Illinois Cent. R. Co. v. Texas Eastern Transmission Corp.

• Decision Date: 04 May 1977
• Docket Number: No. 74-3061,74-3061
• Citation: 551 F.2d 943
• Parties: ILLINOIS CENTRAL RAILROAD COMPANY, Plaintiff-Appellee Cross-Appellant, v. TEXAS EASTERN TRANSMISSION CORPORATION, Defendant-Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 943

551 F.2d 943

ILLINOIS CENTRAL RAILROAD COMPANY, Plaintiff-Appellee Cross-Appellant, v. TEXAS EASTERN TRANSMISSION CORPORATION, Defendant-Appellant

Cross-Appellee.

No. 74-3061.

United States Court of Appeals, Fifth Circuit.

May 4, 1977.

Hume Cofer, Shirley Meissner, Austin, Tex., William A. Brown, Houston, Tex., for defendant-appellant-cross-appellee.

John A. MacDonald, Jr., Houston, Tex., for plaintiff-appellee-cross-appellant.

Appeals from the United States District Court for the Southern District of Texas.

ON PETITION FOR REHEARING

Before WISDOM, CLARK and RONEY, Circuit Judges.

RONEY, Circuit Judge:

The Illinois Central Railroad, a plaintiff below and cross-appellant in this Court, has petitioned for a rehearing on that portion of our judgment affirming the denial of prejudgment interest. We held that the demurrage recovered was "fairly a penalty" so that denial of prejudgment interest was not error. Illinois Central R.R. Co. v. Texas Eastern Transmission Corp., 533 F.2d 272, 275 (5th Cir. 1976). The railroad argues that we misconstrued the nature of the demurrage charges under federal law and that they should not be treated as so penal in nature as to preclude an award of prejudgment interest. Limited to this one issue, we grant the petition for rehearing and hold that the district court ruling denying prejudgment interest must be reversed.

The basic interest statute under federal law, 28 U.S.C.A. § 1961 provides:

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.

The statute does not limit successful plaintiffs to interest from the date of their judgments. Rather it indicates that the judgment itself will bear interest, as a matter of law, from the date it is entered, and leaves to other principles of law the issue of whether the judgment itself will include prejudgment interest as part of the plaintiff's compensation. As stated in Louisiana & Ark. Ry. Co. v. Export Drum Co., 359 F.2d 311, 317 (5th Cir. 1966), " § 1961 . . . has nothing to do with the question of whether prejudgment interest shall be allowed as part of the compensation awarded to make the injured party whole."

The question then is whether the demurrage charge is the kind of penalty that does not draw interest, see Rodgers v. United States, 332 U.S. 371, 373, 68 S.Ct. 5, 92 L.Ed. 3 (1947); United States v. West Texas Cottonoil Co., 155 F.2d 463, 466 (5th Cir. 1946). The rationale of the rule that penalties do not draw prejudgment interest is that a penalty does not reflect damages to the plaintiff but is assessed to encourage certain conduct on the part of the party penalized. Interest on a penalty does not further the purpose of making an injured party whole.

Plaintiff's claim for prejudgment interest in this case turns on the purpose of the demurrage charge due from a shipper who had detained its cars. The Supreme Court recently addressed this issue in I. C. C. v. Oregon Pacific Industries, Inc., 420 U.S. 184, 95 S.Ct. 909, 43 L.Ed.2d 121 (1975). The Court there quoted from Iversen v. United States, 63 F.Supp. 1001, 1005 (D.D.C.) (3-judge court), aff'd per curiam 327 U.S. 767, 66 S.Ct. 825, 90 L.Ed. 998 (1946), which stated:

"(D)emurrage charges are in part compensation and in part penalty; . . . in full character they are neither,...