New York State Court of Claims

New York State Court of Claims

AUER v. THE STATE OF NEW YORK, #2000-001-022, Claim No. 86167, Motion Nos. M-61490, M-61491


Synopsis


Claimant's motion:1) to adjust past damages (Motion No. M-61491) is granted; and 2) to designate "overdue" future damages as past damages (Motion No. M-61490) is denied. Post-decision (CPLR 5002) interest is awarded at 5.23%, based on the rates of Treasury bills for the relevant period; post-judgment (CPLR 5003) interest is awarded based on rates of Treasury bills from June 1, 2000 until payment of judgment. Litigation expenses of $467,716 (rounded) are included in the initial lump-sum payment.

Case Information

UID:
2000-001-022
Claimant(s):
SARAH E. AUER, as Guardian of MELODY DAWN AUER and SARAH E. AUER and FRANKLIN H. AUER, Individually
Claimant short name:
AUER
Footnote (claimant name) :

Defendant(s):
STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
86167
Motion number(s):
M-61490, M-61491
Cross-motion number(s):

Judge:
SUSAN PHILLIPS READ
Claimant's attorney:
Ackerman, Wachs and Finton, P.C.
Rosenblum, Ronan, Kessler and Sarachan, Of CounselBy: Michael W. Kessler, Esq.
Defendant's attorney:
Hon. Eliot Spitzer, NYS Attorney GeneralBy: Risa Viglucci and Belinda A. Wagner, Assistant Attorneys General, Of Counsel
Third-party defendant's attorney:

Signature date:
June 21, 2000
City:
Albany
Comments:

Official citation:
185 Misc 2d 254
Appellate results:
Reversed in part and affirmed in part, Third Dept., 6/28/01
See also (multicaptioned case)



Decision

The following papers have been read and considered on Motion Nos. M-61490 & M-61491: Notice of Motion to adjust past damages in accordance with the stipulation of the parties, dated April 5, 2000 and filed April 7, 2000, and supporting Affidavit of Michael W. Kessler, sworn to April 5, 2000 and filed April 7, 2000, with annexed Exhibits; Notice of Motion to apply overdue damages of $133,000 for heterotopic ossification surgery and $30,000.00 for home renovations as past damages, dated April 5, 2000 and filed April 7, 2000, with accompanying Memorandum of Law and annexed Exhibits; Affidavit of Michael W. Kessler, sworn to April 5, 2000 and filed April 7, 2000, with both its annexed and separately bound Exhibits; Affidavit of James F. McDonald, sworn to March 13, 2000 and filed April 7, 2000; Affidavit of Thomas R. Kershner, sworn to April 4, 2000 and filed April 7, 2000, and an accompanying Memorandum of Law; Defendant's Post-Trial Memorandum of Law, dated April 6, 2000 and received on April 11, 2000, with annexed Exhibits A-G; Letter Brief on behalf of claimants, dated April 10, 2000; defendant's letter reply to claimants' motions with accompanying papers relative to Court-ordered submissions, dated April 18, 2000; and letter reply on behalf of claimants, dated April 25, 2000.

By a decision filed on November 16, 1998, retired Judge James P. King found the State of New York ("defendant" or "the State") 80% liable for the catastrophic physical injuries sustained by Melody Auer when the automobile in which she was a passenger crashed into a tree on Route 32 in the Town of Saugerties. The other tortfeasor was the car's driver.

In a subsequent decision filed on December 30, 1999, Judge King determined that Melody Auer's damages totaled $18,952,486.00. The specific elements of the damages awarded are set forth below:
Award for Past damages:
Past lost wages and employment benefits: $60,851.00

Past Pain and Suffering: $1,500,000.00

Past medical care: $466,037.00
Award for Future damages:
Future lost wages and employment benefits (38 years): $1,292,405.00

Future Pain and Suffering (38 years): $750,000.00

Future medical and other care (38 years): $14,883,193.00

Total Award (Melody Auer): $18,952,486.00

Judge King also awarded claimant Sarah E. Auer, Melody Auer's mother, $100,000, and claimant Franklin H. Auer, Melody Auer's father, $52,180, on their derivative claims.

