Bailey v. Chattem, Inc.

• Decision Date: 15 March 1988
• Docket Number: No. 86-6188,86-6188
• Citation: 838 F.2d 149
• Parties: Wesley T. BAILEY, Plaintiff-Appellant, v. CHATTEM, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 149

838 F.2d 149

Wesley T. BAILEY, Plaintiff-Appellant, v. CHATTEM, INC., Defendant-Appellee.

No. 86-6188.

United States Court of Appeals Sixth Circuit.

Argued Nov. 2, 1987.

Decided Jan. 26, 1988.

Rehearing and Rehearing En Banc Denied March 15, 1988.

Carlos C. Smith, Strange, Fletcher, Carriger, Walker, Hodge and Smith, Edward D. Meyer (argued), Chattanooga, Tenn., for plaintiff-appellant.

David Evans (argued), Gary Lander, Charles N. Jolly, Chattanooga, Tenn., for defendant-appellee.

Before MERRITT, KRUPANSKY and RYAN, Circuit Judges.

MERRITT, Circuit Judge.

This appeal concerning post-judgment interest under 28 U.S.C. Sec. 1961 raises several esoteric issues. The principal question is whether interest should begin to run from the date of a district court judgment affirmed on appeal as to liability, but vacated and remanded for a new trial on damages, or only from the date of the second judgment. In the circumstances of this case, in which the more specifically instructed second jury awarded damages greater than those awarded in the first judgment, considerations of equity lead us to conclude that interest should run on the amount common to both district court judgments from the date of entry of the first judgment.

I.

Petitioner-appellant Bailey sued Chattem, Inc., a Chattanooga manufacturer, in a diversity action for breach of contract and fraud arising from a controversy over the defendant's failure to commercialize and otherwise exploit a patented invention for improved paint developed by Bailey and assigned to Chattem. For further details, see Bailey v. Chattem, Inc., 684 F.2d 386 (6th Cir.1982). By stipulation of the parties, the case was tried before the Magistrate. The jury awarded $548,000 in compensatory damages and $75,000 in punitive damages for promissory fraud, and $27,000 in compensatory damages for failure to commercialize Bailey's invention. The Magistrate on March 6, 1980 entered judgment in the total amount of $650,000. On October 27, 1980 the Magistrate amended the fraud judgment to $400,000 after conditioning denial of defendant's motion for new trial on plaintiff's acceptance of a $148,000 remittitur in the promissory fraud damages; the $75,000 punitive damages and $27,000 for failure to commercialize were left intact.

On appeal, a panel of this Court affirmed on liability and affirmed the $27,000 and $75,000 categories of damages. But the Court reversed the $400,000 in compensatory damages for fraud because, although it was "clear that Bailey was entitled to at least some compensatory damages, ... the trial court's instructions on damages were wholly inadequate to guide the jury in the complicated task of weighing [the] evidence to find the amount by which Bailey was defrauded." Id. at 394, 396-97 & n. 12 (emphasis in original).

On retrial, the jury awarded Bailey compensatory damages of $627,000 on the fraud claim. This judgment was entered by the Magistrate on August 5, 1983, and affirmed on appeal by this Court. Bailey v. Chattem, 779 F.2d 49 (6th Cir.1985), cert. denied, 475 U.S. 1065, 106 S.Ct. 1376, 89 L.Ed.2d 602 (1986).

On February 7, 1986 Bailey moved to amend the District Court's judgment upon remand to provide that interest on the $627,000 award should run not from August 5, 1983, the date of the judgment upon retrial, but from October 27, 1980. ¹ The Magistrate denied this motion, which forms the subject matter of this appeal.

II.

A preliminary question is whether Bailey has preserved the issue of post-judgment interest for appeal. Chattem argues that Bailey either should have moved this Court pursuant to Fed.R.App.P. 37 to amend its mandate in 1985 to provide for the interest he seeks, or should have made a post-trial motion in the District Court to amend its August 5, 1983 judgment upon retrial. Because Bailey did neither, Chattem argues that Bailey is foreclosed from relief, citing as authority Briggs v. Pennsylvania Railroad Co., 334 U.S. 304, 68 S.Ct. 1039, 92 L.Ed. 1403 (1948), and Gele v. Wilson, 616 F.2d 146 (5th Cir.1980).

