     In the United States Court of Federal Claims
                                 No. 09-37C
                            (Filed: June 11, 2013)


**********************

PETER H. BEER, et al.,
                                                  Compensation Clause of
                     Plaintiffs,
                                                  Article III; dam ages;
                                                  p re ju d g m e n t in t e r e s t ;
v.
                                                  deductions; Federal
                                                  Employees’ Group Life
UNITED STATES,
                                                  Insurance Program; tax
                                                  withholdings.
                     Defendant.

**********************

       Christopher Landau, with whom were John C. O’Quinn, and K. Winn
Allen, Washington, DC, for plaintiffs.

       Loren Misha Preheim, Trial Attorney, Commercial Litigation Branch,
Civil Division, Department of Justice, Washington, DC, with whom were
Stuart F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director,
Reginald T. Blades, Jr., Assistant Director, for defendant.

                                   OPINION

BRUGGINK, Judge.

        This is an action for back pay brought pursuant to Article III of the
United States Constitution. The matter is pending on remand from the United
States Court of Appeals for the Federal Circuit. Beer v. United States, 696
F.3d 1174 (Fed. Cir. 2012), cert. denied, 133 S. Ct. 1997 (2013). After finding
for the plaintiffs on liability, the Federal Circuit directed this court to
determine, as damages, “the additional compensation to which appellants were
entitled since January 13, 2003–the maximum period for which they can seek
relief under the applicable statute of limitations.” Id. at 1187.

       On January 18, 2013, we denied defendant’s motion to stay proceedings
pending the outcome of its petition for certiorari before the Supreme Court.
We then directed the parties to file simultaneous briefs as to the correct
calculation of damages. On February 22, 2013, the parties filed initial briefs
and filed response and reply briefs thereafter. Because there are other cases
pending which raise similar issues and because those cases are not as far along
procedurally, we invited and received amicus briefs. On April 22, 2013, the
Supreme Court denied defendant’s petition for certiorari. United States v.
Beer, 133 S. Ct. 1997 (2013). We held oral argument as to the correct
calculation of damages on May 31, 2013. For the reasons set out below, the
net back pay award will be calculated without including prejudgment interest
on the lost pay attributable to withheld cost of living increases in 2007 and
2010, without deduction of additional life insurance premiums, and with
prejudgment interest on a pre-tax basis.

                               BACKGROUND

        Plaintiffs are six federal judges1 who make a claim for back pay under
the Compensation Clause of Article III of the Constitution, which provides that
“Judges . . . shall, at stated Times, receive for their Services, a Compensation,
which shall not be diminished during their Continuance in Office.” U.S.
Const. art. III, § 1. Because the clause “requires repayment of prohibited
reductions in compensation to Article III judicial officers,” Hatter v. United
States, 953 F.2d 626, 628 (Fed. Cir. 1992), it constitutes a “source of
substantive law that creates the right to money damages.” Fisher v. United
States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (en banc) (citing United States
v. Mitchell, 463 U.S. 206, 216 (1983)). Plaintiffs thus state a claim within the
court’s Tucker Act jurisdiction. See 28 U.S.C. § 1491(a)(1) (2006) (“The
United States Court of Federal Claims shall have jurisdiction to render
judgment upon any claim against the United States founded either upon the
Constitution, or any Act of Congress . . . .”).




1
 Four of the plaintiffs are currently in senior status, one is in regular active
service, and one is retired. By agreement of the parties, the distinction matters
with respect to Medicare deductions, to which retired judges and judges in
senior status are not subject. See 26 U.S.C. § 3121(i)(5) (2006). Plaintiffs also
note that one plaintiff “retired in January 2009 and therefore does not receive
any increases in salary after 2009.” Pls.’ Status Report, Exh. A at 2 (May 6,
2013).

                                       2
        Plaintiffs initially also sought as relief a declaration by the court that
“Congress may not in the future withhold the salary adjustments promised to
them . . . .” Compl. ¶ 3 (Prayer for Relief). On May 3, 2013, plaintiffs filed
a status report in which they voluntarily dismissed the complaint’s request for
declaratory relief. Accordingly, the only issue remaining is back pay.

