Opinion ID: 783410
Heading Depth: 2
Heading Rank: 2

Heading: The Failure To Discount Future Pecuniary Awards

Text: 56 Finally, the United States contends that the district court erred in failing to discount to present value Ammar's award for lost future wages and future medical expenses. The United States argues that the court should have applied a 2% discount rate, calculated on a year-by-year sliding scale basis using standard economic tables. We agree that adjustment should have been made. 57 It is established that an award of damages to compensate for losses of future income or for anticipated future expenditures must be adjusted to take into account the earning power of money over a period of time. See, e.g., Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 536-37, 103 S.Ct. 2541, 76 L.Ed.2d 768 (1983) (It has been settled since our decision in Chesapeake & Ohio R. Co. v. Kelly, 241 U.S. 485, 36 S.Ct. 630, 60 L.Ed. 1117 (1916), that `in all cases where it is reasonable to suppose that interest may safely be earned upon the amount that is awarded, the ascertained future benefits ought to be discounted in the making up of the award.' Id., at 490, 36 S.Ct. 630); Ramirez v. New York City Off-Track Betting Corp., 112 F.3d 38, 42 (2d Cir.1997); Metz v. United Technologies Corp., 754 F.2d 63, 66 (2d Cir.1985) ([I]n computing the damages recoverable for the deprivation of future benefits, the principle of limiting the recovery to compensation requires that adequate allowance be made, according to circumstances, for the earning power of money; in short, that when future payments or other pecuniary benefits are to be anticipated, the verdict should be made up on the basis of their present value only. (internal quotation marks omitted)). 58 Additional discounting may be needed to account for inflation where the award has been increased to anticipate an inflationary effect on, for example, higher wages, see, e.g., Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. at 538-39, 103 S.Ct. 2541; but where there has been no such increase, there need be no deeper discounting, and the discount rate should reflect only the time value of the money, see, e.g., id. at 536, 103 S.Ct. 2541 ([E]ven in an inflation-free economy the award of damages to replace the lost stream of income cannot be computed simply by totaling up the sum of the periodic payments. For the damages award is paid in a lump sum at the conclusion of the litigation, and when it — or even a part of it — is invested, it will earn additional money.); In re Connecticut National Bank, 928 F.2d 39, 44-45 (2d Cir.1991) (To account for inflation, a future stream of earnings could be increased, before discounting, to reflect cost-of-living increases likely to occur because of inflation; if such increases are made, then the appropriate discount rate is the estimated future market rate of interest, i.e., a rate that includes a component to reflect inflation. Alternatively, inflation can be accounted for by using an inflation-free discount rate, in which event no increase should be made to the stream of earnings because of inflation .... (emphasis added)); Metz v. United Technologies Corp., 754 F.2d at 68 n. 3 (even where there has been no adjustment on account of inflation, the court must reach a result that properly takes into account the time value of money). 59 In order to calculate the present value of a lost stream of earnings in an inflation-free economy, the court should calculate 60 (1) the amount that the employee would have earned during each year that he could have been expected to work after the injury, and (2) the appropriate discount rate, reflecting the safest available investment. The trier of fact should apply the discount rate to each of the estimated installments in the lost stream of income, and then add up the discounted installments to determine the total award. 61 Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. at 537-38, 103 S.Ct. 2541. Where the parties have adduced no evidence relating to the discount rate and there has been no upward adjustment of the undiscounted lost wages figure to cover future inflation, this Court has authorized district judges to use a discount rate of 2% per year. See, e.g., Ramirez v. New York City Off-Track Betting Corp., 112 F.3d at 41; Oliveri v. Delta S.S. Lines, Inc., 849 F.2d 742, 746 (2d Cir.1988); Doca v. Marina Mercante Nicaraguense, S.A., 634 F.2d 30, 39-40 (2d Cir.1980), cert. denied, 451 U.S. 971, 101 S.Ct. 2049, 68 L.Ed.2d 351 (1981). See also Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. at 548-49, 103 S.Ct. 2541 (noninflationary discount rate within the 1-3% range deemed acceptable). The arithmetic necessary for discounting can be simplified through the use of a so-called `present value table'.... Id. at 537 n. 21, 103 S.Ct. 2541. 62 In the present case, the district court made no time-value discount of its awards to Ammar for future lost wages and future medical expenses. The court had noted the appropriateness of discounting for the time value of money in connection with the awards to Ammar for his lost pension and for pain and suffering. ( See Oct. 30 Tr. at 27-28 (I have to award ... the present value of ... pension benefits because a dollar today, awarded today, is worth more in the future than it would be if it was received at that later date.); Dec. 5 Tr. at 57 (With respect to the pain and suffering, I recognize that.... [it] is required... that the time value of money be taken into account.).) And at the October hearing, the court had asked the parties to make whatever submissions they wished as to the proper discounting of future damages. In response, the United States contended that the court should apply a 2% discount to all categories of future damages once the court had apportioned its awards between past damages and future damages; the United States attached a sliding-scale Present Value Table to facilitate the calculation of the present value of future damages with respect to the appropriate rate of interest and number of years. 63 At the December 5 hearing, noting that neither side had submitted precise dollar amounts reflecting discounting, the court stated that it would not discount the award for future lost wages because it had not adjusted lost wages upward to account for inflation: 64 THE COURT: Let me explain how the Court is going to deal with the question of adjustment. In reading the Ramirez case, which I will note did not involve the United States as a defendant, the Court discusses a number of factors that are relevant to calculating damages. Even before it gets to discounting pain and suffering damages by 2%, it does some discussion of discount rates with respect to wage figures. In that case, there was an adjustment to the wage figure to cover future inflation and then there was a question of discounting. Indeed, the case was remanded on the issue of the discount rate to be applied to the damage awards for loss of income, since it was not clear that that had been applied. 65 In this case, where I did not adjust for inflation because I had no evidence presented to me as to how collective bargaining agreements in the past had dealt with that subject, but because common sense necessarily dictates that increases, especially in industries that have bargaining, do take place with some regularity based on inflation and costs, I am prepared to not adjust the wages at all. I have not adjusted them upward but I don't think that it would be appropriate to discount them. 66 (Dec. 5 Tr. at 56-57.) Although the court correctly reasoned that it need not discount for inflation the future lost wages it had calculated without reference to inflation, it erred in not proceeding to discount that award at a noninflationary rate to account for the time value of money. The court similarly did not discount the sum awarded for future medical expenses. 67 Because the court should have discounted the awards for future lost wages and future medical expenses to account for the time value of money, we remand for recalculation of those two awards.