Owner-Operator Ind, et al v. CR England

Filing 555

MEMORANDUM DECISION granting in part and denying in part 542 Defendants Objections to the Magistrate Judges Decisions in Damages Analysis and Motion to Reconsider Rulings on Maintenance Expenses in the Other Account and Prejudgment Interest. Plaintiffs counsel submit a proposed judgment for the Courts signature by March 11, 2013. Signed by Judge Ted Stewart on 02/11/2013. (asp)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

OWNER-OPERATOR INDEPENDENT
DRIVERS ASSOCIATION, INC., et al.,
Plaintiffs,

MEMORANDUM DECISION AND
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT’S
OBJECTIONS TO THE
MAGISTRATE JUDGE’S
DECISIONS IN DAMAGES
ANALYSIS AND MOTION TO
RECONSIDER RULINGS ON
MAINTENANCE EXPENSES IN THE
“OTHER” ACCOUNT AND
PREJUDGMENT INTEREST

vs.

C.R. ENGLAND, INC.,

Case No. 2:02-CV-950 TS

Defendant.

This matter is before the Court for consideration of Defendant’s Objections to the
Magistrate Judge’s Decisions in Damages Analysis and Motion to Reconsider Rulings on
Maintenance Expenses in the “Other” Account and Prejudgment Interest. For the reasons
discussed below, the Court will deny Defendant’s Objections and Motion to Reconsider except
as to the issue of prejudgment interest.
1

I. BACKGROUND
On June 20, 2007, this Court issued its Findings of Fact and Conclusions of Law, finding
that Defendant’s form lease agreements, known as the Independent Contractor Operating
Agreements (“ICOA”), violated the Federal Truth in Leasing Act (“FTLA”) and accompanying
Department of Transportation Regulations.1 As part of this ruling, the Court ordered an
accounting of the escrow accounts held by Defendant under the ICOA to determine if and when
Defendant had improperly deducted unauthorized amounts from escrow accounts on an
individual account basis (the “Accounting”).
On October 24, 2008, the Court issued its Memorandum Decision and Order on
Finalization of the Accounting of Escrow Accounts, Defendant’s Proposed Set-Offs, Actual
Damages, and Restitution (the “Finalization Order”).2 Therein, the Court ordered that “[t]he
Accounting is to be finalized and submitted to the Court” by November 23, 2008.3 The Court
further ordered that “upon submission of the finalized accounting of escrow accounts, the case
will be referred to Magistrate Judge David Nuffer for a truck-by-truck analysis of actual
damages.”4

1

Docket No. 299.

2

Docket No. 358.

3

Id. at 11.

4

Id.
2

Defendant filed its final accounting on November 24, 2008 (the “Final Accounting”).5
The parties then engaged in a damages analysis with then Magistrate Judge Nuffer.
Defendant’s Objections and Motion to Reconsider challenge various aspects of this
Court’s previous rulings, as well as those of the Magistrate Judge. The specifics of those
previous rulings will be discussed in further detail below.
II. STANDARDS OF REVIEW
Defendant challenges both the decisions of the Magistrate Judge and prior rulings of the
Court. Thus, two different standards of review are at issue.
The parties agree that the Court is to apply a de novo standard of review to those portions
of the Magistrate Judge’s decision to which Defendant objects.
“Grounds warranting a motion to reconsider include (1) an intervening change in the
controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error
or prevent manifest injustice.”6 “[A] motion for reconsideration is appropriate where the court
has misapprehended the facts, a party’s position, or the controlling law. It is not appropriate to
revisit issues already addressed or advance arguments that could have been raised in prior
briefing.”7

5

Docket No. 359.

6

Servants of Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000).

