The President declared floods that occurred in 1972 in West
Virginia to be "major disasters," qualifying the affected areas for
federal relief under the Disaster Relief Act of 1970 (DRA) (later
repealed). Section 226(a) of the DRA provided that any mobile home
or temporary housing for displaced persons was to be placed on a
site provided by the State "without charge to the United States."
In the aftermath of the disasters here, the Army Corps of
Engineers, at the State's request, prepared sites for mobile homes
and, in late 1972 and early 1973, billed the State for such
services. The State acknowledged the bills, but failed to make any
payment. After delaying at the State's request, the United States
brought suit against the State in 1978, seeking to recover site
preparation costs plus prejudgment interest. The District Court
held that the State was contractually obligated to the Corps for
site preparation services, but denied the United States' motion for
an order of prejudgment interest on the debt. The Court of Appeals
affirmed the District Court's holding that the State was
contractually obligated on the debt, but reversed the determination
that the State was not liable for prejudgment interest.
Held: West Virginia is liable for prejudgment interest
on the debt arising from the contractual obligation to reimburse
the United States for services rendered by the Corps. The rule
governing the interest to be recovered as damages for delayed
payment of a contractual obligation to the United States is not
controlled by state law. While there are instances in which state
law may be adopted as the federal rule of decision, this case
presents no compelling reason for doing so. A single nationwide
rule is preferable, and the incorporation of state law would not
give due regard to the federal interest in maintaining the
apportionment of responsibility Congress devised in the DRA. Before
applying to a State the usual federal rule that private parties
owing debts to the Federal Government must pay prejudgment interest
where the underlying claim is a contractual obligation to pay
money,
Royal Indemnity Co. v. United States, 313 U.
S. 289, a federal court should consider the interests of
the two governments involved.
Board of Comm'rs of Jackson
County v. United States, 308 U. S. 343,
308 U. S. 350.
Here, federal policy plainly calls for an award of interest. The
DRA's purpose was not to relieve States of the entire burden of
disaster relief, but to apportion that responsibility
Page 479 U. S. 306
between the State and Federal Governments. Section 226(a)
reflects the statute's allocative intent that the Federal
Government not bear the cost of site preparation for temporary
housing, and prejudgment interest is an element of complete
compensation to the Federal Government. The State asserts no
interest that would justify releasing it of its obligation to
compensate the Federal Government fully. Because States have no
sovereign immunity as against the Federal Government, any state
rule exempting the sovereign from the payment of prejudgment
interest not only does not apply of its own force to the State's
obligations to the Federal Government, but also does not represent
a policy that the Federal Government is obliged to further. Pp.
479 U. S.
308-313.
764 F.2d 1028, affirmed.
MARSHALL, J., delivered the opinion for a unanimous Court.
JUSTICE MARSHALL delivered the opinion of the Court.
The issue in this case is whether the State of West Virginia is
liable for prejudgment interest on a debt arising from a
contractual obligation to reimburse the United States for services
rendered by the Army Corps of Engineers.
I
On February 26, 1972, heavy rains and resulting floods caused
the collapse of a coal waste dam on Buffalo Creek in southwestern
West Virginia. The "Buffalo Creek disaster" caused over 100 deaths
and millions of dollars of property damage, and left thousands
homeless. In August of that year, a series of storms caused
widespread flooding and mudslides in the same region of the State.
Although there
Page 479 U. S. 307
was no additional loss of life, the "Gilbert Creek disaster"
caused substantial property damage.
The President declared both events "major disasters," qualifying
the affected areas for federal relief under the Disaster Relief Act
of 1970, Pub. L. 91-606, 84 Stat. 1744, 42 U.S.C. § 4401 (1970 ed.)
(DRA or Act),
repealed, Pub. L. 93-288, 88 Stat. 164.
Section 226(a) of the Act authorized the Director of the Office of
Emergency Preparedness to provide temporary housing, typically
mobile homes, for persons displaced by the disaster. That section
also governed site preparation for the mobile homes. It
provided:
"Any mobile home or readily fabricated dwelling shall be placed
on a site complete with utilities provided by State or local
government, or by the owner or occupant of the site who was
displaced by the major disaster, without charge to the United
States. However, the Director may elect to provide other more
economical and accessible sites at Federal expense when he
determines such action to be in the public interest."
