Opposition Brief — Osterneck v. Ernst & Whinney

— HILED |

No. 87-1201 1 KE ap AMOL, JR.

IN THE Le

Supreme Court of the United States

OCTOBER TERM, 1987

MYLES OSTERNECK, GUY-KENNETH OSTERNECK

and MYLES OSTERNECK and GUY-KENNETH

OSTERNECK as TRUSTEES for the BENEFIT of

ROBERT OSTERNECK,

Plaintiffs-Petitioners,

Vv

ERNST & WHINNEY,

Defendant-Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

RESPONDENT?’S BRIEF IN OPPOSITION

GCRDON LEE GARRETT, JR.

HANSELL & POST

3300 First Atlanta Tower

Atlanta, Georgia 30383-3101

(404) 581-8000

Counsel of Record for

RICHARD M. KIRBY Respondent

WILLIAM B. B. SMITH

GREGORY R. HANTHORN

HANSELL & POST

Atlanta, Georgia

Attorneys for Respondent

v

QUESTION PRESENTED

Is a post-judgment motion filed within the ten days

prescribed by Fed. R. Civ. P. 59e), and which seeks to

change the original judgment by adding discretionary

prejudgment interest to the amount of plaintiffs recov-

ery on federal securities claims, a motion to alter or

amend the judgment pursuant to Fed. R. Civ. P. 59%e"”

LIST OF PARTIES

The parties to the proceedings below were the

Petitioners Myles Osterneck, Guy-Kenneth Osterneck,

and Myles Osterneck and Guy-Kenneth Osterneck as

Trustees for the Benefit of Robert Osterneck ( Plaintiffs-

Appellants); E. T. Barwick Industries, Inc., M. E.

Kellar, B. A. Talley (Defendants-Cross Appellants);

Fugene Barwick (Defendant-Appellee); and Respon-

dent Ernst & Whinney (Defendant-Appellee).

ill

TABLE OF CONTENTS

Page

Question Presented ...........-..-0e0eeeseee: i

es ose ceeesecccecees ii

I cece cece cccccccece iii

Wee MUOMOPTEIGS ... 2... ee cece cece iv

Opinions Below .........-..--.60+00sees serene 2

Jurisdictional Statement ...............---+55: 3

Federal Rules Involved .............--0++++5555 4

Statement ofthe Case ..............0.00-00005: 5

Reasons for Denying the Writ .............--+-: 7

I. The Eleventh Circuit’s Opinion Does Not

Conflict With Decisions Of Other Circuit

Courts Or This Court ............---00+005: 7

II. Petitioners Fail To Come Within The “Unique

Circumstances” Exception To The Require-

ment Of A Timely Appeal .............-+--- 11

Nc ccc es esccccccccecs 13

Appendix ...............:ee eee creer tenes App. 1

iv

TABLE OF AUTHORITIES

Cases: Page

City Natl Bank v. American Commonwealth

Fin. Corp., 608 F. Supp. 941 (W.D.N.C.

1985), affd, 801 F.2d 714 (4th Cir.

1986), cert. denied sub nom. Great Com-

monwealth Life Ins. Co. v. Branch Bank

& Trust Co., USS. , 107 S. Ct. 1301

f | error ory yr rrr: wore are 9

Harcon Barge Co. v. D&G Boat Rentals, Inc.,

784 F.2d 665 (5th Cir.) (in banc), cert. denied

sub nom. Southern Pac. Transp. Co. v.

Harcon Barge Co., is

Re @ 1. Ser ee re .< ae

Jenkins v. Whittaker Corp., 785 F.2d 720 (9th

Cir.), cert. denied, US 107

eee Ci eee rs rr er 7,9

Marane, Ine. v. McDonald's Corp., 755 F.2d 106

y + i | ern ore ee 11

Osterneck v. E.T. Barwick Industries, Inc., 825

eh itih lt Beer rere passim

Thompson v. Immigration & Naturalization

Serv., 376 U.S. B46 (IGBE) .. occ sac ecccseses 11,12

White v. New Hampshire Dep't of Employment

Soc. GAB Uwe. GRU cc ccccccesnvscaces 7,8,9

Wolf v. Frank, 477 F.2d 467 (5th Cir.), cert.

denied, 414 U.S. 975 (1973) ............... 9

Statutes, Regulations & Other Authorities:

SE Re Se (sc orece hwonsends beneatees 5

ee se ia 5 0 ork oka cde etre 5

ts ee | | rer nse rere 3

V

GOT Ee OO: nocd cc cvsvesndvncceeseenns 7

17 C.F.R. $ 240.10B-5 ... 2... ccc cece eee 5

tok eee Te 10

Fed. R. App. P. 4(a)(4) .. 6... eee eee eee 4,6

Fed. R. App. P. 4(a)(5) .. 2... eee eee eee 6

Red. R. Civ. P. SOle) . 1... nc cece cece cence passim

~<7ouee

No. 87-1201

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

MYLES OSTERNECK, GUY-KENNETH OSTERNECK

and MYLES OSTERNECK and GUY-KENNETH

OSTERNECK as TRUSTEES for the BENEFIT of

ROBERT OSTERNECK, ™

Plaintiffs-Petitioners,

V

ERNST & WHINNEY,

Defendant-Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

RESPONDENT’S BRIEF IN OPPOSITION

Respondent Ernst & Whinney respectfully requests

that this Court deny the petition for a writ of certiorari,

seeking review of the Eleventh Circuit's opinion which

dismissed Petitioners’ appeal in this case for lack of

jurisdiction.

2

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Eleventh Circuit is reported as Osterneck v. E.T.

Barwick Industries, Ine., 825 F.2d 1521 (11th Cir.

1987), and is set forth in Petitioners’ Appendix at 15.

The original judgment on the merits in the District

Court is set forth in Petitioners’ Appendix at 4.

Petitioners’ motion for discretionary prejudgment in-

terest and brief in support are set forth in the Appendix

hereto (Respondent's Appendix”) at 1.

The order of the District Court awarding Petitioners

prejudgment interest and amending the original judg-

ment to reflect this additional award is set forth in

Petitioners’ Appendix at 8.

The Amended Judgment is set forth in Petitioners’

Appendix at 14.

3

JURISDICTIONAL STATEMENT

The judgment of the Court of Appeals was entered on

August 31, 1987. Rehearing and rehearing in banc

were denied on October 19, 1987. Petitioners purport to

invoke this Court’s jurisdiction pursuant to 28 U.S.C.

§ 1254(1).

4

FEDERAL RULES INVOLVED

Rule 59(e) of the Federal Rules of Civil Procedure:

Motion to Alter or Amend a Judgment.

A motion to alter or amend the judgment shall be

served not later than 10 days after entry of the

judgment.

Rule 4(a)(4) of the Federal Rules of Appellate

Procedure:

(a) Appeals in Civil Cases.

