           In the United States Court of Federal Claims
                                           No. 14-388L
                                      (Filed: June 21, 2018)

*************************************
WILLIAM C. HARDY & BERTIE ANN *
HARDY et al.,                       *
                                    *
                                                      Rails-to-Trails; Cross-Motions for Partial
              Plaintiffs,           *
                                                      Summary Judgment; RCFC 56; RCFC 42;
                                    *
                                                      Just Compensation; Delay Damages;
v.                                  *
                                                      Appropriate Interest Rate; Prudent Investor
                                    *
                                                      Rule; Compounding Interest
THE UNITED STATES,                  *
                                    *
              Defendant.            *
*************************************

Elizabeth A. Gepford McCulley, Kansas City, MO, for plaintiffs.

Amarveer Brar, United States Department of Justice, Washington, DC, for defendant.

                                    OPINION AND ORDER

SWEENEY, Judge

         In this Rails-to-Trails action, 112 plaintiffs contend that they own real property adjacent
to a rail corridor in Newton County, Georgia. They assert that until 2013, the Central of Georgia
Railroad Company and its predecessors held easements for railroad purposes that crossed their
land. According to plaintiffs, defendant United States then authorized the conversion of the
railroad rights-of-way into recreational trails pursuant to the National Trail Systems Act, conduct
that resulted in a taking in violation of the Just Compensation Clause of the Fifth Amendment to
the United States Constitution.

        Currently before the court are the parties’ cross-motions for partial summary judgment as
to the appropriate interest rate necessary to provide just compensation. Plaintiffs argue that the
Vanguard Balanced Index Fund (“VBINX”) or, alternatively, the Moody’s Composite Index of
Yields on Aaa Long Term Corporate Bonds (“Moody’s”), satisfies the Prudent Investor Rule and
would supply the proper rate by which to calculate damages for the delay between the date of
taking and the date of payment, i.e., delay damages. Defendant argues that delay damages
should be calculated using the rate set forth in the Declaration of Takings Act (“DTA”) or,
alternatively, the five-year Treasury Inflation Protected Security (“TIPS”) rate, compounded
annually. For the reasons explained below, the court concludes that the Moody’s rate is the
appropriate benchmark by which to calculate delay damages in this case. Therefore, the court
grants in part and denies in part plaintiffs’ motion for partial summary judgment and denies
defendant’s cross-motion.
                                       I. BACKGROUND

        Detailed descriptions of the statutory and regulatory context of this case, initial
acquisition of the land in question, and proceedings before the Surface Transportation Board are
provided in the court’s summary judgment ruling with respect to liability and need not be
repeated herein. See Hardy v. United States, 127 Fed. Cl. 1, 5-7 (2016). In that ruling, the court
determined that the Surface Transportation Board’s issuance of a Notice of Interim Trail Use or
Abandonment (“NITU”) on August 19, 2013, constituted a taking with respect to property
owners holding a cognizable Fifth Amendment property interest. Id. at 21-22. It further
determined which plaintiffs held such an interest. Id. at 10-21. The court later reconsidered its
ruling with respect to certain parcels, finding that additional plaintiffs held a cognizable Fifth
Amendment property interest as of the date of taking. Hardy v. United States, 129 Fed. Cl. 513,
518 (2016).

        On November 18, 2016, the Surface Transportation Board issued a public notice of
correction of the NITU, modifying the NITU’s description of the location of the eastern terminus
of the portion of the rail line covered by the NITU—a modification that affected eleven plaintiffs
owning twelve parcels. Hardy v. United States, 131 Fed. Cl. 534, 536-37 (2017). The court
determined that the NITU’s modification impacted the duration of the taking, not whether a
taking had occurred, and that the eleven plaintiffs affected by the NITU’s modification suffered a
temporary taking from August 19, 2013, to November 18, 2016. Id. at 539-40.

        The court then held an eight-day trial in Atlanta, Georgia from September 25, 2017,
through October 4, 2017, to ascertain the value of the property interests that were found to have
been taken. Six landowners, as well as experts for both sides, testified at trial. Posttrial briefing
is ongoing, and closing arguments are scheduled for August 16, 2018. Plaintiffs filed the instant
motion for partial summary judgment as to the appropriate interest rate during posttrial briefing,
and defendant cross-moved for partial summary judgment. Both plaintiffs and defendant
attached expert declarations to their filings. Plaintiffs submitted the declaration of Todd T.
Milbourn and defendant submitted the declaration of Jonathan A. Neuberger. Plaintiffs also filed
a response to defendant’s cross-motion and a reply in support of their motion, and attached an
expert rebuttal declaration. Defendant did not file a reply in support of its cross-motion. The
court deems oral argument unnecessary, and the motions are now ripe for adjudication.1



       1
           Defendant asserts that Rule 56(b) of the Rules of the United States Court of Federal
Claims (“RCFC”) generally precludes motions for summary judgment from being filed more
than thirty days after the close of discovery, and notes that discovery closed on June 1, 2017.
However, RCFC 56(b) is not an absolute bar on such motions; it provides that “[u]nless the court
orders otherwise, a party may file a motion for summary judgment at any time until 30 days after
the close of all discovery.” Because both parties seek a ruling with respect to the proper rate of
interest and attached expert declarations in support of their cross-motions, the court construes the
parties’ recent submissions as a joint motion to reopen discovery for the limited purpose of
determining the appropriate interest rate, and grants the motion. In any event, this opinion serves
as “order[ing] otherwise” for RCFC 56(b) purposes.