7

Id. (citation omitted).
3

III. DISCUSSION
A.

PAYMENTS MADE AT FINAL SETTLEMENT
Defendant’s first objection concerns how the Magistrate Judge accounted for payments

that were made to drivers at the time of final settlement. Defendant argues that the Magistrate
Judge should have used the rule applied for the tracing of trust funds in commingled accounts.
Defendant argues that, if this rule applies, any final payment to the driver should be considered a
return of escrow funds.
On April 28, 2009, in response to Defendant’s Motion for Clarification, the Court held
that “any payment to class members at the time of settlement which were paid from escrow
accounts must be deducted from the measure of damages. The Court also finds that any
payments not made from escrow accounts are irrelevant to a determination of damages from
unlawful management of escrow accounts, and are not to be considered.”8
Defendant sought additional clarification, requesting “that the Court issue an order
clarifying that all funds paid to England drivers at the time of final settlement were specifically
escrow funds that should be offset against damages before adjudication of England’s set-off
claims.”9 The Court declined to specifically rule on Defendant’s request, finding “that these
issues are more appropriate for the damages analysis phase.”10

8

Docket No. 394, at 2.

9

Docket No. 459, at 3.

10

Id. at 4.
4

The Magistrate Judge was then tasked with determining how to account for those
payments made at the final settlement. Both parties submitted proposals to the Magistrate Judge
on this issue. Defendant argued that the Magistrate Judge should presume that the funds it paid
out in the final settlement were escrow funds. Defendant based this argument on a rule used in
tracing escrow funds. Specifically, “England urged the Court to apply the majority principle of
trust law that when a trustee commingles trust funds with his own funds, any payment from the
fund for a non-trust purpose is presumed to have been drawn from non-trust funds, and any
payment from the fund for a trust purpose is presumed to have been drawn from trust funds.”11
The Magistrate Judge found “[s]everal things . . . wrong with this argument”12 and
ultimately rejected Defendant’s proposal. Instead, the Magistrate Judge adopted the proposal
supplied by Plaintiffs. Defendant argues that the Magistrate Judge’s decision was incorrect and
that the tracing rule to which it cites is directly applicable here.
As set forth above, the Court has held that any payments made at the time of final
settlement that were paid from escrow accounts must be deducted from the appropriate measure
of damages. Defendant asks the Court, as it asked the Magistrate Judge, to presume that
payments made at final settlement were made from the escrow accounts. Defendant argues that
this presumption follows from the equitable tracing principle set forth in its Objection.
As was detailed in the Magistrate Judge’s thorough decision on this issue, there are
several problems with the application of that principle to this case. Thus, even reviewing the

11

Docket No. 543, at 2-3.

12

Docket No. 491, at 7.
5

Magistrate Judge’s decision de novo, as the Court must, the objection on this ground must be
overruled. As was stated by the Magistrate Judge, payment is an affirmative defense on which
Defendant has the burden of proof. Defendant has not met its burden to show that the payments
made at final settlement were escrow funds. Further, the Magistrate Judge’s decision to employ
the methodology proposed by Plaintiffs is well-supported by the facts and record. Therefore, this
objection is overruled.
B.

SET-OFFS FOR REPAIR AND MAINTENANCE CHARGES
The Finalization Order established that “all repair and tire purchases are approved

deductions from escrow accounts, and must be included in the Accounting. Because these setoffs will be deducted prior to finalizing the Accounting, they will not be considered during the
analysis of damages.”13
Defendant attempted to revisit the issue of repair and maintenance set-offs during the
damages analysis conducted by the Magistrate Judge. Defendant sought to adjust the Final
Accounting by including repair and maintenance charges of which it was previously unaware.
Plaintiffs filed a motion seeking to exclude any consideration of repair and maintenance set-offs
from the damages analysis, which was granted by the Magistrate Judge.14 The Magistrate Judge,
relying on the language from the Finalization Order quoted above, precluded consideration of the
newly discovered repair and maintenance charges during the damages analysis. The Magistrate
Judge held that “Defendant will not be allowed during this damages phase to modify the Final

13

Docket No. 358, at 6.