(4) Ifa timely motion under the Federal Rules

of Civil Procedure is filed in the district court by

any party: (i) for judgment under Rule 50(b); (ii)

under Rule 52(b) to amend or make additional

findings of fact, whether or not an alteration of the

judgment would be required if the motion is

granted; (iii) under Rule 59 to alter or amend the

judgment; or (iv) under Rule 59 for a new trial, the

time for appeal for all parties shall run from the

entry of the order denying a new trial or granting

or denying any other such motion. A notice of

appeal! filed before the disposition of any of the

above motions shall have no effect. A new notice of

appeal mus: be filed within the prescribed time

measured from the entry of the order disposing of

the motion as provided above. No additional fees

shall be required for such filing.

STATEMENT OF THE CASE

This securities fraud case arose out of the September

8, 1969 merger of Cavalier Bag Company (“Cavalier”),

a corporation owned by Petitioners, into E. T. Barwick

Industries, Inc. (“Barwick Industries”). Pursuant to the

merger, Petitioners exchanged their stock in Cavalier

for stock in Barwick Industries. In agreeing to the ex-

change, Petitioners allegedly relied on Barwick In-

dustries’ audited financial statements for the two years

preceding the merger. Respondent Ernst & Whinney

(“E&W”), the independent certified public accountants

for Barwick Industries, audited those financia! ~

statements.

Almost six years after the merger, on September 4,

1975, Petitioners filed this action alleging violations of

Sections 10(b) and 20 of the Securities Exchange Act of

1934 (15 U.S.C. §§ 78j(b), 78t), Rule 10b-5 thereunder

(17C.F.R. § 240.10b-5), and the common law of Georgia.

Following almost ten years of pre-trial proceedings,

this case went to trial in October, 1984, against

Barwick Industries; E. T. Barwick, B. A. Talley and M.

E. Kellar, who were directors and officers of Barwick

Industries prior to or during the merger; and E&W.

After a three and one-half month jury trial, a verdict

was returned in favor of E&W and E. T. Barwick, indi-

vidually. However, the jury found in favor of Petition-

ers against defendants Barwick Industries, Talley and

Kellar in an amount exceeding $2.6 million as com-

pensatory damages for their violations of federal se-

curities laws and Georgia common law.

The original judgment was entered on January 30,

1985. Within the ten-day time limit prescribed by Fed.

R. Civ. P. 59(e), Petitioners filed and served a motion for

prejudgment interest computed from September 8,

6

1969, the date of the merger. While that motion was

pending, Petitioners filed a notice of appeal and two

notices of cross-appeal from the January 30, 1985

judgment.

On July 1, 1985, the District Court entered its order

on Petitioners’ motion, awarding them over $945,000 in

prejudgment interest as a part of compensatory dam-

ages and ordering that the original judgment be

“AMENDED” to reflect this additional award. The

Amended Judgment was entered on July 9, 1985.

Petitioners failed to appeal from the Amended Judg-

ment as to Respondent E&W. The Eleventh Circuit

held that Petitioners’ motion for prejudgment interest

was a Rule 59(e) motion to alter or amend the original

judgment. Therefore, the notices of appeal filed while

the Rule 59(e) motion was pending had no effect. See

Fed. R. App. P. 4(a)(4). Accordingly, the Eleventh

Circuit dismissed Petitioners’ appeal as to Respondent

E&W for lack of jurisdiction.

At the time the Eleventh Circuit rendered its deci-

sion, there was pending in the District Court Petition-

ers’ motion for an extension of time in which to file their

appeal as to E&W. The District Court had deferred

ruling on that motion pending the Eleventh Circuit’s

decision. See Osterneck, 825 F.2d at 1528 n.12. The

Eleventh Circuit expressly noted that “[flollowing this

dismissal, the district court may entertain the

Osternecks’ motion.” /d.

The District Court later denied the motion, conclud-

ing that Petitioners had not carried their burden of

showing excusable neglect as required by Fed. R. App.

P. 4(a)(5). Inexplicably, Petitioners failed to appeal that

denial to the Eleventh Circuit. Had they done so, and

had the Court of Appeals reversed, their petition would

not be before this Court.

7

REASONS FOR DENYING THE WRIT

I. THE ELEVENTH CIRCUIT’S OPINION

DOES NOT CONFLICT WITH DECISIONS

OF OTHER CIRCUIT COURTS OR THIS

COURT.

The Eleventh Circuit held that a post-judgment mo-

tion which is filed within the ten days prescribed by

Rule 59(e), and which seeks to add discretionary pre-

judgment interest to plaintiffs’ recovery on federal se-

curities law claims, is a Rule 59/e) motion to alter or

amend the original judgment. Contrary to Petitioners

suggestion, that holding does not conflict with this

Court’s “definition of a Rule 59\e) motion in ” hite

New Hampshire Dept of Employment Sec., 455 U 8.445

(1982), the Ninth Circuit’s opinion in Jenkins v. Whit-

taker Corp., 785 F.2d 720 (9th Cir.), cert. denied, —

U.S. 107 S. Ct. 324 (1986), or the Fifth Circuit's

“approach to Rule 59e)” in Harcon Barge Co. v. D&G

Bout Rentals, Inc., 784 F.2d 665 (5th Cir.) Gin banc),

cert. denied sub nom. Southern Pac. Transp. Co. ev.

Harcon Barge Co., U.S. _ 107 S. Ct. 398 (1986).

In White, this Court held that a post-judgment re-

quest for an award of attorney's fees under the Civil

Rights Attorney's Fees Awards Act of 1976, 42 U.S.C.

$ 1988. is not a motion to alter or amend the judgment

subject to the ten-day timeliness standard of Rule 59e).

The Court reasoned as follows:

|T\he federal courts generally have invoked Rule

59(e) only to support reconsideration of matters

properly encompassed in a decision on the merits.

By contrast, a request for attorney's fees under

S 1988 raises legal issues collateral to the main

\

cause of action — issues to which Rule 59(e) was

never intended to apply.

. . . Unlike other judicial relief, the attorney's

fees allowed under § 1988 are not compensation for

the injury giving rise to an action. Their award is

uniquely separable from the cause of action to be

proved at trial.

. . [A] motion for attorney’s fees is unlike a

motion to alter or amend a judgment. It does not

imply a change in the judgment, but merely

seeks what is due because of the judgment. It is,

therefore, not governed by the provisions of Rule

59%e).”

455 U.S. at 451-52 (citations and footnote omitted). |

The Eleventh Circuit's decision is consistent with

White because factors supporting the “collateral” na-

ture of the Section 1988 attorney’s fee request in Wh ite

are absent here. First, the request for prejudgment

interest in this case did imply a change in the original

judgment. Osterveck, 825 F.2d at 1526 ( Petitioners’ mo-

tion ‘requests a substantive alteration of a court’s judg-

ment’). Indeed, Petitioners’ motion resulted in an

~Amended Judgment.” Second, the award of prejudg-

ment interest in this case was not “uniquely separable”

from the decision on the merits because it constituted

an element of compensation for the injury giving rise to

the action. The Eleventh Circuit recognized that in

federal securities cases “prejudgment interest is com-

pensation which directly stems from the injury giving

' The Court in White specifically acknowledged precedents

hoiding that the issue of attorney's fees in civil rights cases was so

independent of the merits action as to support a separate federal

action “ ‘solely to obtain an award of attorney's fees’ ” for legal

work done in prior proceedings. 455 U.S. at 451 n.13 (quoting Vew

York Gaslight Club, ine. v. Carey, 447 U.S. 54, 66 (1980)).