                                                 -2-
                                 II. STANDARD OF REVIEW

       Summary judgment is appropriate when there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. RCFC 56(a); Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986). A fact is material if it “might affect the outcome of the suit under the
governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is
genuine if it “may reasonably be resolved in favor of either party.” Id. at 250.

        The moving party bears the initial burden of demonstrating the absence of any genuine
issue of material fact. Celotex, 477 U.S. at 323. The nonmoving party then bears the burden of
showing that there are genuine issues of material fact for trial. Id. at 324. Both parties may carry
their burden by “citing to particular parts of materials in the record, including depositions,
documents, electronically stored information, affidavits or declarations, stipulations (including
those made for purposes of the motion only), admissions, interrogatory answers, or other
materials” or by “showing that the materials cited do not establish the absence or presence of a
genuine dispute, or that an adverse party cannot produce admissible evidence to support the
fact.” RCFC 56(c)(1).

         The court must view the inferences to be drawn from the underlying facts in the light
most favorable to the nonmoving party. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986). However, the court must not weigh the evidence or make findings of fact.
See Anderson, 477 U.S. at 249 (“[A]t the summary judgment stage the judge’s function is not
himself to weigh the evidence and determine the truth of the matter but to determine whether
there is a genuine issue for trial.”); Contessa Food Prods., Inc. v. Conagra, Inc., 282 F.3d 1370,
1376 (Fed. Cir. 2002) (“On summary judgment, the question is not the ‘weight’ of the evidence,
but instead the presence of a genuine issue of material fact . . . .”), abrogated on other grounds by
Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc); Ford Motor Co.
v. United States, 157 F.3d 849, 854 (Fed. Cir. 1998) (“Due to the nature of the proceeding, courts
do not make findings of fact on summary judgment.”); Mansfield v. United States, 71 Fed. Cl.
687, 693 (2006) (“[T]he Court may neither make credibility determinations nor weigh the
evidence and seek to determine the truth of the matter. Further, summary judgment is
inappropriate if the factual record is insufficient to allow the Court to determine the salient legal
issues.”). Entry of summary judgment is mandated against a party who fails to establish “an
element essential to that party’s case, and on which that party will bear the burden of proof at
trial.” Celotex, 477 U.S. at 322.


        Further, RCFC 42 provides that separate proceedings, including trials, may be held for
separate issues, and the court finds that determining the appropriate interest rate for delay
damages is a separate issue from determining the value of the property interests that were found
to have been taken. Other judges of this court have followed a similar approach. See, e.g.,
Adkins v. United States, Nos. 09-503L et al., 2014 WL 448428, at *1 (Fed. Cl. Feb. 4, 2014); cf.
Textainer Equip. Mgmt. Ltd. v. United States, 99 Fed. Cl. 211, 223 (2011) (ruling on the
appropriate interest rate before determining liability for the alleged taking). Accordingly, the
parties’ cross-motions for partial summary judgment and attached expert declarations are
properly before the court.

                                                -3-
        In ruling on cross-motions for summary judgment, the court “must evaluate each motion
on its own merits.” First Commerce Corp. v. United States, 335 F.3d 1373, 1379 (Fed. Cir.
2003). If neither party meets its burden, then the court must deny both motions. Bubble Room,
Inc. v. United States, 159 F.3d 553, 561 (Fed. Cir. 1998).

                                         III. ANALYSIS

        The Fifth Amendment to the United States Constitution prohibits the federal government
from taking private property for public use without paying just compensation. When payment of
just compensation is delayed, the property owner “is entitled to interest thereon sufficient to
ensure that he is placed in as good a position pecuniarily as he would have occupied if the
payment had coincided with the appropriation.” Kirby Forest Indus., Inc. v. United States, 467
U.S. 1, 10 (1984), quoted in Otay Mesa Prop., L.P. v. United States, 779 F.3d 1315, 1328 (Fed.
Cir. 2015). In other words, as defendant correctly observes, the delay damages should make a
property owner indifferent to the timing of payment. See Otay Mesa Prop., 779 F.3d at 1328
(“[I]nterest must be added to the damages award in order to compensate for the time value of
money and the potential opportunity the owner has lost to earn income on its damages award as a
result of the taking.”); Textainer, 99 Fed. Cl. at 222 (“[I]nterest is compensation for lost use of
the takings award between the date of the taking and the date of the payment.”).

