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November 16, 1982


The opinion of the court was delivered by: POLLAK

 LOUIS H. POLLAK, District Judge.

 Disposition of this motion for prejudgment interest will hopefully mark the final chapter in the long and unhappy relationship between Charles Peterson, a Nebraska farmer, and Crown Financial Corporation ("Crown"), a Pennsylvania corporation engaged in the business of financing installment sales. The relationship, chronicled more fully in prior opinions of this court and the Court of Appeals, *fn1" began in December of 1969, when the parties entered into the first of what would become a series of five loan agreements. For each of these agreements, Peterson executed a promissory note, with interest on each note calculated at 2 1/2 percent above the prime rate.

 A flurry of complicated transactions surrounded the issuance of the fourth and fifth such notes in late December of 1972. When the papers settled, Peterson had paid $499,658.85 of interest due on the fourth note, and the note was returned to him marked "cancelled." Peterson apparently understood that the $368,875.62 in interest remaining due on that fourth note had been forgiven. He learned that Crown assumed otherwise in December of 1975, when notified by Crown that he was in default in that amount. Crown refused to release Peterson's shares of stock that it held as collateral until Peterson paid the disputed sum in full. Peterson paid the money on December 29, 1975, but did so "under duress, involuntarily, and under protest." This lawsuit, seeking a return of the money, followed. 476 F. Supp. 1155, 1156-57; 661 F.2d 287, 288-89.

 In an opinion and order dated July 20, 1979, I determined that, as a matter of law, the intentional cancellation of the fourth note forgave the interest that remained outstanding. *fn2" Accordingly, summary judgment for the plaintiff was granted. 476 F. Supp. at 1161. In a later ruling, I determined that Peterson was entitled to prejudgment interest from the date the disputed payment was made until the date summary judgment was granted. I also ruled that, despite plaintiff's cogent arguments that prejudgment interest should be awarded at money-market rates, as a federal judge sitting in diversity, I was constrained by Pennsylvania common and statutory law to limit the rate of prejudgment interest to six percent. 498 F. Supp. at 1179-80.

 Both parties appealed aspects of my rulings. The Court of Appeals for the Third Circuit affirmed the determination that the $368,875.62 was forgiven by Crown's cancellation of Peterson's note, and that the money was therefore wrongfully held by Crown. The Court disagreed, however, with my view that I could not authorize prejudgment interest at a rate in excess of six percent. Speaking through Judge Adams, the Court of Appeals characterized the case as sounding in restitution rather than contract, and held that under Pennsylvania precedents, "the district court has discretion to award damages in the nature of prejudgment interest in an amount greater than six percent." 661 F.2d at 290. It remanded the case "for reconsideration of the prejudgment interest award." Id.

 To carry out the mandate of the Court of Appeals, three issues need to be resolved. First, what is the equitable rate of prejudgment interest? Second, what is the date of judgment, signifying the end of prejudgment interest and the beginning of postjudgment interest, limited by law to six percent? Finally, should the prejudgment interest award be computed simply or on a compound basis? *fn3"


 The question of an equitable rate of interest was the subject of a discussion in one of my earlier opinions which bears repeating here:

There is considerable logic in plaintiff's contention that 2 1/2 points above prime would be a singularly equitable measure of prejudgment interest in this case.

 498 F. Supp. at 1179.

 I refrained from awarding interest in that amount solely because of my view that plaintiff's contention "appears to be without support in the Pennsylvania cases." Id. Now that the Court of Appeals has ruled that Pennsylvania law does give me discretion to set prejudgment interest at an equitable rate, I see no reason to depart from my original calculation of the fair rate of interest.

 Defendant has urged this court to receive testimony concerning the entire loan transaction between Peterson and Crown before setting the rate of prejudgment interest, on the theory that "any exercise of discretion must be bottomed on an understanding of the total relationship between the parties here." Defendant's Brief at 17; Defendant's Reply Brief at 7. Crown contends that, by looking at the transactions as a whole, I would learn that Peterson's financial irresponsibility caused Crown to realize an unreasonably ...

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