       It is the law of this case that Congress improperly reduced plaintiffs’
compensation and violated the Constitution by withholding cost of living
adjustments (“COLAs”) from their pay, which were assured under the Ethics
Reform Act of 1989, Pub. L. No. 101-194, § 704, 103 Stat. 1716, 1769
(hereinafter “1989 Act”). The 1989 Act provides that, when General Schedule
employees receive a pay increase,2 Article III judges also receive an increase,
pursuant to a precise formula.3 See id. § 704.

        In some years when General Schedule employees received adjustments
to pay, Congress passed laws blocking COLAs for judges. It did so for the
fiscal years of 1995, 1996, 1997, and 1999.4 COLAs were also withheld in
2007 and 2010, although not because Congress passed blocking legislation to
prevent those pay increases. Instead, Congress relied on an interpretation of
an amended statute, originally passed as Pub. L. No. 97-92, § 140, 95 Stat.
1183, 1200 (1981) (hereinafter “Section 140”), which provided that
appropriations to increase pay for federal judges had to “be specifically
authorized by Act of Congress hereafter enacted.” This authorization
requirement expired, however, in 1982. Williams v. United States, 240 F.3d
1019, 1026-27 (Fed. Cir. 2001).




2
  General Schedule COLAs occur every year unless the President acts to stop
the increase “because of [a] national emergency or serious economic
conditions affecting the general welfare.” 5 U.S.C. § 5303(b)(1) (2012).
3
    See Beer, 696 F.3d 1174, 1177 (explaining the formula).

4
 Pub. L. No. 103-329, § 630(a)(2), 108 Stat. 2382, 2424 (1994); Pub. L. No.
104-52, § 633, 109 Stat. 468, 507 (1995); Pub. L. No. 104-208, § 637, 110
Stat. 3009, 3009-364 (1996); Pub. L. No. 105-277, § 621, 112 Stat. 2681,
2681-518 (1998).



                                        3
        Congress amended Section 140 on November 28, 2001, to state that
“[t]his section shall apply to fiscal year 1981 and each fiscal year thereafter.”
Pub. L. No. 107-77, § 625, 115 Stat. 748, 803. Acting on the belief that it then
needed to pass specific legislation to authorize COLAs, Congress passed
legislation to that effect for fiscal years 2002, 2004, 2005, 2006, and 2008.5
Congress failed to pass legislation in 2007 and 2010 with the result that judges
did not receive COLAs in those years.

        Plaintiffs filed their complaint on January 16, 2009.6 We initially
dismissed on the basis of Williams. Plaintiffs appealed. On October 5, 2012,
the Federal Circuit overruled Williams in its en banc decision in this case.
Beer, 696 F.3d at 1176-77. The Federal Circuit held that “the 1989 Act
triggered the Compensation Clause’s basic expectations and protections,”
because it made a “precise and definite commitment to automatic yearly cost
of living adjustments for sitting members of the judiciary.” Id. at 1177. The
legislation that blocked COLAs in 1995, 1996, 1997, and 1999, “broke this
commitment and effected a diminution in judicial compensation.” Id. at 1185.

        The court of appeals also held that “federal judges should have received
the adjustments in 2007 and 2010.” Id. at 1185. Congress’s belief that it had
to specifically authorize pay increases after the 2001 amendment to Section
140 was “an erroneous statutory interpretation.” Id. at 1186. The 2001
amendment only made “permanent whatever effect the provision had when
originally enacted” in 1981. Id. Although Section 140 required that, after
1981, pay increases had to be specifically authorized, the 1989 Act satisfied
that requirement. Id.

       The Federal Circuit concluded that plaintiffs must be compensated “for



5
 Pub. L. 107-77, § 305, 115 Stat. 748, 783 (2001); Pub. L. 108-6, § 1, 117
Stat. 10, 10 (2003); Pub. L. 108-167, § 1, 117 Stat. 2031, 2031 (2003); Pub. L.
108-447, § 306, 118 Stat. 2809, 2895 (2004); Pub. L. 108-491, § 1, 118 Stat.
3973, 3973 (2004); Pub. L. 109-115, § 405, 119 Stat. 2396, 2470 (2005); Pub.
L. 110-161, § 305, 121 Stat. 1844, 1989 (2007).