                             A. The Prudent Investor Rule Applies

        The “guiding principle” in determining the appropriate interest rate is the Prudent
Investor Rule, which examines “how a reasonably prudent person would have invested the funds
owed by the government to produce a reasonable return while maintaining safety of principal.”
Sears v. United States, 124 Fed. Cl. 730, 734-35 (2016) (internal quotation marks and alterations
omitted). Defendant’s argument that applying the Prudent Investor Rule would require the court
to make individualized determinations for each plaintiff misses the mark. Courts do not “take[]
into account the risk inherent in the property being taken” nor the “risk tolerance of the property
owner” when determining the appropriate interest rate. Id. at 733 n.2. A reasonably prudent
person is just that—a reasonably prudent person, not a specific person or entity; the number of
plaintiffs and their individual characteristics are of no moment when applying the Prudent
Investor Rule.

         Defendant proffers two more reasons why the court should not apply the Prudent Investor
Rule. First, defendant avers that the Prudent Investor Rule is a trusts concept applicable to
fiduciaries. Although defendant is correct that the Prudent Investor Rule applies in the trusts
setting, that fact does not prevent the rule’s application in the Rails-to-Trails context. See, e.g.,
id. at 734 (discussing several prior takings actions in which the Prudent Investor Rule was
applied), 736-37 (selecting an interest rate based on the Prudent Investor Rule). Second,
defendant suggests that “an objective inquiry that focuses on the value of the property—and not
the owner’s lost investment opportunities—is appropriate” for determining just compensation
and delay damages. Fed. Def.’s Resp. Pls.’ Mot. Partial Summ. J. (“Def.’s Cross-Mot.”) 22,




                                                 -4-
ECF No. 202.2 Defendant’s reasoning is unpersuasive because (1) the Prudent Investor Rule is
an inherently objective inquiry that applies uniformly to all plaintiffs and (2) the loss of
investment opportunities is a fundamental component of delay damages. See United States v.
429.59 Acres of Land, 612 F.2d 459, 464-65 (9th Cir. 1980) (“It is assumed that a person who
received the pecuniary value of his property as of the date of taking would invest these funds in a
reasonably prudent manner.”). Indeed, previous rulings from the United States Court of Federal
Claims (“Court of Federal Claims”) have rejected proposed interest rates that were not based on
the Prudent Investor Rule. E.g., Textainer, 99 Fed. Cl. at 222.

       In short, making a plaintiff whole—i.e., placing a plaintiff “in as good a position
pecuniarily as he would have occupied if the payment had coincided with the appropriation,”
Kirby, 467 U.S. at 10—pursuant to the Fifth Amendment requires application of the Prudent
Investor Rule.

                       B. The DTA Rate Is Inappropriate in This Case

         The court now turns to the various interest rates proposed by the parties. Defendant first
suggests that the “proper interest rate is set forth” in the DTA. Def.’s Cross-Mot. 2. Under the
DTA, delay damages are pegged to the “weekly average one-year constant maturity Treasury
yield . . . for the calendar week preceding the date of taking.” 40 U.S.C. § 3116(a)(1) (2012).
When the delay between the date of taking and the date of payment is greater than one year, at
the beginning of each subsequent year (1) interest is compounded and (2) a new rate is applied
using the “weekly average for the calendar week preceding the beginning of each additional
year.” Id. § 3116(a)(2).

        However, the DTA rate is mandated only in direct condemnation actions instituted in
federal district court. Id. § 3113; see also Vaizburd v. United States, 67 Fed. Cl. 499, 504 (2005)
(describing the DTA rate as the rate that has been “approved for use in statutory
condemnations”). Thus, by its own terms, the DTA does not extend to Rails-to-Trails actions in
the Court of Federal Claims. As inverse condemnations, Rails-to-Trails takings are markedly
different from eminent domain takings, i.e., direct condemnations. See Condemnation, Black’s
Law Dictionary (10th ed. 2014) (distinguishing between a condemnation effected by “the
exercise of eminent domain” and inverse condemnations). Congress could have applied the
DTA rate to inverse condemnation actions but did not do so. Accordingly, defendant’s statement
that the DTA “establish[ed] a uniform statutory rate of interest in eminent domain cases,” Def.’s
Cross-Mot. 8, while correct, does not advance its position. See Sears, 124 Fed. Cl. at 734 n.3
(remarking that the DTA applies in eminent domain cases but is “not binding on other types of
Fifth Amendment takings cases, such as” Rails-to-Trails actions).




       2
           Although defendant titled its filing as a response to plaintiffs’ motion for partial
summary judgment with respect to the appropriate interest rate, defendant indicated, at the outset
of its response, that it also “cross-moves for partial summary judgment on the same issue.”
Def.’s Cross-Mot. 1.