14

Docket No. 446.
6

Accounting with newly-discovered repair and maintenance charges.”15 The Magistrate Judge
also based his decision on the fact that Defendant had exclusive control over the accounting
process. Finally, the Magistrate Judge held that allowing Defendant to revise the Final
Accounting would not promote an efficient use of judicial resources. “Changing the Final
Accounting this late would further prolong this already protracted litigation by further discovery,
more motions and hearings, additional factual disputes, and increased expenses for the parties
and the court.”16 Defendant objected to the Magistrate Judge’s decision on this issue.
In its earlier order, the Court found important, as the Magistrate Judge had, that the Final
Accounting was under Defendant’s exclusive control. “Thus, Defendant already had a full and
fair opportunity to account for all repair and tire set-offs during the Accounting phase of the
damages assessment.”17 The Court further found “that equity weighs against readdressing an
accounting which was filed in late 2008 and has been relied upon throughout the damages
analysis phase. To hold otherwise would further delay an already protracted assessment of
damages and contravene the plain language of this Court’s Finalization Order.”18
In its Objections, Defendant again seeks to revisit the repair and maintenance set-offs.
Defendant presents three arguments in support of its request. First, Defendant argues that the
damages computation for drivers who had repair-related expenses in their “other” accounts is

15

Id. at 4.

16

Id. at 5.

17

Docket No. 458-1, at 6.

18

Id. at 7.
7

inaccurate because it omits expenses in that account. Second, Defendant argues that fixing this
inaccuracy will be simple, because the amounts have now been properly identified. Finally,
Defendant argues that the Court’s previous rulings were based on the incorrect premise that
Defendant could have identified these newly discovered repair and maintenance costs during the
Final Accounting.
For substantially the same reasons stated by the Court and the Magistrate Judge
previously, the Court must reject Defendant’s argument. The fact remains that the Final
Accounting was under Defendant’s control. Therefore, Defendant cannot be heard to complain
of errors that were of its own making. It is true, as Defendant argues, that the Final Accounting
was completed on an expedited basis. However, Defendant never sought additional time to
complete the Final Accounting, and it was only after Defendant discovered additional amounts
that it should have deducted from the Final Accounting that this issue was brought to the Court’s
attention. Additionally, the Final Accounting has been relied upon by both parties and is the
basis for the damages analysis. Adjusting the Final Accounting at this late date would likely
upend the entire damages analysis, undoing years of work by all parties. Therefore, it is not in
the interest of justice to revisit this issue.
C.

LEASE PAYMENTS AFTER TERMINATION OF THE ICOA
In the Finalization Order, the Court ruled that “truck lease payments were mentioned in

Addendum 3 to the ICOA, and may therefore be considered during the damages analysis, as a
potentially legitimate debt owed by individual Plaintiffs to Defendant.”19 However, the Court

19

Docket No. 358, at 7.
8

also stated “that truck lease payments were also mentioned in the VLA, and directs that
consideration of lease payments exclude any terms in the VLA regarding truck lease payments.”20
Defendant filed a Memorandum on April 15, 2011, wherein it argued that it was entitled
to a set-off for lease payments accrued by drivers after termination of the ICOA.21
In an Order dated May 19, 2011, the Magistrate Judge held that “Defendant is prohibited
from asserting set-offs against class member’s escrow funds amounts for remaining truck lease
payments owed after the date of the termination of the ICOA as these amounts are defined and
obligated under the Vehicle Leasing Agreement [“VLA”] and not under the ICOA.”22
The VLA contains the following liquidated damages clause:
YOU agree to pay up upon termination of the lease by default or otherwise: (a)
Any lease payment due as of the date of notice of default or termination. In the
case of default, lease payments shall be paid by YOU until WE can lease the
vehicle or sell it for a price WE deem appropriate; (b) Any expense WE incur in
returning the vehicle to the condition in was when leased, ordinary wear and tear
excepted . . . , in replacing any equipment or accessories which are missing from
the vehicle, and incurred in selling or leasing the vehicle to a third party; (c) Any
expense WE incur in returning the vehicle to the office WE have at Salt Lake
City, UT or a closer alternate point if WE so elect; (d) Any expenses, including
attorney fees, WE incur in securing possession of the vehicle if you do not
voluntarily return the vehicle . . . .23

20

Id.

