New York Law Review

Tag: prejudgment interest

  • Sabine v. State of New York, 2024 NY Slip Op 06288: Preservation Requirement for Appeals and Prejudgment Interest in Personal Injury Cases

    2024 NY Slip Op 06288

    The Court of Appeals will not review an issue raised for the first time on appeal, unless a recognized exception to the preservation rule applies.

    Summary

    In Sabine v. State of New York, the Court of Appeals affirmed the Appellate Division’s decision, holding that it could not review the plaintiff’s argument regarding the accrual date of prejudgment interest. The plaintiff claimed that interest should run from the date the court determined the defendant’s liability rather than the date a serious injury was established. However, the Court of Appeals found that this issue was not preserved for review because the plaintiff failed to raise it in the trial court. The Court rejected the application of an exception to the preservation rule, emphasizing that the argument could have been avoided by legal countersteps in the trial court, a necessary condition for the exception to apply. The dissent argued that the issue was preserved because it was a purely legal question subject to binding precedent, but the majority maintained the importance of the preservation doctrine to ensure a complete record for appeal.

    Facts

    Michael Sabine sued the State of New York for injuries from an automobile collision. The Court of Claims granted partial summary judgment to Sabine on the issue of liability in 2018. A bench trial followed, in which the court found that Sabine sustained a serious injury as defined by Insurance Law § 5102(d) and awarded damages in 2021. Prejudgment interest was calculated from the date of the damages award. Sabine appealed, arguing that prejudgment interest should have accrued from the earlier date when liability was established. The Appellate Division affirmed the lower court, and granted Sabine leave to appeal to the Court of Appeals.

    Procedural History

    Sabine initiated the lawsuit in the Court of Claims. The Court of Claims granted partial summary judgment on liability, followed by a bench trial determining serious injury and awarding damages. The court calculated prejudgment interest from the date of the damages award. Sabine appealed to the Appellate Division, arguing that the interest should have accrued earlier. The Appellate Division affirmed the lower court’s ruling. Sabine was granted leave to appeal to the Court of Appeals.

    Issue(s)

    1. Whether the issue of the accrual date for prejudgment interest was properly preserved for review by the Court of Appeals.

    2. If the issue was preserved, whether prejudgment interest should accrue from the date liability was established or from the date a serious injury was determined.

    Holding

    1. No, the issue was not preserved because it was not raised in the trial court.

    2. Not answered, because the first issue was decided in the negative.

    Court’s Reasoning

    The Court of Appeals held that it could not address the merits of Sabine’s argument because he had not preserved it for appellate review. The court underscored that the question of prejudgment interest was not raised in the Court of Claims. The court emphasized that, with rare exceptions, it does not review questions raised for the first time on appeal, as to do so undermines the need for fully developed records at the trial court and intermediate appellate levels. The court rejected the plaintiff’s argument that an exception to the preservation rule applied, finding that the alleged error could have been avoided through “factual showings or legal countersteps” in the trial court. The dissent maintained that this exception applied since binding precedent blocked plaintiff from receiving relief in the Court of Claims. The Court found the record inadequate to assess the merits because the issue was not addressed at the trial level.

    Practical Implications

    This case highlights the importance of preserving legal issues at the trial court level. Attorneys must ensure that all arguments, including those related to prejudgment interest, are raised and developed in the lower courts to be considered on appeal. The decision reinforces the general rule against reviewing issues raised for the first time on appeal, even when those issues involve questions of law. This case underscores that arguments not raised at the trial level cannot be reviewed on appeal. Litigators must be diligent in raising all legal arguments and objections at trial and seek clarification from the trial court as the court’s record might be critical in any subsequent appeal.

  • Tipaldo v. Lynn, 18 N.Y.3d 201 (2011): Whistleblower Protection and the Meaning of “Good Faith” Reporting

    18 N.Y.3d 201 (2011)

    A public employee who reports alleged misconduct is deemed to have acted in “good faith,” even if the report was not made directly to the appointing authority, where reporting to the authority would have been impractical or would likely impede resolution of the matter.

    Summary

    In Tipaldo v. Lynn, the New York Court of Appeals addressed a whistleblower claim under Civil Service Law § 75-b. The plaintiff, a high-ranking official in the New York City Department of Transportation (DOT), reported alleged bid-rigging by his superiors, the Commissioner and Deputy Commissioner. The court held that the plaintiff satisfied the statute’s “good faith” reporting requirement, even though he did not directly report the misconduct to his superiors (the “appointing authority”), because doing so would have been impractical. The court also determined that the plaintiff was entitled to prejudgment interest on his back pay award because the law sought to make whistleblowers whole.

