MEMORANDUM-DECISION AND ORDER
The court now considers the Report and Recommendation of Magistrate Judge David R. Homer in regard to the calculation of damages to the plaintiff class in this case about retiree medical benefits. Defendants have lodged objections to that portion of the report concerning the recommended award of prejudgment interest. Doc. 257. Plaintiffs have not responded to the objections but have requested clarification of the injunction entered in this court's prior opinion deciding the post-trial motions. Doc. 263.
Both parties request an order allowing applications for attorneys' fees to be postponed until the Second Circuit decides any appeal of this case. The following constitutes the court's disposition of these issues.
As a preliminary matter the court accepts the following recommendations and findings which do not appear to be controverted: (1) the loss to the IAM plaintiff class totals $ 278,454.24,
allocated among the classmembers as specified in plaintiffs' exhibit 41, Ex. B att'd to Brady Aff., Doc. 258; and (2) if prejudgment interest is awarded, the interest rates should be the same as those used to calculate postjudgment interest pursuant to 28 U.S.C. § 1961(a), although the mechanics of applying those rates is in contention. See Rep.-Rec., Doc. 255, at 2-3. To accept the recommendations of a federal magistrate judge to which there are no objections, "a district court need only satisfy itself that there is no clear error on the face of the record." McAllister Bros., Inc. v. Ocean Marine Indem. Co., 742 F. Supp. 70, 74 (S.D.N.Y. 1989). As no manifest error presents itself, the court adopts in full the magistrate's recommendations with respect to these uncontested issues.
A district judge is tasked to "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b)(1)(C). In the instant matter, defendant objects to (1) the award of any prejudgment interest, (2) the methodology the magistrate recommends for determining how to apply the interest rates to the damage increments, and (3) the decision to use compound rather than simple interest. Defs.' Mem. Law, Doc. 257. The court's plenary review of these points commences below.
A. Prejudgment Interest
Defendant disputes the propriety of the award of prejudgment interest. Initially, the court notes that the IAM plaintiff class recovered on causes of action arising under section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(1)(B), and section 301 of the Labor Management Relations Act of 1947 (LMRA or Taft-Hartley Act), 29 U.S.C. § 185.
The Second Circuit Court of Appeals, in considering a district court's grant of prejudgment interest in a case under section 303(b) of the Taft-Hartley Act, held that such an award was within the sound discretion of the trial judge. Wickham Contracting v. Local Union No.3, Int'l Bhd. Of Elec. Workers, 955 F.2d 831 (2d Cir.), cert. denied, 506 U.S. 946, 121 L. Ed. 2d 302, 113 S. Ct. 394 (1992). That discretion is guided by the following considerations:
The award should be a function of (i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court.
Id. at 833-34 (citations omitted).
Those "other general principles" include whether the legislative intent was to preclude prejudgment interest, whether such a grant would overcompensate the plaintiff, and whether the defendant acted innocently. Id. at 834. If the statute in question already provides for full compensation or punitive damages, prejudgment interest is likely improper, and the speculative nature of damages until the date of judgment also might render such an award unfair. Id. at 835. Ultimately, the purpose of prejudgment interest is to fully compensate the plaintiff, by taking into account the time-value of money. See Zicherman v. Korean Air Lines Co., 814 F. Supp. 605, 608 (S.D.N.Y. 1993), aff'd in part, rev'd in part on other grounds, 43 F.3d 18 (2d Cir. 1994), aff'd in part, rev'd in part on other grounds, 133 L. Ed. 2d 596, 116 S. Ct. 629 (1996).
Applying these standards, the Wickham panel affirmed the award. Although that case was an appeal of a section 303(b) suit, the Wickham analysis is equally applicable to actions pursuant to section 301 of the LMRA. See 955 F.2d at 838. Subsequent cases also have utilized the Wickham regime in ERISA suits. See, e.g., Mendez v. Teachers Ins. and Annuity Ass'n, 982 F.2d 783, 790 (2d Cir. 1992); Connecticut Gen. Life Ins. Co. v. Cole, 821 F. Supp. 193, 202 (S.D.N.Y. 1993).
In the present case, the magistrate determined that in order to compensate the plaintiff class fully, prejudgment interest on the damages should be allowed. This court concurs. Plaintiffs were charged excess premiums from October 1, 1984 until the date defendant began to comply with the injunction, April 1, 1995, a period exceeding ten years. The value of the overcharged monies has depreciated over a period as long as twelve years. Cf. Zicherman, 814 F. Supp. at 608 (nine years; prejudgment interest allowed). Unless the IAM classmembers recover the cost of GAF's use of their money in this interim, they will not be compensated fully for their loss.