                                                -5-
        Defendant asserts that the DTA rate applies in inverse condemnations just as it does in
direct condemnations because “the standard for measuring ‘just compensation’ is the same” in
both settings. Def.’s Cross-Mot. 13. Defendant unconvincingly attempts to equate direct and
inverse condemnations by invoking the minority opinion in City of Monterey v. Del Monte
Dunes at Monterey, Ltd. In Monterey, four justices of the United States Supreme Court
observed that direct and inverse condemnations were substantively the same because the ultimate
issue in both is determining the fair market value of the property taken on the date in question,
which is the amount the property owner is entitled to recover. 526 U.S. 687, 734-35 (1999)
(relying on Kirby, 467 U.S. at 10) (Souter, J., concurring in part and dissenting in part).
However, defendant overlooks that the minority opinion in Monterey focused on the principal
portion of the award, i.e., the “value of the property taken,” id. at 735 (internal quotation marks
omitted), and did not address delay damages.

        Defendant—relying on Vaizburd, Textainer, and Waverley View Investors, LLC v.
United States—further contends that “special proof” is necessary to deviate from the “DTA rates
and methodology as the ‘default’ in takings cases.” Def.’s Cross-Mot. 7. However, defendant’s
reliance on those decisions is misplaced.

         In Vaizburd, another judge of this court stated that the DTA rate, with compounding, is
used “[i]n the absence of special proof that a rate other than [the DTA rate] is appropriate.” 67
Fed. Cl. at 504. However, Vaizburd is distinguishable from the instant case for three reasons.
First, the taking in Vaizburd involved a physical invasion resulting from the accretion of sand on
the plaintiffs’ property. Id. at 500. Second, the time period in question was 1996 through 2005,
before the Great Recession of the late 2000s and early 2010s (the importance of which is
discussed below). Id. at 504. Third, “there was no presentation directed at the appropriate
interest rate, or whether it should be compounded.” Id. In the instant case, the taking involved
issuance of a NITU that prevented the vesting of plaintiffs’ reversionary interests in their land,
the time period in question is 2013 through at least 2018 (after the Great Recession), and the
parties have extensively briefed the issue of the appropriate interest rate and have submitted
expert declarations in support of their contentions. In any event, the Vaizburd court recognized
that determining the appropriate rate of interest is an issue “of fact, based on the particular
circumstances of the case.” Id. (relying on Dynamics Corp. of Am. v. United States, 766 F.2d
518, 520 (Fed. Cir. 1985)).

         In Textainer, another judge of this court, as in Vaizburd, held that “[a]bsent special proof,
the statutorily-set rate in the DTA shall apply.” 99 Fed. Cl. at 223. Textainer concerned a
dispute regarding whether the federal government was acting in a sovereign or proprietary
capacity when it failed to return rented containers at the conclusion of a lease. Id. at 220. The
court found that summary judgment with respect to liability was inappropriate given disputed
material facts, noted that the parties had agreed on the valuation of the containers themselves,
and observed that the parties disagreed on the issue of interest. Id. at 220-21. With respect to the
latter issue, the plaintiffs argued for a 10.25% interest rate “to appropriately reflect the average
rate of return on containers from 2005 through 2010,” or a variation of the Moody’s rate as an
alternative, while the government supported application of the DTA rate. Id. at 221. The court
remarked that there was “no consensus . . . with regard to the appropriate interest rate to be


                                                 -6-
employed in just compensation cases” and that there was “precedent to support the use” of either
the Prudent Investor Rule or the DTA rate. Id. at 222. Ultimately, the court sided with the
government because the plaintiffs’ suggested rate was not based on the Prudent Investor Rule
(since the plaintiffs sought compensation for “lost use of the taken property” rather than
“compensation for lost use of the takings award”), the plaintiffs “presented no evidence
supporting application of the Moody’s Corporate Bond Index rate,” and use of the DTA rate
“further[ed] the pursuit of uniform treatment of awardees in takings actions.” Id. at 222-23. In
the instant case, however, the plaintiffs base their proposed interest rates on the Prudent Investor
Rule and have supplied evidence in support thereof.

        In Waverley View, another judge of this court determined that the federal government
was liable for a Fifth Amendment taking because the United States Army had installed gravel
access roads and monitoring wells on the plaintiff’s property.3 136 Fed. Cl. 593, 594 (2018),
appeal docketed, No. 2018-1785 (Fed. Cir. Apr. 6, 2018). The discussion regarding the
appropriate interest rate consisted of three sentences:

                       The parties also disagree about the appropriate rate of
               interest. The court, however, consistently has determined that the
               appropriate interest rate in Takings Clause cases is the rate set
               forth in the [DTA]. Accordingly, Plaintiff is entitled to interest at
               the DTA rate from November 13, 2014 . . . to the date of payment.

Id. at 596-97 (citations omitted). Although the court relies on Textainer in support of its
assertion that the Court of Federal Claims has “consistently . . . determined that the appropriate
interest rate in Takings Clause cases is” the DTA rate, id., Textainer actually provides that “no
consensus has emerged with regard to the appropriate interest rate to be employed in just
compensation cases” and that “there is precedent to support the use of either” the Prudent
Investor Rule or the DTA rate, 99 Fed. Cl. at 222 (internal quotation marks omitted). Textainer
teaches that the DTA rate is, at most, the “default” rate in takings cases—and not the
“appropriate” rate that should apply across the board in takings cases as determined in Waverley
View—with the caveat that “special proof” can provide a basis for deviating from the default.
Compare id. at 223, with Waverley View, 136 Fed. Cl. at 596-97.