6
  Plaintiffs amended the complaint to add 2010 as a year in which they allege
the wrongful withholding of COLAs. Beer, 696 F.3d at 1186 (“Appellants’
motion to amend their complaint to include a challenge to the 2010
withholdings is granted.”).

                                       4
the diminished amounts they would have been paid if Congress had not
withheld the salary adjustments mandated by the Act.” Id. at 1186. The court
remanded the case for calculation of damages.

                                DISCUSSION

        The Federal Circuit directed this court to determine damages to which
appellants were entitled after January 13, 2003. Id. at 1187.7 This
compensation must “incorporate the base salary increases which should have
occurred in prior years.” Id. The parties filed briefs setting forth their
respective positions as to calculation of back pay due from January 2003, the
first pay period not barred by the statute of limitations. See 28 U.S.C. § 2501
(2006). The calculations are in agreement as to the total amount of gross lost
pay. The parties also agree on certain adjustments. They agree that gross pay
should be reduced by the additional payments, if any, that a judge would have
made to the Judicial Survivors’ Annuity System (“JSAS”) in each year.8 Both
sides also agree that income tax should be withheld from the net pay award at
a standard rate of 28 percent, see 26 U.S.C. § 3402(a) (2006); 26 C.F.R. §
31.3402(g)–1(a)(7) (2012), that judges who were in regular active service
should have their back pay reduced by 1.45 percent for Medicare taxes,9 and
that compound interest accumulates on net pay pursuant to a rate determined




7
 Plaintiffs filed their complaint on January 16, 2009, not January 13. It makes
no difference in the calculation of damages.

8
  The JSAS program provides an annuity to a judge’s beneficiaries. See 28
U.S.C. § 376 (2006). A judge who joins the program “shall be deemed thereby
to consent and agree to having deducted and withheld from his or her salary
a sum equal to 2.2 percent of that salary, and a sum equal to 3.5 percent of his
or her retirement salary.” Id. § 376(b)(1).

9
 See Social Security & Medicare Tax Rates, Social Security Online (March 8,
2012), http://www.ssa.gov/oact/progdata/taxRates.html. The figure is 2.35
percent for amounts in excess of $200,000 per year. Internal Revenue Service,
U.S. Dep’t of Treasury, Pub. No. 15, (Circular E), Employer’s Tax Guide 2
(2013).


                                       5
under 28 U.S.C. § 1961 (2006),10 at least with respect to the four pre-2007
COLAs.

       There remain three issues on which the parties disagree: whether
interest accumulates on back pay with respect to the 2007 and 2010 COLAs;
whether judges enrolled in the Federal Employees’ Group Life Insurance
Program should have their gross pay reduced by the higher premiums that
would have resulted if the COLAs actually had been paid; and whether interest
should be calculated before or after application of income and Medicare tax
withholdings.

I. Whether Back Pay Attributable To The 2007 And 2010 COLAs Earns
Interest.

        Defendant concedes that plaintiffs should recover interest on back pay
attributable to the omission of COLAs for 1995, 1996, 1997, and 1999. The
Federal Circuit made clear that blocking these COLAs was a violation of
Article III, Section I of the Constitution. Defendant does not challenge the
imposition of compound interest as to those omitted COLAs, and we believe
the discussion in Hatter v. United States, 38 Fed. Cl. 166, 182-83 (1997), rev’d
on other grounds, 185 F.3d 1356 (Fed. Cir. 1999), correctly explains why there
is no need to find a separate waiver of sovereign immunity for payment of
prejudgment interest to complete the relief to which plaintiffs are entitled for
a constitutional violation. Defendant objects, however, to paying interest with
respect to the COLAs that should have occurred in 2007 and 2010.

