ORDER ADOPTING MAGISTRATE’S REPORT AND RECOMMENDATION
This mаtter was referred to Magistrate Judge Breen for report and recommendation as to whether defendants Constar International (“Constar”) and Shelby County Government (“Shelby County”) must pay interest on monies owed by them pursuant to the Court’s August 7,1997 memorandum opinion. On January 30, 1998, Magistrate Breen submitted his recommendation as to the disposition of this matter. On February 11, 1998 and February 13, 1998 respectively, defendants Constar and Primacy Corporation 1 each filed objections to Magistrate Breen’s report and recommendation. For the reasons set forth below, defendants’ objections are OVERRULED and Magistrate Breen’s report and recommendations are ADOPTED by this Court.
INTRODUCTION
On December 26,1990, plaintiffs husband, Homan Snow; was admitted to St. Francis Hospital for open heart surgery. On the date of his admission, Mr. Snow was covered by three insurance policies. Mr. Snow was insured as a retiree under the Shelby County Government Group Benefit Plan administered by Blue Cross and Blue Shield of Memphis. He was also covered as a dependant under the Constar Employee Health Benefit Plan administered by defendant Aetna Insurance Company through his wife’s employment with Constar. Finally, Mr. Snow was covered by Medicare. At the time of his admission, neither Mr. Snow nor his wife disclosed the existencе of the Constar coverage. On August 22, 1991, Mr. Snow died, having incurred approximately $458,-000.00 in medical expenses.
In October of 1991, St. Francis submitted a claim to Medicare for primary reimbursement. Medicare paid $113,855.59 as reimbursement to St. Francis. St. Francis also billed Blue Cross in .the amount of $112,-738.00, of which Blue Cross made some payments but refused to pay the remainder. Sometime before March 23,1992, St. Francis was made aware of the Constar policy by an employee of Blue Cross. On March 25,1992, St. Francis filed a claim with Constar’s insurance carrier, Aetna. On July 2, 1992, Cons-tar instructed Aetna not to pay the bill because of a dispute over whether it or Blue Cross was the primary payer. On July 31, 1992, Constar’s attorneys notified St, Francis via letter of Constar’s concerns about the status of its responsibility for the bill. Cons-tar did not advise plaintiff of its decision to deny benefits until thrеe months after she filed suit.
*854 A bench trial was held in this matter on February 28 and 29,1996. On August 7,1997, this Court issued a memorandum opinion and concluded that Constar was the primary pay- or. The Court found that Constar’s decision not to pay benefits was arbitrary and capricious, as it was erroneous as a matter of law, and ordered Constar to accept plaintiffs claim. Specifically, the Court ordered Cons-tar to reimburse Mediсare in the amount of $113,855.59, and to pay St. Francis the amount of $268,889.04. The Court held that the liability of Shelby County was limited to $2000.00, the stop-loss limit under the Cons-tar plan, to be paid to St. Francis. On November 26, 1997, the Court referred the issue of whether Constar and Shelby County should have to pay interest on these amounts to Magistrate Breen for report and recommendation.
On January 30, 1998, Magistrate Breen issued recommendations as to thе disposition of the following three issues: 1) the amount of prejudgment interest (if any) due to St. Francis from Constar; 2) the amount of prejudgment interest (if any) due to St. Francis from Shelby County; and 3) the amount of prejudgment interest (if any) due to Medicare from Constar. Each of these issues will be addressed below in light of the parties’ objections. 2
ANALYSIS
1. Prejudgment Interest Due to St. Francis from Constar
Magistrate Breen recommended that prejudgment interest be awarded to St. Francis on the ¡nonies owed to it by Constar, and recommended that July 2, 1992, the date on which Constar decided to deny benefits, should be the date upon which such interest should begin to accrue. Constar objects to the Magistrate’s recommendation to award prejudgment interest to St. Francis. St. Francis does not object to the award of interest, and does not object to the Magistrate’s recommendation that such interest bе compounded annually, but objects to the date selected by the Magistrate as the date upon which interest should begin to accrue and the rate at which such interest should be paid. Each of these objections will be addressed below.