        In short, none of the decisions relied upon by defendant requires the use of the DTA rate
to calculate delay damages. Although the Vaizburd and Textainer courts both concluded that the
DTA rate was appropriate, those conclusions were (1) limited to the facts of each case and
(2) recognized that the default DTA rate would not necessarily apply given the right
circumstances (i.e., “special proof”). Additionally, the Waverley View court did not consider
whether another rate besides the DTA rate would be proper, but instead simply stated that it
would apply the DTA rate because doing so was appropriate.




       3
          Vaizburd, Textainer, and Waverley View were all decided by different judges, none of
which is the undersigned.

                                                -7-
       In any event, it is well established that “ascertainment of ‘just compensation’ is a judicial
function.” Langenegger v. United States, 756 F.2d 1565, 1569 (Fed. Cir. 1985). Indeed, the
United States Court of Claims has stated:

                The determination of just compensation, including the proper rate
                of interest, is basically a question of fact. As such, the
                determination of just compensation under the fifth amendment is
                exclusively a judicial function. It does not rest with Congress to
                say what compensation shall be paid, or even what shall be the rule
                of compensation.

Miller v. United States, 223 Ct. Cl. 352, 399-400 (1980). That court acknowledged, however,
that “the rate of interest set by a statute can be applied . . . if such rate is reasonable and judicially
acceptable.” Id. at 400.

        Defendant also argues that departures from the DTA rate that may have been appropriate
during the Great Recession are “no longer justifiable” because the “Federal Reserve has raised
the targeted federal funds interest rate five times from December 2015 through December 2017.”
Def.’s Cross-Mot. 11. Defendant’s argument is unfounded for two reasons. First, as of the end
of 2017, the effective federal funds rate was approximately one-fourth of the rate in place just
prior to the beginning of the Great Recession. Pls.’ Reply Gov’t Resp. Pls.’ Mot. Partial Summ.
J. (“Pls.’ Reply”) Ex. A (“Milbourn Rebuttal”) ¶¶ 28-29, ECF No. 207-1. Second, the increases
in the federal funds rate did not begin until well after the August 19, 2013 taking. Thus, even
assuming (for the sake of argument) that the federal funds rate increases over the past two-and-
one-half years had brought the interest rate to its pre-Great Recession levels, it would be of no
moment. Because payment in Rails-to-Trails cases is often delayed for several years, see, e.g.,
Furlong v. United States, 132 Fed. Cl. 630, 631 (2017) (reflecting a fourteen-year delay between
the date of taking and final approval of a settlement agreement), courts must consider the
economic circumstances during the entire interval.

        To the extent that it is necessary for plaintiffs to offer “special proof” that the DTA rate is
insufficient to protect the value of their eventual award, plaintiffs have indeed come forward
with such proof. In his declaration, plaintiffs’ expert, Dr. Milbourn, compared the market yield
on one-year Treasury securities with the inflation rate:

                                          Market Yield on
                                                                     Inflation
                            Year             One-Year
                                                                       Rate
                                         Treasury Securities
                            2013               0.15%                   1.50%
                            2014               0.13%                   1.60%
                            2015               0.25%                   0.10%
                            2016               0.54%                   1.30%
                            2017               0.83%                   2.20%




                                                   -8-
Pls.’ Mot. Partial Summ. J. (“Pls.’ Mot.”) Ex. C (“Milbourn Decl.”) at Ex. B Panel 1, ECF No.
193-3. The data provided by plaintiffs’ expert reflects that the DTA rate has failed to keep pace
with inflation in four out of five years over the relevant time period. The DTA rate also failed to
keep pace with inflation in each year from 2009 through 2012. Id. Dr. Neuberger, defendant’s
expert, does not dispute the accuracy of these figures.

       Use of the DTA rate does not pass muster in this case because an objectively reasonable
prudent investor simply would not invest in a product that would result in a loss of purchasing
power. See Sears, 124 Fed. Cl. at 736. In other words, the failure of a hypothetical investment
“to keep pace with inflation over the pertinent period” demonstrates that such investment “is an
inappropriate basis for deriving interest as part of just compensation.” Id. Therefore, further
inquiry is unnecessary for the court to conclude that the DTA rate is an inappropriate measure of
delay damages in the instant case.

                 C. The Five-Year TIPS Rate Is Inappropriate in This Case

        Defendant also suggests that the five-year TIPS rate provides a viable alternative to the
DTA rate because the TIPS rate “protects Plaintiffs against inflationary risks by providing return
adjustments based on actual inflation rates.” Def.’s Cross-Mot. 13. Dr. Neuberger explains that
while “five-year TIPS involve a longer term (and thereby less liquidity)” than one-year Treasury
securities as contemplated by the DTA rate, they also “offer protection against inflationary risk
in the form of adjustments to returns based on actual inflation rates” and “ensure that the
principal award is preserved in real (inflation-adjusted) terms between the date of the alleged
taking and the date of the award.” Def.’s Cross-Mot. Attach. A (“Neuberger Decl.”) ¶ 40, ECF
No. 202-1. TIPS provide both the “return of an inflation-adjusted principal value” and “an
annual coupon payment which is calculated on the basis of this inflation-adjusted principal each
and every year.” Milbourn Rebuttal ¶ 47.

