Opinion
CIVIL ACTION NO. 03-10175-GAO.
March 31, 2007
ORDER ON PRE-JUDGMENT INTEREST
After consideration of the parties' submissions on the question of the assessment of prejudgment interest on the jury verdict, I make the following rulings:
1. Choice of Law
Because this Court's jurisdiction is founded on the parties' diversity of citizenship, state law provides the applicable substantive rules of decision. See Levin v. Dalva Bros., Inc., 459 F.3d 68, 73 (1st Cir. 2006). Where, as here, the parties have not specified in their contract which State's law is to be applied, that determination is guided by the choice of law principles of the forum State. Id. With respect to issues presented by the parties' cross-motions for summary judgment and the jury trial on the merits, it was not necessary to confront the choice of law question because there did not appear to be any substantial difference between the applicable principles under Massachusetts or Tennessee law, the two possible sources of substantive rules. Since applying either State's law would have led to the same result, prudence called for by-passing the choice of law question at those stages. See Lexington Fire Ins. Con. v. General Accident Ins. Co. of America, 338 F.3d 42, 46 (1st Cir. 2003). Massachusetts and Tennessee do have different provisions regarding the award of prejudgment interest, however, and it is now necessary to decide which rule ought to be applied by reference to Massachusetts' choice of law principles.
The parties agree that Massachusetts employs a "functional approach" to choice of law questions, essentially following the principles set out in Restatement (Second) of Conflict of Laws (1971) (the "Restatement"). See Bushkin Associates, Inc. v. Raytheon Co., 473 N.E.2d 662, 668-69 (Mass. 1985). This calls for consideration of various factors, including: "(a) the place of contracting, (b) the place of negotiating the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties." Id. at 669 (quoting Restatement, § 188(2)). The consideration of these factors is to be done in light of "(a) the needs of the interstate and international systems, (b) the relevant polices of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied." Id. (quoting Restatement, § 6(2)).
Not all of the enumerated factors will necessarily be helpful in making a choice of law decision in any given case. Some may be simply inapplicable, but more commonly, some will point with equal force in opposite directions. When contracting parties are domiciled in different States, for instance, they may have each negotiated and executed the contract in their respective home States, so that the "place of negotiation" and "place of execution" factors are a virtual wash. The same may be true of performance, where the essential acts of performance by the contracting parties occur in each party's respective home State. That is the case here. Dr. Jasty negotiated and signed the contract in Massachusetts, but Wright Medical negotiated and signed it in Tennessee. The "place of performance" factor tips slightly toward Wright Medical because while it is undoubtedly true that Dr. Jasty performed some of his services called for under the contract in Massachusetts, it is also clear that he was required to attend meetings and conferences elsewhere in the country, including Wright Medical's headquarters in Tennessee. So while Wright Medical's performance was generally centered in Tennessee and Dr. Jasty's may generally have been centered in Massachusetts, a substantial part of Dr. Jasty's performance also occurred in Tennessee.
One factor that rather decisively favors application of Tennessee law is "the location of the subject matter of the contract." Wright Medical contracted with Dr. Jasty for his consulting services with respect to products to be designed and manufactured at Wright Medical's facilities in Tennessee. So far as appears, it was a matter of indifference to Wright Medical, as it was irrelevant to the successful design of products, where Dr. Jasty performed his consulting services (except to the extent he was required to be present at particular meetings, in Tennessee and elsewhere). After all, Wright Medical contracted for similar consulting services with other orthopedic surgeons located in various other States throughout the country. What is clear is that the results of all these consulting services would be made tangible — and economically useful — when they affected the design and manufacturing of products by Wright Medical in Tennessee.
Other factors that favor applying Tennessee law are the "needs of the interstate . . . system[]," "certainty, predictability and uniformity of result," and "ease in the determination and application of the law to be applied." Bushkin, 473 N.E.2d at 669. As noted, Dr. Jasty's consulting contract with Wright Medical was one of many with surgeons around the country. Participating in the same "team" as Dr. Jasty were Dr. Penenberg from California, Dr. Maloney from Missouri, and Dr. Schmidt from Texas. Although the specific contracts Wright Medical had with those other surgeons were not it evidence, there was evidence that Wright Medical occasionally addressed contract issues with the several team members by means of a joint communication. For example, there were communications regarding adjustment of royalty rates that were addressed to all the team members. It would serve the interests of uniformity, predictability, ease in determination and application of the law, and the practical needs of interstate litigation for common rules to apply to the relationships between Wright Medical and the individual team members. In the absence of any contractually expressed choice of law, applying Tennessee law would accomplish that.
The First Circuit has said that the objective of the "functional approach" to choice of law recognized by Massachusetts is to apply the substantive law of the State having "the more significant relationship to the transaction in litigation." Hendricks Associates, Inc. v. Daewoo Corp., 923 F.2d 209, 213 n. 3 (1st Cir. 1991). Notably, it does not require identifying a State with the only significant relationship to the matter, and thus it does not require a conclusion that Massachusetts has no significant relationship or interest in the matter. The question is one of relative degree, not of a binary, yes-or-no quality. For the reasons outlined above, I conclude that Tennessee has a more significant relationship to the consulting contract than does Massachusetts, and therefore I conclude that the award of prejudgment interest should be done in accordance with Tennessee law.