       Defendant correctly notes that, absent a waiver of sovereign immunity,
interest is generally not allowed in a claim against the United States. Library



10
  Plaintiffs explain that interest accrues according to “the average weekly rate
of the 1-year constant maturity Treasury yield for the last published week of
the preceding calendar year. Interest is compounded on January 1 of each
year. A mid-year earnings convention is used to calculate prejudgment interest
in the year in which salary is lost.” Pls.’ Status Report, Exh. A at 2 n.2 (May
6, 2013). Defendant accepts this methodology. See Def.’s Resp. Brief
Regarding Back Pay Calculations 4 (“Although we used a more precise
methodology that results in a difference of $1.00 to $2.00 per month for future
prejudgment interest after February 2013, plaintiffs’ methodology would be
substantially correct.”).

                                       6
of Congress v. Shaw, 478 U.S. 310, 317 (1986). Defendant’s point is that,
while the complaint asserted liability only under the Compensation Clause, the
Federal Circuit in Beer went to some lengths to limit the basis of its ruling as
to the later COLAs:

              Turning now to the second question, this court
       determines that the 2001 amendment to Section 140 of Pub. L.
       97-92 has no effect on the compensation due to judges. Unlike
       the preceding discussion of the Compensation Clause, this is a
       question of statutory interpretation. Without a statutory basis for
       withholding the COLAs, federal judges should have received
       the adjustments in 2007 and 2010. These adjustments are
       payable to the judges regardless of constitutional protections.
       Congress simply had no statutory authority to deny them.

696 F.3d at 1185 (emphasis added). Counsel for defendant candidly conceded
at oral argument that there was no principled reason that failure to pay the later
COLAs could not also be considered a constitutional violation. His point,
however, was that the Federal Circuit plainly decided the latter issue only as
a matter of statutory entitlement. See id. at 1186 (“The Government withheld
COLAs from judges in 2007 and 2010 solely because the government
misinterpreted Section 140 . . . .”). Defendant argues that it would violate the
Federal Circuit’s mandate to go beyond the circuit court’s holding and resolve
the question of whether withholding the 2007 and 2010 COLAs was also
unconstitutional.

        Plaintiffs counter that, on remand, “[o]nly the issues actually
decided–those within the scope of the judgment appealed from, minus those
explicitly reserved or remanded by the court–are foreclosed from further
consideration.” Engel Indus., Inc. v. Lockformer Co., 166 F.3d 1379, 1383
(Fed. Cir. 1999) (citing Sprague v. Ticonic Nat’l Bank, 307 U.S. 161, 170
(1939)). Nevertheless, we do not view this legal proposition as dispositive.
While the Federal Circuit did not specifically address whether omission of the
later COLAs generates prejudgment interest, the plain import of the mandate
was that we are only to calculate damages; the issue of liability has been
resolved. As we explain above, the Federal Circuit felt that it was unnecessary
to resolve whether withholding the 2007 and 2010 COLAs was a constitutional
violation because plaintiffs are clearly entitled to the COLAs by operation of
the 1989 Act.



                                        7
       The Tucker Act permits the court to hear claims based upon “any Act
of Congress.” 28 U.S.C. § 1491(a)(1). The Ethics Reform Act of 1989 is an
act of Congress and is plainly money-mandating. See generally Fisher, 402
F.3d at 1172 (requiring plaintiffs to “identify a separate source of substantive
law” giving the right to money damages). Although the Federal Circuit
presumably also could have found that failure to pay the 2007 and 2010
COLAs amounted to an unconstitutional diminishment of compensation, the
court made clear that it was unnecessary to do so.

      Justice Brandeis’ concurrence in Ashwander v. Tennessee Valley
Authority, 297 U.S. 288 (1936), is often cited for the proposition that a federal
court

       will not pass upon a constitutional question although properly
       presented by the record, if there is also present some other
       ground upon which the case may be disposed of. This rule has
       found most varied application. Thus, if a case can be decided on
       either of two grounds, one involving a constitutional question,
       the other a question of statutory construction or general law, the
       Court will decide only the latter.

