Therefore, it would be unjust to plaintiffs to reduce their recovery in this case based on potential tax consequences.
The Ninth Circuit left open the possibility that plaintiffs might recover their increased costs of development as one component of their damages for delay. 834 F.2d at 1505.
Plaintiffs presented evidence from an engineering expert that the cost of constructing improvements for a 32-lot subdivision increased by $ 534,922 between December 1979 and March 1989. But the evidence does not indicate how much costs increased, if at all, during the eighteen month period after December 1979. And some of those increased costs could not be recovered, because the Herringtons would not have incurred any development costs until after approval of their final map, which would be well after December 11, 1979.
The court therefore concludes that the value of (c) is zero.
The court's formula is:
[(ax bX) -Y] Rt ac
Inserting the values found above, the damages are calculated as follows:
[(.33 x $ 1.3 million .67 x $ 490,000) - $ 490,000]
x .13 x 1.5 yrs. 0 =
Those are the damages that the County caused to plaintiffs as of June 1981. Plaintiffs request an award of prejudgment interest on that sum. The Court of Appeals left that question open; 834 F.2d at 1506 and fn.23.
An award of prejudgment interest in a case such as this is discretionary. However, the Ninth Circuit has cautioned that the exercise of that discretion should recognize that prejudgment interest is an element of compensation and is not a penalty. Western Pacific Fisheries, Inc., v. S.S. President Grant, 730 F.2d 1280, 1288 (9th Cir. 1984). The circuit stated the guiding principle in Wessel v. Buhler, 437 F.2d 279, 284 (9th Cir. 1971) as follows: "Whether interest will be awarded is a question of fairness, lying within the court's sound discretion, to be answered by balancing the equities."
This court believes that the discretion should be exercised here in favor of plaintiffs. The Ninth Circuit affirmed the finding of liability made in the first trial, as well as this court's order invalidating the County's inconsistency determination. Since the judgment in the first trial in 1986, plaintiffs' dollar damages have been reduced by the Ninth Circuit and by this court. However, the decision on liability has always remained in their favor. The damages issue has been only the amount of plaintiffs' recovery. And even the County appears to concede that an award of prejudgment interest from June 1981 through September 1986 is appropriate. The County has made several arguments against prejudgment interest. This court need not reply to all of those arguments; but rather, it is sufficient to say that the court believes that those arguments are offset by the fact that the issue of liability has remained determined in plaintiffs' favor since 1986.
The rate of interest is also in dispute. Plaintiffs base their claim on a 13% interest rate. This court believes that that rate is too high. The Ninth Circuit has held that awards of prejudgment interest should be at the interest rate on short-term risk-free obligations. Western Pacific Fisheries, Inc., 730 F.2d at 1289. The appropriate rate is defined by 28 U.S.C. § 1961, which results in the rate being determined by the U.S. Treasury bill rates in effect at the time. The rate for one year treasury bills has been established in this case by the schedule admitted into evidence as Exhibit CR. That schedule runs through 1990, and the court finds that the 1991 rate is 6.16%.
The court therefore determines that plaintiffs are entitled to an award of prejudgment interest on the principal sum of $ 52,123.52, for the period from June 1, 1981 through the date of this judgment, compounded annually. The court has calculated an average interest rate of 9.5% from 1981 to 1986, and an average rate of 7.25% from 1986 to date. The addition of that interest to the principal sum of $ 52,123.50 results in a total judgment of $ 121,472.06.
Judgment will be entered accordingly. Plaintiffs may file an application for costs and attorneys' fees, which defendants may oppose.
IT IS SO ORDERED.
Dated: November 4, 1991.
Amended: December 30, 1991.
CHARLES A. LEGGE
UNITED STATES DISTRICT JUDGE