Thomas F. Gleason ()
Interest rates reflect the time value of money, and as the Court of Appeals held in Love v. State of New York, 78 N.Y.2d 540 (1991), the award of damages includes interest because it is intended to make the plaintiff whole. Until the defendant pays the damages, he or she is said to be “holding funds that belong to the plaintiff.” Id. at 544.
This rationale implies an entitlement to interest from accrual of the cause of action at market rates, but this is not the New York rule. Market interest rates currently are pretty low (the federal funds rate is only 1 percent), and the longstanding 9 percent rate provided by CPLR 5004 may reflect a policy to incentivize prompt payment of judgments. Regardless of the reason for the 9 percent rate, however, the particulars of interest calculations for civil damages in New York are matters of high consequence.
The calculation rules are provided in CPLR Article 50, see Manufacturers & Traders Trust Co. v. Reliance Ins. Co., 8 N.Y.3d 583, 588 (2007), which generally covers judgments. The basics are stated in §§5001 through 5004 and for the most part are well-settled. Professor Siegel has succinctly described the calculation points—from the time of the cause of action, through the decision, the judgment and finally up to payment. See Siegel, New York Practice (Fifth Edition), §§ 411, 412.
CPLR 5001 somewhat obscurely describes interest from the time of the accrual of a cause of action as “interest to verdict report or decision,” and lists the several types of claims that may benefit from interest from this earliest calculation date, including breach of contract, property damage and equitable claims.1 Paragraph (b) states that interest shall be calculated, with some exceptions, “from the earliest ascertainable date the cause of action existed … .”
Personal injury claims are not listed in CPLR 5001 for the benefit of interest from the date of accrual of the cause of action. Such claims get interest at the earliest “from the date the verdict was rendered or the report or decision was made to the date of entry of final judgment,” under CPLR 5002.2 That usually is not much of a benefit, because judgments frequently are entered shortly after the verdict or decision.
But this is not always the case. CPLR 5002 allows for interest to accrue after a decision establishing liability, even though the amount upon which the interest is running is not yet known and will not be determined until the damages phase of the case. If the judgment comes a long time after the liability determination, the amount of interest under CPLR 5002 can be very significant,3 not only because the amount is accruing at 9 percent, but also because it will be partially compounded. (This effect results from CPLR 5003 providing interest on the judgment, with the interest under CPLR 5002 included in the amount of the judgment).
Many cases have examined that which constitutes a “verdict, report or decision” under CPLR 5002. The commencement of interest will ensue after a decision on a motion for summary judgment, or by the court order confirming a referee’s report. See Ruffino v. Green, 72 A.D.3d 785, 786 (2d Dept. 2010); Van Nostrand v. Froehlich, 44 A.D.3d 54, 57-58 (2d Dept. 2007). Similarly, an arbitration award is treated as a decision, which means that interest will run from the date of the award until it is confirmed in a judgment under the procedures of CPLR Article 75.4
What about a stipulation that a defendant is liable on a personal injury claim, or a “high-low” agreement that fixes a range of liability? Such stipulations have the same practical impact as a court or factfinder determination of liability. Do they trigger interest under CPLR 5002?
The question was considered in Mahoney v. Brockbank, 149 A.D.3d 200 (2d Dept. 2016), lv. granted, 29 N.Y.3d 904 (2017), a 2016 Second Department decision in which the court held a liability stipulation does not have this effect. The parties to the Brockbank stipulation agreed that the defendant conceded liability; the plaintiff withdrew her claim for punitive damages; and the plaintiff’s recovery after the damages trial would be capped. The stipulation was apparently not “so ordered” by the court and was silent on the calculation of prejudgment interest.
This prompted a dispute over the judgment because the damage trial did not occur until 21/2 years after the stipulation. The plaintiff proposed the stipulation date as the interest calculation point, but the defendant’s judgment left out this part of pre-judgment interest. The difference between the parties’ positions was approximately $90,000.
The court recognized the reasonableness of the plaintiff’s argument on policy grounds and characterized it as “well-founded, but ultimately unavailing.” 142 A.D.3d at 205. Stipulations are not adjudications, the court held, and CPLR 5002 expressly covers only interest from “the date the verdict was rendered or the report or decision was made.” The “common thread” in the cases allowing CPLR 5002 interest is “the determination of liability by an adjudicative body, such as a jury, a court, or an arbitrator.” Citing the Court of Appeals opinion in Matter of Bello v. Roswell Park Cancer Inst., the court declined to “achieve more ‘farness’ than the Legislature chose to enact.” See Mahoney v. Brockbank, 149 A.D.3d 200, 205 (2d Dept. 2016), lv. granted, 29 N.Y.3d 904 (2017), citing Matter of Bello v. Roswell Park Cancer Inst., 5 N.Y.3d 170 at 173.
What to Do?
The Court of Appeals will not soon have an opportunity to review the Mahoney interpretation of CPLR 5002. Although leave to appeal was granted by the Court of Appeals in April 2017, the author has informally learned that the case has been settled. The legislature also is not likely to amend CPLR 5002 to answer the question, because rules on the calculation of prejudgment interest involve “difficult policy consideration” from which a legislative stalemate is likely to ensue. (The competing points of view on the best public policy for interest in personal injury cases have left the statutes on interest for the most part unchanged since 1972). See Siegel, New York Practice (Fifth Edition), §411. What to do?
Let us assume, as seems reasonable, that a stipulation on liability involves a calculus by both parties as to the ultimate gain or exposure in the case. Interest in any significant amount certainly is material to that calculus, and may be reflected in the terms of the stipulation so long as the parties both consider the issue.
A problem like the dispute in Mahoney is not dependent on the parties’ differing views on what should be the default rule for interest after liability stipulations. Rather, whichever may ultimately be settled on by the Court of Appeals (i.e., in favor of or against a stipulation triggering interest) will make no difference to parties who are mindful of the issue and who want to stipulate—they can easily include or exclude interest as is necessary to achieve agreement.
Perhaps mistakes or misunderstandings on the application of 5002 are best avoided by a legislative reminder to address the calculation of interest in CPLR 2104, which governs stipulations.5 Such a proposal would not wade into the substantive issues of the proper interest triggering rule, but merely alert the parties to resolve the issue before it becomes a dispute.
1. For breach of contract claims of course, the parties often provide in the contract itself the terms of the interest obligation, which can even be at a rate higher than the 9 percent called for in CPLR 5004. See NML Capital v. Republic of Argentina, 17 N.Y.3d 250 (2011).
2. As is the case with all claims not expressly mentioned in CPLR 5001, interest from the date of the cause of action accrual is not available, and interest runs from the date of the verdict, report or decision at the earliest.
3. See, e.g., Gunnarson v. State, 70 N.Y.2d 923, in which the state was required to pay interest from the finding of liability after such an appeal. See also Trimboli v Scarpaci Funeral Home, 37 A.D.2d 386 (Hopkins, J.), aff’d on opn below 30 N.Y.2d 687.
4. In all cases, of course, after the entry of the judgment, the calculation of interest is straightforward under CPLR 5004, at the non-compounded rate of 9 percent.
5. A proposed new last sentence to CPLR 2104 could be added for this purpose as follows:
A stipulation acknowledging or declining to contest liability on a claim may specify the rate, method of calculation or date from which prejudgment interest will be computed.