Pre-Judgment Interest: The Sometimes Forgotten Damages

Pre-Judgment Interest: The Sometimes Forgotten Damages

When assessing damages in a maritime personal injury case, pre-judgment interest should be included as an element of a plaintiff’s damages. Depending on the case, the pre-judgment interest can be substantial. Since pre-judgment interest can be determined very easily on a plaintiff’s special damages, which include out of pocket expenses, past wage loss, medical bills, prescriptions, etc., defendants will have a very hard time disputing the amount of pre-judgment interest on these particular damages.

Under the general maritime law, injured parties are normally awarded pre-judgment interest. When allowed, pre-judgment interest is considered an element of damages in admiralty, part of full and fair compensation to the injured party. See Gulf Oil Corp. v. Panama Canal Co., 481 F.2d 561, 570-71 (5 Cir. 1973); Norfolk Shipbuilding & Drydock Corp. v. The M/Y La Belle Simone, 537 F.2d 1201, 1204 (4 Cir. 1976). Full compensation has long been recognized as a basic principle of admiralty law, where ” [r]estitutio in integrum is the leading maxim applied by admiralty courts to ascertain damages resulting from a collision.” Standard Oil Co. of N.J. v. Southern Pacific Co., 268 U.S. 146, 158, 45 S.Ct. 465, 467-68, 69 L.Ed. 890 (1925) (citing The Baltimore, 75 U.S. (8 Wall.) 377, 385, 19 L.Ed. 463 (1869)) by compensating “for the loss of use of money due as damages from the time the claim accrues until judgment is entered,” West Virginia v. United States, 479 U.S. 305, 310-311, n. 2, 107 S.Ct. 702, 706, n. 2 (1987). An award of pre-judgment interest helps achieve the goal of restoring a party to the condition it enjoyed before the injury occurred. The President Madison, 91 F.2d 835, 845-846 (CA9 1937).

A district court has discretion to award and should award pre-judgment interest, unless the limited exception for “peculiar” or “exceptional” circumstances exists. City of Milwaukee v. Cement Division, National Gypsum Co., 115 S.Ct. 2091, 2095-96 (1995); Yarmouth Sea Products Ltd. v. Scully,131 F.3d 389, 395 (4th Cir. 1998)(award of pre-judgment interest affirmed); Noritake Co., Inc. v. M/V Hellenic Champion, 627 F.2d 724 (5th Cir. 1980). “Under maritime law, the awarding of prejudgment interest is the rule rather than the exception, and, in practice, is well-nigh automatic.” U.S. Fire Ins. Co. v. Allied Towing Corp., 966 F.2d 820, 828 (4th Cir.1992); Reiss v. One Schat-Harding Lifeboat No. 120776 #??1, 444 F.Supp.2d 553 (D.S.C. 2006); Todd v. Schneider, 2003 WL 23514560, 2004 A.M.C. 409 (D.S.C. 2003); Gehlken v. McAllister Towing & Transp. Co., 2007 WL 2332487 (D.S.C. 2007). However, the award of pre-judgment interest in admiralty cases rests within the sound discretion of the district court. See Gardner v. The Calvert, 253 F.2d 395, 402-03 (3 Cir.), cert. denied, 356 U.S. 960, 78 S.Ct. 997, 2 L.Ed.2d 1067 (1958). Prejudgment interest will be awarded even if the plaintiff is found to be comparatively negligent, or the existence of mutual fault exists. City of Milwaukee v. Cement Div., Nat. Gypsum Co., 515 U.S. 189, 199, 115 S.Ct. 2091, 2097 (1995); Schumacher v. Cooper, 850 F.Supp. 438 (D.S.C. 1994).

Peculiar circumstances preventing the award of pre-judgment interest have included a plaintiff’s responsibility for “undue delay in prosecuting the lawsuit.” General Motors Corp. v. Devex Corp., 461 U.S. 648, 657, 103 S.Ct. 2058, 2063 (1983); Protogyrou v. Lines, 42 F.3d 1386 (Table), 1994 WL 673635 (4th Cir. 1994). The United States Supreme Court has held that the existence of a legitimate difference of opinion on the issue of liability is merely a characteristic of most ordinary lawsuits and hence, not an extraordinary circumstance that can justify denying pre-judgment interest. City of Milwaukee, 515 U.S. at 199, 115 S.Ct. at 2097. Under the Suits in Admiralty Act, prejudgment interest is not allowed. U.S. v. United Continental Tuna Corp., 425 U.S. 164, 96 S.Ct. 1319 (1976). Typical other examples of “peculiar circumstances” cited by courts include a damages award substantially less than that sought, complex legal and factual issues, and a bad faith claim. See Nunley v. M/V Dauntless Colocotronis, 863 F.2d 1190, 1204 (5th Cir.1989); Phillips Petroleum Co. v. Stokes Oil Co., Inc., 863 F.2d 1250, 1258 (6th Cir.1988); Orduna S.A. v. Zen-Noh Grain Corp., 913 F.2d 1149, 1157 (5th Cir.1990)(“equitable considerations which caution against an award” may also constitute “peculiar circumstances”). In light of the Supreme Court’s ruling in City of Milwaukee, some of these decisions have more than likely been overturned.

There are several different methods courts use in determining how to calculate pre-judgment interest. A court can charge a defendant pre-judgment interest at the maximum legal rates of interest as set by a state law. United States v. M/V Zoe Colocotroni, 602 F.2d 12, 14 (1 Cir. 1979) (failure to award higher commercial rate instead of statutory maximum no abuse of discretion); Proctor v. Tsao, 164 F.3d 625 (Table), 1998 WL 708689 (4th Cir. 1998). Accordingly, district courts are not bound by state statutory maximums in setting the rate of pre-judgment interest in admiralty cases, and indeed have been urged to follow the interest rate prevailing commercially. United States v. M/V Gopher State. Other methods of calculating pre-judgment interest exist, which include using the same method of determining post-judgment interest under federal law found at 28 U.S.C. § 1961. In re M/V Nicole Trahan, 10 F.3d 1190, 1994 AMC 1253 (5th Cir. 1994). Post-judgment interest can be determined by using the current Treasury Bill interest rate. In re Amoco Cadiz, 1992 AMC 913, 981 (7th Cir. 1992), held that the pre-judgment rate is the market rate which the plaintiff must pay to borrow money. Another method is to set pre-judgment interest at the average prime rate, compounded over the period of the loss. BP Exploration & Oil, Inc. v. Moran Mid-Atlantic Corp., 147 F.Supp.2d 333 (D.N.J. 2001). There are also local district court rules in some jurisdictions that govern the amount of pre-judgment interest to be awarded. If the issue of how to determine the prejudgment interest rate has not been decided in a particular jurisdiction, then it is important that evidence be introduced that shows the cost to the plaintiff of borrowing money. This can occur through the testimony of a client, an economist or a banker.

In the event that an admiralty case is brought in state court, then the admiralty rule with regards to a plaintiff being entitled to pre-judgment interest should be applied. A plaintiff who files an admiralty case in state court is entitled to pre-judgment interest as well.

Pre-judgment interest is an element of damages that is unique to the maritime law. As such it is often overlooked by plaintiffs and should be requested in settlement demands and at trial, like any other element of damages.

S. Scott Bluestein of Charleston, South Carolina is a former Chairman of the Admiralty Section.