        Dr. Neuberger posits that the “annualized return on the five-year TIPS issued on August
19, 2013 was 1.06 percent.” Neuberger Decl. ¶ 41. Dr. Milbourn disputes that figure, and avers
that the annualized return on the five-year TIPS between August 19, 2013, and April 15, 2018,
was 1.49%. Milbourn Rebuttal ¶ 118. Dr. Milbourn’s estimate includes consideration of the
adjusted principal return and semiannual coupon payments. See id. Dr. Neuberger, meanwhile,
does not provide any details for his calculation. See Neuberger Decl. ¶ 41.

         However, the apparent dispute regarding the actual performance of the five-year TIPS is
ultimately immaterial. The five-year TIPS failed to keep pace with inflation in three out of five
years from 2013 through 2017, even when using the higher 1.49% figure. Compare Milbourn
Rebuttal ¶ 188, with Milbourn Decl. Ex. B Panel 1, and Neuberger Decl. ¶ 41. Further,
assuming (for the sake of argument) that the five-year TIPS provides a rate of return
approximately equal to the inflation rate, the five-year TIPS still falls short. Although keeping
pace with inflation is a necessary condition for a hypothetical investment to serve as an
appropriate benchmark upon which to award interest for delay damages, see supra Section III.B,
it is not a sufficient condition.



                                                -9-
        An objectively reasonable prudent person would not invest in a product that did not
provide adequate compensation for the risks faced in conjunction with that investment. Indeed,
the parties agree that plaintiffs should only be compensated for risks actually borne (although
they disagree on which risks plaintiffs did in fact bear). Compare Neuberger Decl. ¶ 64 (“The
guiding economic principle of the proper determination of interest is that it must be
commensurate with the risks actually borne by the Plaintiffs because of the delay.”), with
Milbourn Decl. ¶ 183 (“[T]he economic harm to plaintiffs is demonstrated by the
characterization of the risks actually borne by the plaintiffs, and the rate of interest used to
estimate the amount of delay compensation should be matched commensurately to these risks.”).
Further, an objectively reasonable prudent person would seek to obtain a return on the
investment beyond merely keeping pace with inflation, even if doing so entailed some degree of
risk. Milbourn Decl. ¶¶ 52-54.

         Plaintiffs in the instant case face a liquidity risk as a result of the delay in payment
because federal law prohibits them from liquidating their claims through a sale or being pledged
as collateral for a loan. See 31 U.S.C. § 3727(a)-(b) (2012). Plaintiffs are entitled to be
compensated for this harm because it would not exist if payment had been made
contemporaneously with the taking. See Biery v. United States, Nos. 07-693L and 07-675L,
2012 WL 5914521, at *3 (Fed. Cl. Nov. 27, 2012) (“The court’s primary goal in determining a
correct interest rate is to employ an interest calculation that does not just yield a higher or lower
interest payment, but rather is the more accurate measure of the economic harm of the property
owners.” (internal quotation marks and alterations omitted)). Other judges of this court have
recognized that the detriment plaintiffs face with respect to liquidity should “be taken into
account in the court’s determination of an appropriate interest rate.” Sears, 124 Fed. Cl. at 736.
The court therefore agrees with plaintiffs that failing to account for liquidity risk in determining
an appropriate interest rate would “undercompensate them for their economic loss” suffered as a
result of the delay in payment. Milbourn Decl. ¶ 27; accord Milbourn Rebuttal ¶ 32 (“Liquidity
risk is a real risk imposed on plaintiffs and financial markets provide yield compensation for this
risk.”). Accordingly, defendant’s argument that “the illiquidity of a plaintiff’s claim, i.e., the
ability to transfer their lawsuit, is . . . not a factor in determining the appropriate interest on a
delayed payment,” Def.’s Cross-Mot. 16, is meritless.

        In short, the court agrees with the parties that the five-year TIPS does not account for
liquidity risk. See Milbourn Decl. ¶ 21; Neuberger Decl. ¶¶ 40, 54. Further, plaintiffs face a
liquidity risk due to the delay in payment. An objectively reasonable prudent investor facing
such a risk would not select an investment that fails to consider such risk. Therefore, the court
concludes that an interest rate based on the performance of the five-year TIPS does not provide
adequate compensation for delay damages in the instant case.