A judgment was subsequently entered on January 11, 2000, which directed payment of the awards on the derivative claims of claimants Sarah E. and Franklin H. Auer with interest at a rate of 9% from November 4, 1998 to January 11, 2000; and directed that the amount awarded to Melody Auer, through her guardian, be held in abeyance pending a hearing pursuant to CPLR article 50-B. The parties subsequently agreed to utilize a discount rate of 6.25 % to calculate the present value of future damages in accordance with article 50-B (see, Letter dated March 12, 2000 from Michael W. Kessler to Belinda Wagner ["Kessler Letter"], annexed as Exhibit A to Defendant's Post-Trial Memorandum of Law, dated April 6, 2000 and received April 11, 2000 ["Defendant's Brief"]), and the Court finds that this is a fair and reasonable discount rate in light of the yields on Treasury securities in January, 2000. This decision addresses four remaining issues that the Court and the parties agree must be resolved before the article 50-B calculations can be made: 1) whether to make certain adjustments to claimant's award for past damages; 2) whether to designate and pay purportedly "overdue" future damages as past damages; 3) the rate(s) of interest pursuant to CPLR 5002 and 5003; and 4) what amount to deduct for litigation expenses.

The first two issues (adjustment of past damages and "overdue" future damages) are the subject of Motion Nos. M-61491 and M-61490, respectively; with regard to the third issue (disbursements), claimants' counsel has provided the Court with certain materials for in camera inspection, principally three notebooks of invoices and copies of checks to substantiate the disbursements claimed. The State also argues that the Clerk of the Court prematurely and erroneously applied a 9% rate of interest to the awards made to Sarah E. and Franklin H. Auer on their derivative claims.



I. Adjustment of Past Damages (Motion No. M-61491)

Claimants have moved for an order increasing the amount of past medical expenses and reducing the amount of the award for past lost earnings for Melody Auer. The parties have stipulated to the amounts in question and to the propriety of these adjustments (see, Kessler Letter). The stipulation provides for deducting $49,355 from past lost earnings to reflect collateral source payments, and for adding $32,689.34 for past medical damages to reflect additional payments made by the Ulster County Department of Social Services after October 6, 1999, the date on which the agency's lien was calculated prior to trial. The Court agrees that these adjustments are proper, and revises the award as follows:
Revised Award

Award for Past damages:
Past lost wages and employment benefits: $11,496.00

Past Pain and Suffering: $1,500,000.00

Past medical care: $498,726.34

[Total Past Damages: $2,010,222.34]
Award for Future damages:
Future lost wages and employment benefits (38 years): $1,292,405.00

Future Pain and Suffering (38 years): $750,000.00

Future medical and other care (38 years): $14,883,193.00

[Total Future Damages: $16,925,598.00]

[Total Award: $18,935820.34]

II. Designating "Overdue" Future Damages as Past Damages (Motion No. M-61490)
Claimants contend that the initial lump-sum payment made pursuant to CPLR 5041 (b) should include two amounts that were, at the time of the damages decision, designated as "future damages." These sums are $133,000 for surgery to remove heterotopic ossification from Melody Auer's hips, and $30,000 to pay for renovations necessary to make private living quarters accessible and comfortable for her. Claimants contend that these portions of the award for future damages have become "past" or at least "current" damages with the passage of time:
Although the two elements of care costs described were necessarily "future" costs at the time of the damages decision in December, 1999, because they had not yet been actually paid (footnote omitted), during the interval between the time of the damage decision and the calculation of the 50-B judgment, these two items have now become past damages. Since these one-time current cost items must be paid by the Claimant now, they differ significantly from the recurring items of future care that will be required over the next 38 years.
(Claimants' Memorandum of Law in Support of their motion to apply overdue damages of $133,000 for heterotopic ossification surgery and $30,000 for home improvements as past damages, dated April 5, 2000 and received April 7, 2000, p 4).[1]

The State maintains that these two items must be included with all other future damages in the amount that is structured over a thirty-eight year period and paid out pursuant to CPLR 5041 (e). To create a separate category for costs that become due in the time period between decision and final payment of the award would, defendant argues, "carve out an entire subset of future damages for each particular category of damages," citing the baclofen pump, botox injections, live-in aides, and van modification as examples of other items that would be needed continuously (Defendant's Brief, p 12).