42 U.S.C. § 4436 (1970 ed.).
In the aftermath of both disasters, the State found itself
unable to prepare sites for the mobile homes. It asked the Army
Corps of Engineers to do so, and the Corps agreed. In late 1972 and
early 1973, the Corps billed the State for its site preparation
services. The State acknowledged the bills, but, despite several
requests, failed to make any payment. After delaying at the State's
request, the United States brought suit against West Virginia in
1978, seeking to recover $4.2 million in site preparation costs,
plus prejudgment interest. West Virginia denied liability for the
debt, claiming that the state official who had entered into the
agreement had acted without authority. The District Court rejected
this claim, and found that the State was contractually obligated to
the Corps for site preparation services. Civ.Action No. 78-2049 (SD
W.Va. Sept. 27, 1982). The United States then moved for an order of
prejudgment interest on
Page 479 U. S. 308
the outstanding debt. [
Footnote
1] The District Court denied the motion. It held that the
appropriate analysis required an examination of the congressional
purpose underlying the DRA and the relative equities between the
parties. After completing that analysis, the District Court
concluded that the State should not be liable for prejudgment
interest. Civ.Action No. R-78-2049 (SD W.Va. Jan. 28, 1983).
The United States Court of Appeals for the Fourth Circuit
affirmed the District Court's holding that the State was
contractually obligated on the debt, but reversed the determination
that the State was not liable for prejudgment interest. 764 F.2d
1028 (1985). It held that the question was governed by federal law,
under which prejudgment interest was allowable as a matter of right
in a breach-of-contract action where the amount due was liquidated,
ascertained, or agreed to.
Id. at 1030-1031. The Court of
Appeals rejected the District Court's conclusion that the
determination whether prejudgment interest was owing depended on a
balancing of equities, but held that, even if it were to apply the
balancing test, the United States would prevail.
Id. at
1032-1033. It remanded the case to the District Court to enter an
award of prejudgment interest. We granted certiorari, limited to
the question whether West Virginia was properly required to pay
prejudgment interest. 475 U.S. 1009 (1986). We affirm.
II
"[T]he rule governing the interest to be recovered as damages
for delayed payment of a contractual obligation to the United
States is not controlled by state statute or local common law. In
the absence of an applicable federal statute, it is for the federal
courts to determine, according to their own criteria, the
appropriate measure of damage, expressed in terms of interest, for
nonpayment of the amount found to be
Page 479 U. S. 309
due."
Royal Indemnity Co. v. United States, 313 U.
S. 289,
313 U. S. 296
(1941);
see also Clearfield Trust Co. v. United States,
318 U. S. 363,
318 U. S.
366-367 (1943). While there are instances in which state
law may be adopted as the federal rule of decision,
see United
States v. Yazell, 382 U. S. 341
(1966), this case presents no compelling reason for doing so. A
single nationwide rule would be preferable to one turning on state
law, and the incorporation of state law would not give due regard
to the federal interest in maintaining the apportionment of
responsibility Congress devised in the DRA. Finally, application of
a federal rule would not "disrupt commercial relationships
predicated on state law,"
United States v. Kimbell Foods,
Inc., 440 U. S. 715,
440 U. S. 729
(1979) (footnote omitted), since state law would not of its own
force govern contracts between a State and the Federal
Government.
Given that state law may neither govern of its own force nor be
adopted as the federal rule of decision, it remains for us to apply
the federal rule. In
Board of Comm'rs of Jackson County v.
United States, 308 U. S. 343
(1939), this Court addressed the issue. There, the Court considered
whether the political subdivision of a State should be liable to
the United States for prejudgment interest on a tax refund owed to
a Native American on whose behalf the Federal Government had
brought suit. The Court held that prejudgment interest would not be
assessed. While the Court noted that certain defenses asserted by
States were ineffective as against the Federal Government because
of the historic immunity of the sovereign from those defenses,
id. at
308 U. S. 351,
it determined that interest, which lacked comparable historical
roots, could not simply be required with respect to all claims by
the United States against a State or its political subdivision. It
therefore held that, before applying the usual rule regarding
prejudgment interest as against a private party to a State, a
federal court should consider the interests of the two governments
involved.