    Facts

    John Tipaldo, an Acting Assistant Commissioner for Planning and Engineering at the NYC DOT, discovered a scheme by Commissioner Christopher Lynn and First Deputy Commissioner Richard Malchow to award a signage contract in violation of public bidding rules. Tipaldo informed his immediate supervisors and, shortly thereafter, reported the alleged misconduct to the DOT’s Office of the Inspector General. Tipaldo claimed Lynn and Malchow retaliated against him, eventually demoting him from his position. He sued under Civil Service Law § 75-b, alleging retaliation for reporting improper governmental activity.

    Procedural History

    Tipaldo sued in 1997. The trial court granted the defendants’ motion for summary judgment, finding that Tipaldo failed to comply with Civil Service Law § 75-b by not reporting the misconduct to the appointing authority before contacting the Inspector General. The Appellate Division reversed, holding Tipaldo’s actions met the “good faith” reporting requirement. After a trial on damages, the trial court awarded Tipaldo back pay but denied prejudgment interest. The Appellate Division modified the judgment to include prejudgment interest and ordered Tipaldo’s reinstatement to the same or an equivalent position. The Court of Appeals granted leave to appeal from the Appellate Division’s judgment.

    Issue(s)

    1. Whether Tipaldo made a “good faith effort” to comply with the reporting requirements of Civil Service Law § 75-b(2)(b)?
    2. Whether prejudgment interest is available under Civil Service Law § 75-b and Labor Law § 740(5)?

    Holding

    1. Yes, because reporting directly to the appointing authority (who were the alleged wrongdoers) would have been impractical under the circumstances.
    2. Yes, because the intent of the law is to make a whistleblower whole.

    Court’s Reasoning

    The Court of Appeals first addressed the “good faith” reporting requirement of Civil Service Law § 75-b(2)(b). The statute requires employees to make a “good faith effort to provide the appointing authority…the information to be disclosed” before reporting to outside agencies, unless there is imminent danger. The Court recognized the “good faith” provision affords courts the discretion to evaluate the employee’s actions. The Court considered the specific context of the case; the appointing authorities were the individuals accused of wrongdoing. The Court reasoned that strict adherence to the requirement would be counterproductive: “In cases such as this — where the appointing authority is the one engaging in the alleged misconduct — an employee’s good faith effort to report the misconduct should be evaluated with attention to the employee’s practical inability to report to the appointing authority.” Furthermore, the Court emphasized that it was important that “employees in situations like plaintiff’s should not be required to report to the appointing authority where such a report would prove impractical and possibly impede prompt resolution of the matter.” The Court found that Tipaldo’s actions, including reporting to his supervisors and then the Inspector General, demonstrated good faith, given his practical inability to report to the appointing authority directly. The court found, “an overall view of his actions demonstrates good faith compliance with Civil Service Law § 75-b.”

    Next, the Court considered whether prejudgment interest was available. Civil Service Law § 75-b(3)(c) incorporates the remedies found in Labor Law § 740(5), which includes compensation. The court found that the remedies available, viewed as a whole, indicated an intention to make the whistleblower whole. Quoting its previous decisions, the Court cited Matter of Aurecchione v New York State Div. of Human Rights, where it concluded that “a liberal reading of the statute is explicitly mandated to effectuate the statute’s intent.” The Court found that prejudgment interest was properly awarded because it was consistent with this purpose to fully compensate victims and make the employee whole.

  • NML Capital v. Republic of Argentina, 17 N.Y.3d 245 (2011): Enforceability of Interest Payments Post-Maturity and Acceleration

    NML Capital v. Republic of Argentina, 17 N.Y.3d 245 (2011)

    When a bond agreement requires biannual interest payments “until the principal hereof is paid,” the issuer must continue these payments both after the bond’s maturity date and after acceleration of the debt, and statutory prejudgment interest applies to any unpaid post-maturity or post-acceleration interest payments.

    Summary

    NML Capital sued Argentina for defaulting on floating rate accrual notes (FRANs). The bonds required Argentina to make biannual interest payments “until the principal hereof is paid.” Argentina argued that its obligation to pay interest ceased upon maturity or acceleration of the debt and that prejudgment interest on unpaid post-maturity/acceleration interest constituted impermissible “interest on interest.” The New York Court of Appeals held that Argentina was obligated to continue biannual interest payments after both the maturity date and the acceleration of the debt until the principal was paid, and that statutory prejudgment interest applied to those unpaid interest payments.

    Facts

    In 1998, Argentina issued FRANs, governed by New York law, requiring biannual interest-only payments on April 10 and October 10 “until the principal hereof is paid or made available for payment.” The interest rate was determined by a complex formula. The bond documents included acceleration clauses. From 1998 to 2001, Argentina made the required interest payments. After a financial crisis in late 2001, Argentina defaulted on approximately $80 billion in external debt, including the FRANs. The floating interest rate rose dramatically. Plaintiffs, who acquired the FRANs, sued Argentina for its default. NML Capital accelerated a portion of the debt in February 2005; the remainder became due on the April 2005 maturity date.