In every case to which article 50-B applies, there will be some delay between the date of verdict or decision and the date that final judgment is entered. In many instances, one or more sums designated as "future" damages will be intended to pay for items that either (1) the injured party would have obtained and paid for at an earlier time if money had been available, such as an expensive operation or piece of specialized equipment that was needed even before trial; and/or (2) the trial court fully anticipated would be provided from the date of decision, such as the costs of continuing treatment or therapy or the salary of a caretaker.

At some point, however, a firm designation of "past" and "future" expenses must be made in order to carry out the provisions of article 50-B. The Legislature has set that point as the time of the trial court's verdict or decision (CPLR 4111 [f] [jury trial]; CPLR 4213 [b] [trial by court]). In the normal course, little prejudice results because the delay is modest and article 50-B already provides for a significant amount of the "future" damages to be paid immediately: the structuring of an award and its payment over time applies only to "awards of future damages in excess of two hundred fifty thousand dollars" (CPLR 5041 [e] [emphasis supplied]). This amount is usually sufficient to allow immediate payment for treatment, goods and services that have been needed for some time as well as for prompt reimbursement for those continuing costs that arose during the interim between decision and entry of judgment.

As claimants accurately note, however, at least two appellate courts have approved deduction from the balance of future damages (i.e., those to be paid by an annuity) and immediate payment in the initial lump sum of an amount "representing the proportion of [future] damages accrued since the date of the verdict" (Williams v Bright, 167 Misc 2d 179, 180, revd on other grounds 230 AD2d 548, appeal dismissed 90 NY2d 935). In Williams, the trial court approved a proposed judgment that contained in the initial lump-sum payment those amounts provided for in subdivisions (b), (c), and (d) plus "a further sum of $430,243 out of the

future damages award representing the proportion of damages accrued since the date of the verdict . . . ." On appeal, the judgment was reversed on an entirely different issue, and the First Department specifically approved the trial court's action with respect to that deduction and immediate payment:

CPLR 5041(e) states that "an annuity contract . . . will provide for the payment of the remaining amounts of future damages in periodic installments." Because of the considerable delay between the judgment we are now vacating and any future judgment recovered, the trial court should be left with some discretion to make an immediate lump-sum award, to be deducted from any annuity awarded. The trial court did not err in this respect.


(230 AD2d 548, 557). Subsequently, in Adamy v Ziriakus (254 AD2d 747), the Fourth Department held that a trial court "has discretion to order an immediate lump sum award to be deducted from any annuity awarded," citing the appellate decision in Williams. Although these two appellate decisions date from 1997 and 1998, respectively, they appear to be the only ones to have addressed this issue.[2]

The trial court in Williams based its ruling on an interpretation of the word "remaining" in CPLR 5041 (e), with which this Court disagrees, and on practical and logical considerations impossible to ignore. It is difficult to argue with that court's view that certain anomalies or inequities may ensue when there is a considerable gap of time between the date of verdict (or decision) and the entry of judgment. For one thing, the time periods set by statute and fixed by the judge or jury will be significantly altered. In Williams, for example, the court noted that pain and suffering damages would be payable over 12 years, rather than the 10 years required by 5041 (e), and other future damages would be payable over 26 years, rather than the 24 years determined by the jury. Because of this effect and because CPLR 5045 provides that any remaining obligation to pay for future non-economic loss, including medical care, terminates on the death of the injured party, failure to carve out for immediate payment amounts attributable to the pre-judgment period "increase[s] the time plaintiff must survive in order to obtain the maximum verdict" (167 Misc 2d at 181). Finally, as noted by the trial court, the very needs for which those future damages were intended to compensate will have continued unabated during the period of waiting.