                      D. The VBINX Rate Is Inappropriate in This Case

        Plaintiffs aver that the VBINX is a “perfect and representative example of . . . a fund that
is both (1) consistent with all of the tenets of the [Prudent Investor Rule] and (2) matches the
actual risks applicable to” them. Pls.’ Mot. 3, ECF No. 193. According to plaintiffs, the VBINX
is a “diversified mutual fund,” has “low and certainly acceptable risk,” and “balance[s] the


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elements of return between production of income and the protection of purchasing power.” Id. at
9. Defendant argues that applying an interest rate pegged to the performance of the VBINX
would “overcompensate Plaintiffs for risks they did not bear.” Def.’s Cross-Mot. 18. The
parties are correct on the law, but miss the mark in its application.

        Dr. Neuberger posits that, as a result of the taking that the court found to have occurred
on August 19, 2013, plaintiffs essentially hold a risk-free claim against the federal government
and should be compensated accordingly. See, e.g., Neuberger Decl. ¶ 30. Meanwhile, Dr.
Milbourn focuses on plaintiffs having “displayed a willingness to hold land as part of [their]
investment portfolio[s],” Milbourn Decl. ¶ 171, and argues that delay damages should be
calculated by focusing on the type of asset—land—that was taken, id. ¶ 122 (“It is appropriate to
consider the type of asset allegedly taken.”). Accord id. ¶ 152 (“Had the plaintiffs been fairly
compensated for the taking of their private land on August 19, 2013, the plaintiffs would have
likely sought to invest those proceeds in investments that at a minimum met their investment
objectives from holding land as part of their portfolio.”).

        Both approaches are unsound. As explained above, plaintiffs are entitled to
compensation that will place them in the same pecuniary position as if the payment of just
compensation coincided with the taking; such a determination requires adherence to the Prudent
Investor Rule. In other words, rather than calculating delay damages by treating plaintiffs as
creditors of the federal government or as investors in real estate, the court must determine how
an objectively reasonable prudent person “would have invested the funds owed by the
government to produce a reasonable return while maintaining safety of principal.” Sears, 124
Fed. Cl. at 734-35.

      Dr. Milbourn asserts that plaintiffs should be compensated for delay damages by
assuming that hypothetical investors

               would have sought to invest [their principal damages awards] in an
               investment fund that was diversified, managed to balance both
               income and growth, managed to protect purchasing power,
               incurred low management fees and transaction costs, was adeptly
               managed by a financial professional, and adhered to each
               individual plaintiff’s risk and return objectives for this component
               of their overall investment portfolio as part of the strategy for the
               entire portfolio.

Milbourn Decl. ¶ 69 (emphasis added). By arguing for an approach that considers individual risk
and return objectives rather than the perspective of an objectively reasonable prudent person, Dr.
Milbourn fails to properly analyze the Prudent Investor Rule as applied to a large group of
plaintiffs. Thus, his conclusion that the VBINX rate is a proper measure of the delay-damages
portion of the just compensation to which plaintiffs are entitled is unsupported. Since plaintiffs
bear the burden of demonstrating the amount of just compensation to which they are entitled, the
court must deny their motion for partial summary judgment to the extent that they seek an
interest rate equal to the performance of the VBINX.


                                               -11-
       In any event, the composition of the VBINX betrays the notion that it would be an
appropriate hypothetical investment in this case:

                        [The VBINX] offers investors an easy, low-cost way to
               gain exposure to stocks and bonds. The fund invests roughly 60%
               in stocks and 40% in bonds by tracking two indexes that represent
               broad barometers for the U.S. equity and U.S. taxable bond
               markets. The fund’s broad diversification is important, because
               one or two holdings should not have a sizeable impact on the fund.
               Investors with a long-term horizon who want growth and some
               income—and who are willing to accept stock and bond market
               volatility—may wish to consider this as a core holding in their
               portfolio.

Id. ¶ 156 n.58 (internal quotation marks omitted). Dr. Milbourn defines volatility as follows:

                       A standard way to characterize risk in investment plans is
               to characterize the range of returns an investor sees when holding a
               particular investment. Finance professionals rely on a measure
               known as volatility (or standard deviation in statistics terms) to
               capture the extent of the variability in possible returns in any given
               year. Volatility is a measure of how spread out (or dispersed) the
               rates of return on an investment could be in any particular year
               relative to the average rate of return. Such a measure accounts for
               how low the rates of return might go, as well as how high the rates
               of return might go.

Id. ¶ 139. In the economic environment that has existed between August 19, 2013, and the
present, the VBINX’s volatility reflects that it “does not currently comport sufficiently with the
‘minimal risk’ criterion” even though “such an investment might otherwise be considered
‘prudent’ under some economic conditions.” Sears, 124 Fed. Cl. at 736. The fund’s broad
diversification, low fees and costs, and professional management are important factors, but the
VBINX’s volatility makes it unacceptable in the instant case because the VBINX will not
necessarily adequately “maintain[] safety of principal,” id. at 734 (internal quotation marks
omitted), moving forward.

      In short, the court concludes that the VBINX rate is an improper benchmark by which to
measure delay damages in the instant case.