    Procedural History

    Plaintiffs sued in the United States District Court, Southern District of New York; the claims were consolidated. The District Court granted summary judgment to plaintiffs on liability. A dispute arose regarding the calculation of damages, specifically prejudgment interest. The District Court held that Argentina was obligated to pay interest-only payments after the bonds matured until the principal was paid, and therefore, bondholders were entitled to 9% statutory interest on the unpaid post-maturity interest. However, for the accelerated bonds, the court sided with Argentina, holding that the nation’s liability for biannual interest payments ceased on the date of acceleration and, therefore, the 9% statutory interest was not owed post-acceleration. Both Argentina and NML Capital appealed to the Second Circuit, which certified three questions to the New York Court of Appeals.

    Issue(s)

    1. Is a bond provision requiring biannual interest payments on principal “until the principal hereof is paid” properly construed as an obligation to pay interest so long as the principal is outstanding, including after the date of maturity?
    2. Is a bond provision requiring biannual interest payments on principal “until the principal hereof is paid” properly construed as an obligation to pay interest so long as the principal is outstanding, including after acceleration?
    3. If either of the foregoing questions is answered in the affirmative, does that obligation provide a valid basis for awarding statutory interest under N.Y. C.P.L.R. § 5001 (a) on post-maturity or post-acceleration interest payments that came due but were never paid?

    Holding

    1. Yes, because the plain language of the contract indicates that the bondholders are entitled to biannual interest payments until the principal is actually repaid in full.
    2. Yes, because Argentina has not pointed to any language in the repayment or acceleration clauses indicating that the parties intended this requirement to terminate upon acceleration of the debt, even if the principal was not repaid at that time.
    3. Yes, because the bondholders are entitled to prejudgment interest under CPLR 5001 on the unpaid biannual interest payments that were due— but were not paid — after the loans were either accelerated or matured on the due date.

    Court’s Reasoning

    The Court reasoned that under New York law, contracts should be enforced according to their terms. The bond documents stated that Argentina was to make biannual interest payments “until the principal hereof is paid or made available for payment.” The Court interpreted this to mean that the obligation to make these payments continued until the principal was actually repaid, not just until the maturity date. The Court stated, “when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms.” Had Argentina intended to cease interest payments upon maturity, it could have included language to that effect. The Court also rejected Argentina’s argument that acceleration terminated the obligation to make interest payments. The Court found no language in the bond documents indicating that the biannual payments were to stop in the event of acceleration. The Court distinguished the Second Circuit case of Capital Ventures Intl. v Republic of Argentina, noting that, in New York, the consequences of acceleration depend on the language chosen by the parties in the loan agreement. Finally, the Court held that the bondholders were entitled to statutory prejudgment interest on the unpaid interest payments. The Court cited Spodek v Park Prop. Dev. Assoc., stating that awarding prejudgment interest on unpaid interest payments compensates the bondholders for the failure to timely make interest payments. It is not impermissible “interest on interest” because the function of prejudgment interest is to compensate the creditor for the loss of use of money. As the Court stated, “There is no question that the judgment against Argentina will be extraordinarily large, primarily due to the passage of time and the application of the contract’s floating interest rate. But this is no reason to depart from the legal principle that contracts must be enforced according to the language adopted by the parties, particularly here where Argentina drafted the bond documents.”

  • Grobman v. Chernoff, 15 N.Y.3d 525 (2010): Prejudgment Interest After Arbitration Following a Liability Verdict

    Grobman v. Chernoff, 15 N.Y.3d 525 (2010)

    When a plaintiff obtains a jury verdict on liability and subsequently arbitrates damages, prejudgment interest accrues from the date of the liability verdict unless the arbitration agreement explicitly addresses or waives that right.

    Summary

    Lindsay Grobman was injured in a car accident and obtained a jury verdict finding the defendant 100% liable. After an appeal and remand regarding damages, the parties agreed to arbitrate damages. The arbitration resulted in an award for Grobman. The question arose as to whether interest on the award should be calculated from the date of the initial liability verdict or the date of the arbitration award. The New York Court of Appeals held that, absent a specific agreement to the contrary, prejudgment interest should be calculated from the date of the liability verdict, as the right to such interest vested at that time.

    Facts

    Lindsay Grobman was injured in a car accident while a passenger in a car driven by Adam Chernoff. Grobman sued Chernoff and the car’s owner, Rhonda Globman. A bifurcated trial resulted in a jury finding Chernoff 100% at fault for the accident. A subsequent jury found that Grobman suffered a serious injury under New York’s no-fault law. Damages for future medical expenses were awarded, but not for future pain and suffering.

