When counseling a client on litigation involving a breach of contract or property claim, attorneys will presumably evaluate many factors and then attempt to quantify the expected recovery or exposure. Often overlooked in the analysis is the impact (or lack thereof) of pre-judgment interest, whether statutory or contractual. As demonstrated in a recent Appellate Division, First Department decision, such interest could significantly add to the amount at stake, especially in a complex commercial matter that may take many years to resolve. With statutory interest rates varying greatly among jurisdictions, choice of forum also becomes significant. This article gives a broad overview of the application of pre-judgment interest in New York and federal courts and discusses some procedural ways in which to limit or cut off the accrual of interest.
New York Law
Under New York law, the application of pre-judgment interest is set forth in CPLR §5001(a), which provides that such interest “shall be recovered” by a prevailing plaintiff in a breach of contract action or in an action involving “ an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property.” This latter provision has been interpreted to allow for pre-judgment interest in cases involving malpractice, conversion, breach of fiduciary duty, and other claims. The legislature’s use of the term “shall” in the statute has been found by the courts to make pre-judgment interest mandatory, not discretionary. See Spodek v. Park Prop. Dev. Assoc., 96 N.Y.2d 577, 581 (2001). Pre-judgment interest is not recoverable in tort actions resulting in personal injury, nor for punitive damage claims. For equitable actions such as unjust enrichment that involve monetary recovery, the assessment of pre-judgment interest is subject to the court’s discretion.