9

rise to the action.” /d. The District Court also noted that

in federal securities cases “prejudgment interest is a

part of compensatory damages” to be “ ‘tempered by an

assessment of the equities’ ~ * (Petitioners’ Appendix

at 10 (citation omitted)). Those “equities” are de-

termined by factors inseparable from the merits, in-

cluding the degree of personal wrongdoing on the part

of the defendant and whether the award of prejudgment

interest would in fact be compensatory. See. ¢.g., Wolfe.

Frank, 477 F.2d 467, 479 (Sth Cir.). cert. denied, 414

U.S. 975 (1973); City Natl Bank vo. American Common-

wealth Fin. Corp., 608 F. Supp. 941, 943 (W.D.N.C.

1985), athd, 801 F.2d 714 (4th Cir. 1986), cert. denied

sub nom. Great Commonwealth Life lus. Co. v. Branch

Bank & Trust Co., US. , 107 S. Ct. 1301

(1987). Thus, there is no conflict between the Eleventh

Circuit's opinion and White's “definition of a Rule 59e)

motion.”

Petitioners are unable to cite, and Respondent is un-

aware of, a single decision holding that an award of

prejudgment interest for a violation of federal se-

curities law is collateral to the merits or outside Rule

59e). The Ninth Circuit’s opinion in Jenkins involved

the award of prejudgment interest in a wrongful death

action governed by Hawaii law. In concluding that pre-

judgment interest was not compensation for the injury

giving rise to that particular action, the Ninth Circuit

relied upon a decision of the Hawaii courts. Jenhirs,

785 F.2d at 737. This application of local law does not

> Petitioners represented to the District Court that an award of

prejudgment interest “would in fact be compensatory” and was

“the only way” to make them whole. Brief in Support of Plaintiffs

Motion for Award of Prejudgment Interest (Respondent's Ap-

pendix at 8-10, 14 & 15).

10

present a conflict with a decision of the Eleventh

Circuit “on the same matter.” (/. Sup. Ct. R. 17. 1a).

The Fifth Circuit's decision in Harcon Barge did not

even involve a motion for prejudgment interest. It con-

cerned a motion to amend a judgment to delete an

award of costs, which the Fifth Circuit quite properly

deemed a “motion to alter or amend the judgment”

within Rule 59e). Harceor Barge, 784 F.2d at 667. Re-

gardless of the parameters of its “bright-line” test,

Hearcon Barge provides no support for the proposition

that prejudgment interest is a “collateral” matter out-

side Rule 59%e).

11

II. PETITIONERS FAIL TO COME WITHIN

THE “UNIQUE CIRCUMSTANCES” EX-

CEPTION TO THE REQUIREMENT OF A

TIMELY APPEAL.

Petitioners also contend that the Eleventh Circuit’s

opinion conflicts with this Court’s holding in Thompson

v. Immigration & Naturalization Serv., 375 U.S. 384

(1964). To create this “conflict,” Petitioners misstate

the holding in Thompson and ignore the factual distinc-

tions between Thompson and this case.

In Thompson, the petitioner served a motion for new

trial within ten days after receipt of notice of entry of

judgment, but twelve days after entry of judgment. The

“trial court specifically declared that ‘the motion for a

new trial’ was made ‘in ampie time.” /d. at 384. In

reliance on that statement, petitioner did not appeal

from the original judgment, but timely appealed from

the denial of the new trial motion. The court of appeals

dismissed the appeal on the grounds that notice of ap-

peal had not been filed within the time required after

the entry of the original judgment, and that the new

trial motion was untimely and, therefore, did not toll

the running of the time for appeal.

This Court developed the “unique circumstances” ex-

ception to the requirement of a timely appeal. Under

that exception “an appellate court may and should hear

an appeal even though it is not timely, if the appellant

reasonably relied on an erroneous <’ziement of the

district court that the appeal. . . was timely, and the

appeal would have been timely if the district court had

been correct.” Marane, Inc. v. McDonald's Corp., 755

F.2d 106, 111 n.2 (7th Cir. 1985).

Petitioners herein cannot demonstrate the “unique

circumstances” required by Thompson. Neither the

12 13

District Court nor the Eleventh Circuit ever affirma- CONCLUSION

tively represented to Petitioners that their appeal was

timely. Osterneck, 825 F.2d at 1528. For the foregoing reasons, the petition for a writ of

With respect to Petitioners’ purported reliance on the certiorari should be denied.

actions of the District Court, the Eleventh Circuit

stated: Dated: Atlanta, Georgia

Moreover, to the extent the Osternecks may February 16, 1988

have erroneously relied upon the actions of the

district court, they did so despite the district court’s Respectfully submitted,

express statements that the judgment would have

to be “amended” to include prejudgment interest.

See Record on Appeal, vol. 82 at 8497 (“if prejudg- GORDON LEE GARRETT, JR.

ment interest is granted it will be — the judgment HANSELL & POST

can be amended”); cf. id. vol. 24, Tab 508 (entering 2300 First Atlanta Tower

“amended judgment” awarding prejudgment in- Atlanta, Georgia 30383-3101

terest). Rule 59(e) is, of course, the only vehicle by (404) 581-8000

which prior district court judgments may be

“amended.” Counsel of Record for Respondent

1d. of 1638 9.11. RICHARD M. KIRBY

The Eleventh Circuit correctly applied the Thompson WILLIAM B. B. SMITH

holding to the facts of this case and found that Petition- GREGORY R. HANTHORN

ers failed to demonstrate the “unique circumstances” HANSELL & POST

required to exercise jurisdiction over an untimely Atlanta, Georgia

appeal. AMhorine Us for Responde vt

App. 1

IN THE

United States District Court

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

MYLES OSTERNECK, et al...

Plavatifts,

CIVIL ACTION

Vv. )

' FILE NO. C75-1728A

E.T. BARWICK INDUSTRIES, INC, |

etal.,

Detendents.

PLAINTIFFS’ MOTION FOR AWARD

OF PREJUDGMENT INTEREST

COME NOW Plaintiffs, Myles Osterneck, Guy-

Kenneth Osterneck and Robert Osterneck and Myles

Osterneck and Guy-Kenneth Osterneck as Trustees for

the Benefit of Robert Osterneck (hereinafter

“Plaintiffs”) and move the Court for an award of pre-

judgment interest from September 8, 1969 to the date of

Judgment, January 30, 1985, against Defendants E. T. _

Barwick Industries, Inc., Melvin E. Kellar and Buford

A. Talley, and respectfully show the Court the

following:

l.

On January 30, 1985 a Verdict and Judgment in

favor of Plaintiffs was filed and entered in the above-

styled action and against Defendants E. T. Barwick

Industries, Inc., M. E. Kellar and B. A. Talley on their

Federal Securities Claims and State of Georgia com-

App. 2

mon law and statutory fraud claims in the amount of

Two Million, Six Hundred Thirty-Two Thousand, Two

Hundred Thirty-Four Dollars ($2,632.234.00) es com-

pensatory damages.