A. Constar’s objections to the award of interest
As a threshold matter, the Court must determine whether Constar should be required to pay prejudgment interest to St. Francis on the amounts it must pay pursuant to the Court’s August 7, 1997 order. Magistrаte Breen recommended that, because Constar benefitted from its failure to pay the amounts owed, prejudgment should be awarded. Constar objects, arguing that St. Francis is not entitled to prejudgment interest because the Constar plan does not provide for interest payments, and to allow them would be extracontractual.
As Magistrate Breen noted in his report, although the Employee Retiremеnt Insurance Security Act of 1974, 29 U.S.C. § 1001
et seq.,
(“ERISA”) does not address the propriety of awards of prejudgment interest, the Sixth Circuit has held that such awards are within the sound discretion of the trial court.
Tiemeyer v. Community Mut. Ins. Co.,
Constar further contends that it took a good faith position as to whether it was the first party payor and should, therefore, not be required to pay interest. As the Sixth Circuit has noted, however,:
Even assuming arguendo that the [tjrustee was acting prudently in withholding the *855 pension funds.. .it cannot be said that this did not confer a benefit on the trustee. Any additional time one gains, rightfully or wrongfully, in not having to submit payment for a sum of money owed another is without a doubt a benefit. Moreover, the payee,.. .has been deprived of the benefit of those payments.
Sweet v. Consolidated Aluminum Corp.,
While Constar concedes that “there are authorities on both sides of the issue as to whether prejudgment interest is available under ERISA”, 3 it argues that the Court should ignore the line of cases relied upon by Magistrate Breen in finding that an award of prejudgment interest was properly within the Court’s discretion, and follow instead cases cited by Constar' in support of the premise that when interest is nqt provided for in a pension plan, it is extracontraetual and should not be awarded. 4 After a de novo review of the record and case law, the Court is persuaded by the reasoning adopted by the Magistrate, that prejudgment interest is proper because Constar was unjustly enriched by withholding of the payments to St. Francis. Accordingly, Constar’s objections as to whether prejudgment interest should be awarded are OVERRULED.
B. St. Francis’ objections as to the appropriate date upon which intеrest should begin to accrue and the rate of interest that should be paid
As stated above, Magistrate Breen recommended that interest should begin to accrue on July 2, 1992, the date upon which Constar decided to deny benefits. St. Francis submits that interest should begin to accrue on August 21, 1991, the date of Mr. Snow’s death and the last date of his hospitalization. Generally, prejudgment interest on an ERISA claim accrues when а fiduciary denies benefits.
Cottrill v. Sparrow, Johnson & Ursillo, Inc.,
Because St. Francis did not initially know about the Constar coveragе, and Constar did not know about the claim until it was first contacted by St. Francis, the Court finds that awarding prejudgment interest back to the date of Mr. Snow’s death would be inappropriate. In this case, St. Francis notified Constar of the claim and submitted its request for payment on March 25,1992, shortly after it learned that Mr. Snow was covered by Constar’s plan. In a letter dated July 2, 1992, Constar instructed the administrator not to make payment due tо a dispute over the claim. St. Francis was notified of Cons-tar’s decision to deny the claim by letter of July 31, 1992. Based on this unique factual situation, the Court agrees with the Magistrate that the date upon which Constar decided to. deny benefits is the most realistic date for interest to begin to accrue. Accordingly, St. Francis’ objections as to the date upon which prejudgment interest owed by Constar will begin to accruе are OVERRULED, and Magistrate Breen’s recommendation that such interest accrue from July 2, 1992 is ADOPTED.