Id. at 347; see also Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876,
918 (2010) (Roberts, C.J., concurring) (“Our standard practice is to refrain
from addressing constitutional questions except when necessary to rule on
particular claims before us.”) (citing Ashwander, 297 U.S. at 346-48);
Hathaway v. Merit Sys. Prot. Bd., 981 F.2d 1237, 1243 n.8 (Fed. Cir. 1992)
(citing Ashwander, 297 U.S. at 347).

        We believe that principle applies here. While plaintiffs have the right
to cast their complaint exclusively in terms of a constitutional claim, we will
not presume to dictate to the circuit court that it should have gone further than
necessary to resolve the case. Nor do we agree with plaintiffs’ suggestion that
this court is obligated to pursue the alternative ground for liability in order to
furnish plaintiffs a complete remedy. The remedy for violation of the 1989
Act is complete without an interest award. It would be overreaching for this
court to insist on an alternative holding simply to facilitate an additional
remedy.




                                        8
II. Whether Higher Insurance Premiums Should Be Retroactively Imposed.

       All of the plaintiffs elected, during the years at issue, to participate in
the Federal Employees’ Group Life Insurance (“FEGLI”) Program. They
each were enrolled in the basic plan and, with one exception, also opted for
some level of Option B coverage, which consists of multiples of a judge’s
salary. Because the coverage and premiums for these plans are directly
correlated to salary, defendant asserts that we must retroactively withhold
additional premiums from back pay to reflect the higher coverage the judges
presumably would have elected to retain if the COLAs actually had been paid
during the years at issue.

       Defendant relies on section 8707 of title 5 of the United States Code,
which states in relevant part that “during each period in which an employee is
insured under a policy purchased by the Office of Personnel Management
under section 8709 of this title, there shall be withheld from the employee’s
pay a share of the cost of the group life insurance and accidental death and
dismemberment insurance.” 5 U.S.C. § 8707(a) (2012). The statute references
the “period in which an employee is insured.” Id. For the period for which
they were insured, however, plaintiffs did in fact pay premiums commensurate
with the coverage they received. As plaintiffs correctly note, section 8707
does not answer the precise question raised in the present circumstances,
namely, if the government improperly withheld salary in the past, should
premiums be retroactively adjusted when that back pay is restored.

       Moreover, the statute only requires the plaintiffs to “pay a share of the
cost of the group life insurance.” Id. Giving plaintiffs a retroactive pay raise
does not simultaneously retroactively increase the cost to other insureds for the
time period in question, nor do the plaintiffs claim any proportionately higher
benefit.11 There is thus no requirement by statute to dun plaintiffs in arrears.

       Without offering any other justification than the statute, defendant
contends, nevertheless, that we must time travel into the past to reconstruct a
“but for” world in which the correct salaries were received and then model



11
  We are not faced here with the question of whether the estate of a judge who
died during the period in question would be entitled to the higher benefit or
would have to pay a retroactive higher premium to receive that benefit.


                                        9
how plaintiffs would have behaved. We decline the suggestion. The insurance
at issue is term coverage, and the relevant term is over. None of these
plaintiffs have died, so forcing them to pay additional premiums neither
reimburses the government (or the private underwriter) for an expense incurred
nor extracts from plaintiffs a payment for additional coverage from which they
benefitted. While counsel for defendant assured the court that any additional
premiums extracted from the back pay award would be passed along to the
private insurance company that underwrites FEGLI, defendant cites nothing
in law or contract which requires the government to do so.12 In fact, we can
say with certainty that, if the court did as the government proposes, and if
those additional premiums are passed along to the private insurer, it is the
insurer which would be receiving a windfall. Needless to say, if the premiums
were retained in the Treasury the government would be receiving the windfall.
We can also say with certainty that not requiring retroactive higher premiums
provides no windfall to these plaintiffs.