3.

Pursuant to the instructions of the Court given to the

jury, the amount of the compensatory damages

awarded to Plaintiffs was based on their damages as of

the date of the Merger Agreement which is September

8, 1969.

3.

The grounds and authority for the award of prejudg-

ment interest to Plaintiffs and the appropriate amount

of interest are provided in Plaintiffs’ accompanying

sriefin support of its Motion for an award of prejudg-

ment interest concurrently filed herewith.

4.

Plaintiffs also submit in support of their Motion for

an award of prejudgment interest an Affidavit of Wal-

ter M. Singer with exhibits which is currently filed

herewith.

WHEREFORE, for the reasons contained in

Plaintiffs’ Brief and the Affidavit of Walter M. Singer,

Plaintiffs respectfully request that this Court award it

prejudgment interest from September 8, 1969 to the

date of the Judgment.

App. 3

Respectfully submitted,

| Se

PAUL WEBB, JR.

Georgia State Bar No. 744650

/s/

HAROLDT. DANIEL. JR.

Georgia State Bar No. 204000

/s/

KEITH M. WIENER

Georgia State Bar No. 757475

Attorneys for Plaintiffs

Of Counsel:

WEBB & DANIEL

1901 Peachtree Center Cain Tower

229 Peachtree Street, N.©.

Atlanta, Georgia 30303

(404) 522-8841

App. 4

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that I have this day served a

true and correct copy of the foregoing Plaintiffs’ Motion

for Award of Pre-Judgment Interest to all counsel of

record by depositing a copy of same in the United States

mail, with adequate postage affixed thereto, addressed

as follows:

Philip R. Russ, Esq. Foy R. Devine, Esq.

1005 Texas American Bank __ Devine & Morris ,

Building Four Piedmont Center, Suite | 11

P.O. Box 12073 3565 Piedmont Road, N.E.

Amarillo, Texas 79101 Atlanta, Georgia 30305

Susan Hoy, Esq. Richard M. Kirby, Esq.

High House Hansel! & Post

309 Sycamore Street 3300 First Atlanta Tower

Decatur, Georgia 30030 Atlanta, Georgia 30383

Farle B.May, Jr., Esq.

Alston & Bird

1200 C&S National Bank

Building

35 Broad Street

Atlanta, Georgia 30335

This 11 day of February, 1985.

/s/

KEITH M. WIENER

Georgia State Bar No. 757475

Attorney for Plaintiffs

App. 5

IN THE

United States District Court

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

MYLES OSTERNECK, et al.,

Plaintiffs, CIVIL ACTION

FILE NO. C75-1728A

E. T. BARWICK INDUSTRIES, INC.,

)

)

)

)

v. )

)

)

et al., )

)

)

Defendents.

BRIEF IN SUPPORT OF

PLAINTIFFS’ MOTION FOR AWARD

OF PREJUDGMENT INTEREST

INTRODUCTION

Plaintiffs filed their Complaint in the above-

referenced action on September 4, 1975. The trial of this

case began on October 15, 1984 and ended with a ver-

dict and judgment on January 30, 1985.

The verdict and judgment rendered by the jury was in

favor of the Plaintiffs and against Defendants E. T.

Barwick Industries, Inc., M. E. Kellar and B. A. Talley

(hereinafter “Defendants”) on the Federal Securities

claims and the Georgia common law and statutory

fraud claims in the amount of Two Million, Six

Hundred Thirty-Two Thousand, Two Hundred Thirty-

Four Dollars ($2,632,234.00) as compensatory dam-

ages. This verdict and judgment was filed and entered

in the Clerk’s office on January 30, 1985.

App. 6

Pursuant to the Court’s instructions given to the

jury, the amount of compensatory damages was de-

termined as of the date of the Merger Agreement en-

tered into between Plaintiffs and Defendant E. T.

Barwick Industries, Inc. That date is September 8,

1969. Thus, pursuant to the Court’s instructions, the

amount of $2,632,234.00 as compensatory damages is

the amount of damages the Plaintiffs suffered on

September 8, 1969.

Plaintiffs have filed concurrently herewith their Mo-

tion for an award of prejudgment interest at the request

of the Court. Plaintiffs submit this Brief in support of

their Motion. Plaintiffs also submit in support of their

Motion an Affidavit of Walter M. Singer concurrently

filed herewith, containing the calculations of an ap-

propriate award of prejudgment interest.

ARGUMENT AND CITATION S OF AUTHORITIES

1. PLAINTIFFS ARE ENTITLED TO AN

AWARD OF PREJUDGEMENT INTEREST

FROM SEPTEMBER 8, 1969 TO THE DATE

OF JUDGMENT

It is well-established that in the absence of a statut-

ory provision, the award of prejudgment interest lies

within the discretion of the Court, including cases in-

volving Federal Securities law and state common law

fraud claims. E.g., Blau v. Lehman, 368 U.S. 403, 414,

82S.Ct. 451, 457, 7 L.Ed.2d 403, 411 (1962); Huddleston

v. Herman & MacLean, 640 F.2d 534, 560 (5th Cir.

1981), aff'd in part & rev'd in part on other grounds,

US. -, 103 S. Ct. 683, 74 L.Ed.2d 548 (1983) (Federal

Securities claim, §10(b) and Rule 10b-5 case); Hembree

v. Georgia Power Company, 637 F.2d 423, 430 (5th Cir.

1981); Payne v. Panama Canal Company, 607 F.2d 155,

App. 7

166 (5th Cir. 1979): West ». Harris. 573 F.2d 873, 883

(5th Cir. 1978), cert. denied, 440 U.S. 946,99 S.Ct. 1424,

59 L.Ed.2d 635 (1979); Wolfe. Frank, 477 F.2d 467 (5th

Cir.), cert. denied, 414 U.S. 975, 94S.Ct. 287, 38 L.Ed.2d

218 (1973) (federal securities claim under Rule 10b-5):

George R. Hall, Ine. v. Superior Trucking Company,

lne., 582 F.Supp. 985, 997-998 (N.D. Ga. 1982).

This well-established rule is universally applied by

other jurisdictions. .g., Sharp ev. Coopers & Lybrand,

649 F.2d 175, 192-193 (3d Cir. 1981) (appropriate to

award prejudgment interest in §10(b) and Rule 10b-5

case); Rolf v. Blyth Bastman Dillon & Co., Ine.. 570

F.2d 38, 50 (2d Cir. 1978) (appropriate to award pre

judgment interest in §10(b) and Rule 10b-5 case):

Holmes v. Bateson, 583 F.2d 542, 564 (1st Cir. 1978)

(appropriate to award prejudgment interest in §10(b)

and Rule 10b-5 case); Swndstrand Corp. ¢. Sun Chemi-

cal Corp., 553 F.2d 1033, 1051 (7th Cir. 1977) ‘ap-

propriate to award prejudgment interest in §10(b) and

Rule 10b-5 merger case from the date of merger agree-

ment to the date of judgment); Occidental Lite Insur-

ance Co. v. Pat Ryan & Associates, lne., 496 F.2d 1255,

1268-1269 (4th Cir.), cert. denied, 419 U.S. 1023, 95

S.Ct. 499, 42 L.Ed.2d 297 (1974) (appropriate to award

prejudgment interest especially in $10(b) and Rule 10b-

5 case); Wessel «. Buhler, 437 F.2d 279, 284 (9th Cir.

