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awarding interest where factfinder used estimate of total minutes of stolen long-distance calls to determine damages
Summary of this case from BRC Rubber & Plastics, Inc. v. Cont'l Carbon Co.Opinion
Cause No. IP02-0170-C-H/K.
February 11, 2005
ENTRY ON PREJUDGMENT INTEREST
In this diversity action, plaintiffs Indiana Bell Telephone Co. and Michigan Bell Telephone Co. sued Thrifty Call, Inc. seeking recovery under state law for fraud and conspiracy to defraud, as well as under the Indiana Crime Victim Civil Remedy statute, Ind. Code § 34-24-3-1 et seq. Plaintiffs asserted that Thrifty Call conspired with others to engage in a complex scheme to defraud them by routing a high volume of long distance telephone calls through circuits that had the effect of concealing the long distance character of the calls. Members of the conspiracy set up one company called Ward Products and falsely told Indiana Bell (known as "Ameritech Indiana") that it would be making a high volume of outgoing local calls for telemarketing in the Indianapolis area. Ward Products paid Ameritech Indiana a flat monthly rate for the high volume telephone circuits. In fact, however, the conspirators routed through those circuits a high volume of long distance calls from Thrifty Call's network to call recipients in the Indianapolis area. By concealing the true nature of the telephone traffic and paying the flat local rates, the conspirators saved several million dollars, as compared to the significantly higher rates Ameritech Indiana would have charged under federal tariffs for terminating long distance calls based on minutes of use.
The case was tried to a jury. The jury found in favor of Thrifty Call on Michigan Bell's claims. On Ameritech Indiana's claims, however, the jury found liability under both common law fraud and the Crime Victim statute. The jury found that Ameritech Indiana's actual damages were $3,128,824.06. The jury also awarded punitive damages on the common law fraud claim and found that additional damages of $3,000,000 should be awarded under the Crime Victim statute. The Crime Victim statute precludes recovery of both an award of punitive damages and a statutory award of more than actual damages. Ind. Code § 34-24-3-3. Ameritech Indiana therefore has made a choice and has elected to recover judgment on its claim under the Crime Victim statute for $3,128,824.06 in compensatory damages and $3,000,000 in additional damages, totaling $6,128,824.06.
Pursuant to an agreement of the parties at the final pretrial conference, whether prejudgment interest should be awarded and if so in what amount are issues that were left for the court in the event of a plaintiff's verdict. Ameritech Indiana seeks prejudgment interest on the compensatory damages, arguing that the actual damages were ascertainable in accordance with fixed rules of evidence and accepted standards of valuation at the time those damages accrued. See Simmons, Inc. v. Pinkerton's, Inc., 762 F.2d 591, 608 (7th Cir. 1985) (applying Indiana law). Ameritech Indiana seeks prejudgment interest at the rate of 8 percent simple interest for the period from July 7, 2000 to January 7, 2005, the Friday before trial began. The 8 percent rate is the default statutory rate under Indiana law. See Ind. Code § 24-4.6-1-102. Under these terms, prejudgment interest would amount to $1,126,376.60.
Thrifty Call does not dispute the use of the 8 percent rate or the arithmetic calculation. Thrifty Call contends, however, that Ameritech Indiana is not entitled to prejudgment interest at all because the compensatory damages were not ascertainable until trial. Thrifty Call also contends that even if Ameritech Indiana were entitled to prejudgment interest, interest should not accrue before Ameritech Indiana filed suit on January 28, 2002. As explained below, the court finds that Ameritech Indiana is entitled to prejudgment interest in the requested amount.
I. Availability of Prejudgment Interest
Ameritech Indiana sought as damages the amount of the applicable tariffs for terminating long distance telephone calls during the relevant time period, reduced by the amount of monthly charges that it collected from Thrifty Call's co-conspirators. Ameritech Indiana presented its damages claim through an accountant who offered three estimates of actual damages. Her calculations were spelled out in detail in Exhibits 112, 113, and 114. The differences among the three estimates were based on different estimates of one factor: the total minutes of usage for the long distance calls that Thrifty Call terminated through Ameritech Indiana facilities by using the fraudulent scheme. It was necessary to estimate the minutes of usage because defendant Thrifty Call had destroyed its own billing records before suit was filed.
From those destroyed records, it should have been possible to determine the actual volume of calls. Ameritech Indiana has not argued deliberate spoliation of evidence. In any event, the absence of those records, and thus the need for an estimate, is not the responsibility of the victim of the fraudulent scheme.
