Free Reply to Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Case No. 01-cv-02199-MSK-MEH MICHAEL E. CLAWSON and JARED L. DILLON, Plaintiffs, v. MOUNTAIN COAL COMPANY, L.L.C., ARCH WESTERN RESOURCES, L.L.C., and ARCH COAL, INC., Defendants.

REPLY RE: PLAINTIFFS' MOTION FOR BACK PAY AND INTEREST

The plaintiffs, Michael E. Clawson and Jared L. Dillon, through their undersigned counsel, Killian, Guthro & Jensen, P.C., hereby submit their Reply Re: Plaintiffs' Motion For Back Pay And Interest, and in support thereof, state as follows: I. BACK PAY DAMAGES Plaintiffs' motion for back pay requested that the court adopt the findings of the jury and award back pay in the amount of the verdict. In response defendants incorporate by reference their own Motion for Application of Statutory Damage Cap to Compensatory Damage Awards and for Reduction of Advisory Back Pay Awards. Plaintiffs responded to this motion, setting forth the reasons it should be denied. Plaintiffs hereby incorporate by reference their Response to said motion, document number 435, filed on June 5, 2006.

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II.

POST-JUDGMENT INTEREST The parties are in agreement that the plaintiffs are entitled to post-judgment interest

pursuant to 28 U.S.C. § 1961 upon entry of judgment. III. PRE-JUDGMENT INTEREST A. Pre-Judgment Interest On Compensatory Damages 1. Pre-judgment interest is appropriate on compensatory damages

Pre-judgment interest is appropriate on the award of compensatory damages, because it is part of complete or "make whole" relief, to which a successful ADA plaintiff is entitled. It appears that the question of pre-judgment interest on compensatory damages is one of first impression in the Tenth Circuit, and in this district. The only published decision found by either side is from the Northern District of Georgia. The Rau decision is neither binding on this court, nor persuasive in light of Supreme Court and Tenth Circuit precedent. However, the logic of cases allowing pre-judgment interest, as well as the purposes underlying the ADA, show clearly that pre-judgment interest should be allowed on compensatory damages. The decision cited by defendants, Rau v. Apple-Rio Mngmnt Co., 85 F.Supp. 2d 1344, 1348-49 (N.D. Ga. 1999) is not particularly helpful to the resolution of the issue before the court. The court in Rau noted that in the absence of a statute, the awarding of pre-judgment interest was within the discretion of the court. Id. at 1348-49. The court did not decide that there was a blanket rule that pre-judgment interest was not allowed on compensatory damages, but instead discussed those issues that informed its discretion in deciding the issue. Id. The court's logic relied upon an assertion that interest was not available on unliquidated claims at common law,

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and thus should not be available on compensatory damages. Id. at 1349.1 Compensatory damages by their nature are unliquidated. The problem with this analysis by the court in Rau is that it has been rejected by the United States Supreme Court, and by the Tenth Circuit relying on Supreme Court precedent. In 1933 the United States Supreme Court expressed doubt about the soundness of the rule distinguishing between liquidated and unliquidated claims and the availability of prejudgment interest. It has been recognized that a distinction, in this respect [the availability of prejudgment interest], simply between cases of liquidated and unliquidated damages, is not a sound one. Whether the case is of one class or another, the injured party has suffered a loss which may be regarded as not fully compensated if he is confined to the amount found to be recoverable as of the time of breach, and nothing is added for the delay in obtaining the award of damages. . . . `The disinclination to allow interest on claim of uncertain amount seems based on practice rather than theoretical grounds.' Funkhouser v. Preston Co., 290 U.S. 163, 168-69 (1933) (internal footnotes and citations omitted). This decision was well before the passage of the ADA. The Tenth Circuit, relying in part on Funkhouser, determined that pre-judgment interest was available on unliquidated claims. Phillips Petroleum Co. v. Oldland, 187 F.2d 780, 783 (10th Cir. 1951). In 2001, the Supreme Court confirmed that the distinction between liquidated and unliquidated damages, for purposes of pre-judgment interest, was unsound and not to be relied upon. Beginning in the early part of the last century, numerous courts and commentators have rejected the distinction [between liquidated and unliquidated claims] for failing to acknowledge the compensatory nature of interest awards. This court allied itself with the evolving consensus in 1933 . . .

The Rau court also relied on the fact that the plaintiff had received an award of punitive damages, and thus there was no need for pre-judgment interest to make her whole. Rau, 85 F.Supp. 2d at 1349. Punitive damages for the plaintiffs in this case are the subject of an outstanding motion at this time.

