For Those With A Particular Interest In Interest

I previously write a short post on HB 223, which amends Kentucky post-judgment interest statute, effective June 23, 2017.  I proposed some ideas about how that amendment may impact arguments about pre-judgment interest in cases involving claims for unliquidated damages.  Below are some more thoughts on arguments over pre-judgment interest that didn't really fit with a post on post-judgment interest, so I thought I'd include them here.  

As a starting point, be aware that the statute cited as authority for prejudgment interest does not specify if the interest is simple or compound (under KRS 360.040, post-judgment interest is compounded annually).  The question of whether to award simple or compounded interest is left to the discretion of the trial court.  Reliable Mech., Inc. v. Naylor Indus. Servs., Ky. App., 125 S.W.3d 856, 858 (2003).  There are few guideposts for courts in this space, but the concept of time seems to be a factor.  In Reliable Mech., Inc., the court cited the extraordinary length of time the money owed to the plaintiffs had been withheld as a rationale for compound interest, while in Travelers Prop. Cas. Co. of Am. v. Hillerich & Bradsby Co., 596 F. Supp. 2d 1020, 1026, (W.D. Ky. 2008), the court found that the length of time the defendant withheld payment was not long enough to justify compounded interest, and that “simple interest will satisfy the requirements of fairness.”

On the question of the time during which prejudgment interest is awarded, it is important when arguing such matters with regard to a lengthy period of time during which prejudgment interest is sought to make the court understand why the period of time is so lengthy.  In Reliable Mech., Inc., the court found the length of time the defendant had withheld payment to the plaintiff was justified compounding the prejudgment interest.  Importantly, however, the plaintiff had filed suit relatively quickly after the dispute arose (approximately 10 months), and the litigation took 8 years to reach its conclusion.

But what if a Plaintiff delays for years in bringing a claim?  There is an argument to be made that in such circumstances, an award of prejudgment interest would be incompatible with the plaintiff’s duty to mitigate his damages recognized in Kentucky cases such as Deskins v. Estep, Ky.App., 314 S.W.3d 300, 305 (2010).   Though I cannot claim to have read every prejudgment interest case rendered in Kentucky, I have not seen this argument made.  However, there are good cases in Kentucky that support the argument in analogous circumstances.  At the top of the pile are Davis v. Fischer Single Family Homes, Ltd., Ky.App., 231 S.W.3d 767 (2007) and Hicks v. Don Marshall Nissan, LLC, No. 2007-CA-000679-MR, 2011 Ky. App. Unpub. LEXIS 431 (Ct. App. May 20, 2011).  Moreover, there is some support nationwide for the denial of even contractual interest where there is (in the eyes of the court) an inordinate and unjustifiable delay in bringing foreclosure actions.  See, e.g., Dayan v. York, 2008 NY Slip Op 4827, ¶ 2, 51 A.D.3d 964, 965, 859 N.Y.S.2d 673, 675 (App. Div.); Danielowich v. PBL Dev., 292 A.D.2d 414, 415, 739 N.Y.S.2d 408, 409 (App. Div. 2002).  In Citimortgage, Inc. v. Gueye, 2016 NY Slip Op 50972(U), ¶ 1, 52 Misc. 3d 1203(A) (Sup. Ct.), the lender had allowed an uncontested foreclosure to languish (following filing) for years, and sought $98,472.23 in interest on a principal of $260,114.93 that had accrued during the pendency of the action.  The court rejected the claim for interest, explaining,

This substantial amount of interest has accumulated almost entirely due to plaintiff's failure to prosecute its case in a timely fashion. Although there are no time limits placed on a plaintiff prosecuting an unopposed mortgage foreclosure action, it is inappropriate to abuse the foreclosure process in order to make an extra hundred thousand dollars off the loan.

Just to reiterate, none of this relates to post-judgment interest.  See Fields, 58 S.W.3d at 467 (“[w]hile KRS 360.040 provides for interest at the rate of 12% per annum on a judgment, that provision does not apply to prejudgment interest. Prejudgment interest is limited to the legal rate, found in KRS 360.010, of 8%.”).  But of course, under the revised KRS 360.040, a judgment debtor need not even argue that 8% interest is too high.  The General Assembly has reduced it to 6%, and has left intact the direction that the interest is to be compounded annually.