    Procedural History

    The plaintiff appealed the initial damages award. The Appellate Division reversed and remanded for a new trial solely on the issue of damages because the jury’s failure to award damages for future pain and suffering was inconsistent with the finding of permanent injury. On remand, the trial court ordered arbitration on all issues, including the “serious injury” threshold. The Appellate Division reversed, holding that the jury’s “serious injury” determination was binding. The case proceeded to arbitration solely on damages. After arbitration, the plaintiff moved to confirm the award and the defendant cross-moved. Supreme Court confirmed the award, calculating interest from the date of the arbitration award. The Appellate Division reversed, holding that interest should accrue from the date of the initial liability verdict. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether prejudgment interest on a damages award, following arbitration to determine the amount of damages after a jury verdict establishing liability, accrues from the date of the liability verdict or the date of the arbitration award, absent a specific agreement addressing prejudgment interest.

    Holding

    Yes, prejudgment interest accrues from the date of the liability verdict because the right to interest vested at that time and the arbitration agreement did not explicitly waive or address that right.

    Court’s Reasoning

    The Court of Appeals reasoned that while parties are free to submit the issue of prejudgment interest to arbitration, the arbitration agreement in this case did not do so. The agreement only stated “AT ISSUE: Damages.” The court relied on its prior decision in Love v. State of New York, stating that damages and prejudgment interest are distinct concepts. Damages compensate for losses, while prejudgment interest compensates for the cost of having the use of another person’s money. As the court noted, quoting Love, prejudgment interest “is simply the cost of having the use of another person’s money for a specified period” (Love, 78 NY2d at 544). Since the plaintiff had already established the right to interest as a matter of law on the date of the liability verdict, there was no need to negotiate it during arbitration. The court found no indication that the plaintiff waived her right to prejudgment interest by agreeing to arbitrate damages. Therefore, the general rule that interest accrues from the date liability is established applies. The court distinguished Rice v. Valentine, noting no circumstances indicated that the plaintiff gave up the right to interest when agreeing to arbitrate damages. The court concluded that absent explicit waiver or agreement, prejudgment interest runs from the date of the liability verdict.

  • Denio v. State of New York, 7 N.Y.3d 159 (2006): Determining Fair Prejudgment and Postjudgment Interest Rates Against the State

    7 N.Y.3d 159 (2006)

    When determining prejudgment and postjudgment interest rates against the State of New York under State Finance Law § 16, courts must consider a full spectrum of reasonable public and private investment options to determine if the presumptive 9% rate is fair; the State bears the initial burden to demonstrate lower rates are reasonable.

    Summary

    This case addresses the appropriate interest rate to be applied to a judgment against the State of New York. Sarah Denio suffered severe injuries in a car accident. The Court of Claims found the State 40% liable due to negligent road maintenance. The central dispute concerned the interest rate on the damages award, with Denio seeking the statutory maximum of 9% and the State arguing for a lower rate based on lower-risk investments. The Court of Appeals affirmed the Court of Claims’ application of the 9% rate, holding that while the State Finance Law sets a ceiling, the court has discretion to set a lower rate, but must consider a variety of investment options, and the State has the burden of proving a lower rate is reasonable.

    Facts

    Sarah Denio was severely injured in a 1992 car accident. Eric Poler lost control of his vehicle on a wet State Route 31 and struck Denio’s car. Denio sued the State, alleging negligent maintenance of the road was a contributing factor. The Court of Claims determined the State was negligent due to a dangerous road condition (wheel path rutting and inadequate banking). Poler was also negligent (bald tires, speeding).

    Procedural History

    The Court of Claims found the State 40% liable in February 1999. After a damages trial, the court awarded Denio $4,248,879.33. The parties stipulated to CPLR Article 50-B calculations, except for the interest rate. The Court of Claims ordered a 9% interest rate. The Appellate Division modified the award amount, but affirmed the interest rate decision. Both the State and Denio appealed to the Court of Appeals.

    Issue(s)

    Whether the Court of Claims erred in applying a 9% interest rate for prejudgment and postjudgment interest against the State of New York, given the State Finance Law § 16’s provision that the rate “shall not exceed” 9% per annum.

    Holding

    Yes, in the specific circumstances presented here, because the Court of Claims appropriately exercised its discretion after considering evidence presented by both sides. While the State Finance Law sets a maximum rate, it does not mandate that rate, and the trial court must consider evidence of reasonable investment possibilities when determining whether to apply a lower rate.