Nonetheless, this Court does not share the Williams trial court's view that the word "remaining", as it is used in several sentences in CPLR 5041 (e), provides statutory support for including in the initial lump-sum payment an additional amount to account for such "overdue" future damages. Specifically, the trial court in Williams stated that requiring the judgment to apply only prospectively would be "contrary to CPLR 5041 (e) which calls for the payment of the ‘remaining future damages' over the period of time" (id. [emphasis added in the original]). Elsewhere the court pointed to other instances of statutory direction to structure the payment of "remaining future damages" as proof that "[t]he very words of the statute . . . contemplate that some of the items of future damages accrued between verdict and entry of judgment are to be paid at the time of entry of judgment or there would be no significance to the words ‘remaining future damages'" (id.).

When read in full context, however, the word "remaining" takes on quite a different meaning. The first use of the word is in the second sentence of CPLR 5041 (e):
After making any adjustment prescribed by subdivisions (b), (c) and (d) of this section, the court shall enter a judgment for the amount of the present value of an annuity contract that will provide for the payment of the remaining amounts of future damages in periodic installments.

(Emphasis added.) The adjustment called for in subdivision (b) is entry of a lump-sum judgment for the first $250,000.00 of future damages; subdivision (c) directs payment of a lump sum that includes, among other things, attorney's fees related to future damages; and subdivision (d) permits a subrogee or lien holder to elect a lump-sum payment of "any part of future damages allocable to reimbursement of payments previously made by the subrogee or lien holder." After the total amount of future damages is reduced by these sums, it is the balance--or the remaining amount--of future damages that is payable by means of an annuity contract. This reading of the sentence, and this meaning of the word "remaining," is consistent with statements contained in a number of decisions making reference to this portion of the statute (see, e.g., Bryant v New York City Health and Hospitals Corp., 93 NY2d 592, 601 ["Awards for past damages and attorneys' fees, as well as the first $250,000 of awards for future damages, are immediately payable in a lump sum. Defendant is then required to purchase an annuity contract that will ‘provide for the payment of the annual payments of such remaining future damages.'" (citations and footnote omitted)]; Bermeo v Atakent, 241 AD2d 235, 243 [First Department] ["[C]ontributions to the $250,000 lump sum are pro-rated among all elements of the total future-damages award . . . . The remaining portion of future damages, if any, will be paid out periodically over a number of years, secured by the purchase of an annuity contract."]).

Nor is it at all clear that appellate courts have approved the deduction and immediate payment of some future damages in reliance on this statutory interpretation of the word "remaining." Although the First Department, in the statement from Bermeo set out above, quoted a portion of the statute containing that word, in Williams it also referred to the somewhat unusual posture of the Williams case and stated that permitting such a deduction falls within the trial court's "discretion" (230 AD2d 548, 557). Similarly, in Adamy the Fourth Department stated that a trial court has "discretion" to order immediate payment of a sum to be deducted from any annuity awarded (254 AD2d 747, 748). In fact, both cases featured extraordinary delays, which may be seen as justifying an exercise of discretion: in Adamy, the appellate court was affirming a judgment fully four years after the jury verdict distinguished between "past" and "future" damages; in Williams, which involved an important issue of Constitutional law,[3] post-trial motions delayed the issuance of a judgment for eighteen months, and because the original judgment was reversed on the Constitutional issue and a new trial ordered, further delay was inevitable.

By contrast, the length of the delay between the Court's decision and entry of judgment in this case does not present a similarly compelling case for the exercise of any discretionary power to adjust the award required by the statute. Additional delay is likely, however, because the State has filed a notice to appeal and consequently all proceedings to enforce the judgment will be automatically stayed by operation of CPLR 5519 (a) (1).[4] Perhaps two or more years will elapse before all appeals are decided and, assuming that Judge King's decisions are affirmed, payment is actually made. An application to the Court for the relief claimants request here may well be appropriate later, but is premature now.

In conclusion, claimants' argument that certain items of future damages can, and should, be redesignated as past damages fails as contrary to the express provisions of CPLR 5041. In addition, no basis now exists for the Court to exercise any discretionary power that it may have to adjust the normal schedule of payments.