L971); Norte & Company v. Huffines, 416 F.2d 1189,

1191, 1192 (2d Cir. 1969), cert. denied sub nom, 397 U.S.

989, 90 S.Ct. 1121, 25 L.Ed.2d 396 (1970); Freschi v.

Grand Coal Venture, 588 F.2d 1257, 1260 (S.D.N.Y.

1984) (appropriate to award prejudgment interest in a

Federal Securities fraud case involving §10(b) and Rule

10b-5): Western Federal Corporation v. Davis, 553

F Supp. 818 (D. Ariz. 1982) affd, 739 F.2d 1439 (9th

Cir. 1984) (appropriate to award prejudgment interest

at the on-going commercial money market rate in a

App. 8

Federal Securities fraud case involving $10(b) and Rule

10b-5); Spatz v. Borenstein, 513 F.Supp. 571, 584 (N.D.

I1]. 1981) (appropriate to award prejudgment interest in

a Federal Securities fraud case involving $10(b) and

Rule 10b-5); Blasdel v. Mullenic, 356 F.Supp. 924, 928

(W.D. Okla. 1971) (appropriate to award prejudgment

interest in a Federal Securities fraud case involving

$10(b) and Rule 10b-5); Johns Hopkins University v.

Hutton, 297 F.Supp. 1165, 1227-1230, 1233 (D. Md.

1968), aff'd in part & rev'd in part on other grounnds, 422

F.2d 1124 (4th Cir. 1970) (appropriate to award pre-

judgment interest in Federal Securities fraud case in-

volving §10(b) and Rule 10b-5).

Il. THE FACTORS TO BE APPLIED IN

DETERMINING AN APPROPRIATE

AWARD OF PREJUDGMENT INTEREST

In determining whether to award prejudgment in-

terest, the major factor permeating cases in which pre-

judgment interest has been allowed is the necessity to

compensate an injured plaintiff, and the courts recog-

nize that “the only way the wronged party can be made

whole is to award him | prejudgment] interest from the

time he should have received the money.” F.,.,

Hembree v. Georgia Power Company, 637 F.2d 423, 430

(Sth Cir. 1981), quoting Louisiana & Arkansas Railway

v. Eaeport Drum Co., 359 F.2d 311, 317 (5th Cir. 1966):

Payne v. Panama Canal Company, 607 F.2d 155, 166

(5th Cir. 1979); West v. Harris, 573 F.2d 873, 883 (5th

Cir. 1978), cert. denied, 440 U.S. 946 (1979); George R.

Hall, Ine. v. Superior Trucking Co., 532 F.Supp. 985,

997-998 (N.D. Ga. 1982).

The general rule in this Circuit, that the only way the

wronged party can be made whole is to award him

prejudgment interest from the time he should have

App. 9

received the money on the date of the purchase or sale,

is based on the principal that at the conclusion of the

litigation the parties should be in the same position

they occupied at the time of the transaction which lead

to the litigation. E.g., Hembree, supra, 637 F.2d at 430;

Payne, supra, 607 F.2d at 166; West, supra, 573 F.2d at

882-883; Louisiana & Arkansas Railway Co., supra,

359 F.2d at 317; George R. Hall Company, Inc., supra,

532 F.Supp. at 997-998.

The federal standard applied in determining an

award of prejudgment interest in §10(b) and Rule 10b-5

cases “is one of fairness” and a balancing of the equities.

Huddleston, supra, 640 F.2d at 560 and cases cited in fn.

48 of the opinion; Balau v. Lehman, 368 U.S. 403, 82

S.Ct. 451, 457; Sharp v. Coopers & Lybrand, supra, 649

F.2d at 193; West, supra, 573 F.2d at 883; Norte & Co.,

416 F.2d at 1191; Wesse/, supra, 437 F.2d at 284;

Wilsmann v. The Upjohn Co., 572 F.Supp. 242, 245

(W.D. Mich. 1983) (allowed an award of prejudgment

interest in Federal Securities fraud case involving

$10(b) and Rule 10b-5 case).

In considering the fairness to the plaintiff for an

award of prejudgment interest, the courts focus on

awarding the plaintiff an amount to compensate him

for the value of the lost use of his money. E..g., see cases

previously cited for the proposition that the only way to

make the plaintiff whole is to award him prejudgment

interest from the time he should have received the

money cited above; Aris-Araft Industries, Inc. v. Piper

Aircraft Corp., 516 F.2d 172, 191 (2d Cir. 1975), rev'd on

other grounds, 430 U.S. 1,97 S.Ct. 926 (1977) (an award

of prejudgment interest should compensate the

plaintiff for the lost use of his money); F'reschi v. Grand

Coal Venture, supra, 588 F.Supp. at 1261 (award of

prejudgment interest should compensate a plaintiff for

App. 10

the lost use of his money}; Western Federal Corp. v.

Davis, supra, 553 F.Supp. at 821 «affd (award of pre-

judgment interest at the commercial money market

rate in an effort to compensate the plaintiffs for the loss

of the use of their money); George R. Hall, lune. supra,

532 F.Supp. at 997 (the court held it was impossible to

say that a plaintiff had been made whole if it was

merely paid back the costs of its 1979 repairs in inflated

1982 dollars without any prejudgment interest); Jo//1s

Hopkins University ve. Hutton, 297 F Supp. 1165, 1228

(D.C. Md. 1968). aff'd iy port Aor edie port on other

qroumds, 422 F.2d 1124 (4th Cir. 1970), cert. denied, 416

U.S. 916 (1974) (rate of prejudgment interest awarded

should “compensate fairly the defrauded purchaser for

the loss of the use of his money’, 297 F.Supp. at 1229):

oe Collier’, Granger, 258 F.Supp. 717 (S.D.N.Y. 1966).

O:her factors and standards which federal courts use

in determining whether or not to grant prejudgment

interest in a $10¢b) and Rule 10b-5 case include the

degree of personal wrongdoing on the part of the De-

fendants, whether the prejudgment interest would be

compensatory in nature, whether Plaintiffs passed up

other, reasonably available and = attractive op-

portunities, whether the Plaintiffs intentionally pro-

longed the time between the occurance of the violation

and the award of the Judgment or whether the De-

fendants were at least equally if not more responsible

for the delay. BE .g., Norte & Co. v. Huttines, 416 F.2d

1189, 1191-1192 (2d Cir. 1969); Wilsmann v. The Up-

john Company, 572 F Supp. 242, 245! W.D. Mich. 1983);

Western Federal Corporation ve. Davis, 553 F.Supp. 818,

821°(D. Ariz. 1982), affd, 739 F.2d 1439 (9th Cir. 1984);

Johns Hopkins University ve. Hutton, 297 F Supp. 1165,

1227-1230, 1233 (D. Md. 1968), aff'd & rev'd in part on

other grounds, 422 F.2d 1124 (4th Cir. 1970); see cases

cited s#proa holding that considerations of fairness must

|!