The relative equities of this matter, the second consideration in Wickham, also weigh in favor for the award. The record in this case reveals that some of the plaintiffs elected early retirement to the detriment of their pension receipts in order to secure the benefit of GAF's medical insurance program after the sale of the company's reprographics and graphic arts divisions in the Binghamton area. See, e.g., Test. of Frances L. Kurau, J.A. II, Doc. 260, at A0844-46. Having decided to forgo some economic benefits in order to guarantee that they would continue to be covered by advantageous medical coverage, it would be unfortunate not to compensate the IAM classmembers for the lost use of money they had to spend to continue the medical benefits for which they sacrificed part of their pensions.
Turning to the third factor, that is, whether the statute in question is remedial, it seems evident that section 301 of the LMRA is. See 93 Cong. Rec. 3656 (1947) ("[Section 301] contemplates not only the ordinary lawsuits for damages but also such other remedial proceedings, both legal and equitable, as might be appropriate in the circumstances . . . .") (statement of Rep. Barden). The decision in IAM v. United Aircraft affirmed that "in suits for breaches of labor agreements . . . a vital ingredient in the determination whether to award prejudgment interest is a desire to make whole the party injured by the breach." 534 F.2d 422, 447 (2d Cir. 1975), cert. denied, 429 U.S. 825, 50 L. Ed. 2d 87, 97 S. Ct. 79 (1976). And as the Ninth Circuit observed, "other courts have similarly allowed tort-like, 'make-whole' remedies" in breach of CBA suits under the Taft-Hartley-Act. Rozay's Transfer v. Local Freight Drivers, Local 208, Int'l Bhd. Teamsters, 850 F.2d 1321, 1335 (9th Cir. 1988), cert. denied, 490 U.S. 1030, 104 L. Ed. 2d 203, 109 S. Ct. 1768 (1989). The remedial scheme of ERISA also suggests prejudgment interest is appropriate if required to make the prevailing party whole. See Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir.) (holding that "it is well-settled that ERISA grants the court wide discretion in fashioning equitable relief to protect the rights of pension fund beneficiaries including the award of prejudgment interest"), cert. denied sub nom. Cody v. Donovan, 469 U.S. 1072, 83 L. Ed. 2d 506, 105 S. Ct. 565 (1984); Scalamandre v. Oxford Health Plans, 823 F. Supp. 1050, 1063 (E.D.N.Y. 1993) (section 502(a)(1)(B) claim). But see id. (concluding that simple interest should be used).
As for the "other general principles" referred to in Wickham's fourth factor, 955 F.2d at 834, GAF interposes the objection to an award of prejudgment interest that it acted in good faith in disputing the meaning of the collective bargaining agreements at issue. Indeed, Magistrate Judge Homer found that there was insufficient evidence available "to assess whether GAF acted in good faith or was unjustly enriched." Rep.-Rec., Doc. 255, at 5. Delay alone however can be sufficient to justify an award of prejudgment interest. Algie v. RCA Global Comms., Inc., 891 F. Supp. 875, 899 (S.D.N.Y. 1994), aff'd, 60 F.3d 956 (2d Cir. 1995). Even assuming GAF's good faith, prejudgment interest is compensatory, not punitive, in nature and "wrongdoing by a defendant is not a prerequisite to an award." Lodges 743 & 1746, Int'l Ass'n of Machinists v. United Aircraft Corp., 534 F.2d 422, 447 (2d Cir. 1975) (reversing district court's refusal to make award), cert. denied, 429 U.S. 825, 50 L. Ed. 2d 87, 97 S. Ct. 79 (1976). Therefore, defendant's good faith does not shift the balance of equities away from a grant of prejudgment interest in this matter.
The Second Circuit in Wickham also observed that "the certainty of the damages due the plaintiff has been another factor in resolving prejudgment interest issues." 955 F.2d at 835. This consideration is the progeny of the old common law rule that forbade prejudgment interest when the damages were unliquidated or unascertainable up until the time of judgment. See 5 Corbin On Contracts § 1048 (1964). That doctrine however has no application in this case because the difference between the premiums provided for in the GAF-IAM collective bargaining agreements and the higher premiums actually charged to the plaintiff classmembers from 1984 onwards were obvious to all involved. Cf. Wickham, 955 F.2d at 840 (damages "not so conjectural that an award of prejudgment interest was an abuse of discretion under the circumstances"); Beelman Truck Co. v. Chauffeurs, Teamsters, Warehousemen and Helpers, Local Union No. 525, 33 F.3d 886, 892 (7th Cir. 1994).
The matter of possible overcompensation, 955 F.2d at 834, is treated in the discussion on interest methodology and whether to compound it. As for Wickham's admonition against prejudgment interest when the statute provides for exemplary damages or other excess recovery, neither the LMRA nor the relevant sections of ERISA provide for such relief. E.g., Wickham, 955 F.2d at 839 (LMRA "does not fix liquidated damages, and does not double or treble damages").