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Colorado v. Kansas, 533 U.S. 1, 10 (2001)(internal footnote omitted). "Our cases since 1933 have consistently acknowledged that a monetary award does not fully compensate for an injury unless it includes an interest component." Id. The Supreme Court stated that by 1949 the law was sufficiently clear that parties entering a contract could not assume that pre-judgment interest would be unavailable should a breach occur and the damages from the breach were unliquidated. Id. at 11 FN 4. "[T]his court had already made it clear [in Funkhouser] that it put no stock in the traditional common-law prohibition . . . and had stated explicitly that such interest may accrue when `considerations of fairness' demand it. Id. citing Funkhouser, 290 U.S. at 168 and Board of Comm'rs of Jackson City v. United States, 308 U.S. 343, 352 (1939). As Colorado demonstrates, by the time the ADA was passed, federal precedent allowed for pre-judgment interest on unliquidated damages claims. Congress was presumably aware of this precedent and expected it to be applied to its statutes when Congress itself was silent on the issue of prejudgment interest. Therefore, the logic of Rau is incompatible with Supreme Court precedent. However, the reasoning of the Supreme Court in regard to pre-judgment interest, as well as the objectives of the ADA, supports the awarding of pre-judgment interest on compensatory damages. One of the purposes of damages in discrimination cases, such as under the ADA, is "to make persons whole for injuries suffered." Albemarle Paper Co. v. Moody, 422 U.S. 405, 418 (1975). The Supreme Court has consistently held for over 70 years that damages do not fully compensate for an injury unless they include an interest component. Colorado, 533 U.S. at 10. Additionally, this district has noted that the purposes of pre-judgment interest include compensation for delay in payment and preventing defendants from benefiting from the delays involved in litigation. Carr v. Fort Morgan Sch. Dist., 4 F.Supp. 2d 989, 997 (D. Colo. 1998). Each plaintiff suffered non-economic injuries that went uncompensated for an extended period of 4

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time. Plaintiffs should be compensated for the delay in payment for their injuries. Likewise, while delays are inherent in litigation, defendants should not benefit from being allowed to withhold the money from plaintiffs without paying interest. The various reasons for allowing pre-judgment interest on back pay under the ADA also support pre-judgment interest on compensatory damages. This being the case, the court should grant plaintiffs' motion, and award pre-judgment interest on plaintiffs' compensatory damages. 2. Pre-judgment interest on compensatory damages does not fall within the damages cap of 42 U.S.C. § 1981a(b)(3)

Defendants assert, again citing Rau, that an award of pre-judgment interest on compensatory damages should fall within the damage cap. The Rau court did not actually decide the issue, but simple noted that an argument could be made that interest on compensatory damages would fall within the damage cap. Rau, 85 F.Supp. 2d at 1349. Defendants further assert that there is no logical reason that pre-judgment interest would not fall within the cap. Defendants do not support their bald statement, and their reasoning is faulty.2 42 U.S.C. § 2000e-5 grants the court broad equitable powers to enforce the ADA and ensure plaintiffs receive complete relief. "[I]t is the historic purpose of equity to secure[e] complete justice." Albemarle, 422 U.S. at 418. The purpose of pre-judgment interest is to ensure the plaintiff is made whole, or receives "complete justice." As explained in plaintiffs' motion, the court may therefore grant pre-judgment interest on plaintiffs' compensatory damages using its equitable powers. It is logical that the court would use its equitable powers because 42 U.S.C. § 1981a does not specifically mention pre-judgment interest.
Even if the court finds that the damage cap limits pre-judgment interest on compensatory damages, there is presently $50,000 left for each plaintiff under the cap. This may change when the court rules on plaintiffs' motion for punitive damages. Also, in the unlikely event that the court was to grant a motion to remit compensatory damages there might be additional amounts left under the damage cap, allowing a greater amount of interest to accrue and be awarded even under defendants' proposition that the damage cap limits pre-judgment interest.
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The Tenth Circuit recognized that the court may allow interest on unliquidated claims as a matter of equity. Phillips Petroleum, 187 F.2d at 783. Such awards are within the discretion of the trial court and depend upon considerations of fairness and justice. Id. The Fifth Circuit has also recognized that a court may award "equitable" pre-judgment interest. Crown Cent. Petroleum Cor. v. National Union Fire Ins. Co., 768 F.2d 632, 636-37 (5th Cir. 1985). The damage cap provisions are limited to those damages awarded under 42 U.S.C. § 1981a. If prejudgment interest is allowed under the court's equitable powers provided by 42 U.S.C. § 2000e5, then the damage cap does not apply. The proper method for awarding pre-judgment interest on compensatory damages is to do so using the court's equitable powers. Therefore, the limitation on damages contained in 42 U.S.C. § 1981a does not apply. B. Defendants' Arguments In Favor Of 28 U.S.C. § 1961 As The Proper Measure Of Pre-judgment Interest Are Unpersuasive, And The Colorado Statutory Rate Remains The Most Practical Choice