App. 11

be reviewed and that the only way to make a plaintiff

whole is to award him prejudgment interest for the lost

use of his money; see Huddleston v. Hermon & Mac-

Lean, 640 F.2d 534, 560 and cases cited in fn. 48 (5th

Cir. 1981), affd in part & rev'd in part on other grounds,

- USS. , 103 S.Ct. 683, 74 L.Ed.2d 548

(1983).

Turning to the facts in this case, an award of prejudg-

ment interest clearly is fair under any analysis or con-

siderations of fairness. The jury has found that the

Defendants E. T. Barwick Industries, Inc., M. E. Kellar

and B. A. Talley violated Federal Securities laws and

statutory and common law fraud against the Plaintiffs

and, as a result of their actions and conduct, Plaintiffs

sold their family business which was their primary if

not their sole asset, on terms which they would not have

accepted but for such conduct and actions on the part of

these Defendants.

It is clear that if the Plaintiffs had been informed of

what the jury has found to be the truth concerning the

inaccuracy of the financial statements and financial

condition of E. T. Barwick Industries, Inc., they would

not have entered into the Merger Agreement. The jury

awarded damages pursuant to the Court’s instructions

as of the date of the merger, September 8, 1969.The

Plaintiffs have lost the use of that money since

September 1969. Thus, the degree of personal wrong-

doing on the part of these Defendants has been es-

tablished, and fundamental considerations of fairness

dictate an award of prejudgment interesi be provided to

the Plaintiffs.

The uncontradicted testimony at trial established

that there was available substantial and reasonable

alternative investment opportunities to the Plaintiffs

prior to their entering the merger with E. T. Barwick

App. 12

Industries, Inc. [Trial Testimony of: Eric Blum, Ken-

neth Chasser, Myles Osterneck, and Guy Osterneck].

Therefore, there can be no doubt that the Plaintiffs

passed up other, reasonably available and attractive

opportunities to enter into this Merger Agreement and

purchase stock of E. T. Barwick Industries, Inc. in ex-

change for the stock and assets of their family business,

Cavalier Bag Company.

The Merger Agreement occurred on September 8,

1969. This case, instituted on September 4, 1975, did

not come to trial for over nine (9) years. The trial in this

case began on October 15, 1984. The delays involved in

this complicated case, complicated both in terms of fact

and law, cannot be laid on the doorstep of the Plaintiffs.

In fact, the record in this case clearly demonstrates that

the fault for the delay in bringing this case to trial lies

squarely on the Defendants. Even a cursory review of

the voluminous docket sheet filed in this case demon-

strates this fact. The Defendants filed numerous mo-

tions including several motions for reconsideration at-

tempting to end this case before going to trial.

For example, the Defendants filed motions to dismiss

or for judgment on the pleadings. After the Court in

May 1978 denied the motions of the Defendants for

judgment on the pleadings or to dismiss, the De-

fendants filed in June of 1978 a Motion for Reconsidera-

tion of the Judge’s May, 1978 Order and again sought

dismissal or judgment on the pleadings. Subsequent to

the Court’s Order in September 1978 denying De-

fendants’ Motion for Reconsideration, the Defendants

filed a motion for a separate trial on the statute of

limitations issue in October, 1978. After the Court en-

tered its Order denying the request for a separate trial,

the Defendants filed in 1980 motions to dismiss or in

the alternative for summary judgment.

App. 13

Subsequent to the Court’s Order in December 1981

denying ie Defendants’ motions for summary judg-

ment, the Defendants filed in August of 1982 another

Motion to Dismiss or in the Alternative for a Stay of the

Proceedings. The Court in April of 1983 entered an

Order denying Defendants’ Motion to Dismiss or in the

Alternative for An Order to Stay of the Proceedings.

After this Order the Defendants in October of 1983 filed

a Motion for Reconsideration of the Court’s Order deny-

ing them a separate trial on the issue of the statute of

limitations. Defendants also filed in October 1983

another Motion for Reconsideration (the second Motion

for Reconsideration) to reconsider the Court’s Order

denying summary judgment on the statute of limita-

tions issue. This Court in February of 1984 entered its

Order denying the Defendants’ second Motion for Re-

consideration of the statutue of limitations issue and

summary judgment, and entered its Order denying De-

fendant’s Motion for Reconsideration of a separate trial

on the statue of limitations issue.

Plaintiffs will not go through in detail the prior

history of this case, which the Plaintiffs are confident

the Court is well aware. There can be no doubt after

reviewing the record of this case that the delay in bring-

ing this case to trial is not the fault of the Plaintiffs, and

clearly lies at the doorstep of the Defendants.

Another consideration which the courts apply in

weighing the issue of prejudgment interest is to take

judicial notice of the decline in the purchasing value of

the dollar since the acts complained of occurred as a

result of inflation. Federal Rule of Evidence 201. There,

of course, can be no argument as to the decline of the

purchasing value of the dollar since September of 1969

as the result of inflation, and this Court may and sheuid

take judicial notice of this fact when it determines the

appropriateness of an award of prejudgment interest

App. 14

and the amount of prejudgment interest. It must be

remembered that the $2.6 Million award to the

Plaintiffs is for damages as of the date of the merger in

September 1969.

It also is clear that the Piaintilfs were deprived of the

principal sum they have been awarded as damages for

fifteen (15) years, and thus prejudgment interest would

in fact be compensatory.

In determining whether to award prejudgment in-

terest to the Plaintiffs, the following fact should be

considered:

The jury’s verdict necessarily included a finding

that the defendants committed a fraud upon the

plaintiff. As a result of this fraud, the plaintiffwas

deprived of the use of his money, and the de-

fendants and the benefit of their fraud, for many

Vedars. See, C.Y.. Holmes v. Bateson, 583 F.2d 542,

564 (Ist Cir. 1978). The plaintiff, therefore, co

only he made whole if prejudgqnu wt imterest is

smvrrded to han.

Woolson. [ pjohy Company, SH prey, 572 Fk Supp. at

245 ‘emphasis added and in original).

In Norte & Company, supra, 416 F.2d 1189, 1191 (2d

Cir.) the court stated as follows:

However, as the corporation had been deprived of

almost $3,000,000, the difference between the fair

value of the steck issued and what it actually re-

ceived, through the calculated fraud of the de-

fendants, there was good reason for the district

court to award interest as compensatory damages.

Norte & Company ve. Huftfines, supra, 416 F.2d at 1191.

In Cant v. A. G. Becker & Co., Lnce., 384 F.Supp. 814

(N.D. ill. 1974), the court in a Federal Securities fraud

case stated it this way:

App. 15

“However, in light of a recent decision by the Court

of Appeals of the Seventh Circuit and other deci-

sions by federal courts in securities cases, /f is vow

clear that prejudgment interest may be awarded in

situations wherein through the fault of another the

plaintiff was deprived of beneficial ase of its funds.”

(Citations omitted).