    Court’s Reasoning

    The Court relied on its prior decision in Rodriguez v. New York City Housing Authority, which interpreted a similar “shall not exceed” interest rate statute. The Court emphasized that interest is meant to compensate the claimant for being deprived of the use of money. Claimants could have invested the money in various options; therefore, a range of public and private investments should be considered when determining a reasonable rate. The State has the initial burden to present substantial evidence that rates of return on investments during the relevant period are below 9%. If the State does so, the claimant can then present evidence to justify a higher rate, up to the statutory maximum. The Court rejected the State’s argument that only short-term, risk-free US Treasury rates should be considered. It held that the Court of Claims weighed the conflicting evidence and, while the evidence supporting the 9% rate was “slim,” it was sufficient to preclude further review. The Court noted that the legislature can modify the interest statutes if it wishes to index rates to market fluctuations.

  • Fenwick v. Mohassel, 94 N.Y.2d 49 (2000): Prejudgment Interest on Treble Damages in Rent Overcharge Cases

    Fenwick v. Mohassel, 94 N.Y.2d 49 (2000)

    In rent overcharge cases where treble damages are awarded due to a landlord’s willful violation, prejudgment interest on the award is permissible from the date of the Rent Administrator’s decision forward, even though treble damages already compensate the tenant for the period before the decision.

    Summary

    This case addresses whether a rent-stabilized tenant is entitled to prejudgment interest on a treble damages award in a rent overcharge case. The tenant, Mohassel, initiated a rent overcharge proceeding against his landlord, Fenwick, in 1984. After Fenwick failed to provide necessary rent history documentation, the Rent Administrator found a willful overcharge and awarded treble damages to Mohassel in 1989. Years of administrative and judicial appeals followed. The New York Court of Appeals held that the tenant was entitled to prejudgment interest from the date of the Rent Administrator’s initial decision, reasoning that denying such interest would allow willful violators to profit from delaying payment of meritorious claims.

    Facts

    Parviz Robert Mohassel, a rent-stabilized tenant, filed a rent overcharge complaint against his landlord, Lila Fenwick, in 1984.

    Fenwick repeatedly failed to provide rent history documentation requested by the Division of Housing and Community Renewal (DHCR).

    In 1989, the Rent Administrator found that Fenwick had willfully overcharged Mohassel and awarded treble damages totaling $81,303.53.

    Mohassel no longer resided in the apartment when DHCR finally notified him of his options for collecting the judgment in 2001.

    Procedural History

    The Rent Administrator ruled in favor of Mohassel in 1989.

    Fenwick’s administrative appeal to DHCR was denied in 1997.

    Fenwick’s Article 78 proceeding challenging DHCR’s decision was denied in 1998; she filed a notice of appeal, but never perfected it.

    Mohassel obtained a judgment against Fenwick in 2002, which included prejudgment interest from the date of the Rent Administrator’s decision.

    Fenwick moved to vacate the judgment; the Supreme Court reduced the interest award.

    The Appellate Division modified, reinstating the original judgment with full prejudgment interest.

    The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a rent-stabilized tenant is entitled to prejudgment interest on a treble damages award for rent overcharges, calculated from the date of the Rent Administrator’s decision.

    Holding

    Yes, because the rent stabilization laws are designed to discourage violations and compensate tenants, especially when the violation is willful. Awarding prejudgment interest ensures tenants are fully compensated and prevents landlords from profiting from delayed payments.

    Court’s Reasoning

    The Court of Appeals emphasized the purpose of the Rent Stabilization Law, which is to discourage violations and compensate tenants, especially in cases of willful overcharges. The court reasoned that treble damages are imposed in lieu of interest from the date of the overcharge to the Rent Administrator’s decision. However, nothing in the statute prohibits interest from accruing after the Rent Administrator’s decision.

    The Court rejected the landlord’s argument that awarding prejudgment interest punishes her for delays in the process, stating that interest is not a punishment but rather a means of indemnifying the aggrieved party for the loss of the use of their money. The court cited Matter of Aurecchione v New York State Div. of Human Rights, 98 NY2d 21, 27 (2002), stating that “an award of interest is simply a means of indemnifying an aggrieved person. It represents the cost of having the use of another person’s money for a specified period”.

    The court also dismissed the landlord’s laches argument, noting that the tenant sought entry of the judgment within a reasonable time after being notified that the judicial challenge had concluded, and the tenant followed DHCR’s instructions regarding when to file for judgment.

    The court noted the open-ended nature of Rent Stabilization Law § 26-516 (a)(4), authorizing interest awards equivalent to those in civil actions. The court also referenced Love v State of New York, 78 NY2d 540, 545 (1991) stating the responsible party “has presumably used the money to its benefit and, consequently, has realized some profit, tangible or otherwise, from having it in hand during the pendency of the litigation. There is thus nothing unfair about requiring the [owner] to pay over this ‘profit’ in the form of interest to the . . . party who was entitled to the funds from the date . . . liability was fixed”.