Having applied the Wickham factors to the circumstances of this case, the court concludes that an award of prejudgment interest is warranted. The court moves on to the question of how to calculate the interest due.
B. Method of Calculating Interest
The parties agree that the applicable interest rate should be the same as that prescribed for postjudgment interest in 28 U.S.C. § 1961(a).
Magistrate Judge Homer adopted the IAM class' proposed method for applying these rates. The IAM class described this method in their damages hearing brief:
The methodology now proposed by the IAM Plaintiff Class treats each month of excess payment as a discrete component of damages. That component is quantified for each classmember by subtracting from the sum paid to GAF for coverage . . . the amount which by contract should have been paid . . . . To that figure an interest rate determined pursuant to 28 U.S.C. § 1961(a) based on the fifty-two week Treasury bill auction settled immediately prior to the particular month has been applied, brought forward to August 31, 1996, and compounded in accordance with 28 U.S.C. § 1961(b).
Doc. 251, at 13-14.
For example, the 52-week treasury bill rate from the September 27, 1984 auction was 11.36 percent. In October 1984, IAM classmember Ralph Allen was charged $ 15.25 for medical coverage which should have cost him $ 3.00, a difference of $ 12.25. The IAM methodology would calculate interest on this overcharge at 11.36 percent, compounded annually, until entry of judgment. Assuming entry of final judgment on September 30, 1996 -- an even twelve years of interest accrual, for simplicity's sake -- Mr. Allen would earn $ 32.30 on the $ 12.25 overcharge, for total damages for that month of $ 44.55.
Interest on Mr. Allen's damages the following October would accrue for only eleven years at the rate established at the September 26, 1985 treasury bill auction, 7.87 percent. Interest on that $ 12.25 overcharge would be about $ 15.94, for total damages of $ 28.19.
GAF objects to this method of calculation. Defendant recommends instead that the average or arithmetic mean of all treasury bill rates from the first overcharge to the present be applied to the increments of damage. Including the October 10, 1996 equivalent coupon issue yield of 5.64 percent, the average rate over the period has been 6.42 percent. Compounding Mr. Allen's October 1984 damages at this rate over twelve years and one month yields $ 13.73 in interest on the $ 12.25 overcharge. Of course, defendant also requests that simple, rather than compound interest be used, an issue taken up later. Simple interest on Ralph Allen's October 1984 overcharge at 6.42 percent would yield only $ 9.50 in interest.
GAF maintains that the IAM method results in overcompensation of the plaintiff class in contravention of Wickham's guidelines. 955 F.2d at 834. In support defendant correctly points out that "no one who invested in a T-bill in October 1984, which is a 52-week note, would be earning today the same 11.36 percent rate of interest on that amount if it was reinvested in a T-bill in each 52-week renewal period thereafter." Defs.' Mem. Law, Doc. 257, at 17. GAF also accurately notes that the oldest components of damages, and therefore the units for which interest has accrued the longest, occurred during the early 1980s when the 52-week coupon equivalent rate was relatively higher than it has been during the past few years.
The selection of which rate to use and how to apply it is within the court's discretion. See, e.g., Kinek v. Paramount Comms., Inc., 22 F.3d 503, 514 (2d Cir. 1994). When applying the 52-week treasury bill coupon equivalent rate, three methods surface from the cases. The IAM method appears to have been used in Blanton v. Anzalone, 760 F.2d 989, 993 (9th Cir. 1985). The method advocated by GAF was applied in Luciano v. Olsten Corp., 912 F. Supp. 663, 677 (E.D.N.Y. 1996) and McIntosh v. Irving Trust Co., 873 F. Supp. 872, 882 (S.D.N.Y. 1995). A third method, which GAF seems to offer as a second-best alternative, was chosen in Hollie v. Korean Air Lines Co., Ltd., 834 F. Supp. 65, 71 (S.D.N.Y. 1993) and Golden State Transit Corp. v. Los Angeles, 773 F. Supp. 204, 218 (C.D. Cal. 1991). In these last cases, monthly treasury bill auction rates were averaged on an annual basis for damages that accrued over approximately ten-year periods, in contradistinction to the GAF method which would average them over the full term. The cases applying one of the three methods described above have implicitly acknowledged that no single one was preeminent. For instance, though Judge Koeltl used the GAF method in McIntosh, he cited the Hollie case with approval, which used averaged annual rates. 873 F. Supp. at 883.