As Judge Cummings stated in Mattigan (Mattigan,

lnc. v. Goodman, 498 F.2d 233 (7th Cir. 1974):

“Had plaintiffs not purchased the Fidelity stock, or

purchased at a lower price, they would have put the

unused money somewhere, even ifonly ina savings

eccount, Unlike the non-existence profits and divi-

sion as a result of defendants’ misrepresentations,

the chance to use their money elsewhere was actually

last to plaintiffs

ss

Cant, supra, 384 F.Supp. at 815-816 (emphasis added)

quoting in part Mattigan, luc., supra, 498 F.2d at 240.

The court in Cat like the other Federal Securities

cases, awarded prejudgment interest to the plaintiffs

assessed from the date of the purchase and thereafter

on the aggregate loss incurred to the date of judgment.

384 F Supp. at 816; see cases cited supra. The court

pointed out:

The defendant was found to be the “wrongdoer” ina

series of stock transactions which were the subject

of the litigation. A. G. Becker & Company, Inc. had

the use of the plaintiffs funds for an extended

period of time.

384 F Supp. at 816.

As well stated by the court in Caw:

In lieu of rescission the Court still feels that

plaintiff is entitled to an award of monetary dam-

ages sufficient to place him in the position he would

App. 16

have been had it not been for defendant's wrongful

activity. Allowing damages, interest, and costs re-

stores plaintiff to that position. Plaintiff can only

be made whole if placed ina posture which (ISSHINES

that he had the opportunity to utilize h is funds ima

reasonable manner. The law does not permit de-

tendants to obtain the heneficial HSE of plaintiffs

funds at no cost to the wrongdoer,

Cant, supra, 484 F.Supp. at 816 ‘emphasis added).

ill. THE APPROPRIATE AWARD OF PRE-

JUDGMENT INTEREST TO THE

PLAINTIFFS

In determining the appropriate award of prejudg-

ment interest to the Plaintiffs, the federal courts have

recognized that they may award interest applying com-

mercial market rates in order to compensate the

Plaintiffs for the loss of the use of their money. In

Western Federal Corporation ve. Davis, supre, the court

ina Federal Securities claim case stated the following:

in light of the fact that the defendants violated the

securities laws and that Le plaintiffs have been

deprived of the full use of the amounts paid,

plaintiffs are entitled to recover prejudgment

interest.

553 F.Supp. at 821. The court in Western Federal con-

cluded that the appropriate rate of prejudgment in-

terest to award the plaintiffs was based on the average

rate that a consumer could have obtained in the money

market during the two-year period in question. 553

F.Supp. at 821.

The court stated the following:

This Court recognizes that it may award in-

App. 17

terest at the money market rate in an effort to

compensate the plaintifts for the loss of the use of

their money. See Johns Hopkins University v.

Hutton, 297 F.Supp. 1165, 1228 ‘citation

omitted).

553 F.Supp. at 821 (emphasis added). The court pointed

out that since the Federal Securities Act did not pre-

scribe a legal rate of interest, “it has been ruled that the

rate of interest imposed should ‘compensate fuirly the

defrauded purchaser for the loss of the use of his

money.” Western Federal Corporation, supra, 553

F.Supp. at 821 (‘emphasis added), quoting Johns

Hopkins University v. Hutton, 297 F.Supp. at 1229; see

Collier v. Granger, 258 F.Supp. 717 (S.D.N.Y. 1966).

In Johns Hopkins University v. Hutton, 297 F.Supp.

1165 (D. Md. 1968), «aff'd in part & rev'd in part on other

grounds, 422 F.2d 1124 (4th Cir. 1970), cert. denied, 416

U.S. 916 (1974), the court approved an award of pre-

judgment interest in a Federal Securities claim case

and recognized the commercial money market as ap-

propriate to consider in determining the rate of pre-

judgment interest. In Johns Hopkins the Court rejected

an automatic application of the legal rate of interest

used by the state statute. After noting that prejudg-

ment interest is used to compensate fairly the de-

frauded purchaser “for the loss of the use of his money”,

the court stated the following:

The comparative states of the money market at the

times of purchase and of rescission are important

factors in determining a compensatory rate of in-

terest. |Citations omitted].

The court in Johns Hopkins took judicial notice of the

data submitted concerning the prime interest rates

during the period from the time of the acts complained

of until the date of judgment. 297 F.Supp. at 1230. The

App. 18

court reviewed and analyzed thie prene rate as demon

strating the reasonable level ofr turn fora similar tip pne

opine stn entas made bi ihe plo titts in thet particular

case. In Johns Hopkins, the court stated that the

plaintiff was “an investor anticipating a return on its

investment.” 297 F.Supp. at 1229. In order to place the

plaintiff in a position it would have been in were it not

for the violations of the Federal Securities law of de-

fendants “an cco

Hoph WS plier tiff) could veasor ably hare ¢ pe cted to

Sore quired try le feporii pee ohare

ele Ny (! Nid / {) Pig pe (jf ; ‘ Sforple jit - IGT F Supp. al

1229 ‘emphasis added

This is an approach used by many cases as cited In the

Johns THe PRIUS decision, the Western Federal (Corpord-

fron case and other cases cited savpru. The Court in

Johus Hoplens concluded that the plaintiffs could have

reasonably expec ted to earn a certain percentage per

annum on its investment from the time of the acts

complained of until the date of judgment. 297 F.Supp

at 1230. The Court determined that since the purpose of

awarding interest to the defrauded purchaser “is to

compensate him for the amount which he could have

safely earned by the use of his money,” the choice of any

date other than the date of which the fraudulent sale

was made, “would amount to a decree of less than full

compensation.” 297 F.Supp. at 1233 and cases cited.

The Court in Johns Hopkins determined the ap-

propriate rate of interest per annum based on what it

believed plaintiffs could reasonably have expected as a

return on the type of investment involved during that

period of time, reviewing and analyzing the prime rate

during the period of time, considering what the plaintiff

could reasonably have expected to earn by a similar

type of investment during that period of time, consider-

ing the contractual language involved in that case, and

ill

App. 19

determining an appropriate rate of interest as compen-

sation for the loss of the use of the money the plaintiff

should have received. 297 F.Supp. at 1227-1230, 1233,

affd, 422 F.2d 1124 (9th Cir. 1970).

Thus, the federal courts clearly have recognized that

the appropriate prejudgment interest imposed should

“compensate fairly the defrauded purchaser for the loss

of the use of his money,” and that a court may award

interest based on the commercial market rates and the

prime rate in an effort to compensate the plaintiffs for

the loss of the use of their money from the date of the

acts complained of to the date of judgment.

Turning to the facts applicable in this case, Plaintiffs

have concurrently filed herewith an Affidavit of Walter

M. Singer with exhibits to provide the Court with in-

terest rate calculations during the appropriate period of

time from September 8, 1969 to the date of Judgment,

January 30, 1985.

In determining the interest rate calculation for the

period beginning September 8, 1969 to January 30,

1985, the principal amount used was $2,632,234 which

is the amount of the Judgment entered in favor of the

Plaintiffs in the above-styled action. The date of the

entry of the Judgment is January 30, 1985. The begin-

ning date for determining the calculations, September

8, 1969 is the date of the merger agreement entered into

between the Plaintiffs and Defendant E. T. Barwick

Industries, Inc. and the date upon which the

$2,632,234.00 in compensatory damages was de-

termined pursuant to the instructions of the Court.