21

Docket No. 498.

22

Docket No. 509, at 1-2.

23

Docket No. 545, Ex. C.
9

Under this language, it is clear that the VLA governs lease payments after the termination
of the ICOA. Therefore, the Magistrate Judge was correct in not considering them, in accordance
with the Court’s prior rulings.
Defendant argues that the Magistrate Judge was incorrect based on certain language
contained in Addendum 3 to the ICOA. It is true that there is certain language in Addendum 3 to
support Defendant’s argument. However, the VLA contains much more specific language
concerning lease payments after termination of the ICOA. The general rule in contract
interpretation is that “specific terms and exact terms are given greater weight than general
language.”24 Based on the Court’s prior ruling that the Magistrate Judge exclude terms of the
VLA regarding truck lease payments, the Magistrate Judge’s decision on this issue was correct.
D.

SET-OFFS FOR TRUCK RECOVERY EXPENSES
As with lease payments after termination of the ICOA, the Magistrate Judge held that

“Defendant is prohibited from asserting set-offs against class member’s escrow funds amounts
for truck recovery costs because those amounts are owing under the Vehicle Lease Agreement.”25
The VLA’s liquidation clause obligated class members to pay “[a]ny expense WE incur
in returning the vehicle to the office WE have at Salt Lake City, UT or a closer alternate point if
WE so elect” and “[a]ny expenses, including attorney fees, WE incur in securing possession of
the vehicle if you do not voluntarily return the vehicle.”26

24

Restatement (Second) of Contracts § 203(c).

25

Docket No. 509, at 2.

26

Docket No. 545, Ex. C.
10

Based on this language, and for the same reasons stated with regards to truck lease
payments after termination of the ICOA, the Magistrate Judge’s decision was correct.
E.

PREJUDGMENT INTEREST
In the Finalization Order, the Court ordered that restitution awards to individual Plaintiffs

and class members should be paid “along with payment of reasonable interest.”27 The Magistrate
Judge took up the issue of determining the reasonable prejudgment interest rate during the
damages analysis. Plaintiffs argued that the Utah statutory legal interest rate of 10% should be
imposed, while Defendant argued that the Treasury bill rate should apply. The Magistrate Judge
disagreed with both approaches.
The Magistrate Judge rejected Plaintiffs’ argument, because the ICOAs provided for an
interest rate, and the Utah statutory rate only applies where the parties have not set an interest
rate. The Magistrate Judge rejected Defendant’s argument because the regulatory provision
relied upon by Defendant set the minimum interest rate. Rather than adopt either approach
offered by the parties, the Magistrate Judge found the following interest rates should be applied:
a. The regulatory interest rate, also stated in the contract, applies to all balances
held on deposit in the escrow;
b. The regulatory interest rate applies after sums under the ICOA are due and
payable; but
c. For Class Members whose ICOA specifies a default interest rate, that rate
applies to sums over 30 days past due – that is after 45 days has passed since
termination of the ICOA; and
d. The Utah statutory rate does not apply because the contracts in this case are not
silent concerning interest rate provisions.28

27

Docket No. 358, at 6.