III.
Post-Decision (CPLR 5002) and Post-Judgment (CPLR 5003) Interest Rate

The State argues that the statutory maximum 9% interest rate under section 16 of the State Finance Law does not reflect market conditions during the time period relevant to this claim, and presses the Court to exercise its discretion to set a lower rate as the Court of Appeals in Rodriguez v New York City Housing Auth. (91 NY2d 76) made clear that it may. In support of its position, defendant has submitted the affidavit of its expert economist, Kevin Decker, who opines that the presumptively reasonable 9% statutory interest rate is unreasonably high; and that an interest rate of 5% to 5.25%, a blended rate derived from the interest rates payable on a series of 3-month Treasury bills offered between November, 1998 (the date of the liability decision on this claim) and April, 2000, leavened by the interest rate on a 30-year Treasury bond available in November, 1998, represents a reasonable interest rate to compensate claimants for their lost purchasing or investment opportunities during this interval of time (see, Affidavit of Kevin Decker, sworn to April 6, 2000 and received April 11, 2000 ["Decker Aff."], annexed as Exhibit G to Defendant's Brief).

Contrariwise, claimants urge the Court to decline to exercise its discretion to deviate from the presumptively reasonable 9% statutory interest rate. In support of their position, claimants advance the affidavits of Thomas R. Kershner, their expert economist, and James F. McDonald, the Chief Investment Officer of the Hudson River Bank and Trust. Both Mr. Kershner and Mr. McDonald opine that a reasonably prudent investor with a diversified portfolio of stocks and bonds would have achieved a rate of return far exceeding 9% since November, 1998 (see, Affidavit of Thomas R. Kershner, sworn to April 4, 2000 and filed April 7, 2000; and Affidavit of James F. McDonald, sworn to March 13, 2000 and filed April 7, 2000).

Since the Court of Appeals decision in Rodriguez, a few trial courts have exercised their discretion to set an interest rate below 9%, the presumptively reasonable statutory rate for obligations of the State of New York and various other public entities: see, e.g., Carl v Daniels (Sup Ct, Bronx County, August 25, 1998, Gamboi, J., Index No. 14781/91 [trial court sets an interest rate of 7% on damages awarded by jury verdict against The City of New York and The New York City Health and Hospital Corporation]); Murnane Assoc., Inc. v Harrison Garage Parking Corp. (Sup Ct, Onondaga County, Nov. 22, 1998, Elliott, J., Index No. 93-3565 [trial court sets an interest rate of 6% on a judgment pursuant to CPLR 5001 against the City of Syracuse]), affd 703 NYS2d 801 [Fourth Department concludes that trial court did not abuse its discretion in awarding prejudgment interest at a rate of 6%, citing General Municipal Law § 3-a [1] and Rodriguez], lv denied 2000 NY LEXIS 922; see also, Anderson, 9% Still Usual Rate for City, NYLJ, Sept. 29, 1998, at 1, col 5 [referring to certain trial court rulings in which judges had set the interest rate lower than 9% in cases involving the City of New York, including two in which the courts are reported to have pegged the interest rate to the yield of one-year Treasury securities]). This Court has located no published or unpublished opinion, however, in which a post-Rodriguez trial court exercising its discretion to set an interest rate below 9% discussed the evidence or its reasoning.

Most post-Rodriguez courts have continued to set interest on awards against the State or other public entities at 9%--which is, after all, the presumptively reasonable statutory rate--but again, usually without explanation. In many of these instances, the defendant for whatever reason may have elected not to contest the presumption, as, for example, happened in Wielgosz v State of New York (Ct Cl, filed Feb. 4, 2000, Read, J., Claim No. 91798), a decision remarked upon by claimants' counsel in which this Court recently awarded 9% interest without discussion.

