Court Rejects Effort to Avoid Pre-Judgment Interest

On December 2, 2020, Justice Cohen of the New York County Commercial Division issued a decision in Franco Belli Plumbing & Heating & Sons, Inc. v. Citnalta Constr. Corp., 2020 NY Slip Op. 33953(U), rejecting an attempt to avoid an award of pre-judgment interest, explaining:

Next, the branch of Defendants' motion seeking to compute pre-judgment interest on Plaintiffs contract claim from the date of the trial court's decision - essentially, to award no pre judgment interest - is denied. The plain language of CPLR 5001(a) mandates the award of interest to verdict in breach of contract actions. Under CPLR 5001, interest shall be recovered in an action for breach of performance of a contract, and such interest shall be computed from the earliest ascertainable date the cause of action existed. And where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date. Because Plaintiff prevailed on its claim for breach of the subcontract, it is entitled to pre-judgment interest under New York law as a matter of right.

Defendants maintain, however, that Plaintiff should be entitled to no interest before the date of the trial court's decision because the damages amount was not ascertainable until that moment, so Defendants had no ability to make a tender to toll interest. That argument misunderstands the purpose of CPLR 5001. Pre-judgment interest is not a penalty against defendant. Rather, the principle behind prejudgment interest is that the breaching party should compensate the wronged party for the loss of use of the money, in order to make an aggrieved party whole. New York law does not hold that prejudgment interest is due from the demand date or when damages become ascertainable.

Indeed, Defendants' interpretation of CPLR 5001 would have the practical effect of precluding pre-judgment interest in almost all contract cases. As Judge Marrero observed in Stanford Square, in virtually all breach of contract cases, unless liquidated damages are specifically provided for, the quantum of damages is disputed, but the fact that damages are disputed by the parties does not defeat a party's right to prejudgment interest.

Having determined that Plaintiff is entitled to pre-judgment interest under CPLR 5001, the Court now turns to fixing the date from which such interest should accrue. Plaintiff's cross motion seeks to set that date as December 31, 2008, except for the retainage-fee component of damages, which interest Plaintiff proposes should run from May 14, 2012. This branch of the cross-motion is granted. As noted, CPLR 5001 provides that where contract damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date. The Court finds that December 31, 2008, when work on the project was completed, serves as a single reasonable intermediate date for four of the five components of contract damages, which were tied to obligations that became due at various points during construction. Indeed, Plaintiffs proposed accrual date appears conservative in some respects - the trial court indicated, for example, that Citnalta failed to compensate Plaintiff for the on-site overtime premium for work completed by August 2008. In any event, the December 31, 2008 date provides a reasonable, simplified accrual date in accordance with CPLR 5001. As for the other component of contract damages - the retainage fee - interest on that portion accrued starting on May 14, 2012, at which point Citnalta breached the Subcontract by failing to remit the retainage fee within seven days of the SCA's final payment for the Project. Therefore, the Court finds that pre-judgment interest shall accrue at the statutory rate on Plaintiffs contract damages from December 31, 2008, except for the final retainage balance of $26,363, which interest shall run from May 14, 2012.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. This decision discusses a successful plaintiff's entitlement to pre-judgment interest. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the calculation of pre- and post-judgment interest.