  • Spodek v. Park Property Development Associates, 96 N.Y.2d 577 (2001): Prejudgment Interest on Unpaid Installments

    96 N.Y.2d 577 (2001)

    In a breach of contract action involving a promissory note with monthly interest and principal installment payments, a creditor is entitled to prejudgment interest on both the unpaid interest and principal from the date each payment was due until liability is fixed.

    Summary

    This case addresses whether a creditor can recover prejudgment interest under CPLR 5001 in a breach of contract action concerning a promissory note that stipulated monthly interest and principal payments. The New York Court of Appeals held that the creditor is entitled to simple interest on both the unpaid interest and principal payments, calculated from the date each payment was due under the note’s terms until the date liability was established. This decision affirms the principle that prejudgment interest serves to make the aggrieved party whole by compensating them for the time they were deprived of the money.

    Facts

    In 1980, Defendant executed a promissory note for $1,437,500 with interest accruing at 8% per annum, payable monthly. For the first 60 months, only interest payments were required. Starting with the 61st month, principal payments at 1% per annum were to be made until the remaining balance was due on December 31, 2000. Defendant made no payments between 1980 and 1997. Plaintiff sued in 1997, seeking repayment of principal and interest installments owed from 1991 onward, acknowledging the statute of limitations barred claims for earlier defaults.

    Procedural History

    Plaintiff moved for summary judgment, which the Supreme Court denied. The Appellate Division reversed and granted summary judgment to the Plaintiff. On remand, Supreme Court awarded Plaintiff $1,094,083.60 for unpaid interest and principal but denied prejudgment interest. The Appellate Division reversed the denial of prejudgment interest and remitted the case for calculation of such interest. The New York Court of Appeals granted Defendant leave to appeal.

    Issue(s)

    Whether, in a breach of contract action involving a promissory note providing for monthly interest and principal payments, the creditor is entitled to prejudgment interest under CPLR 5001 on the unpaid interest and principal payments from the date each payment became due until the date liability was established.

    Holding

    Yes, because CPLR 5001(a) permits a creditor to recover prejudgment interest on unpaid interest and principal payments awarded from the date each payment became due under the terms of the promissory note to the date liability is established.

    Court’s Reasoning

    The Court of Appeals reasoned that CPLR 5001(a) mandates the award of interest in breach of contract actions to make the aggrieved party whole. The Court distinguished between compound interest (interest on interest) and simple interest (interest on principal only), clarifying that CPLR 5001 provides for simple interest. The Court found Young v Hill, 67 NY 162 (1876) and Giventer v Arnow, 37 NY2d 305 (1975), which disallowed compound interest, inapplicable because those cases involved agreements for compound interest, while this case interprets a statutory provision for simple interest. The court emphasized that awarding prejudgment interest on overdue payments compensates the plaintiff for the defendant’s use of money rightfully belonging to the plaintiff during the period of default. As Chief Judge Cardozo stated in Prager v New Jersey Fid. & Plate Glass Ins. Co., 245 NY 1, 5-6: “While the dispute as to value was going on, the defendant had the benefit of the money, and the plaintiff was without it. Interest must be added if we are to make the plaintiff whole. * * * If [defendant] chose to keep the money, it should pay for what it kept.” The Court also cited Love v State of New York, 78 NY2d 540, 545, noting that a debtor who has used the money has presumably benefited from it and should pay the creditor for that benefit in the form of interest. The court therefore held that the plaintiff is entitled to interest under CPLR 5001(a) on the overdue interest and principal payments from the accrual of the action for breach of contract.

  • Brushton-Moira Central School District v. Fred H. Thomas Associates, P.C., 91 N.Y.2d 362 (1998): Date for Calculating Breach of Contract Damages

    Brushton-Moira Central School District v. Fred H. Thomas Associates, P.C., 91 N.Y.2d 362 (1998)

    In a breach of contract action involving defective design or construction, damages are generally ascertained as of the date of the breach, which is typically the completion of the work, and prejudgment interest is calculated from that date.

    Summary

    Brushton-Moira Central School District sued Fred H. Thomas Associates for breach of contract and malpractice related to the installation of defective insulated panels in a school building. The New York Court of Appeals held that damages for the breach should be measured as of the date the cause of action accrued (completion of the work) and not the date of trial, and prejudgment interest should be awarded from that earlier date. This decision reinforces the principle that damages are intended to place the non-breaching party in the same position as if the contract had been performed, and that measuring damages at the time of trial could incentivize a failure to mitigate damages.

    Facts

    The Brushton-Moira Central School District hired Fred H. Thomas Associates as the architect for renovations, including replacing windows with insulated panels, to conserve energy. The architect recommended specific panels that were installed by December 12, 1980. A certificate of occupancy was issued on April 9, 1982. By the summer of 1982, the panels began to deteriorate and allow water penetration.

