Opinion ID: 6929867
Heading Depth: 2
Heading Rank: 1

Heading: Out-of-Pocket Damages

Text: Given appellants’ recovery of their capital investment plus interest, their out-of-pocket theory damage calculation relies on the inclusion of a presumed award of nine percent prejudgment interest for the four years that have passed since they instituted this action against appellees. The 14.6 percent return received by appellants struck the trial court as a suitable prejudgment interest substitute. Ruling that appellants were not entitled to any further prejudgment interest in their Rule 10b-5 cause of action, the district court dismissed this claim. See Commercial Union, 824 F.Supp. at 350. The decision whether to award prejudgment interest and its amount are matters confided to the district court’s broad discretion, and will not be overturned on appeal absent an abuse of that discretion. See Rolf v. Blyth, Eastman Dillon & Co., 637 F.2d 77, 86 (2d Cir.1980). Here, the trial court’s decision is examined in light of the fact that its determination effectively and entirely foreclosed appellants’ Rule 10b-5 cause of action. Defendants insist the prejudgment interest issue is irrelevant because there is no judgment on which to base an award of such interest. While initially attractive, this argument is simplistic. Appellants aver the lack of return on their capital investment is the damage they have incurred. Because lack of return is the kind of rationale usually relied on for awarding prejudgment interest, we must analyze the district court’s disposition using the guides for determining whether or not to make an award of prejudgment interest. A decision to award prejudgment interest “should be a function of (i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court.” Wickham Contracting Co. v. Local Union No. 3, IBEW, 955 F.2d 831, 833-34 (2d Cir.), cert. denied, - U.S. -, 113 S.Ct. 394, 121 L.Ed.2d 302 (1992). The district court summed up its reasons for denying any further interest as follows: The present overblown complaint and the circumstances involved in this litigation commencing with the first and continuing through the fifth amended complaint are such that fundamental considerations of fairness and litigative propriety and normal restraint warrant the Court in the exercise of an informed discretion to deny the grant of an overlay of interest on the original investment on top of the 14.6 percent addition which the [appellants] have received on their capital investment. What has been repaid to the [appellants] more than adequately satisfies any equitable demand for interest on the capital recovery. ... Commercial Union, 824 F.Supp. at 350. This reasoning may not be said to constitute an abuse of discretion. In deciding whether an award of prejudgment interest is warranted, it must be remembered that this is an equitable remedy and courts must be careful that an award does not overcompensate a plaintiff. See Wickham Contracting Co., 955 F.2d at 834. Clearly the investment in the Boesky partnership was extremely risky, one where the investors might well have lost their capital, even absent any wrongful conduct by defendants. Appellants were fully aware of the risk and chose to invest in spite of it. Appellants accuse the district court of “working] backwards” to arrive at an interest rate of 3.8 percent per annum when the proper rate should be 9 percent — the statutory rate under New York law. They declare our decision in Norte & Co. v. Huffines, 416 F.2d 1189 (2d Cir.1969) (per curiam), cert. denied, 397 U.S. 989, 90 S.Ct. 1121, 25 L.Ed.2d 396 (1970), requires the trial court to make specific findings before departing from the statutory rate. This reading of Norte is too sweeping. To the contrary, we there instructed the district court to make findings in that particular case of the personal wrongdoings of defendants. See id. at 1191-92. Setting the rate of interest is another component of a district court’s equitable discretion when it awards prejudgment interest. Appellants rely on Myron v. Chicóme, a Seventh Circuit decision suggesting that “an award of prejudgment interest is particularly appropriate in cases involving investment fraud.” 678 F.2d 727, 733 (7th Cir.1982). This reliance ignores the fact that appellants received a return on their investment that may fairly be characterized as an interest award for purposes of Rule 10b-5. Further, in an attempt to imply a bias on the part of the district judge, appellants assert the denial of additional interest was related to their decision to opt-out of the Global Settlement. No evidence in the record supports this assertion and it is not apparent from a reading of the district court’s opinion, as appellants suggest. Any such motivation would of course be improper and beyond those factors a trial judge may consider when determining whether or not to award prejudgment interest. See Wickham Contracting Co., 955 F.2d at 833-34. No such basis appears from the present record. Thus, the out-of-pocket theory does not help appellants establish an entitlement to damages.