Briggs and Gele held that a district court has no authority on remand to calculate post-judgment interest from a date earlier than its post-remand entry of judgment unless the mandate of the court of appeals so directs. We do not agree, however, that either Briggs or Gele controls our power to modify the application of interest to a judgment. See Reaves v. Ole Man River Towing, Inc., 761 F.2d 1111 (5th Cir.1985) (distinguishing Briggs and Gele ).

Bailey correctly notes that the August 3, 1982 mandate of this Court was appropriately silent on the subject of interest. That mandate did not order entry of a judgment for money damages but ordered a new trial. The issue of interest was not raised by the parties, and it is unreasonable to expect this court to deal with the interest issue in an opinion ordering a new trial.

The August 5, 1983 judgment of the District Court, which was affirmed by this Court in 1985, awarded Bailey $627,000 "with interest thereon at the rate provided by law." It is proper for the Magistrate to determine, upon affirmance, what interest was "provided by law," and it is proper for this Court to review that determination.

III.

There are three issues that must be disposed of to resolve the appropriate application of post-judgment interest in this case. First, in this diversity case, does state or federal law determine when post-judgment interest begins to accrue? Next, should 28 U.S.C. Sec. 1961 be strictly construed to begin interest only from entry of a second judgment upon remand from a modification on appeal, or more liberally to provide interest from the date when a correct judgment should have been entered? Finally, how should the 1982 amendment of Sec. 1961 affect the application of interest, when the original judgment was entered before that amendment and the judgment upon retrial was entered subsequent to the amendment? We consider these issues in order.

A.

Since the 1948 revision and at the time the original judgment in this case was rendered, the relevant post-judgment interest statute relied on the applicable state interest rate:

Interest shall be allowed on any money judgment in a civil case recovered in a district court.... Such interest shall be calculated from the date of the entry of the judgment, at the rate allowed by State law.

28 U.S.C. Sec. 1961 (1976). Effective Oct. 1, 1982, the third sentence was amended to provide a uniform federal post-judgment interest rate, as follows:

Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of the judgment. The Director of the Administrative Office of the United States Courts shall distribute notice of that rate and any changes in it to all Federal judges.

28 U.S.C. Sec. 1961(a)(1982).

On the question of which judgment should be used to trigger interest in this case, we conclude that this is a matter of federal, not state, law. Differing views on the choice of law question have been expressed, however, see, e.g., Affiliated Capital Corp. v. City of Houston, 793 F.2d 706, 709 n. 3 (5th Cir.1986) (en banc) (federal court sitting in diversity must apply substantive law of the state regarding rate and accrual of interest on a judgment); Weitz Co. v. Mo-Kan Carpet, Inc., 723 F.2d 1382, 1387 (8th Cir.1983) (Swygert, Senior Judge, dissenting) (if Congress intended to declare the rate of interest due on judgments in diversity cases, it would have done so in more explicit terms than are contained in the statute as amended in 1982).

The amended statute by its terms covers interest "on any money judgment in a civil case recovered in a district court." It is true that the Supreme Court in Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), observed that in diversity cases "the courts of the state and the federal courts sitting within the state should be in harmony" on whether post-judgment interest should be allowed to run from verdicts as well as from judgments. Id. at 497, 61 S.Ct. at 1022 (quoting Massachusetts Benefit Association v. Miles, 137 U.S. 689, 691, 11 S.Ct. 234, 235, 34 L.Ed. 834 (1891)). Miles held that when state law allowed interest to accrue from a verdict before judgment, the predecessor statute to Sec. 1961--which also provided that interest be calculated from the "date of the judgment"--was not to the contrary because "where such allowance is expressly made by a state statute, we consider it a right given to a successful plaintiff, of which he ought not to be deprived by a removal of his case to the Federal court." Miles, 137 U.S. at 691, 11 S.Ct. at 235.

Both Klaxon and Miles thus stand for the merely permissive proposition that a state law allowing post-judgment interest to accrue from a date earlier than court entry of the judgment should be respected in diversity cases. ² Moreover, Klaxon and Miles were decided before later elaboration of the Erie doctrine had taken place.

In Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), the Supreme Court held that "Congress has no power to declare substantive rules of common law applicable in a State...." In Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), the Court provided the clarification that when a federal rule and a state law conflict, the state law must give way so long as Congress has the constitutional power to regulate an area which is "rationally capable of classification as either" substantive or procedural. Id. at 472, 85 S.Ct. at 1144. While prejudgment interest is a substantive aspect of damages in a diversity case and is thus properly viewed as a matter of state law, post-judgment interest is at...