Opinion ID: 762111
Heading Depth: 2
Heading Rank: 2

Heading: The Interest Award

Text: 16 The Board contends that the District Court erred in denying its request for an award of interest on the penalty. Interest is sought from March 3, 1997, the date by which the Board's Final Order required payment of the penalty, through March 31, 1998, the date on which the District Court's judgment was entered. 2 The statute authorizing the penalty is silent on whether an award of interest is permissible. See 12 U.S.C. § 1847(b)(1994). Far from indicating a legislative determination that prejudgment interest should not be awarded, however, the absence of a statute [authorizing interest] merely indicates that the question is governed by traditional judge-made principles. City of Milwaukee v. Cement Division of National Gypsum, 515 U.S. 189, 194, 115 S.Ct. 2091, 132 L.Ed.2d 148 (1995). The District Court denied the Board's request because it concluded that an award of interest in this case would be contrary to the well-settled rule that penalties do not carry prejudgment interest. Pharaon, 1998 WL 122593, at  4 (citing Rodgers v. United States, 332 U.S. 371, 376, 68 S.Ct. 5, 92 L.Ed. 3 (1947); Wickham Contracting Co. v. Local Union No. 3, 955 F.2d 831, 834 (2d Cir.1992); Marshall v. Painting By C.D.C., Inc., 497 F.Supp. 653, 654 (E.D.N.Y.1980)). 17 Though the rule against prejudgment interest on penalties has been frequently invoked, as the cases cited by the District Court demonstrate, that rule has developed in the context of penalties awarded by district court judgments, and is not applicable to the context of penalties determined to be owing by final agency orders. In the context of cases originating in a district court, the dividing line between a claim and a legally binding obligation is the trial court's judgment. Penalties imposed by administrative agencies after adjudicatory hearings present a very different context. As the Seventh Circuit noted in a closely analogous case, One can say that only the judicial order is the 'judgment,' but one could as readily say that the final administrative order marks the end of prejudgment (really, pre-decision) time and the beginning of interest. Reich v. Sea Sprite Boat Co., 64 F.3d 332, 333 (7th Cir.1995) (holding that interest on a penalty imposed for violation of the Occupational Safety and Health Act ran from date the administrative penalty became a final and binding order). 18 In the context of a proceeding by the Board under the FDI Act, the administrative agency serves the role of a trial court and its order is analogous to the final decision of a district court. Indeed, a final order of the Board is appealable directly to a court of appeals, see 12 U.S.C. § 1818(h)(2), and, absent a stay, the order remains effective pending appeal, see id. § 1818(h)(3). Here, an ALJ conducted a nineteen-day evidentiary hearing, during which Pharaon, through counsel, challenged the Board's case against him. After reviewing the evidence, the ALJ's decision, and Pharaon's exceptions, the Board ordered Pharaon to pay a $37 million penalty. Pharaon exercised his right to appeal this decision to the District of Columbia Circuit. 19 In this context, an agency order is akin to a district court judgment in all respects relevant to the award of interest. Like the Seventh Circuit, we see no reason why interest on a penalty should not run from the issuance of a final administrative order, just as it does from a district court's entry of judgment pursuant to 28 U.S.C. § 1961 (1994) and Fed. R.App. P. 37(a). See Sea Sprite, 64 F.3d at 334 (If interest starts to run on a 'penalty' when the court of nisi prius makes its decision, why should it not equally commence when the tribunal of first instance is denominated an 'agency?' ). But see Painting By C.D.C., Inc., 497 F.Supp. at 654. 20 Moreover, there are several compelling reasons supporting the award of interest in such cases, many of which are valid here even though the $37 million has been held by the Board, presumably in an interest-bearing account. As the Seventh Circuit noted in Sea Sprite: 21 The parallel to an appeal is one. Inflation is another.... [I]nterest makes up for change in the value of money and prevents inflation from bestowing windfalls on wrongdoers. Still a third reason is the desire to promote compliance and reduce demands on the judicial system. If interest does not commence until the [award is enforced by a court], then rational businesses will refuse to pay. Firms cannot do worse by stalling, and the [agency] may neglect to obtain a judicial order; even if the [agency] acts, they have the value of the money in the interim and are better off for the delay. Forcing the [agency] to commence judicial proceedings does a disservice to other persons, who must wait in a longer queue for judges' attention. Finally, interest during the period between assessment and enforcement compensates the United States for the risk of nonpayment.... 