Southern Pacific Transp. Co. v. United States

• Decision Date: 17 April 1979
• Docket Number: Civ. No. R-77-0180.
• Citation: 471 F. Supp. 1186
• Court: U.S. District Court — Eastern District of California
• Parties: SOUTHERN PACIFIC TRANSPORTATION CO., Plaintiff, v. UNITED STATES of America, Defendant.

471 F. Supp. 1186

SOUTHERN PACIFIC TRANSPORTATION CO., Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. R-77-0180.

United States District Court, E. D. California.

April 17, 1979.

James Diepenbrock, Jack V. Lovell, Carol A. Huddleston, Charity Kenyon, Diepenbrock, Wulff, Plant & Hannegan, Sacramento, Cal., for plaintiff.

Herman Sillas, U. S. Atty., Robert Browning Miller, James S. Joiner, Lanny T. Winberry, Sp. Asst. U. S. Attys., Sacramento, Cal., for defendant.

OPINION

MacBRIDE, Senior Judge.

On April 28, 1973, 18 DODX boxcars owned by the defendant-United States loaded with aerial bombs exploded in the Antelope trainyard of the plaintiff-Southern Pacific Transportation Company (Southern Pacific), near Roseville, California. Since November 7, 1977, this court has heard evidence in the resulting Federal Tort Claims Act (FTCA) suit brought by Southern Pacific. This litigation has required and still requires the resolution of a number of difficult legal questions,¹ one of which is now before the court for decision: whether Southern Pacific's prayer for damages for loss of use of corporate capital amounts to a prayer for prejudgment interest.

Southern Pacific's complaint states that, as a result of the explosion,

plaintiff has sustained damages consisting of damage to plaintiff's railroad yards, tracks, and related facilities, damage to and destruction of railroad cars, damage to lading in railroad cars, loss of freight revenues, loss of use of plaintiff's property and capital, increased costs of insurance, sums paid in settlement of third-party claims and sums claimed by persons sustaining injuries or property damage, attorney's fees to investigate and defend against potential litigation, costs of investigation, adjustment, administration and handling of third-party claims, and other damages, and expenses in the aggregate sum of $39,655,535.46.

Complaint at 5. At issue herein is that portion of the total prayer for damages related to the claim for "loss of use of plaintiff's . . . capital," namely $4,449,100.00.

Section 2674 of the FTCA provides in part:

The United States shall be liable, respecting the provisions of this title relating to tort claims, in the same manner and to the same extent as a private individual under like circumstances, but shall not be liable for interest prior to judgment or for punitive damages.

The United States contends that Southern Pacific's claim for damages for "loss of use of capital" constitutes, as a matter of law, a claim for "interest prior to judgment" forbidden by section 2674. Southern Pacific argues that its claim for loss of use is factually and legally different from a claim for prejudgment interest and that it should be permitted to put on proof of the loss of use damages and recover the amount it is able to prove. To demonstrate the difference between loss of use of corporate capital and prejudgment interest, Southern Pacific has provided an extensive offer of proof.

This court will consider first the question of the law that is to govern the question to be decided; the parties dispute whether the matter is one of federal or state law. Next, because the United States contends that this is an instance in which the waiver of sovereign immunity is to be strictly construed, the court will consider the relevant Supreme Court decisions on that point. Thereafter, the court will deal with the general rules governing the awarding of prejudgment interest against the United States and the nature of prejudgment interest. With that background, the court will consider the cases in which loss of use damages have been awarded against the United States. Finally, the court will determine whether, under the circumstances of this case, the prayer for loss of use of capital constitutes a prayer for prejudgment interest.

(1) Applicability of Federal or State Law

The first question that must be resolved is whether federal or state law is to control the issue before the court. Southern Pacific contends that the measure of damages under the FTCA is to be determined by reference to state law. This contention is unquestionably correct. E. g., Felder v. United States, 543 F.2d 657, 665 (9th Cir. 1976). The United States responds that federal law controls the interpretation of the terms of the Act. That position is equally correct. Id. The defect in Southern Pacific's argument that state law governs herein appears in the fact that the issue before the court is the very definition of the phrase "interest prior to judgment" in section 2674. That phrase is part of the federal law, enacted by Congress, and only federal law can govern the terms in federal statutes.

