New York Law Review

Tag: Interest Calculation

  • Rohring v. City of Niagara Falls, 84 N.Y.2d 60 (1994): Calculating Attorney’s Fees and Interest on Future Damages

    Rohring v. City of Niagara Falls, 84 N.Y.2d 60 (1994)

    When calculating attorney’s fees and interest on future damages in structured settlements under CPLR Articles 50-A and 50-B, the present value of attorney’s fees should be subtracted from the present value of the future damages award, and interest on the present value of future damages accrues from the date liability is established.

    Summary

    This case addresses the proper method for calculating attorney’s fees and interest on future damages in structured judgments under CPLR Articles 50-A and 50-B. Eric Rohring, injured at a construction site, received a substantial jury award. The court structured the future damages portion. The dispute centered on whether attorney’s fees should be deducted from the gross or present value of future damages and when interest on future damages begins to accrue. The Court of Appeals affirmed the Appellate Division’s ruling that attorney’s fees should be calculated based on the present value of the annuity contract and deducted from the present value of future damages, and that interest accrues from the date liability was established.

    Facts

    Eric Rohring sustained a severe foot injury at a construction site due to a broken safety belt, falling 20 feet. He was employed by Falls Steel Erectors, Inc., on a project for the City of Niagara Falls. The court granted Rohring summary judgment on liability. A subsequent trial awarded him $2,501,311 in damages, which the trial court then structured pursuant to CPLR article 50-B.

    Procedural History

    The Supreme Court determined the present value of attorney’s fees and subtracted that amount from the gross (undiscounted) value of future damages before structuring periodic payments. The Appellate Division disagreed, holding that the present value of attorney’s fees should be subtracted from the present value of future damages. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether attorney’s fees based on future damages should be calculated and deducted from the gross amount of future damages or from the present value of future damages when structuring a judgment under CPLR Article 50-B?

    2. Whether interest on future damages should accrue from the date liability is established or only as future damages are incurred or periodic payments become overdue?

    Holding

    1. No, because the proper methodology is to determine the present value of future damages before attorney’s fees and then reduce that amount by the present value of attorney’s fees. This prevents defendants’ combined payment to plaintiff and counsel from exceeding the jury award.

    2. Yes, because future damages are a debt owed entirely as of the date of the liability verdict, and interest is properly charged against the present value of future damages from that date under CPLR 5002.

    Court’s Reasoning

    Regarding attorney’s fees, the Court recognized the ambiguity in CPLR 5041(c) and (e). It reasoned that Articles 50-A and 50-B are administrative schemes that should not increase defendants’ underlying liability. Plaintiffs are entitled to be made whole, not overcompensated. The Court noted, “Articles 50-A and 50-B are technical administrative schemes intended to regulate and structure payment, and they should not be construed in such a way as to increase the underlying liability owed by defendants.” Subtracting the present value of fees from the present value of damages ensures defendants pay no more than the jury awarded.

    On the issue of interest, the Court relied on the plain language of CPLR 5002, which states that interest shall be recovered “upon the total sum awarded * * * from the date the verdict was rendered”. The Court rejected the argument that interest should only accrue as damages are incurred, stating that the structured judgment schemes of articles 50-A and 50-B do not delay liability, only payment. The Court emphasized, “A defendant’s obligation to a personal injury plaintiff encompasses both past and future damages and becomes fixed as of the date of the liability verdict.”

  • Fareri v. Ventresca, 49 N.Y.2d 464 (1980): Traditional vs. Present Value Method in Usury Calculations

    Fareri v. Ventresca, 49 N.Y.2d 464 (1980)

    In determining whether a loan is usurious, courts should apply the traditional method of calculating interest rather than the present value method, even if the latter is arithmetically more precise.

    Summary

    Fareri v. Ventresca addresses the method of calculating interest to determine usury. The lender used the traditional method, while the borrower argued for the “present value” method, which accounts for the time value of money. The New York Court of Appeals held that the traditional method should be used, emphasizing that the legislature set the usury rate with the understanding that the traditional method would be employed. Changing the calculation method would effectively alter the usury rate, a task best left to the legislature.

    Facts

    A corporation (Ventresca) borrowed $300,000 from another corporation (Fareri). The loan agreement stipulated a 13% discount ($39,000) retained by the lender and an 8% annual interest rate on the face amount of the mortgage. The borrower was to make twelve monthly installments of $2,000 each, with the principal due at the end of one year. The borrower failed to make the principal payment, and the lender initiated foreclosure proceedings. The borrower defended against the foreclosure by alleging usury, arguing that the effective interest rate exceeded the 25% statutory limit for corporate borrowers.

    Procedural History

    The trial court (Special Term) granted summary judgment in favor of the lender (Fareri). The Appellate Division affirmed the trial court’s decision, upholding the determination that the loan was not usurious. The borrower (Ventresca) appealed to the New York Court of Appeals.

    Issue(s)

    Whether, in determining if a loan is usurious, courts should use the traditional method of calculating interest or the more arithmetically precise “present value” method.

    Holding

    No, because the legislature set the usury rate of 25% with the understanding that the traditional method of interest calculation would be used. Adopting a new method of calculation would effectively change the usury rate, which is a legislative function.

    Court’s Reasoning

    The court acknowledged that the “present value” method is arithmetically sound and more accurately reflects the realized return for the lender. However, the court emphasized that the issue is not about determining the most precise rate of return but whether the lender received a return proscribed as usurious by the legislature. The court stated: “Modification of either would produce a different point of proscription. In our opinion, the Legislature must be deemed to have set the figure of 25% with full awareness of the traditional method of computing interest and in an expectation that it would continue to be used.” The court cited precedent, including Marvine v. Hymers and International Bank v. Bradley, supporting the traditional method. The court also quoted Feldman v. Kings Highway Sav. Bank, stating, “[S]o long as all payments on account of interest did not aggregate a sum greater than the aggregate of interest that could lawfully have been earned had the debt continued to the earliest maturity date, there would be no usury.” The court concluded that changing the computational method would effectively set a new usury level, a function belonging to the legislature.