Free Response to Motion - District Court of Arizona - Arizona

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ROBERT M. YOUNG, Jr. (CA Bar #063297) WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP 1055 West Seventh Street, Suite 2700 Los Angeles, California 90017-2503 Telephone: (213) 624-3044 Facsimile: (213) 624-8060 Attorneys for Defendant THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Tom Crowe (AZ Bar #002180) CROWE & SCOTT, P.A. 1100 E. Washington Street, Suite 200 Phoenix, AZ 85034-1090 Telephone: (602) 252-2570 Facsimile: (602) 252-1939 Attorneys for Defendant THE PRUDENTIAL INSURANCE COMPANY OF AMERICA UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA RONALD HERBERT PERRIN and the) ESTATE OF LUCY MILDRED PERRIN) through RONALD HERBERT PERRIN,) Personal Representative, ) ) ) Plaintiffs, ) v. ) THE OFFICE OF SERVICEMEMBERS) GROUP LIFE INSURANCE, a subsidiary of) the PRUDENTIAL INSURANCE COMPANY) ) OF AMERICA, a corporation, ) ) Defendant. ) ) _____________________________________) No. CV04-0571-PHX-RGS
DEFENDANT'S RESPONSE TO PLAINTIFFS' MOTION TO ALTER OR AMEND JUDGMENT AND DEFENDANT'S CROSS MOTION TO ALTER OR AMEND JUDGMENT

Defendant, The Prudential Insurance Company of America ("Prudential"), by and through counsel undersigned, submits this response to Plaintiffs' motion to alter or amend judgment. In addition, Prudential requests the Court to amend its judgment so as to provide that any interest shall commence to run from the date on which Plaintiffs' claim was submitted as opposed to the date on which Mr. Perrin died. This response is supported by

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the accompanying memorandum of points and authorities and the matters on file and of record herein. DATED this 23rd day of December, 2005. CROWE & SCOTT, P.A.

By s/ Tom Crowe Tom Crowe 1100 East Washington, Suite 200 Phoenix, Arizona 85034 Attorneys for Defendant MEMORANDUM OF POINTS AND AUTHORITIES A. FACTS Plaintiffs accurately summarize the procedural history of this case. First, Prudential maintains that in the event the Court, in the exercise of its discretion, awards prejudgment interest, such interest should commence to run at the earliest from the date on which a claim for proceeds was submitted, rather than the date on which the service member died. Here, Mr. Perrin died on December 8, 2001. No benefits are payable until a claim is submitted. A "Claim For Death Benefits" (Form SGLV 8273) was first submitted in September, 2003. (Neither party has identified the precise date in the record.) The claim was denied on November 10, 2003. From the form of judgment entered, the Court has rejected Prudential's contention and has awarded prejudgment interest commencing to run

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on the date the service member died, regardless of the date on which any documentation was
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submitted to the OSGLI. Prudential respectfully requests the Court to alter or amend the judgment in that respect and incorporates its prior arguments to that effect herein. Second, Prudential maintains that the purpose for the award of prejudgment interest is to compensate the successful party for the loss of use of funds during the period in which they were payable and unavailable. Prudential submits that the proper benchmark for
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measuring this "opportunity cost" is the one-year constant maturity Treasury yield­the rate used in connection with the award of post-judgment interest­which was applicable during the period of time when the funds were not available to the successful party. It is submitted that this rate serves to mirror that which a prudent investor could obtain on a secured, shortterm, risk free investment. Prudential submits that it is inequitable, and represents a windfall to the Plaintiffs and a penalty to Prudential, to use an interest rate from November 21, 2005 (4.34%) which is almost twice that which was applicable on December 8, 2001 (2.21%) and approximately three and one-half times that which was applicable in September, 2003. Such rates clearly exceed that which a prudent investor could obtain on a secured, short-term, risk free investment during the prior time periods. B. LAW AND ARGUMENT In their motion, Plaintiffs assert that, "Under both federal statute, 28 U.S.C. § 1961 and 9th Circuit case law, In Re: Nucorp Energy, Inc. v. Fredman, 902 F.2d 729 (9th Cir. 1990) the rate of interest to be applied is the federal rate immediately prior to the date of judgment." This broad statement purporting to summarize the applicable law is incomplete. Title 28 U.S.C. § 1961(a), which by its terms is applicable only to post-judgment interest, provides, in part, as follows: Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment. Prudential agrees that the courts have also used the post-judgment interest statute as

