Gamma-10 Plastics, Inc. v. American President Lines, Ltd.

Citations: 839 F. Supp. 1359; 1993 U.S. Dist. LEXIS 18487; 1993 WL 535661Docket: Civ. No. 3-90-428

Court: District Court, D. Minnesota; December 16, 1993; Federal District Court

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Gamma-10 Plastics, Inc. successfully moved for prejudgment interest following a jury verdict awarding it $500,000 in damages against American President Lines, Ltd. and American President Companies, Ltd. (collectively APL). The court awarded Gamma-10 $308,417 in prejudgment interest. Gamma-10, which sold polypropylene resin, faced significant business challenges after contracting with APL for the transport of resin to a buyer in China, VIC International. Problems with the shipments led to delays, causing VIC International to cancel both the initial order and a long-term supply contract, ultimately resulting in Gamma-10's business failure. The company claimed damages of $90,000,000 due to the inability to sell the resin at the agreed price and related losses from 1988 to 1993. The court confirmed that a prevailing plaintiff in an admiralty action is entitled to prejudgment interest unless exceptional circumstances exist, which APL did not demonstrate. The court then sought further evidence from both parties to calculate the appropriate amount and period for assessing interest, noting that interest should be computed from the accrual of the claim until the judgment is entered.

Gamma-10 sought damages for both the loss of 22 containers of resin entrusted to APL and lost profits from 1988 to 1993. The claim for resin loss is linked to the payment date under Gamma-10's contract with VIC International, warranting interest from that date. Conversely, interest on lost profits should only begin when those profits would have been earned. The jury's verdict did not specify the categories of damages awarded, but the approximately $500,000 judgment closely aligns with the $540,000 contract value, indicating the jury likely attributed the loss of the resin to APL without awarding for future profits. The court deduced that APL's negligence in handling shipments could not simultaneously justify future profit loss. The jury might have determined that the reduced resale price was countered by additional costs incurred during resale. Consequently, the court ruled that the entire jury award relates to damages from VIC International's contract cancellation, entitling Gamma-10 to interest from the loss date until judgment, specifically from October 4, 1988, to July 19, 1993.

Regarding the interest rate, the court emphasized that prejudgment interest aims to fully compensate the injured party, prevent the wrongdoer from benefiting unduly, and discourage prolonged litigation. The applicable interest rate should reflect the prevailing rate during the relevant period, with the court needing to establish this through evidence presented. The issue of which market's rate to apply remains unresolved by the Supreme Court and Eighth Circuit, though the Seventh Circuit has suggested that the interest rate should be based on what the defendant would have needed to pay to borrow money during that time.

The conclusion relies on three market rate elements: the social return on investment, anticipated inflation, and risk of nonpayment. Courts, per Amoco Cadiz and Gorenstein, may use refined rate-setting or the prime rate to determine prejudgment interest. Refined rate-setting assesses the actual borrowing cost to the defendant, while the prime rate serves as a fair estimate of the defendant's cost of funds. Although the prime rate is a practical choice, it may not fully achieve the goal of compensating the injured party for the lost use of money. The primary aim of prejudgment interest is to ensure the injured party is compensated relative to what they could have earned instead of solely reflecting the defendant’s borrowing cost.

Gamma-10 has presented evidence of three interest rate types: the return from investing in its own business, the borrowing rate for a similar amount, and potential returns from stocks or bonds. Gamma-10 argues for basing the interest award on the return it would have earned by investing the money in its own business, asserting that it would have prudently invested the $500,000 had it been available. Expert Donald Gorowsky indicated that from 1988 to 1993, Gamma-10 could have achieved an average annual profit return of 31.27%, amounting to $1,448,935 if compounded annually on the initial amount. However, the jury's verdict limits the interest award, as Gamma-10 effectively ceased operations after its contract with VIC International failed in 1988, focusing solely on finding a new buyer for resin shipments. The jury found APL negligent but awarded slightly less than the contract cost for the resin shipments.

The jury determined that Gamma-10 did not suffer any damages for future profits due to APL’s negligence, concluding that Gamma-10 would have failed regardless of APL's actions. Consequently, Gamma-10 would not have generated a return on the $500,000 by summer 1993. Gamma-10 proposed two alternative measures for calculating damages: the interest rate it would have paid to borrow $500,000 and the return on investments had it received the funds. However, both measures were deemed irrelevant as there was no evidence that Gamma-10 could have borrowed the funds or would have invested them in stocks or bonds; it claimed it would have reinvested in its business. The court found that Gamma-10 suffered no damages from the loss of use of the judgment amount and thus would only be entitled to interest to prevent unjust enrichment and discourage delay, which should reflect APL’s cost of funds during the relevant period.

Gamma-10 indicated that APL's annual interest rates ranged from 10.31% to 11.05% from 1986 to 1993, suggesting these rates should apply to the judgment amount. APL contended its financial statements indicated it would have likely taken a long-term loan for the judgment amount rather than using cash reserves or a short-term loan. The court agreed, concluding that APL would have borrowed the funds as a long-term debt. 

The court decided to award prejudgment interest based on APL’s borrowing cost, compounding annually as Gamma-10 proposed. This calculation resulted in an award of $308,417 in prejudgment interest to Gamma-10, which the court granted.