Id. at
308 U. S. 350.
Noting that aggrieved taxpayers who were not Native Americans were
not,
Page 479 U. S. 310
under state law, entitled to interest on tax refunds,
id. at
308 U. S. 349,
the Court concluded that individuals whose rights to a state tax
refund arose under federal law should not be put in a better
position than taxpayers whose rights arose under state law.
Id. at
308 U. S. 352.
The Court further reasoned that it would be inequitable to award
interest because the United States had not moved for eight years to
collect the money owed by the county.
Ibid.
Application of this analysis to the present case indicates that
prejudgment interest should be required. No state policy compels
any deviation from the long-standing rule that parties owing debts
to the Federal Government must pay prejudgment interest where the
underlying claim is a contractual obligation to pay money.
Royal Indemnity Co. v. United States, supra, at
313 U. S.
295-297. Moreover, federal policy plainly calls for an
award of interest. The purpose of the DRA was not to relieve States
of the entire burden of disaster relief, but to apportion that
responsibility between the State and Federal Governments.
See,
e.g., §§ 101(a)(2) and (b) (Act was intended "to assist the
efforts of the affected States," and to provide "an orderly and
continuing means of assistance by the Federal Government to State
and local governments"); § 102(1) (Governor of any State in which a
disaster occurs must certify the need for federal disaster
assistance and "giv[e] assurance of the expenditure of a reasonable
amount of the funds of such State, its local governments, or other
agencies for alleviating the damage . . . resulting from such
catastrophe"). Section 226(a) of the DRA reflects the statute's
allocative intent; it explicitly states that the Federal Government
is not to bear the costs of site preparation for temporary housing
for disaster victims. Prejudgment interest is an element of
complete compensation,
see, e.g., General Motors Corp. v. Devex
Corp., 461 U. S. 648,
461 U. S.
655-656, and n. 10 (1983); [
Footnote 2] fully repaying the Federal Government for
Page 479 U. S. 311
any costs of site preparation will further the distribution of
the burdens of disaster relief that Congress intended. [
Footnote 3]
This federal interest in complete compensation is likely to be
present in any ordinary commercial contractual arrangement between
a State and the Federal Government. In such a situation, it is also
difficult to imagine a state interest that would justify relieving
the State of its obligation to compensate the Federal Government
fully for its efforts. Here, the State asserts none, except its
understandable interest in not paying any more than it has to. The
State argues that it should be exempt from paying prejudgment
interest to the United States because, under its own law, it may
not be held liable for interest unless it has consented to be.
See Guaranty Trust Co. of New York v. West Virginia Turnpike
Comm'n, 144 W.Va. 266, 271,
107 S.E.2d
792, 796 (1959). But the source of this exemption is the
State's sovereign immunity,
see id. at 274-275, 107 S.E.2d
at 797-798; since the State must consent to be sued by private
parties, it may consent in a limited fashion and refuse to be
liable for prejudgment interest. Because States have no sovereign
immunity as against the Federal Government,
United States v.
Texas, 143 U. S. 621,
143 U. S. 646
(1892), any rule exempting a sovereign from the payment of
prejudgment interest not only does not apply of its own force to
the State's obligations to the Federal Government,
cf. Library
of Congress v. Shaw, 478 U. S. 310
(1986), [
Footnote 4] but also
does not represent a policy
Page 479 U. S. 312
the federal courts are obliged to further. [
Footnote 5]
Cf. Board of Comm'rs of Jackson
County, 308 U.S. at
308 U. S. 349,
308 U. S. 352;
United States v. Yazell, 382 U.S. at
382 U. S. 352
(while courts must show "solicitude for state interests,
particularly in the field of family and family-property
arrangements," these interests may be overridden to avoid injury to
"clear and substantial interests of the National Government").