In several other instances, though, the defendant contested the presumption and the trial court wrote a decision evaluating the parties' evidence and setting forth its rationale for declining to deviate from the presumptively reasonable 9% statutory interest rate. To a considerable measure, evidence and arguments similar to those presented by claimants here have swayed these trial courts; specifically, a number of courts have reasoned that in light of the bull market of the last nearly two decades, any prudent investor with a diversified portfolio of stocks and bonds would have likely achieved a rate of return far exceeding 9% during whatever time period was relevant in the particular case; and--as a corollary proposition to countervail the alternative to the statutory rate most frequently put forward by defendants--that no prudent investor would invest solely in Treasury bills (see, e.g., Matter of Urban Dev. Corp., 176 Misc 2d 772; Pay v State of New York, 176 Misc 2d 540; Molinari v State of New York , 176 Misc 2d 523; Phillips v State of New York , Ct Cl, filed Jan. 11, 1999, Lane, J., Claim No. 87572; Scorza v New York State Thruway Auth., Ct Cl, filed March 31, 1999, Patti, J., Claim No. 88441; Morrisseau v State of New York, Ct Cl, filed June12, 1998, Collins, J., Claim No. 79428; Washington v State of New York, Ct Cl, filed March 12, 1999, Corbett, J., Claim No. 84421). Other circumstances either considered or identified by trial courts as relevant to the decision whether to set the interest rate lower than 9% in a contested case include the likely investment strategy of the particular injured party (Frontier Ins. Co. v State of New York, Ct Cl, filed Sept. 10, 1998, King, J., Claim No. 90715); the time elapsed since the liability decision (Pay v State of New York, 176 Misc 2d 540, supra); and the comparative fault of the parties and the statutory interest rate applicable to a co-defendant (Sassoonian v City of New York, 178 Misc 2d 660, affd 261 AD2d 319, 320 [First Department concludes that trial court did not improvidently exercise its discretion in awarding 9% interest on a judgment entered after verdict "since no compelling reason ha[d] been set forth to warrant deviation from the statutory rate which is presumptively fair and reasonable [citing Rodriguez]").

Professor David D. Siegel has observed that the Court of Appeals in Rodriguez furnished no "guideposts" for a trial court's determination of the proper interest rate and imposed no "hasty fetter" from above on the selection of a proper standard (69 Siegel's Practice Review, The Problem of the Interest Rate Applicable Against Government Entities Under the Rodriguez Case, at 4 [March 1998]). The way signaled by Rodriguez lies not entirely trackless, though: in particular, the Court (1) declined to cabin the lower court's discretion by adopting the proffered[5] or any other specific method or reference for calculating interest; (2) noted that the statutory 9% interest rate was presumptively fair and reasonable, citing and quoting from City of Buffalo v Clement Co. (28 NY2d 241), a key precedent in condemnation caselaw in New York; and (3) remarked that the fact that an interest computation other than the statutory rate might also be "reasonable" did not mandate its selection by a trial court in an exercise of discretion.

Thus Rodriguez endorses an award of interest at the presumptively reasonable 9% statutory interest rate unless the defendant in the particular case overcomes the presumption with evidence sufficient to persuade the trial court that the statutory rate is unreasonably high and, if the defendant makes such a showing, confirms the trial court's discretion to award interest at a lower rate (compare, Matter of Metropolitan Transp. Auth. v American Pen Corp., 253 AD2d 366 [a condemnor challenging the reasonableness of the maximum applicable 9% statutory interest rate bears the burden of proving that the statutory rate is unreasonably high and that a lower rate would be constitutionally sufficient]; affd on other grounds, 94 NY2d 154). On such matters as the weight of evidence sufficient to oust the presumption or how great a disparity renders the statutory interest rate unreasonably high or how to fix or select a lower interest rate, Rodriguez affords the trial court infinite latitude. Whether Rodriguez leaves open to an equal degree the kinds of circumstances or evidence relevant for the trial court to consider when the presumption is contested is less certain--at least to this particular trial court--particularly in view of the condemnation caselaw pre-existing and adverted to in Rodriguez,[6] as discussed below.

