Rybarczyk v. TRW, Inc., 235 F.3d 975 (6th Cir. 2000); 2000 FED App. 0418P (6th Cir.)
The district court concluded that TRW, Inc. was collaterally estopped from making its lump sum benefit calculations under a methodology less favorable to the retirees than that mandated in Costantino v. TRW, Inc., 13 F.3d 969 (6th Cir. 1994). The district court further held that the members of the class were entitled to prejudgment interest at the greater of the interest rate on 52-week U.S. Treasury bills or the rate of return actually realized by TRW on the money it wrongfully withheld.
The Sixth Circuit concluded that the plaintiff class could not avail itself of the collateral estoppel doctrine. The court further concluded, however, that the portion of the lump sum payments attributable to service before a plan amendment adopted on December 18, 1986, reflected a violation of the "anti-cutback rule" contained in ERISA. There was no violation, with respect to the portion attributable to service subsequent to the amendment.
The court found the district court did not err in its prejudgment interest award.
The Sixth Circuit has “long recognized that the district court may [award prejudgment interest] at its discretion in accordance with general equitable principles." Ford v. Uniroyal Pension Plan, 154 F.3d 613, 616 (6th Cir. 1998).
Among the constraints on the discretion to shape an award is that the Sixth Circuit looks with disfavor on simply adopting state law interest rates. ERISA is "not an area 'primarily of state concern.'" Ford, 154 F.3d at 617. Interest awards should not be punitive, but should "simply compensate a beneficiary for the lost interest value of money wrongly withheld from him or her."
The district court needed to determine how best to calculate the "lost interest value of money wrongly withheld . . .." TRW urged that the only appropriate rate would be either that established by 28 U.S.C. § 1961 - a rate tied to the average 52-week United States Treasury bill rate for the relevant period - or a rate linked to the PBGC rate in the manner prescribed by § 1139.
Circuit Courts have upheld a district court's award of prejudgment interest calculated under 28 U.S.C. § 1961. Ford, 154 F.3d at 619. See, e.g., Algie v. RCA Global Communications, Inc., 60 F.3d 956, 960 (2nd Cir. 1995).
Courts have also upheld awards of prejudgment interest tied to prevailing market rates, thus reflecting what the defendants would have had to pay in order to borrow the money at issue. See, e.g., EEOC v. Wooster Brush Co. Employees Relief Ass'n, 727 F.2d 566, 579 (6th Cir. 1984) (using adjusted prime rate). Despite TRW's claim that an award of prejudgment interest based on the actual rate of return is unprecedented, the Seventh Circuit appeared to have upheld just such an award. See Lorenzen v. Employees Ret. Plan of Sperry & Hutchinson Co., 896 F.2d 228, 236-37 (7th Cir. 1990) ("Now that the collateral dispute is over, the plan must return it [the money] to her together with the fruits that it has gleaned by holding on to it").
Using the interest rate actually realized by TRW was an appropriate way of avoiding unjust enrichment. "To allow the Fund to retain the interest it earned on funds wrongfully withheld would be to approve of unjust enrichment." Sweet v. Consolidated Aluminum Corp., 913 F.2d 268, 270 (6th Cir. 1990) (quoting Short v. Central States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567, 576 (8th Cir. 1984)).
Courts have upheld the § 1961 rate numerous times. If that rate should prove to be the higher one for the relevant period, TRW would presumably have no legitimate basis for objecting to it. If TRW's actual rate of return turns out to have been higher than the § 1961 rate a requirement that TRW pay the actual rate merely deprives TRW of its profit on the wrongfully denied benefits. In neither instance would the effect be punitive, as it might have been had the district court chosen to use a state-law rate much higher than prevailing market rates of return.