22 Sea Sprite, 64 F.3d at 334. 23 In Pharaon's case, the $37 million penalty was originally assessed in 1991 and converted into a binding order in 1997. Due to inflation, the economic value of the penalty has decreased since the Board issued its Final Order; the Board is entitled to some compensation for that diminution in value. Furthermore, if interest is not awarded from the date by which Pharaon was ordered by the Board to pay the penalty, he stands to benefit from his prolonged delay by the amount of interest that has been earned on the substantial sum of $37 million between that date and the District Court's entry of judgment against him. The assessment of post-agency-order, pre-court-judgment interest promotes compliance with lawfully issued administrative orders, which, in turn, promotes the efficient use of judicial time and resources. All of these concerns support an award of interest in this case. 24 This reasoning is not inconsistent with the traditional rationales for disallowing prejudgment interest in non-agency cases. In general, courts have been concerned that prejudgment interest not be awarded (i) where punitive damages are at issue, lest a double penalty be inflicted or the maximum penalty be exceeded, see Rodgers, 332 U.S. 371, 68 S.Ct. 5, 92 L.Ed. 3; or (ii) where damages are unliquidated, see Wickham, 955 F.2d at 831, 838 (citing cases). When an administrative penalty has been assessed and a final order--appealable only to a court of appeals--issued, these concerns are not present. 25 Nor is our holding inconsistent with Rodgers v. United States, 332 U.S. at 376, 68 S.Ct. 5, where the Supreme Court held that prejudgment interest on a penalty imposed pursuant to the Agricultural Adjustment Act of 1938 (AAA) was not appropriate. Under the AAA, farmers were allotted a certain quota of cotton they could grow; any farmer who marketed cotton in excess of allotment was required to pay a specified fine per pound. See Rodgers v. United States, 158 F.2d 835, 836 (6th Cir.1947). Fines were considered due on the date the farmer sold any over-allotment cotton. See id. at 838. Based on the fact that the amount of the fine and the date on which it should have been paid were easily determinable, the Sixth Circuit affirmed the district court's decision to grant interest on the fine from the date the farmer sold the excess cotton. The Supreme Court reversed, finding an award of interest inconsistent with the congressional intent. See Rodgers, 332 U.S. at 374-76, 68 S.Ct. 5. 26 The Supreme Court reasoned that because the fine--like a criminal penalty--was punitive, intended to deter and punish over-allotment selling, interest was not necessary to compensate the Government. See id. at 374, 68 S.Ct. 5 (The contention is hardly supportable that the Federal Government suffers money damages or loss, in the common law sense, to be compensated for by interest, when one convicted of a crime fails promptly to pay a money fine assessed against him.). In addition, the Court suggested that the denial of interest on penalties rests on a concern that the punishment fixed for certain conduct not be expanded beyond that authorized by statute. See id. 27 In our view, Rodgers presented a different question from that raised in this appeal. Most significantly, there had been no agency adjudication resulting in a final order prior to the Government's resort to the federal judiciary in that case. Rather, the district court's determination that Rodgers was liable for the fines was the first formal determination that he had violated the AAA. Furthermore, Rodgers was not given the opportunity to challenge the propriety of the Act's application to his conduct prior to the time the fines were considered due; unlike the circumstances of this case, the fines were due on the date of Rodgers' wrongdoing. Apparently, the only forum in which he could challenge the fines was a district court; thus, until judgment was entered, there was a chance that the application of the Act in his case was improper and the fines were not owed. 28 In the instant case, the Board requests interest only from the date its Final Order was issued. Prior to the issuance of that order, Pharaon was afforded the opportunity to challenge the Board's accusations in an adversarial hearing. Unlike Rodgers, Pharaon is the subject of a final agency order enforceable by a federal district court that lacks the authority to modify or set aside the order. See 12 U.S.C. § 1818(i)(1). The distinctions between the facts of this case and those of Rodgers warrant a different result.