Accordingly, we hold that West Virginia may, under the
circumstances of this case, be held liable for prejudgment
interest. [
Footnote 6]
Page 479 U. S. 313
We recognize that our holding may work a hardship upon the
citizens of West Virginia, who have already suffered greatly as a
result of the tragedies that gave rise to this litigation. But the
solution for that problem must lie with Congress, and not the
courts. The DRA expresses a clear policy that responsibility for
disaster relief should be apportioned in a particular way between
the State and Federal Governments. A remedy for any asserted
unfairness in this apportionment must be sought through the
political process. The judgment of the Court of Appeals is
Affirmed.
[
Footnote 1]
The amount sought was $6,783,098.09 through October 18, 1982,
plus $2,841.26 for every day thereafter until judgment was entered.
App. to Pet. for Cert. C-3, n. 2.
[
Footnote 2]
Prejudgment interest serves to compensate for the loss of use of
money due as damages from the time the claim accrues until judgment
is entered, thereby achieving full compensation for the injury
those damages are intended to redress.
See Comment,
Prejudgment Interest: Survey and Suggestion, 77 Nw.U.L.Rev. 192
(1982).
[
Footnote 3]
The District Court held that whether interest had to be paid
depended on a balancing of equities between the parties; the Court
of Appeals rejected such approach, as do we. This is not to say
that an equitable consideration such as laches cannot bar an
otherwise valid claim for interest,
see Board of Comm'rs of
Jackson County v. United States, 308 U.
S. 343,
308 U. S.
352-353 (1939).
[
Footnote 4]
Petitioners contend that
United States v. North
Carolina, 136 U. S. 211
(1890), establishes that a State may not be liable for interest,
even to the United States, unless it consents either by statute or
in a form authorized by statute. That case was decided before
United States v. Texas, 143 U. S. 621
(1892), in which this Court held dispositively that States retain
no sovereign immunity as against the Federal Government. We do not
speculate as to whether the result in
United States v. North
Carolina could have been sustained on a rationale other than
the one the Court articulated there.
[
Footnote 5]
West Virginia does not have a general policy against prejudgment
interest. Under West Virginia law, such interest has been available
by statute in contract actions between private parties since 1868.
See W.Va.Code § 56-6-27 (1966) (the jury in all contract
actions "shall find the aggregate of principal and interest due at
the time of the trial"); W.Va.Code, Ch. 131, § 14 (1923) (same);
W.Va.Code, Ch. 120, § 14 (1882) (same); W.Va.Code, Ch. 131, § 14
(1868) (same). Moreover, in 1981, W.Va.Code § 56-6-31 was amended
to provide for prejudgment interest in cases other than contract
actions, except where otherwise provided by law, where a judgment
provided for special damages as defined in the statute, or
liquidated damages. W.Va.Code § 56-6-31 (Supp. 1986).
[
Footnote 6]
We decline to attribute any significance for purposes of this
case to the Act of Jan. 12, 1983, Pub.L. 97-452, 96 Stat. 2467.
This statute prescribes the interest payable by "person[s]" to the
Federal Government, 31 U.S.C. § 3717(a)(1), but excludes from the
definition of "person" any "agency . . . of a State government, or
of a unit of general local government." 31 U.S.C. § 3701(c). As
stated in § 3717(g)(2), this statute does not apply to claims
arising under contracts entered into before October 25, 1982, and
therefore has no force here. We can draw no inference about
Congress' comprehension of the federal common law of interest from
its enactment, without any discernible legislative history, of a
definitional section excluding state agencies from those "persons"
statutorily required to pay interest on debts owed to the Federal
Government. Moreover, we venture no opinion regarding the question
whether this enactment was intended to abrogate or leave intact the
federal common law governing when a State must pay interest to the
Federal Government.
See Pennsylvania Dept. of Public Welfare v.
United States, 781 F.2d 334, 341-342 (CA3 1986);
Perales
v. United States, 598 F. Supp.
19, 23-24 (SDNY),
aff'd, 751 F.2d 95 (CA2 1984) (per
curiam).