St. Francis also objects as to the rate of interest recommended by Magistrate Breen. Magistrate Breen recommended that the rate of interest should be based upon United States Treasury Bills, as set forth in 28 U.S.C. § 1961, which provides a uniform calculation for post-judgment interest. 5 St. *856 Francis objects to the use of the § 1961 rate, and аrgues instead that the 'Court should award prejudgment interest based on “two interest rates... applied to two distinct time periods.” St. Francis’ Objections at 2. For the period preceding September 1, 1994, St. Francis contends that the Court should award interest at the rate of 12% based upon Tenn.Code Apn. § 68-ll-219(e). 6 On May 1, 1994, St. Francis Hospital changed its name to The Primacy Corporation. According to the affidavits of Barry J. Flynn, Chief Financial Officer of Primacy Corporation, Primacy Corporation’s investment portfolio was established on September 1, 1994, and it has earned an average annualized rate of return on its investments of 15.9%. See August 22, 1997 and February 13, 1998 Affidavits of Barry J. Flynn. Based on this information, St. Francis argues that the Court should award interest at the rate of 15.9% for the period subsequent to September 1,1994.
Neither ERISA nor any other federal statute providеs an interest rate for computing prejudgment interest. Rather, an award of prejudgment interest for violation of federal' law is governed by federal common law.
Rivera v. Benefit Trust Life Ins. Co.,
As to plaintiffs argument that the Court should apply Tenn.Code Ann. § 68-ll-219(e) to determine the rate of interest, many courts have held that a federal court may look to state law for guidance in determining the rate of prejudgment interest.
See, e.g., Smith v. American Int’l Life Assurance Co. of N.Y.,
However, although § 1961 by its terms applies only to post-judgment interest, there is considerable support for using the § 1961 rate to calculate the rate of prejudgment interest. The Eighth Circuit has held that this is the proper method for determining the rate of prejudgment interest.
Mansker v. TMG Life Ins. Co.,
This Court finds that a review of the case law as a whole favors use of the federal rate. The Eighth and Ninth circuits strongly favor use of the § 1961 rate,
Mansker,
The above discussion in support of use of the federal rate also supports the Magistrate’s recommendation to use the § 1961
*857
rate instead of St. Francis’ 15.9% rate of return. Moreover, St. Francis has not introduced any evidence into the record that would demonstrate that Constar earned a 15.9% rate of return by withholding the funds. To require Constar to pay interest on the funds at a rate higher than the rate of return it earned on the money would render such interest punitive. As set forth above, awards of prejudgment interest are intended to be compensatory in nature, rather than punitive.
Drennan,
II. Prejudgment Interest Due to St. Francis from Shelby County
It appearing that there is no objection to the Magistrate’s recommendation as to this issue 8 , Magistrate Breen’s recommendation is ADOPTED, and Shelby County is -ORDERED to pay St. Francis interest, pursuant to 28 U.S.C. § 1961, at a 5.56% rate, equal to the coupon issue yield equivalent, as determined by the Secretary of the Treasury, of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately pri- or to the August 7, 1997 date of accrual, compounded annually, for a total amount of $2071.89, for the period beginning August 7, 1997 and ending March 31,1998. 9
.III. Prejudgment Interest Due to Medicare from Constar
Constar objects to the Magistrate’s recommendation that pre-judgment interest be awаrded to Medicare, as there is no provision in the pension plan for the award of interest. For the reasons set forth above,
10
the Court is not persuaded by this argument, and relies, instead, on cases holding that the decision to award prejudgment interest is within the discretion of the district court.
See Cox v. Shalala,
Constar further objects to the Magistrate’s recommendation as to the rate of interest to be assessed, arguing that if interest must be paid to Medicare at all, it should be paid pursuant to the rate set forth in 28 U.S.C. § 1961. Magistrate .Breen recbmmended, instead, that interest be paid; according to the rates set forth in the letters sent from the Secretary of the Department of Health and Human Services (“Secretary”) to Constar demanding payment.
On December 30,1993, Connecticut General Life i Insurance Company, the carrier, under contract with the Secretary to make payments under Part B of the Medicare program, notified Constar’s predecessor, Aetna, that Medicare was to be reimbursed for payments in the amount of $26,388.00 made, on behаlf of Mr. Snow under Part B. The notice stated that failure to repay the amount |requested within sixty (60) days would result in an 13.5% interest assessment. On January 20, 1994, Blue Cross and Blue Shield of *858 Tennessee, Medicare’s Part A fiscal intermediary, sent a letter to Aetna requesting reimbursement in the amount of $87,467.59. This notice stated that interest would be assessed at the rate of 13.625%, if the amount requested was not paid within sixty (60) days.