             E. The Moody’s Rate Reflects a Proper Measure of Delay Damages

        The final rate discussed by the parties is the Moody’s rate. Plaintiffs aver that “the
Moody’s Rate protects [their] purchasing power under an appropriate [Prudent Investor Rule]
analysis,” but that it fails to “adequately compensate [them] for risks they were taking by holding
land as part of their investment portfolio.” Pls.’ Mot. 24. Defendant asserts that applying the


                                               -12-
Moody’s rate “would overcompensate Plaintiffs.” Def.’s Cross-Mot. 19. Defendant explains
that Moody’s “is designed to compensate investors for the risks of corporate default,” that
plaintiffs “did not actually hold an investment in the Moody’s bond index or bear its associated
risks,” and that the risk of default “does not exist for takings by the United States government.”
Id.

       Dr. Neuberger emphasizes that the Moody’s rate

               is calculated based on the returns on corporate bonds with the
               highest credit ratings. Moody’s assigns a “Aaa” rating to corporate
               bonds “judged to be of the highest quality, subject to the lowest
               level of credit risk.” Corporate bond rates reflect . . . the returns
               required by creditors as compensation for the risk that the borrower
               will fail to meet its obligations.

Neuberger Decl. ¶ 107 (footnotes omitted). Dr. Milbourn stresses that Moody’s is “primarily
driven by illiquidity risk and not credit risk,” Milbourn Rebuttal ¶ 37, but notes that plaintiffs’
claims against the federal government are completely illiquid, unlike a Moody’s investment, id.
¶ 40. Indeed, Dr. Milbourn agrees with Dr. Neuberger that Moody’s is an “Investment Grade”
bond index “made up of only the safest corporate credits.” Milbourn Decl. ¶ 75. Dr. Milbourn
observes that the cumulative default rate on investment-grade bonds—i.e., those given an Aaa,
Aa, A, or Baa rating, in ascending order of credit risk—is only 1.0% after five years, and the
average recovery rate on defaulted bonds is 50%. Id. ¶ 76. In other words, an investor has a
99.5% expected recovery after five years for all investment-grade bonds. The five-year expected
recovery rate for Aaa bonds would be even higher because Aaa bonds are the highest-rated
investment-grade bonds. Thus, although Moody’s “factors the risk of corporate defaults into its
rate of return,” Def.’s Cross-Mot. 19, such a risk is de minimis for investment-grade bonds,
particularly those receiving an Aaa rating. Indeed, the default rate for Aaa bonds was 0% during
2016. Milbourn Rebuttal ¶ 54. The risk that the federal government will default is similarly de
minimis.

        In addition to accounting for an illiquidity risk and a de minimis credit risk, the Moody’s
rate “produce[s] a reasonable return while maintaining safety of principal,” Sears, 124 Fed. Cl. at
734, because it has consistently provided a return on investment in addition to outpacing
inflation, Milbourn Decl. Ex. B Panel 1. Further, the Moody’s rate does not factor in the type of
investment—land—that was taken. Therefore, applying the Moody’s rate is consistent with the
Prudent Investor Rule.

       In short, the court concludes that the Moody’s rate is the appropriate measure of delay
damages in the instant case. It will not depart from the consensus that has emerged since 2009 in
the Court of Federal Claims that the Moody’s rate is the appropriate benchmark by which to
award delay damages in the Rails-to-Trails context. See Pls.’ Reply 5-6, ECF No. 207
(providing a table of interest rates applied in Rails-to-Trails cases over the past ten years).




                                               -13-
                               F. Compounding Is Appropriate

        As a final matter, the court addresses whether interest should be compounded. There
appears to be no dispute between the parties that compounding is appropriate in the instant case.
Dr. Milborn emphasizes that “[p]rudent investing is commensurate with compound interest”
because “an investor seeking to maximize the appreciation of capital and thereby future income
would choose to reinvest any gains each year.” Milborn Decl. ¶¶ 193-94. Meanwhile, the DTA
rate proposed by defendant provides for compounding, and defendant argues that interest under
the TIPS rate should be compounded as well. See Sears, 124 Fed. Cl. at 737 n.4 (“By advocating
use of [a particular benchmark] as the measure of interest, the government in essence concedes
that compounding is appropriate . . . .”).

       Therefore, as in Sears, the court concludes that interest shall be compounded quarterly in
accordance with the Prudent Investor Rule.

                                      IV. CONCLUSION

        The court has considered all of the parties’ arguments. To the extent not discussed
herein, they are unpersuasive, without merit, or unnecessary for resolving the issues currently
before the court.

        There is no genuine issue of material fact currently before the court. Plaintiffs are
entitled to delay damages between the date of taking and the date of payment at an interest rate
equivalent to the Moody’s rate, compounded quarterly, pursuant to the Prudent Investor Rule.
Neither the DTA, TIPS, nor VBINX rates are appropriate.

        Accordingly, the court GRANTS IN PART and DENIES IN PART plaintiffs’ motion
for partial summary judgment and DENIES defendant’s cross-motion for partial summary
judgment.

       IT IS SO ORDERED.


                                                 s/ Margaret M. Sweeney
                                                 MARGARET M. SWEENEY
                                                 Judge




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