28

Docket No. 403, at 7.
11

The following chart illustrates the Magistrate Judge’s decision.
Type of Agreement

During Escrow (including 30 Day “Grace Period”
45 days after termination)

Beyond “Grace Period”

ICOA with 18%
default interest rate
provision
ICOA without default
interest rate provision

Regulatory interest rate
applies

Regulatory interest rate
applies

ICOA default interest rate of
18% applies

Regulatory interest rate
applies

Regulatory interest rate
applies

Regulatory interest rate applies

Defendant objected to the Magistrate Judge’s decision. Defendant argued that the
regulations mandated the use of the regulatory rate, that prior cases applied the regulatory rate,
that use of the 18% interest rate contravenes the regulations, and that 18% was not a reasonable
rate.
The Court, using a “clearly erroneous or contrary to law” standard, rejected these
arguments and overruled Defendant’s objection.29
Defendant again objects to the Magistrate Judge’s decision on prejudgment interest.
Defendant correctly argues that the Court should have applied a de novo standard in reviewing
the Magistrate Judge’s ruling on this issue. Defendant further argues that the 18% rate used in
certain cases overcompensates Plaintiffs. Plaintiffs argue, however, that even under the de novo
standard, the Court should overrule Defendant’s objection.
As an initial matter, the fact that the Court has already ruled on Defendant’s objection
does not preclude it from relitigating the issue. As the parties appear to agree, the Court applied
an incorrect standard in evaluating the Magistrate Judge’s decision previously. Therefore, one of

29

Docket No. 441.
12

the grounds for a motion to reconsider, the need to correct clear error, is at issue and it is
appropriate for the Court to consider this issue de novo.
“The purpose of prejudgment interest is to compensate the wronged party for being
deprived of the monetary value of his loss from the time of the loss to the payment of
judgment.”30 “[A]wards of prejudgment interest are governed by fundamental considerations of
fairness.”31
[A]n award of prejudgment interest under federal law is governed by a two-step
analysis. First, the trial court must determine whether an award of prejudgment
interest would serve to compensate the injured party. Second, when an award
would serve a compensatory function, the court must still determine whether the
equities would preclude the award of prejudgment interest.32
Here, the Court finds that prejudgment interest would serve to compensate the named
Plaintiffs and class members, and that there are no equitable considerations that would preclude
such an award. The only question, then, is the amount of prejudgment interest to be applied in
this case.
Neither party takes issue with the application of the regulatory rate in various
circumstances. Thus, the only issue here concerns the application of an 18% interest rate in those
cases where the ICOA calls for such an interest rate beyond the grace period. The Magistrate

30

Guides Ltd. v. Yarmouth Grp. Prop. Mgmt., Inc., 295 F.3d 1065, 1078 (10th Cir. 2002)
(quotation marks and citation omitted).
31

U.S. Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1256 (10th Cir. 1988) (quotation
marks and citation omitted).
32

Id. at 1257.
13

Judge applied this rate because this is the rate that Defendant would have charged drivers if the
drivers owed Defendant money after the grace period.
While there is a certain appeal to this approach, the Court finds that this rate is more than
is required to adequately compensate Plaintiffs and would act as a punishment against Defendant.
The Court finds that applying an interest rate of 18% would be inequitable, especially
considering the fact that this litigation has occurred during a period of historically low interest
rates. Further, the interest rate would create a windfall for Plaintiffs and unnecessarily punish
Defendant because of the length of time it has taken to complete this case. Finally, the Court
must reject Plaintiffs’ argument in support of the higher interest rate. Simply put, this is not a
collection case and the cases relied upon by Plaintiffs are inapposite.
The question then becomes what interest rate should be used. Defendant, as it has before,
suggests using the rate found in the Truth-in-Leasing regulation. 49 C.F.R. § 376.12(k)(5)
provides:
That while the escrow fund is under the control of the carrier, the carrier shall pay
interest on the escrow fund on at least a quarterly basis. . . . The interest rate shall
be established on the date the interest period begins and shall be at least equal to
the average yield or equivalent coupon issue yield on 91–day, 13–week Treasury
bills as established in the weekly auction by the Department of Treasury.33
It is clear that this language does not, as Defendant has previously argued, require the
Court to apply the Treasury bill rate. However, the fact that the regulation specifically references
the Treasury bill rate suggests that the regulators thought such rate would be appropriate, at least
as a minimum rate. Additionally, other courts have applied the Treasury bill rate to other cases

33

49 C.F.R. § 376.12(k)(5) (emphasis added).
14

under the same regulations at issue here. Finally, this Court has also applied the T-bill rate in a
number of cases, stating that “this particular measure of the market rate for prejudgment interest
is attractive because it makes the prejudgment rate consistent with the post-judgment rate.”34
Based on these considerations, the Court will order the application of the Treasury bill rate as the
prejudgment interest rate in this case.
F.