The jury adopted the middle of the three estimates, to the penny. See Ex. 113. For minutes of use, that middle estimate assumed the same volume that was recorded on the same telephone circuits during July 2000, the month after Thrifty Call sold its assets to a different corporation whose billing records were still available and were obtained in discovery.
Based on this evidence, the court finds that Ameritech Indiana is entitled to prejudgment interest. The principal amount of damages was ascertainable based on "accepted standards of valuation and fixed rules of evidence." The Seventh Circuit's decision in Simmons, Inc. v. Pinkerton's, Inc., 762 F.2d 591 (7th Cir. 1985), provides detailed guidance here. There the Seventh Circuit affirmed an award of prejudgment interest where the issue was remarkably similar, and the court explained Indiana law on the issue. Plaintiff Simmons sought damages for negligence that resulted in a fire causing extensive property damage to a building and the goods stored there. The jury found for the plaintiff, and the district court awarded prejudgment interest. On appeal the defendant argued that the principal amount was too uncertain and was based on estimates, so as to bar an award of prejudgment interest. Because the case is so close to this one on this issue, the relevant discussion affirming the interest award is quoted here in full:
Under Indiana law, prejudgment interest is proper when damages are ascertainable in accordance with fixed rules of evidence and accepted standards of valuation at the time damages accrue, Rauser v. LTV Electrosystems, Inc., 437 F.2d 800 (7th Cir. 1971); Indiana Industries, Inc. v. Wedge Products, Inc., Ind.App., 430 N.E.2d 419, 427 (3d Dist. 1982), but is not appropriate when the jury must use its best judgment to assess the amount for past and future injury or elements not measurable by fixed standards of value. N.Y., Chicago St. L. Ry. Co. v. Roper, 176 Ind. 497, 96 N.E. 468 (1911). Pinkerton's argues that under this test Simmons is not entitled to prejudgment interest, since here there was a bona fide dispute over the amount of damages that should have been awarded for the loss of Simmons' inventory.
The trial judge concluded that "the damages as presented and adopted by the jury in its verdict were a function of mathematical computation involving the subtraction of salvage proceeds from actual and average sales prices for the various inventory items." Dist. Ct. Op. at 35. We do not think the fact that Pinkerton's disputed the use of various sales lists at trial, for example because some price lists were from after the time of the fire, invalidates the claim for prejudgment interest. We do not agree with Pinkerton's characterization of Indiana's "fixed and ascertainable" standard as meaning that whenever more than one figure representing damages — in this case the value of inventory — could have been adopted, no prejudgment interest may be awarded. Pinkerton's essential contention that the principal amount of damages must be stipulated, or determinable without trial, is amply refuted by the cases construing Indiana law. In many cases prejudgment interest has been allowed even though the fact finder had to use some degree of judgment in measuring damages. See, e.g., Luksus v. United Pacific Ins. Co., 452 F.2d 207 (7th Cir. 1971) (interest awarded from various dates that sums owed for labor, services, rental of equipment, bonuses, etc. were later found to be due); N.Y., Chicago St. L. Ry. Co. v. Roper, 176 Ind. 497, 96 N.E. 468 (1911) (interest award upheld where measure of damages after fire was fair market value of house); Indiana Industries, Inc. v. Wedge Products, Inc., Ind. App., 430 N.E.2d 419 (3d Dist. 1982) (interest awarded for inventory even though original claim substantially differed from damages subsequently sought, and from those awarded); N.Y. Central Ry. Co. v. Churchill, 140 Ind. App. 426, 218 N.E.2d 372 (2d Div. 1966) (interest allowed where fair market value of tractor, though disputed, was easily ascertainable with a degree of certainty); Kuhn v. Powell, 61 Ind. App. 131, 111 N.E. 639 (1916) (interest allowed despite dispute over amount due per bushel of corn under unwritten contract). Thus, we interpret Indiana's standard to mean only that damages must be ascertainable as of a particular time (not actually ascertained prior to trial) according to known standards of value (not liquidated amounts). See Courtesy Enterprises, Inc. v. Richards Labs., Ind. App., 457 N.E.2d 572 (3d Dist. 1983). Of course, assessment of the degree to which the jury must use its judgment in ascertaining damages may in close cases be difficult, but we cannot say the district court abused its discretion in deciding that prejudgment interest was appropriate here.762 F.2d at 607-08; accord, Public Service Co. of Indiana, Inc. v. Bath Iron Works Corp., 773 F.2d 783, 796 (7th Cir. 1985) (reversing denial of prejudgment interest under Indiana law where district court had erroneously concluded "that interest is not includable where damages are unliquidated and cannot be ascertained until judgment").
