L-S Industries, Inc. v. J. Matlack, et al

Filing

OPINION filed : The district court is AFFIRMED. Decision not for publication pursuant to local rule 206. Karen Nelson Moore, Circuit Judge; Richard Allen Griffin, Circuit Judge and Gordon J. Quist, authoring U.S. District Judge for the Western District of Michigan, sitting by designation.

Case: 10-5927

Document: 006111190118

Filed: 01/20/2012

Page: 1

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0076n.06
FILED

No. 10-5927

Jan 20, 2012
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

L-S INDUSTRIES, INC.,
Plaintiff/Counter-Defendant/Appellee
v.
J. CHRISTOPHER MATLACK,
Defendant/Counter-Plaintiff/Appellant
v.
WILLIAM HUGHES
Counter-Defendant/Appellee

BEFORE:

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LEONARD GREEN, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF TENNESSEE
OPINION

MOORE and GRIFFIN, Circuit Judges; and QUIST, Senior District Judge.*

Quist, District Judge.
I. BACKGROUND
After a four-day jury trial, the jury found that Defendant Matlack had breached his fiduciary
duty of loyalty to his former employer, Plaintiff L-S Industries (“LSI”), and awarded LSI $131,500.
The jury also found that LSI and Counter-Defendant William Hughes, President of LSI, had
breached the contract according to which Matlack received his bonus compensation. The jury

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Honorable Gordon J. Quist, United States Senior District Judge for the Western District of
Michigan, sitting by designation.

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awarded Matlack $130,500 for his breach of contract counter-claim. The district court denied
Matlack’s motion for prejudgment interest on his $130,500 jury award. (R. 123.) The sole issue on
appeal is whether the district court abused its discretion in denying Matlack prejudgment interest on
his breach of contract award.
II. ANALYSIS
The district court had subject matter jurisdiction in this diversity case pursuant to 28 U.S.C.
§ 1332. “There is no dispute that in a diversity action the question of prejudgment interest must be
determined under state law.” Daily v. Gusto Records, Inc., 14 F. App’x 579, 591 (6th Cir. 2001)
(citing Mass. Benefit Ass’n v. Miles, 137 U.S. 689 (1891)).
The award of prejudgment interest is within the sound discretion of the trial court, and the
decision will not be disturbed upon appellate review unless the record reveals a manifest and
palpable abuse of discretion. Engert v. Peerless Ins. Co., 382 S.W.2d 541, 550-51 (Tenn. Ct. App.
1964); see also Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 333 (6th Cir. 2007)
and Sparton Tech. Inc. v. Util-Link, LLC, 248 F. App’x 684, 693 (6th Cir. 2007) (applying Tennessee
law). “Generally stated, the abuse of discretion standard does not authorize an appellate court to
merely substitute its judgment for that of the trial court.” In re Estate of Ladd, 247 S.W.3d 628, 645
(Tenn. Ct. App. 2007) (citing Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998)). “A trial
court acts within its discretion when it applies the correct legal standard and reaches a decision that
is not clearly unreasonable.” Bogan v. Bogan, 60 S.W.3d 721, 733 (Tenn. 2001).
First, the district court identified the correct legal standard. The Tennessee Supreme Court
in Myint articulated the following standard regarding the award of prejudgment interest:
Several principles guide trial courts in exercising their discretion to award or deny
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prejudgment interest. Foremost are the principles of equity. Tenn. Code Ann. § 4714-123. Simply stated, the court must decide whether the award of prejudgment
interest is fair, given the particular circumstances of the case. In reaching an
equitable decision, a court must keep in mind that the purpose of awarding the
interest is to fully compensate a plaintiff for the loss of the use of funds to which he
or she was legally entitled, not to penalize a defendant for wrongdoing.
Myint, 970 S.W.2d at 927 (citations omitted) (emphasis added); see also Tenn. Code. Ann. § 47-14123 (authorizing trial courts to award prejudgment interest “in accordance with principles of
equity”). Moreover, “[t]rial courts are afforded a great deal of discretion and are entitled to
deference regarding the determination of whether to award prejudgment interest.” Int’l Flight Ctr.
v. City of Murfreesboro, 45 S.W.3d 565, 573 (Tenn. Ct. App. 2000) (citations omitted).
Second, the district court applied this principle in a reasonable manner; the record certainly
does not reveal a manifest and palpable abuse of discretion. In accord with Myint, the district court
said that under the “particular circumstances” of this case it would be “unfair” to award prejudgment
interest to Matlack because, given the jury award, Matlack did not need to be more “fully
compensated.” Moreover, under the circumstances, awarding Matlack prejudgment interest would
“penalize” LSI, rather than more fully compensate Matlack. These are entirely reasonable assertions
given the jury’s findings and overall decision to award LSI more money than Matlack. In sum, the
district court exercised its discretion by weighing the equities of the case to decide that prejudgment
interest would be unfair in this instance.
Matlack’s arguments that the district court applied the incorrect legal standard are unavailing.
First, in Scholz v. S.B. International, Inc., 40 S.W.3d 78 (Tenn. Ct. App. 2000), the court gave three
examples where prejudgment interest may be inappropriate, but it did not limit a court’s ability to
deny prejudgement interest in only those three circumstances. Id. at 83 (“Prejudgment interest may

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at times be inappropriate such as . . . .” (emphasis added)). Indeed, the three circumstances in Myint
do “not represent an all inclusive list of the reasons that could justify a court’s denial of prejudgment
interest.” Story v. Lanier, 166 S.W.3d 167, 182 (Tenn. Ct. App. 2004). Second, Matlack’s argument
that the district court applied a Tennessee Rule of Civil Procedure simply because the district court
used the words “prevailing parties” is conjecture. As discussed, the district court applied Myint,
which is still the controlling substantive law in Tennessee on this matter.
III. CONCLUSION
The district court did not abuse its discretion by denying Matlack prejudgment interest.
Therefore, the district court is AFFIRMED.

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