Court Opinion

ID: 9469703
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:47:00.962813+00
Date Added: 2024-06-11T17:41:31.245971
License: Public Domain

JAMES C. HILL, Circuit Judge,
with whom
R. LANIER ANDERSON, III, Circuit Judge, joins, concurring in part and dissenting in part:
“BUT, ON THE OTHER HAND ....”1
Given the task of interpreting and applying the law, our court embarks upon a survey of economics. We took the case to reconsider and reevaluate the holding of this court in Johnson v. Penrod Drilling Co., 510 F.2d 234 (5th Cir. 1975) (en banc). I agree with my colleagues that Penrod is wrong, but I find it wrong because it is only half right.
In Penrod we correctly held that, in forecasting future earnings, the jurors should not be allowed to apply their opinions as to what effects future inflation would have on *312wages or other earnings.2 The lesson of Penrod is that no value ought to be based upon speculation and that the forecasts of lay jurors on the subject of inflation cannot be made anything better than speculation. We thus limit plaintiff’s proof of lost wages to a projection of wages currently earned or capable of being earned paid in dollars of current value. We recognize that a defendant ought not be required to pay the full value of such an annuity in a present lump sum equal to the total of all wages yet to be earned. Payments for future earnings are to be discounted to their present value, and this is just and proper. However, we did not address the discount rate other than glibly to state, “the calculated gross future earnings must be reduced to present value by the use of an appropriate interest rate prevailing at the time and place of trial.” 510 F.2d at 237 (emphasis added).
Inasmuch as the plaintiffs must not, in my opinion (and as Penrod held), be permitted to seek an increased award because of anticipated inflation, the defendant should not be entitled, in discounting future payments, to use an interest rate insofar as it is based upon anticipated inflation. Predictions of inflation or deflation ought to be taken out of both sides of the equation. In Part VII of the majority opinion, “The Real Rate of Interest: A Possible Solution,” we have the solution I prefer. It was expressed by Judge Blumenfield in Feldman v. Allegheny Airlines, Inc., 382 F.Supp. 1271 (D. Conn. 1974), and affirmed in Feldman v. Allegheny Airlines, Inc., 524 F.2d 384 (2d Cir. 1975). It requires and permits the least speculation and provides the nearest approach to fairness to all parties of all the methods suggested for dealing with issues which are a magnet for speculation and are invitations to unfairness — to plaintiff, defendant, judge, and jury.
The majority does not disapprove the Feldman approach; however, it prefers an alternative means of remedying the imbalance Penrod creates. It endorses allowing the jury to consider the effect of inflation in the calculation of damages, the plaintiff’s side of the equation. For the reasons expressed quite well by Judge Johnson, in dissent, I believe that approach to be far too speculative.
I suggest that a careful perusal of the opinion for the majority is all that is needed for one to conclude that judges and jurors ought not embark upon — or be instructed to embark upon — the crystal-ball gazing necessary to economic forecasting. Were a trial judge to instruct a jury by verbatim recitation of parts I-IX of the majority opinion, the judge would have committed the error of a totally confusing instruction. Yet even properly instructed as Part X suggests might be done, the court would be indulging in the unrealistic assumption that the jurors would, in deliberation, go through the economic analysis of the first nine parts of the opinion. Further, we would assume that, having done so, the conclusions of the jurors would, somehow, be more nearly accurate than the prognostications of acknowledged economic experts have been over the past several decades, during which time the experts have often been in total disagreement, and, as Judge Johnson points out, often totally wrong!
I cannot fully agree with the conclusions of Judge Johnson’s dissent, though, because it rejects the Feldman approach in favor of the Alaska Rule, which treats inflation and discount rates as offsetting each other totally and therefore canceling ‘ each other out. As the majority and Judge Johnson’s dissent both recognize, the Alaska Rule results in an unjust enrichment to a plaintiff who receives a present undiscounted award for losses not to be realized for years to come; the defendant is wrongfully required to pay more than is due. In contrast, the Feldman approach is theoretically proper because it accounts for the value of the use of capital by applying the real rate of interest as the discount rate.
*313The dissent asserts that the discount rate under the Feldman rule ought be established as a matter of law and contends that determining the real rate of return would involve too much guesswork. I envision the rate as a factual matter. I acknowledge that a full blown trial to ascertain the real discount rate might be fraught with much of the same confusing economic expert clashes of opinion that I find deplorable in the procedures envisioned by much of the majority opinion. However, realistically, I do not anticipate great trouble on this score. The “real discount rate” or “real interest rate” is a small figure when compared to rates of inflation or interest rates including inflationary factors. While there may be marked academic differences in its establishment, it seems to come out from all calculations within one or two percentage points. Thus, it may be 1.5% to some and 3% to others, but the total dollar impact upon the expected verdict in a given case is so relatively small that litigants will likely find it hardly worth the cost of the expert testimony necessary to disputatiousness. In the vast majority of cases, once the rule is established, the rate will be agreed upon and stipulated. In those cases where agreement on an appropriate discount rate is not reached, experienced trial judges can be expected to help the parties. One might require, pretrial, a clear statement of the contentions of each so that the expenses of the party prevailing on that issue, incurred in the proof of it, can be charged to any party found to have disputed groundlessly.
This is not the perfect solution, but I suggest it is the best. Interest rates are obviously not made up purely and simply by adding a constant and unchanging charge expected for the use of money to the amount to be charged in anticipation of inflation. The law of supply and demand no doubt plays a role. When massive government deficits require governmental institutions to enter upon the money market place for massive borrowing, the demand for limited capital funds will cause the real charge for the use of those funds to increase somewhat above the percentage that would be charged were the demand smaller. Thus, the “real interest rate” may move upwards or downwards over a period of years depending upon the supply of capital savings compared to the demand for borrowing. A discount at the current real interest rate might not represent the discount that would have occurred some years ago or that will be taking place some years hence. This bit of uncertainty may be tolerated, however, in the type of case we are here considering where some uncertainty (life expectancy, future health and earning capacity, etc.) is necessarily acceptable; we accept some uncertainty because there must be a way to approach justice in these cases. It is a rare ease in which the parties do not stipulate to life expectancy and the expected duration of earning capacity. I anticipate that the same approach would be taken to the establishment of a real rate of interest.3
For these reasons, I concur in the judgment. I would pronounce our reaffirmance of the Penrod rule forbidding evidence of inflation or consideration of inflation by the jurors in predicting future earnings. I would disapprove of it insofar as, in dicta or otherwise, it permits the discount of future earnings at an interest rate “prevailing-at the time and place of trial” — an interest rate including a hedge against inflation.
Preferring the second choice of both the majority and Judge Johnson, I would simply require district courts to apply the Feldman rule.

. President Harry S. Truman once observed, in frustration, that there is a great need for a one-armed economist because the economists who counselled him, after detailed advice, were prone to say, “But, on the other hand . ... ”

. We did not hold that the jurors might not consider expected merit and productivity increases, but, as the majority points out, some trial courts have interpreted Penrod as forbidding even those projections.

. The discount rate to be applied could be reached in another and, perhaps, better way. For federal actions, the Congress, aided by the information gathering system of committee hearings, could from time to time determine the existing real rate of interest, unaffected by an inflationary factor, and, by law, provide that this rate be the discount rate to be applied. Presumably, the product of such deliberations would be more nearly accurate than the deliberations of lay jurors with only the information the parties could provide.