2. Determining Prejudgment Interest under Tennessee Law
Under Tennessee law, prejudgment interest is not a matter of right, but may be awarded "in accordance with the principles of equity." Tenn. Code Ann. § 47-14-123 (2007). The maximum effective rate of interest that may be applied is 10% per annum.Id. The award of prejudgment interest is discretionary. See Spencer v. A-1 Crane Serv., 880 S.W.2d 938, 944 (Tenn. 1994);Stewart Title Co. of Memphis v. First American Title Co., 44 F. Supp. 2d 942, 965 (W.D. Tenn. 1999).
I reject Dr. Jasty's suggestion that if Tennessee law governs prejudgment interest should be assessed at the maximum rate. I see no justifiable reason for doing that; it would be contrary to the principle, recognized in Tennessee, that the purpose of the award of interest is to compensate a plaintiff for the loss of use of money wrongfully withheld. See Scholz v. S.B. Int'l, Inc., 40 S.W.3d 78, 83 (Tenn.App. 2000); Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998).
Choosing a rate of interest that would fairly compensate for the loss of use of royalties wrongfully withheld is a matter of sound discretionary judgment to be made, under Tennessee law, in accordance with the principles of equity. Congress has determined that a fair rate for compensating judgment creditors for the loss of use of a money judgment between the time of the entry of judgment and its satisfaction to be "a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of judgment." 28 U.S.C. § 1961(a) (2006). That rate will apply to any postjudgment interest that may accrue in this case. I conclude that it is fair to both parties, and consistent with Tennessee law, to calculate prejudgment interest using the same formula. See Stewart Title Co. of Mem, 44 F.Supp.2d at 965.
Because the royalties were payable on a quarterly basis and due not later than 45 days after the close of a quarter, the calculation should be done for each quarter of the years 2002 through 2005. Although it is impossible to know exactly how the jury computed the damages they awarded, I think it is a fair inference from the award and from the most relevant evidence before them that they adopted the plaintiff's expert's summary of unpaid royalties and then added additional amounts to take the ten-year damage period through the second quarter of 2006. Since prejudgment interest, like other elements of damages, need not be proved with precision but may rest on estimates reasonably grounded in the evidence, I will compute the interest due on that basis. The computation, done quarter by quarter, yields the following: Interest Due for Royalty Payments from 2002-2007 (Compounded Annually) A=P(1+r) n
Date of Amount of Date Interest Years Total Amount Total Payment Payment Rate Set Rate Interest (Principal Plus Interest (P) (r) Accrues Interest) As of Accrued (n) March 2007 (A) 2/14/02 $6877.67 2/8/02 2.19 5.083 $7678.34 $800.67 5/15/02 $115860.45 5/10/02 2.31 4.833 $129381.63 $13521.18 8/14/02 $118085.36 8/9/02 1.67 4.583 $127398.16 $9312.80 11/14/02 $107649.05 11/8/02 1.46 4.333 $114627.26 $6978.21 2/14/03 $116892.62 2/14/03 1.30 4.083 $123223.16 $6330.54 5/15/03 $133501.72 5/9/03 1.23 3.833 $139906.84 $6405.12 8/14/03 $137961.86 8/8/03 1.26 3.583 $144292.89 $6331.03 11/14/03 $125629.84 11/14/03 1.36 3.333 $131415.97 $5786.13 2/14/04 $144575.41 2/13/04 1.24 3.083 $150174.73 $5599.32 5/15/04 $150273.21 5/14/04 1.83 2.833 $158196.25 $7923.04 8/14/04 $152243.40 8/13/04 1.99 2.583 $160193.76 $7950.36 11/14/04 $144339.99 11/12/04 2.47 2.333 $152796.14 $8456.15 2/14/05 $144340.00 2/11/05 2.96 2.083 $153383.80 $9043.80 5/15/05 $146526.04 5/13/05 3.35 1.833 $155650.56 $9124.52 8/14/05 $146526.05 8/12/05 3.90 1.583 $155676.40 $9150.35 11/14/05 $157852.04 11/11/05 4.35 1.333 $167073.20 $9221.16 2/14/06 $157852.04 2/10/06 4.67 1.083 $165853.36 $8001.32 5/15/06 $122771.62 5/12/06 5.01 0.833 $127876.34 $5104.72 8/14/06 $122771.63 8/11/06 5.09 0.583 $126379.17 $3607.54 TOTAL: $245230.00 (Jury Award) $2,591,177.96 $138,647.9 3. ConclusionOn the damages as assessed by the jury, prejudgment interest is assessed in accordance with Tennessee law in the sum of $138,647.96. Judgment shall enter in the plaintiff's favor under count I of the complaint in the sum of $2,591,177.96.
In accordance with the prior ruling on the cross-motions for summary judgment, judgment shall enter in favor of the defendants as to all other counts of the complaint, and in favor of the plaintiff as to all counts of the counterclaim.
It is SO ORDERED.