Applying Simple Prejudgment Interest Not So Simple

Publication Source: New York Law Journal

In today’s investment environment, most would agree that a 9% return on one’s investment would be quite a favorable rate of return. Despite the precipitous drop of interest rates over the years, since 1981 New York has maintained a 9% rate for the award of pre- and post-judgment interest.[1] For the past few years, bills have been introduced by the New York State legislature to address the gap between the statutory rate set by the CPLR and the prevailing rates of return, but none of the bills has been enacted thus far.

On January 31, 2005, another bill was introduced in the New York Senate to amend relevant provisions of the CPLR and the Estates, Powers and Trusts Law to change the rate of interest from the flat rate of 9% to a flexible one based upon a floating rate fixed by the tax commissioner for tax payments.[2] The sponsors of the bill assert that the current rate of 9% on accrued claims is “inequitable because of the gap which exists between such rate and current interest rates.” They maintain that “[a] more equitable scheme is to tie the rate payable on such claims to a flexible interest rate” as is applied to certain tax payments.

Unless and until the 9% rate set by the CPLR is changed, however, issues surrounding the award of prejudgment interest will continue to be very important and meaningful for litigators and their clients. Under the statutory scheme set forth in the CPLR, there are three basic time periods for which interest can be awarded: (1) interest on the underlying cause of action from the date the action arose until the verdict or decision;[3] (2) interest on the verdict or decision until judgment is rendered;[4] and (3) interest on the judgment until the judgment is paid.[5]

Under the first category, prejudgment interest is limited to sums “awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property.”[6] That means that personal injury actions are specifically excluded from those qualifying for pre-verdict interest. Moreover, because pre-verdict interest is intended to compensate a party for the loss of use of the money it was entitled to receive,[7] pre-verdict interest is not added to an award of punitive damages, regardless of the underlying cause of action.[8]

Read the full article in the attached PDF.

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Kevin Schlosser is a Shareholder at Meyer, Suozzi, English & Klein, P.C., where he is Chair of the Litigation and Alternative Dispute Resolution Department which has a full roster of available private judges from virtually all disciplines of law. Mr. Schlosser also authors the popular blog, “New York Fraud Claims,” which analyzes the latest developments concerning civil fraud claims under New York law.

Reprinted with permission by the New York Law Journal.