or simple interest should be used to calculate the prejudgment interest. Here again, guidance is provided by ERISA's mandate that the damaged party be placed in the situation in which it would have been absent the fiduciary breach. Compound interest is, therefore, appropriate, for, as the Government notes and Fater does not contest, it is most likely that the Funds would have invested -- at compound interest -- the amounts that were overpaid for the properties. In Russo, the Honorable Charles S. Haight, noting that the courts have not consistently chosen between simple and compound interest, determined that the latter was merited by two factors: evidence of self-dealing and a showing that there was a duty to reinvest at compound interest. Russo, 845 F. Supp. at 128. Here Defendants' conduct involved gross delinquencies, rather than honest mistake or bad judgment, and Fater and Lupo, as trustees, did have a duty to invest in a manner that would earn compound interest. In light of these facts and of Defendants' failure to oppose the Government's request for compound interest, interest will be compounded.
For the reasons set forth above. Damages are set at $ 600,000 for the Florida Property and $ 16,535,000 for the West 18th Street Property, with prejudgment interest awarded at the IRS § 6621 rate and compounded as set forth in the Declaration of Patricia Ponders annexed to the Government's letter of September 11, 1995.
Final judgment on these amounts will be entered against Defendants, with Fater being liable for the full amount of damages plus interest on the Florida Property and Fater and Lupo being jointly and severally liable for the full amount of damages plus interest on the New York Property.
Plaintiffs are directed to settle judgment upon seven days' notice within thirty days from the date of this Order.
It is so ordered.
New York, N. Y.
December 12, 1995
ROBERT W. SWEET
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