The Code of Federal Regulations sets forth a procedure governing the assessment of interest against a debt owed to the government. 45 C.F.R. § 30.12(a). The “notice to debtor” must inform the debtor of the amount and nature of the debt, the date payment is due, and the assessment of interest from the date the notice was mailed.
Id.
The notices sent by the Secretary to Constar contained all of the information required by the regulation. Accordingly, the Court finds thаt prejudgment interest began to accrue on the amount of $26,388.00 on December 30, 1993 and on the amount of $87,467.59 on January 20,1994, the dates of the reimbursement notices forwarded to Constar.
See Cox,
As set forth above, the rate at which prejudgment interest may be assessed is within the discretion of the district court.
Tiemeyer,
CONCLUSION
For the reasons set forth above, the Court hereby ADOPTS Magistrate Breen’s January 30, 1998 Report and Recommendation. Accordingly, defendants Constar and Shelby County are ORDERED to pay prejudgment interest to St. Francis and the Secretary in the following manner:
1. Constar to St. Francis. Constar is ORDERED .to pay St. Francis interest, pursuant to 28 U.S.C. § 1961, at a 4.11% rate, equal to the coupon issue yield equivalent, as determined by the Secretary of the Treasury, of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the July 2, 1992 date of accrual, compounded annually, for a total amount of $338,987.53, for the period beginning July 2, 1992 and ending March 31,1998.
2. Shelby County to St. Francis. Shelby County is ORDERED to pay St. Francis interest, pursuant to 28 U.S.C. § 1961, at a 5.56% rate, equal to the coupon issue yield equivalent, as determined by the Secretаry of the Treasury, of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the August 7, 1997 date of accrual, compounded annually, for a total amount of $2071.89, for the period beginning August 7, 1997 and ending March 31,1998.
3. Constar to Medicare. Constar is ORDERED to pay interest to Medicare at .13.5%, pursuant to the notice of the Secretary, on the amount of $26,388.00 for thе period beginning December 30, 1993 and ending March 31, 1998, for a total of $41,-524.77. For the period beginning January 20, 1994 and ending March 31,1998, Cons-tar is ORDERED to pay interest on the amount of $87,467.59 at the rate of 13.625%, pursuant to the notice of the Secretary, for a total amount of $137,422.89.
*859 Therefore, the total sum to be paid to the Secretary in reimbursement of payments made by Medicare under Parts A and B is $178,947.66.
Notes
. Defendant Primacy Corporation wаs formerly known as St. Francis Hospital, Inc., and will be referred to in this order as “St. Francis”.
. Pursuant to 28 U.S.C. § 636, the Court conducts a de novo review of the record in evaluating defendants' objections to the Magistrate’s recommendations.
. Constar’s Objections at 2.
.
See, e.g., Scott v. Central States, Southeast & Southwest Areas Pension Plan,
. 28 U.S.C. § 1961 provides that:
Interest shall be allowed on any money judgment in a civil case recovered in a district court____Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of the judgment.
. Tenn.Code Ann. § 68-ll-219(e) provides that: If any portion of an assigned claim remains unpaid sixty (60) days after a billing statement from the assignee is recеived by the insurance company, the assignee of the claim may add an interest charge to the unpaid portion of the claim, with the actual accrual of such interest charge commencing on the thirty-first day, at an interest rate not to exceed one percent (1%) per month for an effective rate of interest of twelve percent (12%) per year....
. Because the Magistrate's Report and Recommendation was entered on January 30, 1998, the amount of prejudgment interest recommended in the report is determined through February 1, 1998. As this order was entered on March 31, 1998, interest is calculated through that date.
. In its brief, St. Francis discussed objections to the rate of interest only as to Constar. In the event that St. Francis intended these arguments to apply to Shelby County as well, the Court determines that the federal rate as. set forth in § 1961 is the proper rate for the reasons set forth in section 1(B) of this order.
. See footnote 7, supra.
. See section 1(A), supra.
.- See footnote 7, supra.
. See footnote 7, supra.