        We note, moreover, that insurance coverage is optional. While the
government makes the not unreasonable assumption that none of the plaintiffs
would have opted out of their then-existing level of coverage, we cannot say
that with certainty. We note that at least one of the plaintiffs changed his level
of coverage during the years at issue. Although it may be unlikely, it is at least
theoretically possible that these judges would have reevaluated their coverages
in light of higher costs and benefits. The point is that we could never recreate
a pristine “but for” world.

       As the parties admit, the cases on the question are less than consistent
or principled. The Court of Claims has directed the withholding of insurance
premiums from back pay awards, either on the assumption that the plaintiffs
were covered during the retroactive period “as a matter of law,” Paroczay v.
United States, 369 F.2d 720, 723 (Ct. Cl. 1966), or without explanation, Clark



12
  Defendant cites title 5 of the Code of Federal Regulations, which directs
that, “[w]hen an agency withholds less than or none of the proper amount of
Basic life insurance deductions from an individual’s pay . . . the agency must
submit an amount equal to the sum of the uncollected deduction . . . to [the
Office of Personnel Management].” 5 C.F.R. § 870.401(f) (2013). This begs
the question, however, of whether the proper amount was withheld. We
conclude that it was.


                                       10
v. United States, 170 Ct. Cl. 898, 899 (1965); Clark v. United States, 156 Ct.
Cl. 699, 699 (1962). In Russell v. United States, 320 F.2d 920, 925-26 (Ct. Cl.
1963), however, the court came to a different result. There, an employee had
been suspended improperly from employment, and during his suspension, the
FEGLI program was instituted. Id. at 925. The court granted back pay and
held that the plaintiff did not have to pay a retroactive life insurance premium
when it was unclear that he had received coverage during the period of
removal. Id. at 926.

        In 1972, Congress addressed the issue raised by the above cases when
it passed Pub. L. No. 92-529, 86 Stat. 1050 (codified at 5 U.S.C. § 8706(e)
(2012)) (hereinafter “section 8706(e)”).        Section 8706(e) states that
“[d]eductions otherwise required by section 8707 of this chapter shall not be
withheld from any back pay awarded for the period of separation or suspension
unless death or accidental dismemberment of the employee occurs during such
period.” 5 U.S.C. § 8706(e). Plaintiffs contend that this statute reflects a
“principle that federal employees should not be forced to pay retroactive
FEGLI premiums for retroactive FEGLI coverage they never received.” Pls.’
Resp. 6.13 Not surprisingly, defendant draws the opposite inference: by only
referencing separation or suspension in barring withholding (in the absence of
death or dismemberment), Congress must have meant to require withholding
in all other circumstances. We decline to construe this paragraph as requested
by either party. It was adopted in response to the cases discussed above and
therefore doesn’t bear the weight of either inference. We can only safely
conclude that section 8706(e) does not directly answer the relevant question.

       In sum, we find no support for the government’s position that we are
required by statute or precedent to reduce the back pay award by higher
premiums for hypothetical coverage. Nor would it promote fairness to do so.
As we note above, we would be forcing plaintiffs to pay for something they
did not receive. Back pay will be calculated without deduction for additional
FEGLI premiums.

III. Whether Interest Should be Calculated Before Or After Withholding
Taxes Are Taken Out.

         The parties agree that the entire back pay award each plaintiff receives



13
     “Pls.’ Resp.” refers to Plaintiffs’ Response Brief on Damages.

                                        11
must be treated as income in the year received. On the assumption that the
judgment will be paid this year, the amount each plaintiff receives, including
interest, will be treated as income received in 2013. It is also undisputed that
back pay awards are subject to withholding taxes,14 and the parties have agreed
that the appropriate rate is 28 percent. The effective income tax rate each
plaintiff will ultimately pay for 2013 depends, of course, on individual
circumstances.

        The parties differ on the implication of these facts to the calculation of
prejudgment interest. The only deductions from gross lost income that
plaintiffs take for any given year are for JSAS contributions.15 Against that
annual net figure they apply interest. Plaintiffs add those total amounts of lost
income and cumulative interest for each year and then apply, to the resulting
total, 28 percent in withholding taxes and, where appropriate, Medicare taxes.
Plaintiffs’ model thus applies a withholding to interest as well as lost wages.

