Court Declines to Award Prejudgment Interest on Unjust Enrichment Damages Award

On July 27, 2019, Justice Friedman of the New York County Commercial Division issued a decision in Ostad v. Nehmadi, 2019 NY Slip Op. 32250(U), declining to award prejudgment interest on an unjust enrichment damages claim, explaining:

Mr. Ostad's motion for pre-judgment interest on the award of $400,000, pursuant to CPLR 5001(a), will also be denied. In the trial decision, the court declined to exercise its discretion to award pre-judgment interest.

It is well settled that the theory of unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties. It is undisputed that under CPLR 5001, the court has discretion to award pre-judgment interest on an equitable claim.

Mr. Ostad claims that the court's failure to award interest was an abuse of discretion. In particular, he argues that interest from March 2008 is mandated because Mr. Nehmadi wrongfully withheld the cash that Mr. Ostad provided to him, and that the denial of interest would result in a windfall to Mr. Nehmadi. Mr. Ostad also appears to argue that interest should be awarded based on Mr. Nehmadi's wrongful denial that he even received the money from Mr. Ostad.

As Mr. Ostad correctly argues, the purpose of interest is to require a person who owes money to pay compensation for the advantage received from the use of that money over a period. Interest is not a penalty. Under the unusual circumstances of this case, however, the court remains unpersuaded that interest should be awarded. These circumstances include that plaintiff himself waited until 2008, five years after he gave the cash to Mr. Nehmadi, to demand an interest in the property, and then waited again until 2010 to commence this action; the transaction was undocumented; and the determination as to whether the cash transaction occurred turned entirely on the resolution of a bona fide credibility dispute. Mr. Ostad cites no authority awarding interest on similar facts. Moreover, to the extent that Mr. Ostad claims that Mr. Nehmadi should be required to pay interest because he denied his receipt of the money, the interest would in effect he a penalty given the bona fide dispute.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. As this decision shows, in some circumstances, those damages can include prejudgment interest. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding proving damages.