Defendants' brief, with its citation to a multiplicity of ways of calculating interest simply proves plaintiffs' point on this matter.3 The court should use the Colorado statutory rate of interest as a matter of "practicality and convenience." Toweridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 764 (10th Cir. 1997) (Federal District Court is not bound by state statutory interest rate, but may use it as a matter of practicality and convenience). Defendants cite to a number of cases from the District of Colorado all of which use an interest rate higher than that provided in § 1961. Defendants then ask this court to rely on cases from outside this district and award prejudgment interest at the § 1961 rate. Defendants also ask the court to use the interest rate as of

Although the sides disagree about what interest rate to use, it appears that we at least agree on compounding. Based on defendants' response, the parties agree compounding should be done annually, as opposed to the simple interest used in Buonanno v. AT&T Broadband, LLC, 315 F.Supp. 2d 1069 (D.Colo. 2004) or the more frequent compounding used in Reeder-Baker v. Lincoln Nat'l Corp., 649 F.Supp. 647, 662 FN 25 (N.D. Ind. 1986) (monthly compounding) and EEOC v. Sage Realty Corp., 507 F.Supp. 599, 613 (S.D. N.Y. 1981) (quarterly compounding).

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the date of the verdict, even though the statute itself says to use the rate as of the date of judgment. This is apparently because interest rates are rising, and have been since before the verdict, and defendants wish the court to use the lowest interest rate they can possibly justify. Defendants ask this court to use 26 U.S.C. § 1961 based on what they term the "wellreasoned approach" of Mennan v. Easter Stores, 951 F.Supp. 838 (N.D. Iowa 1997). While much of the Mennan decision involving liability is well reasoned, the portion of the decision addressing pre-judgment interest contains no reasoning at all. The court in Mennan simply cites a string of cases recognizing its discretion in selecting an interest rate. Id. at 863 FN 28. Mennan then cites a sting of cases with parentheticals describing the interest rate used. Id. Most of the cases cited use either 26 U.S.C. § 1961 or 26 U.S.C. § 6621. Id. The court does not analyze these cases. The court does not describe the strengths or weaknesses behind any particular rate or methodology. The court simply selects § 1961 without providing an explanation. Id. This cannot be considered a "well-reasoned approach." Mennan should not be considered persuasive. The unpublished Poindexter case cited by defendants, and contained at defendants Exhibit A, used the § 1961 interest rate for pre-judgment interest. However, this was because the plaintiff suggested it as the appropriate interest rate, and the defendant did not object. Poindexter v. Atchison, T&SF Ry. Co., 1996 WL 507303 at *6 (D. Kan. 1996). The Reader-Baker case relied on an Eighth Circuit opinion that § 1961 should be used in civil rights cases because § 1961 was a federal statute, and civil rights cases are brought under federal law. Reader-Baker v. Lincoln Nat'l Corp., 649 F.Supp. 647, 662 (N.D. Ind. 1986). The Tenth Circuit has already stated that the decision is within the discretion of the court, and that state statutes may be used. See Toweridge, 111 F.3d at 763-765 see also Carr, 4 F.Supp. at 989.

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Defendants' logic supporting the use of the Treasury Bill rate contained in 26 U.S.C. § 1961 is itself flawed. Defendants' state: "It is not realistic to assume, nor have Plaintiffs presented any evidence, that they could have obtained a risk-free 8% rate of return." Defendants' Response at 7 (emphasis added). The problem is the underlying premise, that a "risk free" rate is an appropriate one. This rests on the false presumption that any of the defendants are as credit worthy as the United States government. It also ignores the risks associated with a lawsuit when such is necessary to prove the existence of a debt. The Treasury Bill rate does not adequately reflect the plaintiffs' status as forced creditors of private corporations. Pre-judgment interest should compensate for inflation, the time value of money, delay in payment, and should prevent defendants from benefiting from the delay in payment. Carr, 4 F.Supp. 2d at 997. The interest rate contained in 26 U.S.C. § 1961 does not accomplish these goals. Judge Kane explained that the 26 U.S.C. § 6621, establishing the interest rate applicable to taxes, was more consonant with the concept of make whole relief. Davoll v. Webb, 968 F.Supp. 549, 558 (D. Colo. 1997) rev'd in part on other grounds 194 F.3d 1116 (10th Cir. 1999). This is clearly because § 6621 is more reflective of economic reality in regard to private debt and interest rates. By the time judgment is entered on this case, the applicable interest rate under 26 U.S.C. § 6621 will be 8%. (Exhibit 1, I.R.S. announcement of June 5, 2006; Exhibit 2, Revenue Ruling 2006-30, p.2, 6). At the time of the verdict, the applicable rate was 7%. (Exhibit 1; Exhibit 2, p.6). The fact that the interest rate called for by 26 U.S.C. § 6621 by the time of judgment will be the same as Colorado's state rate provides additional support for using the state interest rate. Even if the court does not use the state interest rate, plaintiffs should receive at least the same interest rate as the defendants other creditors. This district has recognized that the interest 8