This court rejects averaging over the full term, the method GAF champions. It seems that defendant may be urging an averaging of rates over the period from first overcharge to final judgment in order to include in the calculation the relatively low auction rates since the entry of the preliminary injunction on January 3, 1995 (the IAM method does not take these rates into account). Of course GAF also wishes to minimize the effect of the inordinately high rates of the early 1980s applying to the oldest damage units which have accrued interest for the longest time. Although there is some validity to the latter concern, e.g., Golden State, 773 F. Supp. at 219, this court believes that the blended rate of 6.42 percent does not reflect adequately the fact that interest on even a relatively safe ten- or twelve-year investment would likely earn more than that. And the corrollary to GAF's objection that a treasury bill bought in October 1984 pays more interest than one bought ten years later is that no one who bought a 52-week bill in September 1992 would be earning the same paltry rate of 3.13 percent on the same note bought two years later.
Nor do the two cases using the method that GAF advances persuade the court otherwise. In Luciano there was no opposition to averaging treasury bill rates over the full term that damages accrued, 912 F. Supp. at 677, while in McIntosh the opposing party urged the New York statutory rate, rather than an alternative means of applying the treasury bill auction rate, 873 F. Supp. at 882-83.
Moreover, the periods over which damages accrued in Luciano and McIntosh were shorter than the interval in the matter sub judice: five and seven years respectively rather than twelve. See 912 F. Supp. at 677; 873 F. Supp. at 883. In contrast, Senior Judge Hauk in Golden State rejected a constant rate for a ten-year period even though the postjudgment interest rate statute called for such a figure. See 773 F. Supp. at 219. "Clearly," that court observed, "in most situations where post-judgment interest is awarded, as well as most situations in which prejudgment interest is awarded, the applicable period is much shorter than ten years." Id. The implication is that some changes in interest return rates should be expected over longer periods of time, and GAF's full term averaging fails to reflect that reality. This perhaps explains why GAF's method has been used when shorter accrual periods are at issue. Over a shorter period, the rates may not deviate as sharply, thus minimizing the difference in result between the three methods. Compare Luciano, 912 F. Supp. at 677 (using GAF method during period 1991-95 when rates ranged from 3.13 to 7.34 percent) with Hollie, 834 F. Supp. at 71 (using annual averaging between 1983-93 when rates ranged from 3.13 to 12.17 percent). More to the point, with shorter periods the effect of compound interest is lessened,
which renders the question of which rate to apply to the oldest damage increments less significant. Over longer terms however compound interest becomes an important contributor to the total return; the effect is even more profound when the oldest damages arguably could be compounded at high rates, as in this case.
Although it finds the GAF method unsuitable, this court also has reservations applying the IAM method recommended by the magistrate judge. As Judge Hauk observed, "the early 1980's marked a period of unusually high interest rates, a situation which has not existed since that time." Golden State, 773 F. Supp. at 219. The annual averaging method ameliorates aberrantly high rates while still reflecting periodic trends in interest rates. The magistrate judge penning the Hollie opinion determined that annual averaging of treasury bill rates would "yield annual rates that reflect the financial market's sensitivity to the widely fluctuating rate of inflation that existed" during the 1983-93 time period. 834 F. Supp. at 69.
Under the Hollie /Golden State method, the court first calculates the average treasury bill coupon rate from September 27, 1984 to August 29, 1985, which includes thirteen auctions: 9.06 percent. This rate should apply to all damages accruing in the first twelve months of the interest period, i.e. October 1984 to September 1985. As observed supra, in October 1984 IAM classmember Ralph Allen was charged $ 15.25 for medical coverage which should have cost him $ 3.00, for a difference of $ 12.25. Applying compound interest at 9.06 percent for twelve years results in interest upon that overcharge of $ 22.43
, for total damages of $ 34.68. The same 9.06 percent rate would apply to Mr. Allen's overcharges through to September 1985. The rate for overcharges occurring from October 1985 to September 1986 would be determined by averaging the 52-week coupon rates from the next thirteen auctions, viz. the September 26, 1985 to August 28, 1986 auctions. The following table lists the average rates during the annual damages periods:
Damages Period Auction Dates Average Coupon Rate
10/84 to 9/85 9/27/84 to 8/29/85 9.06
10/85 to 9/86 9/26/85 to 8/28/86 7.08
10/86 to 9/87 9/25/86 to 9/1/87 6.33
10/87 to 9/88 9/30/87 to 8/25/88 7.31
10/88 to 9/89 9/22/88 to 8/24/89 8.73
10/89 to 9/90 9/21/89 to 8/23/90 8.05
10/90 to 9/91 9/20/90 to 8/22/91 6.59
10/91 to 9/92 9/19/91 to 8/20/92 4.42
10/92 to 9/93 9/17/92 to 8/19/93 3.45
10/93 to 9/94 9/16/93 to 8/18/94 4.37
10/94 to 1/3/95 9/15/94 to 8/17/95 6.31
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