    Procedural History

    The school district sued the architect for professional malpractice and breach of contract in 1984. The Supreme Court initially dismissed the malpractice claim, finding only economic damages were sought and dismissed the breach of contract claim because the defendant obtained a warranty from the manufacturer. The Appellate Division reversed, granting judgment to the plaintiff on the breach of contract claim and remanding for a trial on damages, measured as of the date of the trial. After a damages trial, the Supreme Court awarded damages measured as of the trial date, less a setoff, plus prejudgment interest from the trial date. The Appellate Division modified, awarding prejudgment interest from April 9, 1982. The architect appealed to the Court of Appeals.

    Issue(s)

    1. Whether, in a breach of contract action for defective design or construction, damages should be measured as of the date of the breach or the date of the trial?

    2. Whether prejudgment interest should be awarded from the date of the accrual of the cause of action or the date of the trial?

    Holding

    1. No, because damages for breach of contract are ordinarily ascertained as of the date of the breach to return the parties to the point at which the breach arose and place the non-breaching party in as good a position as if the contract had been performed.

    2. Yes, because CPLR 5001(b) mandates that interest shall be computed from the earliest ascertainable date the cause of action existed, reflecting that damages are properly ascertained as of the date of the breach.

    Court’s Reasoning

    The Court of Appeals reasoned that the Appellate Division erred in holding that damages should be measured as of the date of the trial. The court stated, “[i]t has long been recognized that the theory underlying damages is to make good or replace the loss caused by the breach of contract.” The goal is to return the parties to the position they would have been in had the contract been performed. The court cited Rodriguez & Co. v Moore-McCormack Lines, 32 NY2d 425, 429, to support the premise that contract damages are ordinarily ascertained as of the date of the breach.

    The Court emphasized that the appropriate measure of damages is the cost to repair the defects as of the date of the breach or, if irreparable, the difference in value between a properly constructed structure and the one actually built. It further explained that CPLR 5001(a) provides that interest shall be recovered upon a sum awarded for a breach of contract, and CPLR 5001(b) mandates that interest be computed from the earliest ascertainable date the cause of action existed. According to the Court, awarding interest from a date other than the accrual date could lead to anomalous results. The court explained, “[i]n view of the clear statutory direction that interest must be computed from the date of accrual, we need not deviate from the general rule that damages should be measured as of that same date.”

    Finally, the Court noted that measuring replacement costs as of the trial date might contradict the duty to mitigate damages. “There would be no incentive to mitigate damages if plaintiff could wait until trial to recover damages measured as of the trial date and, in addition, receive interest from the earlier date of accrual.”

  • Dingle v. Prudential Property and Casualty Insurance Company, 85 N.Y.2d 657 (1995): Insurer’s Liability for Prejudgment Interest Limited to Policy Limits

    85 N.Y.2d 657 (1995)

    In a bifurcated personal injury action where damages exceed policy limits, an insurer is only liable for prejudgment interest on the portion of the judgment within the policy limits, unless the insurance contract contains a more generous provision.

    Summary

    Joyce Dingle was injured in a car accident caused by Patricia Virga, who was insured by Prudential. After a bifurcated trial, Virga was found 100% liable, and Dingle was awarded $592,672.21 in damages, exceeding Virga’s $100,000 policy limit. The insurance contract was silent regarding interest between the liability and damages verdicts. Prudential paid its policy limit plus interest on that amount, as well as interest on the entire judgment from the date of the damages award. Dingle sued, arguing she was owed interest on the entire judgment from the liability verdict date. The New York Court of Appeals held that Prudential was only liable for interest on the portion of the judgment within its policy limits for the period between the liability and damages verdicts.

    Facts

    Joyce Dingle sustained injuries in a car accident caused by Patricia Virga’s negligence.

    Virga was insured by Prudential with a $100,000 policy limit.

    The trial was bifurcated, addressing liability and damages separately.

    Virga was found 100% liable for the accident in the first phase.

    Dingle was later awarded $592,672.21 in damages, exceeding the policy limit.

    Prudential paid the $100,000 policy limit, interest on the policy limit from the liability verdict to the damages award, interest on the full judgment from the damages award to payment, and costs.

    The insurance policy was silent about interest between the liability and damages phases.

    Procedural History

    Dingle sued Prudential, claiming she was owed interest on the entire judgment from the date of the liability verdict to the damages verdict.

    The Supreme Court granted summary judgment to Prudential, finding they had paid all that was legally required.

    The Appellate Division affirmed.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, in a bifurcated personal injury action with damages exceeding policy limits, the insurer is liable for prejudgment interest on the entire judgment or only on the portion within the policy limits, specifically for the time between the liability and damages verdicts.