Also instructive here is Harlan Sprague Dawley, Inc. v. S.E. Lab Group, Inc., 644 N.E.2d 615 (Ind.App. 1994), where defendant's automatic watering system failed, causing the deaths of rodents that plaintiff would have marketed to laboratories. The parties had agreed on the number of animals destroyed, but they had disagreed on the value of each animal. The plaintiff had supplied an estimate that was similar to Ameritech Indiana's estimates here, in terms of needing some degree of judgment. To estimate the value of the lost animals, for example, the plaintiff had assumed a uniform age for all destroyed animals, added up the prices of animals of that age from a price list, and deducted 25 percent to allow for animals the plaintiff could not sell at market value. The trial court had denied prejudgment interest on that portion of the damages because that portion was too uncertain.
The appellate court disagreed: "The fact that S.E. Lab disputed [plaintiff's] method of computing damages does not preclude an award of prejudgment interest. . . . While damages that are the subject of a good faith dispute cannot allow for an award of prejudgment interest, damages can still be ascertained through accepted standards of valuation and fixed rules of evidence regardless of which party's method of computation the jury selects." Id. at 618 (citation omitted). Based on these principles, the Indiana Court of Appeals found that the trial court had abused its discretion in denying prejudgment interest on the portion of damages covering the value of the destroyed animals, notwithstanding the need for an estimate of their average value. Id. at 619.
In Simmons and Public Service Co. of Indiana, the Seventh Circuit thus rejected the specific reasons Thrifty Call has offered for denying prejudgment interest in this case. The fact that a trial was needed does not, by itself, bar an award of prejudgment interest. Nor does the fact that the jury was presented with more than one estimate bar an award of prejudgment interest. Instead, there are known standards of value — the tariffs per minute of use — that make it possible to ascertain the damages as of a particular time. Harlan Sprague shows that Indiana courts continue to allow, and even to require, prejudgment interest where the damages can be determined through accepted standards of valuation and fixed rules of evidence, even if some degree of judgment is required to make reliable estimates of damages.
In light of this guidance on Indiana law, neither the fact that Ameritech Indiana needed to estimate call volume nor the fact that Thrifty Call challenged those estimates bars an award of prejudgment interest here. In fact, under Public Service Co. of Indiana and Harlan Sprague, it might even be an abuse of discretion to deny prejudgment interest here. See Public Service, 773 F.2d at 797 (rejecting defendant's argument that prejudgment interest was barred because jury had to use judgment to determine whether damage estimates were reasonable, reasoning that "juries often have to make determinations about whether claimed damages are `reasonable,' and if this were determinative, prejudgment interest would rarely be awarded"); Harlan Sprague, 644 N.E.2d at 619 ("Although the jury had to determine the credibility of [plaintiff's] evidence and the appropriateness of [plaintiff's] calculations, [plaintiff's] damages were ascertained by calculation through accepted standards of valuation and fixed rules of evidence.").
The Indiana Court of Appeals has explained that claims such as personal injury, defamation, and false imprisonment generally do not allow for an award of prejudgment interest because "the jury must rely solely on its own acumen and prudence, when weighing evidence in the absence of passion and prejudice, to determine the extent of an injury such as pain and suffering, damaged reputation or mental anguish. That class of damages is peculiarly within the province of the jury and can be determined only at the point of its decision." Harlan Sprague, 644 N.E.2d at 619. The damages in this case are of a wholly different nature. The jury had to use its judgment only to determine whether the minutes of use estimates advanced by Ameritech were reasonable and credible.
In opposing prejudgment interest, Thrifty Call relies on Indiana cases that are readily distinguishable on this issue. In City of Indianapolis v. Twin Lakes Enterprises, Inc., 568 N.E.2d 1073, 1087 (Ind.App. 1991), the court reversed an award of prejudgment interest. The plaintiff had offered different methods to calculate damages ranging from $128,391 and $1,250,000. This wide disparity and the different methodologies showed that the damages were not ascertainable by fixed standards of valuation. In this case, by contrast, the only difference between the three damage estimates was the different assumption on average minutes of use. The rest of the calculations were a matter of arithmetic.
In City of Anderson v. Salling Concrete Corp., 411 N.E.2d 728 (Ind.App. 1980), the appellate court reversed an award of prejudgment interest where the issue was the loss to value of real property used as a landfill resulting from the city defendant's breach of a lease that required it to raise the level of the land to the level of surrounding land. The plaintiff offered three different appraisals to support its claim for damages. The appellate court found that the damages were too uncertain to support an award of damages. 411 N.E.2d at 735. The court phrased the standard at one point as the "requirement that the principal amount of damages should be determinable without resort to trial." Id. That phrasing was obviously an overstatement, however, in view of the cases discussed above. The court also relied in part on the difference between the amount demanded in the complaint and the amount ultimately awarded. Id. In this case, however, the key variable was the minutes of use, and Ameritech Indiana needed to take discovery, after filing its complaint, to find the best available evidence supporting the most reliable estimate of minutes of use.