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a benchmark in determining the prejudgment interest rate, "unless the equities of a particular case demand a different rate." In re Nucorp. Energy, Inc., 902 F.2d at 734, citing In re Bloom, 875 F.2d 224, 228 (9th Cir.1989), quoting Columbia Brick Works, Inc. v. Royal Ins. Co., 768 F.2d 1066, 1071 (9th Cir.1985). Plaintiffs neglect to note the significant

qualification stated in Nucorp. and the other applicable authorities.
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In Nucorp, the interest rate on the date of judgment was 7.14%. The interest rate on the dates of demand prior to judgment were 10.10% and 9.08%. The bankruptcy court awarded a rate of 10% and the Ninth Circuit remanded the case for a determination of the proper interest rate in referencing the statute and the "equities of a particular case" language of In re Bloom. Nucorp. at 734. As noted in Schneider v. County of San Diego, 285 F.3d 784, 789 (9th Cir. 2002), prejudgment interest is a measure that "serves to compensate for the loss of use of money due as damages from the time the claim accrues until judgment is entered, thereby achieving full compensation for the injury those damages are intended to redress." West Virginia v. United States, 479 U.S. 305, 311 n. 2 (1987). According to the oft cited case of Western Pacific Fisheries, Inc. v. SS President Grant, 730 F.2d 1280, 1288 -1289 (9th Cir. 1984), the district court should exercise its discretion to award "the income which the monetary damages would have earned, and that should be measured by interest on short-term, risk-free obligations." See, e.g., Independent Bulk Transport v. Vessel MORANIA ABACO, 676 F.2d 23, 27 (2d Cir. 1982). The rate of the one-year constant maturity Treasury yield for the week preceding December 8, 2001 (date of death) was 2.21% on December 7, 2001. For the corresponding weeks in December, 2002 through 2004, the rates were 1.53%, 1.37% and 2.60%. The one-year constant maturity Treasury yield for each of the four weeks in September, 2003 (month of claim) was 1.33%, 1.22%, 1.21% and 1.22%.1 Prudential agrees that the one-year constant maturity Treasury yield for week preceding November 21, 2005

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was 4.34%. For the reasons stated more fully in Prudential's response to Plaintiffs' motion for prejudgment interest, it is submitted that it is inequitable for the Court to penalize Prudential

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and award "bonus interest" to Plaintiffs at a rate substantially higher than Plaintiffs could have generated on any "short-term, risk-free" obligations during the applicable time periods. This is especially true in terms of the equities presented in this case where it was the government, with whom Prudential had contracted, who made the determination regarding Mr. Perrin's eligibility for the proceeds of the SGLI. Prudential, pursuant to the terms of its contractual obligations and the provisions of the statute, merely awaited the results of the government's own investigation (actually, that of the Department of the Navy) in determining whether the proceeds were properly payable. Contrary to Plaintiffs' assertions, Prudential made no determination regarding the merits of Plaintiffs' claim until a claim was submitted in September, 2003 and timely denied on November 10, 2003. This scenario is readily distinguishable from that where an insurance company conducts its own investigation, denies coverage, and a court later determines that such denial was unwarranted. Here, Prudential was clearly not involved in the process in any manner. As a result, it should not now bear the burden of paying an inflated interest rate. C. CONCLUSION If the Court determines that prejudgment interest is to be awarded from the date of death - - December 8, 2001 - - Prudential submits that the fair interest rate to employ, representing a competitive risk free investment of the subject funds, is that of the contemporary one-year constant maturity Treasury yield then applicable to the successive one-year periods; namely, 2.21% for the period December 8, 2001 to December 8, 2002;

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1.53% for December 8, 2002 to December 8, 2003; 1.37% for December 8, 2003 to
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December 8, 2004; 2.60% from December 8, 2004 to November 21, 2005; and 4.34% for November 21, 2005 forward. Prudential agrees that such interest should be compounded annually. If the Court more properly determines that prejudgment interest is to be awarded from the date on which Plaintiffs' claim was first submitted in September, 2003, Prudential
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submits, using the date of September 15, 2003, that the fair interest rate to employ is that of the one-year constant maturity Treasury yield applicable to the following successive one-year periods; namely, 1.22% for the period September 15, 2003 to September 15, 2004; 2.10% for September 15, 2004 to September 15, 2005; 3.76% for September 15, 2005 to November 21, 2005; and 4.34% for the period from November 21, 2005 forward. Again, the interest should be compounded annually.2 What Prudential believes to be unfair, inequitable and essentially punitive is to award Plaintiffs prejudgment interest at the rate of 4.34% from December 8, 2001 forward. DATED this 23rd day of December, 2005. CROWE & SCOTT, P.A.

Submitted by ECF on this 23rd day of December, 2005. Courtesy copy of the foregoing mailed this 23rd day of December, 2005 to:

By s/ Tom Crowe Tom Crowe 1100 East Washington, Suite 200 Phoenix, Arizona 85034 Attorneys for Defendant

Honorable Roger G. Strand U.S. District Court Judge Sandra Day O'Connor U.S. Courthouse Ste 622 401 W Washington St SPC 57 Phoenix AZ 85003-2156 By s/ Cindy Malyuk

The applicable interest rates can be found at the following address: http://www.federalreserve.gov/releases/h15/data.htm. 6

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