    Holding

    No, the insurer is only liable for prejudgment interest on the portion of the judgment within the policy limits because 11 NYCRR 60-1.1(b) requires insurers to pay interest only on the amount of their obligation up to the policy limits, absent a more generous provision in the insurance contract.

    Court’s Reasoning

    The court relied on 11 NYCRR 60-1.1(b), which mandates that insurers pay “all interest accruing after entry of judgment until the insurer has paid…such part of such judgment as does not exceed the applicable policy limits.”

    The Court stated that the language in the regulation substantially incorporates language which has long been embodied in contracts of insurance. Thus, the customary construction given to that standard contract clause provides guidance in interpreting the similarly worded regulation.

    The court referenced the traditional construction of similar contract clauses, limiting the insurer’s responsibility to interest on the amount they are obligated to pay up to the policy limits, citing Home Indem. Co. v Corie, 206 Misc 720, affd without opn 286 App Div 996; Holubetz v National Fire Ins. Co., 13 AD2d 228; Shnarch v Empire Mut Ins. Co., 144 AD2d 795.

    The rationale is that interest compensates for the use or retention of another’s money. The insurer should only be liable for interest on the portion of the judgment they retained and benefited from – the amount of their liability.

    The court rejected the argument that the insurer should pay interest on the entire judgment due to its control over the litigation, citing Love v State of New York, 78 NY2d 540. They reasoned that assigning responsibility for delay should not govern who pays prejudgment interest, as it would penalize parties for exercising legitimate rights, such as taking an interlocutory appeal.

    The court held that responsibility for prejudgment interest should align with who retained or benefited from the money. The insurer should pay for the use of the portion of the judgment they are responsible for under the policy, and the insured is responsible for the excess.

    The court noted that Prudential’s agreement to pay interest on the entire judgment from the date of the damages verdict was more generous than required by the regulation.

  • Love v. State of New York, 78 N.Y.2d 540 (1991): Prejudgment Interest in Bifurcated Trials

    Love v. State of New York, 78 N.Y.2d 540 (1991)

    In a bifurcated personal injury action, prejudgment interest should be calculated from the date of the liability determination, regardless of which party is responsible for delays in assessing damages.

    Summary

    This case concerns the calculation of prejudgment interest in a bifurcated personal injury action against the State of New York. The Court of Appeals held that interest should accrue from the date liability was established, even though the delay in determining damages was not the State’s fault. The Court reasoned that interest is intended to compensate the plaintiff for the use of money rightfully theirs from the moment liability is fixed, not to penalize the defendant. The key issue is when the right to compensation becomes fixed, which, in a bifurcated trial, is at the liability verdict.

    Facts

    The claimant, Love, sued the State of New York for personal injuries. The trial was bifurcated, with liability decided in Love’s favor on November 4, 1988. The State did not appeal this liability determination. However, the decision on damages was delayed until November 29, 1989, more than 10 months after the damages trial concluded, through no fault of either party. The final judgment included prejudgment interest calculated from the date of the liability determination.

    Procedural History

    The Court of Claims initially awarded prejudgment interest from the date of the liability determination. The Appellate Division affirmed, holding that interest should generally be calculated from the liability adjudication date, regardless of fault for delays in fixing damages. The New York Court of Appeals granted the State leave to appeal.

    Issue(s)

    1. Whether, in a bifurcated personal injury action against the State, prejudgment interest should be calculated from the date of the decision establishing liability, even if the State was not responsible for the delay in assessing damages.

    Holding

    1. Yes, because interest is intended to compensate the plaintiff for the use of money rightfully theirs from the moment liability is fixed, and not to penalize the defendant for delaying resolution of the case.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order. The Court reasoned that prejudgment interest under CPLR 5002 is designed to indemnify plaintiffs for the nonpayment of what is due to them. It emphasized that interest is not a penalty but rather the cost of using another person’s money. The court distinguished its prior holding in Trimboli v. Scarpaci Funeral Home, clarifying that fault for delay is not the determining factor. The dispositive factor is when the plaintiff’s right to compensation becomes fixed in law, which occurs in a bifurcated trial when the verdict holding the defendant liable is rendered. At that point, the defendant’s obligation to pay the plaintiff is established, and the only remaining question is the precise amount that is due. The court cited Gunnarson v. State of New York, stating plaintiffs are entitled “to be compensated with interest for the delay in payment of the principal award certainly due them [even though] * * * the amount remain[s] uncertain.” The court noted that the defendant benefits from having the use of the money during the delay. Requiring the defendant to pay interest simply repays the plaintiff for the use of their money during that period. Allowing the defendant to retain the cost of using the money would be a windfall, irrespective of which party causes the delay. Therefore, the Court held that interest accrues from the date of the liability determination to fully compensate plaintiffs for their losses in bifurcated trials.