Opinion ID: 675767
Heading Depth: 2
Heading Rank: 1

Heading: Mutual Fault

Text: 8 National Gypsum argues that the mutual fault of the parties cannot constitute a special or peculiar circumstance justifying the denial of prejudgment interest. While acknowledging at oral argument that this court, in Central Rivers Towing, Hillier and First Nat. Bank of Chicago, listed mutual fault as a peculiar circumstance, it also correctly pointed out we have never actually relied on this in affirming a district court's denial of prejudgment interest. Accordingly, National Gypsum asks us to consider whether mutual fault should be recognized in this circuit as a valid basis to deny an award of prejudgment interest. In support of its position, National Gypsum urges us to adopt the reasoning of the Ninth Circuit in Alkmeon Naviera, which has stated that, in light of the proportionate fault rule announced by the Supreme Court in United States v. Reliable Transfer, 421 U.S. 397, 95 S.Ct. 1708, 44 L.Ed.2d 251 (1975), mutual fault can no longer constitute a reason to deny an otherwise appropriate award of prejudgment interest. Therefore, in determining the merits of National Gypsum's arguments, we must first examine the Ninth Circuit's decision in Alkmeon Naviera. 9 Alkmeon Naviera involved a collision between two vessels which were both at fault. In ruling on the parties' requests for prejudgment interest, the district court summarily denied the requests, stating without elaboration that the peculiar circumstances of the case did not entitle either party to an award of interest. On appeal, the Ninth Circuit found no basis in the record before it that would justify the district court's determination and, accordingly, reversed and remanded for a determination of the existence of special or circumstances that would warrant the denial of prejudgment interest. See Alkmeon Naviera, 633 F.2d at 798. 10 The portion of Alkmeon Naviera relevant to the case before us is where the court discusses the reasons behind the mutual fault exception. The court observed that district courts denied prejudgment interest in mutual fault cases in order to mitigate the harsh effects of the old equal division of damages rule. Alkmeon Naviera, 633 F.2d at 798 n. 12. Under that rule, whenever there was a collision resulting from the fault of both parties, then the parties' damages would be added together and the total would be equally divided between them. Under that formula, if one party's damages were greater than the other's, then the court would order the party with the lesser damages to pay over to the other party one-half of the difference between their respective losses, the rationale being that this would equalize the burden. See The Manitoba, 122 U.S. 97, 111, 7 S.Ct. 1158, 1165-66, 30 L.Ed. 1095 (1887); accord The North Star, 106 U.S. 17, 22, 1 S.Ct. 41, 45-46, 27 L.Ed. 91 (1882). Under this regime, however, courts soon recognized that in cases where one party was only slightly negligent, an award of prejudgment interest to the more culpable party would, in effect, penalize the less culpable party. This is because that party, having already been saddled with paying one-half of the other party's damages, would now have to pay prejudgment interest on that amount as well, even though he was significantly less responsible for the damages incurred. This led some courts in divided damages cases either to award prejudgment interest to the party who was only slightly at fault, or to deny prejudgment interest in cases where the party seeking it was substantially more at fault. See Alkmeon Naviera, 633 F.2d at 798 n. 12; see also Iberian Tankers Co. v. Gates Constr. Corp., 504 F.2d 747, 748 (2d Cir.1974) (stating that in a collision case involving mutual fault the district court has discretion to deny [prejudgment] interest where the party to whom it would be awarded is substantially at fault.); Afran Transport Co., 285 F.2d at 120 (suggesting that an award of prejudgment interest to the less culpable party in a case involving mutual fault would be appropriate to ameliorate somewhat the harsh American rule that division of damages must be equal without reference to the degree of fault.). 11 But as stated earlier, the divided damages rule was thrown overboard by a unanimous Court in United States v. Reliable Transfer and was replaced with comparative fault. That being the case, the court in Alkmeon Naviera reasoned that distortions in compensation can no longer occur. Alkmeon Naviera, 633 F.2d at 798 n. 12. In other words, because Reliable Transfer extinguished the divided damages rule and thus its harsh effects, there no longer exists a reason to deny prejudgment interest in collisions cases involving mutual fault. In fact, if comparative fault penalizes wrongdoing[ ] in proportion to measure of fault, Reliable Transfer, 421 U.S. at 405 n. 11, 95 S.Ct. at 1712-13 n. 11, then, according to Alkmeon Naviera, to continue denying prejudgment interest on the basis of mutual fault would, in essence, be penalizing the more culpable party twice for the same mistake. See Alkmeon Naviera, 633 F.2d at 798 n. 12 (citing Complaint of B.F.T. No. Two Corp., 433 F.Supp. 854, 876 (E.D.Pa.1977)). For these reasons, the court in Alkmeon Naviera concluded that it no longer made sense to invoke the mutual fault of the parties as a basis to deny prejudgment interest. More recently, the Sixth Circuit in Anderson v. Whittaker Corp., 894 F.2d 804 (6th Cir.1990), took note of and agreed with Alkmeon Naviera's reasoning in holding that it would no longer consider mutual fault to be a peculiar circumstance justifying the denial of prejudgment interest. Anderson, 894 F.2d at 810. We, too, are persuaded by the reasoning in Alkmeon Naviera and likewise conclude that, as a matter of law, the mutual fault of the parties should not constitute a reason to deny an award of prejudgment interest in admiralty. 