Once it is clear that the Act authorizes an action for a given type of damages, the prerequisites for obtaining a recovery for such damages, the nature of the proof required, and similar questions are determined by "the legislative and decisional law of the state applicable to private parties." United States v. Sutro, 235 F.2d 499, 500 (9th Cir. 1956). In determining whether the Act authorizes such an action, however, the governing body of law is federal. For example, in the Felder case, the Ninth Circuit considered the interpretation of section 2674's prohibition on recovery of punitive damages. The issue in the case was whether the damages authorized under state law included an amount that was punitive in nature and thereby precluded by section 2674. The court held:

The general purpose of damage awards in tort actions has been to compensate plaintiffs for losses incurred. . . . But the language of the damages section of the Act is somewhat less clear. The Act contains a built-in tension between the section 2674 language making the United States liable "in the same manner and to the same extent as a private individual under like circumstances" and its numerous safeguards to limit the liability of the Government, and impliedly, to prevent any undue largesse in fixing awards under the statute. One of these safeguards is nonliability for punitive damages. . . .

Discussion of legislative history omitted.

It appears settled, then, that the purpose of the FTCA is compensation, that is, it is intended to repay the amount of loss or injury sustained by a plaintiff as a proximate result of governmental misconduct which gave rise to the cause of action. Although the Act does not define punitive damages, they may be thought of generally as damages intended to punish or deter. However, we are not bound to a narrow definition. Since the interpretation and application of the Act is a matter of federal law,16 we look to the purpose of the Act for a definition of punitive. Likewise, in deciding if a state statute is punitive, we look not to its language nor to the state court's characterization of it. Rather, we look to its effect.

Felder v. United States, supra at 667, 669 (footnotes omitted) (emphasis added), citing at n.16, Laird v. Nelms, 406 U.S. 797, 92 S.Ct. 1899, 32 L.Ed.2d 499 (1972); Richards v. United States, 369 U.S. 1, 82 S.Ct. 585, 7 L.Ed.2d 492 (1962). The Ninth Circuit followed the First Circuit's holding in D'Ambra v. United States, 481 F.2d 14 (1st Cir.), cert. denied, 414 U.S. 1075, 94 S.Ct. 592, 38 L.Ed.2d 482 (1973), wherein the same issue was presented. The First Circuit held: "The state wrongful death statute must be judged not by its language, nor by the state court's characterization but by its consequences. The application of the FTCA is a federal question." Id. at 18 (emphasis added).

Just as the meaning of the words "punitive damages" in section 2674 is governed by federal law, the meaning of "interest prior to judgment" is to be determined by reference to federal law. Southern Pacific argues that both California and Nevada, two of the states whose law might be applicable, permit an award of damages for the loss of use of corporate capital under similar circumstances when the litigants are private parties. Moreover, Southern Pacific contends that the California statutes distinguish between an award for loss of use and an award of prejudgment interest. These contentions are unavailing. The question before this court is whether, assuming arguendo that the applicable state law does permit an award of damages for loss of use of corporate capital, such an award constitutes an award of "interest prior to judgment," as a matter of law, within the meaning of section 2674 of the FTCA.

(2) Standards of Construction

The United States argues that liability for torts is permitted only to the extent that the sovereign immunity of the United States has been waived and that waivers of sovereign immunity are to be strictly construed. This is a general rule of statutory construction which has been applied in a number of instances, as in the two cases cited by the United States. United States v. Sherwood, 312 U.S. 584, 590, 591, 61 S.Ct. 767, 771, 772, 85 L.Ed. 1058, 1063 (1941) (construing the waiver of the Tucker Act); Bat Rentals, Inc. v. United States, 479 F.2d 43, 45 (9th Cir. 1973) (construing the waiver in the Administrative Procedure Act).

The Supreme Court has not applied the maxim that waivers of sovereign immunity are to be strictly construed under the FTCA. Instead, the Court has indicated in many instances that the Act is to be construed so as to give effect to its intended purpose of waiving immunity, although due regard is also to be given to the limitations on that waiver. Thus, in United States v. Aetna Casualty & Insurance Co., 338 U.S. 366, 383, 70 S.Ct. 207, 216, 94 L.Ed. 171, 186 (1949), the Court noted that

the Government relied upon the doctrine that statutes waiving sovereign immunity must be strictly construed. We think that the congressional attitude in passing the Tort Claims Act is more accurately reflected by Judge Cardozo's statement in Anderson v. John L. Hayes Constr. Co., 243 N.Y. 140, 147, 153 N.E. 28: "The exemption of the sovereign from suit involves hardship enough where

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