DETRIMENTAL RELIANCE
Defendant’s final argument concerns the issue of detrimental reliance. Defendant has

long argued that, before Plaintiffs may recover damages, they must show detrimental reliance.
For example, in its Proposed Findings of Fact and Conclusions of law, Defendant asserted its
view that the law required Plaintiffs to show detrimental reliance to prove actual damages.35 The
Court did not explicitly discuss this issue in its Findings of Fact and Conclusions of Law, but
implicitly rejected the argument.
Defendant again raised the issue of detrimental reliance in its August 25, 2008 Status
Report.36 However, in its Finalization Order, the Court did not expressly rule on this issue.
Rather, the Court held that Plaintiffs were entitled to actual damages.
The Court finds that the amount of actual damages is the net amount owed each
individual Plaintiff under the escrow accounts, the ICOA, and any other
employment-related agreements between Plaintiffs and Defendant. Stated another
way, the class member is entitled to receive as actual damages those monies
which that class member paid into any or all of the three escrow accounts, less

34

See Amoco Prod. Co. v. United States, 663 F. Supp. 998, 1002 (D. Utah 1987).

35

Docket No. 297, ¶¶ 22, 24, 96, 98, 121, 142, 163, 178, 257, 297.

36

Docket No. 347.
15

actual obligations incurred by that class member that were authorized by the
ICOA or another agreement between that class member and Defendant.37
During the damages analysis before the Magistrate Judge, Defendant again sought a
ruling on the issue of detrimental reliance.38 On April 11, 2011, the Magistrate Judge held that
detrimental reliance was not required.39 The Magistrate Judge held that the Court’s definition of
damages, stated above, was similar to the formulation of damages used by other courts.
The Magistrate Judge rejected Defendant’s reliance on Owner-Operator Independent
Drivers Association, Inc. v. Landstar Systems, Inc.,40 a case arising out of the Eleventh Circuit.
In Landstar, the court required detrimental reliance. However, as the Magistrate Judge correctly
pointed out, Landstar involved disclosure violations. In this case, the Court found that
Defendant violated the escrow provision under Section 376.12(k).
Defendant’s objection conflates the concepts of actual damages and detrimental reliance.
The Landstar court held that, in order for the plaintiffs in that case to prove actual damages, they
must show detrimental reliance. While this makes sense in the context of disclosure violations, it
does not make sense in the case of escrow violations where Defendant’s conduct is at issue.
The Court has held that actual damages must be shown. But where, as here, Defendant
has been found to have mismanaged the class member’s escrow accounts by failing to properly
return escrow funds and by failing to provide an accounting, the measure of actual damages is the
37

Docket No. 358, at 5.

38

Docket No. 465.

39

Docket No. 497.

40

622 F.3d 1307 (11th Cir. 2010).
16

amount that Plaintiffs would have been paid despite Defendant’s actions. The Court, through the
use of the Magistrate Judge, has engaged in an analysis to determine the appropriate level of
damages for each class member. Defendant has provided nothing to suggest that detrimental
reliance is required in this situation. Therefore, Defendant’s objection is overruled.
IV. CONCLUSION
It is therefore
ORDERED that Defendant’s Objections to the Magistrate Judge’s Decisions in Damages
Analysis and Motion to Reconsider Rulings on Maintenance Expenses in the “Other” Account
and Prejudgment Interest (Docket No. 542) is GRANTED IN PART AND DENIED IN PART as
set forth above. It is further
ORDERED that Plaintiffs’ counsel submit a proposed judgment for the Court’s signature
by March 11, 2013.
DATED February 11, 2013.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

17