The generally accepted and most appropriate method

in determining interest rate calculations concerning

the value of the use of money over a period of time for a

similar type of investment as made by the Plaintiffs in

this case is to apply the three-month Certificates of

App. 20

Deposit interest rate calculations from September 8,

1969 to January 30, 1985 on a compounded interest

basis. [Affidavit of Walter Singer at "6, 7 and 18]. This

approach is the most appropriate in determining the

proper rate of interest because the Plaintiffs, as

testimony shows at the trial, intended as their goal a

long-term growth investment and savings by their

purchase of Barwick stock in exchange for the sale of

Cavalier Bag Company. Based on this approach, the

appropriate amount of interest from September 8, 1969

to January 30, 1985 is the sum of $7,580,099.59, which

is the calculation provided in ‘6 of the Affidavit of

Walter M. Singer and attached thereto as Exhibit “B”.

This is the interest calculation using the three-month

Certificates of Deposit interest rates from September 8,

1969 through January 30, 1985, on a compounded

basis. The equivalent compounded annual interest rate

over this period of time using this approach equals

8.9035%.

We have provided the Court for its convenience in-

terest calculations using other approaches as shown in

“8 through 16 of the Affidavit of Walter Singer and

Exhibit “C” through “L” attached thereto. Plaintiffs

strongly urge the Court to apply the interest calcula-

tion using the three-month Certificate of Deposit in-

terest rates since that approach is the most appropriate

and closely analogous approach to a similar type of

investment as the Plaintiffs in this case. This approach

would compensate the Plaintiffs for the loss of the use of

their money and make whole the Plaintiffs for their

loss. This approach based upon a review and analysis of

the commercial money and capital market rates and

the prime rate during the appropriate period of time is

the rate of interest the Plaintiffs could reasonably have

expected to earn by a similar type of investment during

this period of time. This is the most appropriate

App. 21

approach upon a consideration of fairness and all the

other factors which have been discussed above and ap-

plied by the courts in determining the award of prejudg-

ment interest to Plaintiffs in Federal Securities claim

cases.

The average prime rate charged by banks over the

period of time from September 1969 to January 30,

1985 is 10.15%. [See Affidavit of Walter M. Singer at

*15 and Exhibits “J” and “K” attached thereto].

For the convenience of the Court Plaintiffs have pro-

vided the following chart of other interest calculations:

Equivaient

Annual Interest

Total Interest Rate

Three Month Certificates of

Deposit (compounded) $7,580,099 .59 8 9035

| Aff. of Singer at 7 and

Exhibit “B” attached

thereto|

Annual Average of Three

Month Certificates of

Deposit (compounded) $7,063,196 .91 8 .5589%

| Aff. of Singer at £8 and

Exhibit"C” attached

thereto].

Three Month Cerificates

of Deposit (simple interest) $3,614,171 .77 8.919%

|Aff. of Singer at £9 and

Exhibit “D” attached

thereto}

Annual Average Interest

Rate—Three Month Cer-

tificates of Deposit

(simple interest) $3,597 382 .62 8 .8776%

|Aff. of Singer at £10 and

App. 22

Exhibit “E” attached

thereto].

Six Month Prime Commercial

Paper (compounded) $7,169,596 .11

| Aff. of Singer at £11 and

Exhibit “F” attached

thereto}.

Annual Average Six Month

Prime Commercial Paper

(compounded) $6,746,720 .34

| Aff. of Singer at £12 and

Exhibit “G” attached

thereto].

Six Month Prime

Commercial Paper

(simple interest) $3,544,988 .90

| Aff. of Singer at £13 and

Exhibit “H” attached

thereto}.

Annual Average of Six Month

Prime Commercial! Paper

(simple interest) $3,498,903 .90

| Aff. of Singer at £14 and

Exhibit “I” attached

thereto}.

Constant 7 (compounded

annually) $4,830,744 .71

| Aff. of Singer at 16 and

Exhibit “L” attached

thereto}.

Constant 7 (simple

interest) $2,836,538 .63

| Aff. of Singer at 17 and

Exhibit “M” attached

thereto}.

The interest calculations applying a 7% interest rate

8.7242%

8$.4255°

8.7483

8.6346

7.00%

7.00%

App. 23

per annum from September &, 1969 to January 30, 1985

compounded annually and utilizing a simple interest

approach not compounded annually, are based on an

application of O.C.G.A. $7-4-2. The constant 7 in-

terest rate clearly is not appropriate in this case based

on the circumstances and facts in evidence. based on all

the facts the Court must consider in determining an

award of prejudgment interest, and based on a review

and analysis of the cases recognizing the intent of an

award of prejudgment interest to make the Plaintiffs

whole and to provide them for the lost use of their

money from the date of the acts complained of. A review

and analysis of the prime rate (10.15%) and the com.

mercial market interest rates during the appropriate

period of time, and consideration of what Plaintiffs

could reasonably have expected to earn by a similar

type of investment during this peirod of time. mandate

that the interest calculation applying a constant 7‘:

rate is far too small and would not compensate the

Plaintiffs for the loss of the use of their money. This case

is IN a Unique situation due to the comparative states of

the commercial market rates from the time of the acts

complained to the date of judgment.

App. 24

CONCLUSION

For all the above reasons and based on the record in

this case, Plaintiffs respectfully request the Court to

award them prejudgment interest from September 8,

1969 to the date of Judgment, January 30, 1985.

Respectfully submitted,

/s/

PAUL WEBB, JR.

Georgia State Bar No. 744650

/s/

HAROLD T. DANIEL, JR.

Georgia State Bar No. 204000

/s/

KEITH M. WIENER

Georgia State Bar No. 757475

Attorneys for Plaintiffs

Of Counsel

WEBB & DANiEL

1901 Peachtree Center Cain Tower

229 Peachtree Street, N.E.

Atlanta, Georgia 30303

(404) 522-8841

App. 25

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that I have this day served a

true and correct copy of the foregoing Brief In Support

of Plaintiffs’ Motion for Award of Pre-Judgment In-

terest to all counsel of record by depositing a copy of

same in the United States mail, with adequate postage

affixed thereto, addressed as follows:

Philip R. Russ, Esq. Foy R. Devine, Esq.

1005 Texas American Bank Devine & Morris

Building Four Piedmont Center, Suite | 1 |

P.O. Box 12073 3565 Piedmont Road, N.E.

Amarillo, Texas 79101 Atlanta, Georgia 30305

Susan Hoy, Esq. Richard M. Kirby, Esa.

High House Hansel! & Post

309 Sycamore Street 3300 First Atlanta Tower

Decatur, Georgia 30030 Atlanta, Georgia 30383

Earle B. May, Jr., Esq.

Alston & Bird

1200 C&S Nationa! Bank

Building

35 Broad Street

Atlanta, Georgia 30335

This 11 day of February, 1985.

/s/

KEITH M. WIENER

Georgia State Bar No. 757475

Attorney for Plaintiffs