       Defendant’s model, on the other hand, assumes that taxes were taken
out each year in the past (along with higher FEGLI premiums) before
calculating interest. Withholding taxes are thus not applied to interest in
defendant’s model.

       The Supreme Court has offered some guidance in United States v.
Cleveland Indians Baseball Co., 532 U.S. 200 (2001). That case also involved
how to treat improperly withheld wages. Id. at 204. The question was whether
taxes under the Federal Insurance Contributions Act (“FICA”) and Federal
Unemployment Tax Act (“FUTA”) should be calculated according to the year
in which the wages should have been received or at the time of actual receipt.
Id. It mattered because FICA and FUTA tax rates and the taxable wage base
increased in the interim. Id. at 205-06. Although the parties both presented
plausible interpretations of the tax provisions at issue, the Court ultimately
adopted the position of the Internal Revenue Service and held that an award



14
     See 26 U.S.C. § 3402; 26 C.F.R. § 31.3402(a)–1 (2012).

15
  We agree with plaintiffs that retroactively increasing deductions for these
contributions is not inconsistent with our holding above concerning life
insurance. Annuity contributions are credited separately on account for each
individual. See 28 U.S.C. § 376(e). Plaintiffs will receive a direct benefit for
the retroactive contributions.

                                       12
of back pay is taxed “according to the year the wages are actually paid,
regardless of when those wages were earned or should have been paid.” Id.
at 219-20. Decisive for the Court was the Service’s “reasonable, consistent,
and longstanding interpretation of the FICA and FUTA provisions in point.”
Id. at 209. The Court rejected the taxpayer’s concern that such a rule might
lead to anomalous results or windfalls. Id. at 217. The Court recognized that
some taxpayers would be penalized and some might benefit, but it deferred to
the Service’s interest in uniformity. Id. at 218.

       Defendant points out that Cleveland Indians did not involve income tax
and that the Court did not speak specifically in the context of the question here,
namely, whether interest on the wages should be calculated pre- or post-tax.
We note, however, that the Court referenced Revenue Ruling 78-336, 1978-2
C.B. 255,16 as part of the Service’s consistent “interpretation of its own
regulations.” 532 U.S. at 220. That ruling involved withholding income tax,
rather than FICA or FUTA taxes. The logical inference is that the Court
viewed treatment of income tax withholdings to be relevant to the issues in
Cleveland.

        And defendant can offer no reason to draw a distinction for income
taxes. Instead, it argues that its model actually complies with Cleveland
Indians and that “[t]he difference is primarily one of presentation rather than
calculation: 28 percent of back pay for all years in the aggregate (as plaintiffs
calculate) is equal to 28 percent of back pay for each single year, added
together (as we calculate).” Def.’s Reply Brief 7.17 The fact that the same tax
rate is applied, however, does not mean that the government’s model follows
the direction of the Supreme Court in Cleveland Indians. Plainly, defendant’s



16
  In its ruling, the Service addressed whether “a court ordered back pay award
[is] subject to federal income tax withholding at the rates in effect at the time
the award is paid or at the rates in effect during the period earned.” Rev.
Ruling 78-336, 1978-2 C.B. 255, 1978 IRB LEXIS 244 at *1. The agency
ruled that “the back pay award ordered by the court is wages in the year paid,
not in the year or years earned, and is subject to federal income tax
withholding at the rates in effect at the time the award is paid.” Id. at *3.

17
  “Def.’s Reply Brief” refers to Exhibit A of Defendant’s Motion for Leave
to File a Reply Brief to Plaintiffs’ Response Brief on Damages.


                                       13
model does not apply withholding only to the amount received in 2013.
Defendant goes back into each prior year to apply the withholding amount.
The total tax withheld may indeed be roughly equivalent under either
methodology, but applying withholding retroactively has an impact in terms
of prejudgment interest.