In the present case, the differences in the damages estimates presented by Ameritech Indiana both before and during trial are not dramatic enough to suggest that the principal amount of damages was not ascertainable before trial. See Indiana Industries, Inc. v. Wedge Products, Inc., 430 N.E.2d 419, 427-28 (Ind.App. 1982) (finding that differences between plaintiff's original claim for $73,108, plaintiff's claim in complaint for $53,476, and $48,358 awarded by trial court did not render damages unascertainable; issue at trial was whether each given inventory item was "obsolete," and total damages were "a mere mathematical computation" made by adding the known reimbursement values for all inventory found to be "obsolete"); cf. Public Service, 773 F.2d at 796 (fact that a jury award differs from the amount of damages sought does not in and of itself bar award of prejudgment interest).
Especially where Thrifty Call's destruction of its records caused the need for estimates in the first place, Ameritech Indiana is entitled to prejudgment interest. Ameritech Indiana's principal damages were ascertainable by July 7, 2000. Although the calculations were complex, see Exhibit 113, all the estimates used the same methodology. They varied only in terms of the assumed minutes of use. The key computations were multiplying known long distance tariff charges times the minutes of use that would have been subject to the tariffs. Ameritech Indiana's estimates of call volume changed over time as better evidence became available through discovery, but total damages were ascertainable as of July 7, 2000 using data and assumptions admissible at trial. Prejudgment interest must be awarded here to provide full compensation to the victim of the fraudulent conspiracy, as determined by the jury.
II. Accrual of Prejudgment Interest
Thrifty Call also contends that prejudgment interest should not begin to accrue until Ameritech Indiana made its first demand for damages, when it filed suit on January 28, 2002. Under Indiana law, however, prejudgment interest can be computed "from the time the principal amount was demanded or due." Wilson v. Montgomery Ward Co., Inc., 610 F. Supp. 1035, 1041 (N.D. Ind. 1985), citing Abex Corp. v. Vehling, 443 N.E.2d 1248, 1260 (Ind.App. 1983). Among cases awarding prejudgment interest from the time the principal amount was due, see, e.g., Micro Data Base Systems, Inc. v. State Bank of India, 177 F. Supp. 2d 881, 894-95 (N.D. Ind. 2001) (awarding prejudgment interest for unauthorized use of copyrighted computer software from date of infringing activity); Wilson, 610 F. Supp. at 1041 (awarding prejudgment interest from date plaintiff's performance under oral contract was complete and amount promised became due); Harlan Sprague, 644 N.E.2d at 619 (ordering award of prejudgment interest from the moment the last animal died due to failed watering system).
In this case, the nature of the fraudulent scheme shows that prejudgment interest should run from no later than July 7, 2000, by which time all of Ameritech Indiana's principal damages had accrued. Thrifty Call's fraudulent scheme prevented Ameritech Indiana from realizing that it should have been billing and collecting for the services it was providing for terminating long distance telephone calls. But for the fraudulent scheme, payment for all of those services would have been due no later than July 7, 2000. It is therefore appropriate to award prejudgment interest from that date.
Thrifty Call also argues that no damages were due before the complaint was filed because Thrifty Call was not Ameritech Indiana's customer and so did not owe long distance tariffs. The rationale for awarding prejudgment interest does not require a contractual relationship between Thrifty Call and Ameritech Indiana. "Prejudgment interest is a recovery for the lost use of property due to defendant's wrongful conduct, and is not simply an award of interest accrued on the judgment." Harlan Sprague, 644 N.E.2d at 619. Prejudgment interest is recoverable as a damages award additional to compensatory damages, to ensure that the plaintiff is fully compensated for the loss suffered. Id., citing Wayne Township v. Lutheran Hospital of Ft. Wayne, Inc., 590 N.E.2d 1130, 1134 (Ind.App. 1992). The fact that Thrifty Call and the other conspirators set up two dummy companies to insulate Thrifty Call from dealing directly with Ameritech Indiana should not bar an otherwise appropriate award of full compensation.
Conclusion
Ameritech Indiana's compensatory damages were ascertainable through accepted standards of valuation and fixed rules of evidence as of July 7, 2000. Ameritech Indiana is entitled to prejudgment interest in the amount of $1,126,376.60. The court is entering final judgment in favor of Ameritech Indiana in the total sum of $7,255,200.66.
So ordered.