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rate paid by the defendants to unsecured creditors may be an appropriate choice. Carr, 4 F.Supp. 2d at 997 citing Reed v. NDC Megamarts, Inc., 73 F.3d 364 (7th Cir. 1996). The interest rate paid by Arch Coal, Inc. on most of its debt is 6.75%. (Exhibit 3, Arch Coal, Inc. 2004 Annual Report and 2005 Proxy, p.5 final paragraph). Arch Coal describes this as a "highly competitive interest rate." (Exhibit 3, p.5). At the very least plaintiffs should receive this interest rate paid by Arch Coal and not the interest rate paid by the federal government. In the end, all of the above arguments really demonstrate the advantages of selecting the state interest rate for prejudgment interest. Using the state statutory interest rate decreases or removes the need to debate the appropriate interest rate to be used. When there are many possible selections, the convenience and practicality of the state statutory rate is an important consideration. Additionally, using the state statutory rate decreases the incentives for forum shopping. Given the tens of thousands of dollars that may be at stake depending on the interest rate, this is not an insignificant consideration. Currently, the Colorado statutory interest rate of 8% is one percent higher than the I.R.S. rate, and by the time of judgment they will be identical. The Colorado rate is only 1.25% higher than the "highly competitive" rate paid by Arch Coal. There is no windfall to plaintiffs in using the Colorado Statutory rate as alleged by defendants. Therefore, the court should select the Colorado statutory rate of 8% for use in awarding prejudgment interest to the plaintiffs. C. Calculation Of Interest On Back Pay

Plaintiffs provided a corrected calculation of back pay interest to the court, based on the formula provided in Reed v. Mineta, 438 F.3d 1063 FN 4 (10th Cir. 2006). For all of the reasons stated above, plaintiffs believe the court should use these calculations. Plaintiffs freely acknowledge that formula provided for by the Tenth Circuit is complicated. It resulted in 9

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plaintiffs making an initial error, a large one, in the interest calculation of back pay. Although Reed does not expressly mandate the use of its formula, plaintiffs do not believe the guidance of the Tenth Circuit should be readily dismissed. The problem with calculating interest on an annual basis is if the calculation is done at the start of the year, the interest may be excessive, but if the calculation is done at the end of the year, the interest is likely to be inadequate. The Reed formula, in addition to having the endorsement of the Tenth Circuit, has greater precision and consequently greater fairness. Despite being complicated, the advantages of the Reed formula outweigh its disadvantages, and plaintiffs assert that it is the formula that should be used to calculate interest in this case. CONCLUSION For all of the above reasons the court should grant plaintiffs' motion. The court should accept the advisory verdict on back pay and award pre-judgment interest, at the rate of 8%, on compensatory damages, and on back pay damages using Reed. The pre-judgment interest on compensatory damages should not be included in the damages cap of 42 U.S.C. § 1981a(b)(3). RESPECTFULLY SUBMITTED this 28th day of June, 2006.

s/J. Keith Killian J. Keith Killian Damon Davis Killian, Guthro & Jensen, P.C. 225 N. 5th Street Grand Junction, CO 81501 Telephone: (970) 241-0707 FAX: (970) 242-8375 E-mail: [email protected] Attorney for Plaintiffs Michael E. Clawson and Jared L. Dillon

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UNITED STATES DISTRICT COURT FOR THE DISTRIT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on June 28, 2006, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses: [email protected] [email protected] and, I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants in the manner (mail, hand-delivery, etc.) indicated by the non-participant's name: Mr. Michael Clawson 38506 Back River Road Paonia, CO 81428 Mr. Jared Dillon 35404 Back River Road Hotchkiss, CO 81419 Mail

Mail

s/J. Keith Killian J. Keith Killian Attorney for Plaintiffs Killian, Guthro & Jensen, P.C. 225 N. 5th Street Grand Junction, CO 81501 Telephone: (970) 241-0707 Fax: (970) 242-8375 [email protected]

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