Prejudgment Interest on Unliquidated Damages

Posted on April 7, 2015

By: John Schroeder

California Civil Code § 3288 states, "In an action for the breach of an obligation not arising in contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury." This article will review how to obtain prejudgment interest at trial and how to use such interest in an effort to resolve matters without trial.

Counsel must plead a request for interest, but may do so by merely asking in the complaint for such other and further relief as may be proper. North Oakland Med. Clinic v. Rodgers (1998) 65 CA4th 824. Despite apparent statutory language to the contrary, the judge, and not the jury, decides if such discretion should be exercised. This request should be made by motion prior to judgment being entered and not by cost bill as it is considered damages and not a cost. Peoples Finance & Thrift Co. v. Mike-Ron Corp. (1965) 236 CA2d 897. Unlike Civil Code § 3287, there is no requirement that the damages be liquidated, just that they arise from an obligation not found in contract.

The question presented to trial counsel is what evidence should be introduced to convince the court after the finder of fact returns a verdict in favor the plaintiff to award interest. The easy answer would be to get the fact finder to find malice, oppression or fraud. But even if there is such a finding, trial counsel should be ready to prove-up the damages relating to such malice, fraud or oppression. In most cases tried today, there are multiple causes of action with different measures of damages. Counsel should be prepared to establish for the court the relationship between awarded damages and the different causes of action.

When the post-trial motion for the award of interest is filed, trial counsel should, by reference to actual evidence via his declaration, set forth the evidence supporting the actual damages relating to each breach of a non-contractual cause of action. Counsel should not assume the court will automatically find that the verdict figure is the amount from which interest is to be calculated. This is particularly true where there are contract actions plead with or without a contract allowing for damages. It is also suggested that the motion should be drafted in the alternative so that if the court believes the damages are liquidated, Civil Code § 3287(a) mandatory interest provision is used to the extent of the liquidated claim. If greater damages are awarded for a fraud, trespass or conversion action, then the motion should address what damages should be included in the separate interest calculation.

Counsel must establish the exact date to be used in calculating prejudgment interest. If there is a single act that breaches the non-contractual duty, that date should be the date to run the interest calculation from. If, however, there are a series of dates, counsel should be prepared to select each breach date and the damages relating to such breach and run the date from each in the series of dates. An easier option would be to select the date of the last breach and run all interest calculations from that date. Trial counsel should not assume the court will search the record to make these calculations. Counsel should make it easy for the court and guide them through the calculation breach by breach. An effort must be made to highlight the evidence that will convince the court to exercise its equitable discretion. In some cases, this could require a breach by breach analysis.

Counsel should also set forth the amount of the interest rate to be applied. For noncontractual claims, the rate is 7% per annum. Michaelson v. Hamada (1994) 29 CA4th 1566. A 10% interest rate will apply for all time periods post judgment. See Civil Code § 3239. The daily interest rate with a showing of the actual calculation should be set forth in the motion to assist the court. The court clerk will then insert the interest awarded, the costs and post judgment daily interest into the judgment. California Rules of Court 3.1802, Pelligrini v. Weiss (2008)165 CA4th 515.

In large or small cases, interest must be considered during settlement. As plaintiff's counsel, an interest calculation should always be inserted into demands. This increases the risk to defendant and creates a better starting point for negotiating the case. Normally, it is best to set forth in your settlement/mediation brief the Civil Code provision allowing interest and set forth the exact calculation for defendant. Again, this forces the defense to confront additional damages and raises the bar on value. This is especially true in cases of mandatory interest. Where interest is large, it should be reiterated at every settlement discussion until defendant addresses the issue.

Prejudgment interest must be examined at the outset of cases to insure the proper proof is garnered and presented at trial or mediation to maximize the client's recovery.

John Schroeder is Of Counsel with Kring & Chung, LLP's Irvine, CA office. He can be contacted at (949) 261-7700 or jschroeder@kringandchung.com.