12 The City raises several reasons to follow the mutual fault exception, none of which merits extended discussion. First, the City appears to argue that the rationale for mutual fault has nothing to do with offsetting the divided damages rule. Instead, the City, relying on Inland Oil and Transport Co. v. Ark-White Towing, 696 F.2d 321 94163938;0048;8310129694163938;0051;8700412994163938;0052;92029624 13 Second, the City contends that where there is mutual fault, the exact amount of the funds due and owing from each party to the other is not immediately ascertainable and fixed before trial. Because of this uncertainty, the City argues, it is inequitable to charge a party interest for not paying an unknown sum. We agree that there are decisions stating that, at least where fault is mutual, prejudgment interest from the date of the collision should be denied due to the uncertainty as to which party will bear the ultimate liability to make payment to the other. See, e.g., First Nat. Bank of Chicago, 597 F.2d at 1121 (adopting the rationale of the Fifth Circuit in Sinclair Refining Co. v. S.S. Green Island, 426 F.2d 260, 262 (5th Cir.1970), and stating that in cases involving mutual fault, the uncertainty respecting the party having the ultimate liability should be considered in deciding whether to award prejudgment interest); The Wright, 109 F.2d at 702 (Several cases deny the award of interest ... where damages are divided as a result of joint fault. This is based on the uncertainty as to the party which will have the ultimate liability to make payment on determination of the balance due.). Of course using uncertainty as a basis to deny interest in a mutual fault case made sense under the old divided damages regime. This is because under that rule, it was not until after trial that there would be a determination from the district court as to which of the parties would have to come up with the extra money to make the other party whole. But now with the abolition of the divided damages rule and the adoption of comparative fault both parties are liable to each other in relation to their respective degree of fault. In other words, although the exact amount of damages may not be known until after trial, neither party can now claim pretrial uncertainty as to whether he will in fact be liable to the other. Thus, after Reliable Transfer, it only makes sense that uncertainty as to eventual liability can no longer be a factor to consider in determining whether to deny prejudgment interest in cases involving mutual fault. 14 Lastly, the City contends that this court, on two occasions, in Central Rivers Towing and Hillier, has had the opportunity to adopt the reasoning of Alkmeon Naviera and scuttle mutual fault but has refused to do so. We think the reason for this is clear: the issue of mutual fault was not presented in either case. Central Rivers Towing, for example, did not involve a plaintiff who was contributorily negligent; Hillier only addressed whether the plaintiff (who was not negligent) could recover prejudgment interest on an award of damages arising out of future losses for pain and suffering. Hence any mention of mutual fault in either of these cases was mere dicta. In fact the only decision from this circuit that comes close to applying the mutual fault exception is First Nat. Bank of Chicago. In that case, we reversed the district court's initial determination that the plaintiff was not contributorily negligent, and directed the court on remand to reallocate fault between the parties. We also directed the court on remand to determine whether, given the mutual fault of the parties, an award of prejudgment interest to the plaintiff would be inappropriate. See First Nat. Bank of Chicago, 597 F.2d at 1121. However, unlike decisions from the Fifth Circuit, which consistently uphold denials of prejudgment interest in mutual fault cases, see, e.g., Inland Oil, 696 F.2d at 328 (summarizing cases), this court in First Nat. Bank of Chicago did not adopt a per se rule against prejudgment interest in a case involving mutual fault; rather, that case merely noted that mutual fault was one factor[ ] to be considered by the trier of fact along with other facts and circumstances in determining if there exist the necessary peculiar circumstances that will authorize the exercise of discretion to award less than full compensation by denying interest. First Nat. Bank of Chicago, 597 F.2d at 1121 (quotations omitted) (citations omitted) (emphasis added). Nevertheless, in order to remove any uncertainty, we depart from this portion of First Nat. Bank of Chicago and reiterate our holding that the mutual fault of the parties in an admiralty collision case does not constitute a peculiar circumstance justifying the denial of prejudgment interest.