        Defendant does not dispute that the income plaintiffs receive, including
interest, will, in fact, be taxed as if it were all received in 2013. In the end, the
government’s real concern is that using plaintiffs’ pre-tax approach would
result in a windfall of prejudgment interest. Defendant argues that, as a
practical matter, these plaintiffs would have paid some level of income tax
contemporaneously with the receipt of the lost income, and thus the entire
amount would not have been available to invest. It cites Hillman v. United
States Postal Service, 257 F. Supp. 2d 1330, 1335 (D. Kan. 2003), for the
proposition “that because plaintiff would not have had these funds to invest
had she been in pay status during the back pay period, she is not entitled to
interest on such funds.”

       Defendant is no doubt correct. Absent some unusual personal tax
circumstances (a major loss in a prior year, for example), plaintiffs would have
paid additional income tax at the time. Unlike the FUTA and FICA taxes at
issue in Cleveland Indians, however, which are fixed percentages applied
against fixed bases for any given year, the effective income tax rates for the
past years at issue here will vary because of individual circumstances. The
FICA and FUTA rates for earlier years actually were the then-applicable rates,
and yet the Court accepted a calculation of tax based on the year of receipt. By
contrast, the uniformity of an interim withholding rate (28 percent)
camouflages the fact that the individual income tax rates would have varied.
The court has no way of knowing how much income tax plaintiffs would have
paid. Defendant offers no proof of its own, despite its admonition that we
should put plaintiffs in the same position they would have been in absent the
violation. There is therefore even less justification here to apply an arbitrary
28 percent on the fictional rationale that this would recreate an actual “but for”
world.

        In sum, the government can point to no clear statutory or regulatory
authority nor any controlling precedent that requires interest to be calculated
on an after-tax basis. Instead, it finds itself in the uncomfortable position of
resorting to equity. We are particularly reluctant to accept that rationale,
however, mindful that the interest at issue here is of a constitutional gravitas.

                                         14
See Hatter, 38 Fed. Cl. at 182-83 (stating that the Compensation Clause
requires payment to Article III judges “at stated Times” and that interest is
necessary to correct violations of that requirement). In Hillman, on the other
hand, and the case on which it relied, interest was not a matter of right and was
subject to an abuse of discretion review standard. See 257 F. Supp. 2d at 1335
(citing Greene v. Safeway Stores, Inc., 210 F.3d 1237, 1247 (10th Cir. 2000));
see also Wirtz v. Kan. Farm Bureau Servs., Inc., 274 F. Supp. 2d 1215, 1223
& n.28 (D. Kan. 2003) (citing Hillman for the proposition that “[t]he decision
of whether to award interest and the determination of the rate rest within sound
discretion of the trial court”). Defendant therefore is directed to calculate
interest on a pre-tax basis.

                                 CONCLUSION

        Liability having been established, and based on the preceding, plaintiffs
are entitled to back pay18 calculated without adding prejudgment interest with
respect to the 2007 and 2010 COLAs, without deducting additional FEGLI
premiums, and with interest calculated on a pre-tax basis. The court informed
the parties of this holding and asked them to agree on the amounts due each
plaintiff through May 31, 2013. Based on the calculations in the attached
appendix, the Clerk is directed to enter judgment for net back pay as follows:

         Judge   Beer                 $153,107.69
         Judge   Clemon               $147,930.37
         Judge   Hatter               $152,619.51
         Judge   Paez                 $160,056.26
         Judge   Silberman            $163,155.08
         Judge   Tashima              $162,811.90

       Pursuant to 28 U.S.C. § 1491(a)(2), the Administrative Office of the
United States Courts is directed to reflect in the plaintiffs’ pay records the
omitted COLAs, leading to a current annual rate of $197,100 for district court
Judges Hatter and Beer, $194,200 for retired district court Judge Clemon, and
$209,100 for circuit court Judges Paez, Silberman, and Tashima, along with
the applicable withholdings as approved in this ruling.




18
     Plaintiffs’ claim for declaratory relief was withdrawn.

                                        15
Judgment accordingly.


                             s/ Eric G. Bruggink
                             ERIC G. BRUGGINK
                             Judge




                        16
APPENDIX