A. Discussion

In 1939 the Legislature amended the General Municipal Law to add a new section 3-a, effective July 1, 1939, which specified a rate of interest not to exceed 4% per year on municipal obligations at a time when the general interest rate in the State was 6% per year (L 1939, ch 594). In People ex rel. Emigrant Indus. Sav. Bank v Sexton (284 NY 57), a tax certiorari case cited and quoted in Rodriguez, the Court held that the 1939 statute was prospective only in effect and did not delegate legislative power because
[a] limit merely is imposed. There can be no doubt that the fixing of the rate of interest, or a limitation of the rate, is legislative in character. This circumstance is, however, without significance. The statute mandates no particular rate. Courts have long exercised authority to determine in accordance with legal rules and principles whether or not interest should be directed to be paid and the rate thereof (citation omitted). This power is by this statute restricted in one particular only, a maximum is imposed.
(Id., at 61).

In Matter of City of New York (Bronx River Parkway), (284 NY 48 sub nom A.F.&G. Realty Corp. v City of New York, 313 US 540), a condemnation case decided the same day, the Court of Appeals held the 1939 statute constitutional and applicable to a municipality in a condemnation proceeding.[7] Further, "compensation, when not paid coincidentally with the taking of the property, must include some sum in addition to the bare value of the property at the date of taking for the delay in making payment, so that the compensation may be just" and "[i]n the absence of evidence as to what such additional sum should be, interest, as provided by law, meets the constitutional requirement" (id., at 54).

The claimants had been awarded 6% interest from the date the City took title until July 1, 1939, the effective date of General Municipal Law §3-a, and 4% interest thereafter until payment. The claimants protested that interest at the rate of 4% was so unreasonably low as to deprive them of just compensation, but the Court rejected their contention as "not supported by any evidence, and . . . contrary to common experience" (id., at 55), thus affirming the Appellate Division (see, Matter of City of New York [Bronx Riv. Parkway], 259 App Div 552 [the statutory interest rate was not controlling if some other rate was required for just compensation, but the maximum legal rate was prima facie the proper rate and in this proceeding no contrary proof was offered]).

The Legislature amended section 3-a of the General Municipal Law to increase the maximum rate of interest payable on condemnation awards from 4% to 6% per year in 1969 (see, L 1969, ch 1102, eff. July 25, 1969), nearly three years after amending section 16 of the State Finance Law to this effect. This temporary difference in rates coupled with changes in prevailing interest rates in the economy prompted claimants to contest the constitutional adequacy of a 4% interest rate in municipal condemnation proceedings.

In Matter of City of New York (Manhattan Civic Center Area), (57 Misc 2d 156, affd 32 AD2d 530, affd 27 NY2d 518), the claimants presented the trial court with evidence to establish that interest rates in the metropolitan New York area had generally exceeded 6% from the date of the takings in 1965.[8] The trial court also noted that the federal government paid 6% interest on a condemnation award as had the State since August 1, 1966, and, in fact, held that the disparity in State and municipal interest rates in condemnation proceedings denied claimants their constitutional right to equal protection of the laws. He therefore awarded claimants interest at 4% (the applicable statutory interest rate) from the vesting dates until August 1, 1966 (the effective date of the amendment to section 16 of the State Finance Law), and at 6% thereafter until the date of payment.

Next, in City of Buffalo v Clement Co. (28 NY2d 241, supra), the condemnation case cited and quoted in Rodriguez, the Court of Appeals discussed the relevance of the statutory interest rate to an analysis of just compensation:
[W]e have consistently viewed the statutory rate as presumptively reasonable, and in the absence of evidence sufficient to rebut that presumption capable of being applied[.] [T]he legal rate of interest merely fixes a fair measure or a prima facie measure of the proper rate to afford just compensation. In the absence of proof that some other legal rate must be paid to afford such compensation, the legal rate as it existed during the period elapsed satisfies the constitutional requirement. The question thus becomes whether the evidence introduced by [claimant] in the instant case is sufficient to rebut the statutory presumption; and as we are presented with affirmed findings of fact, tending to show that the rate of interest was not unreasonable, and as these findings are supported by substantial evidence, we are jurisdictionally precluded from reviewing the same (Cohen and Karger, Powers of the New York Court of Appeals, pp. 476-480).
(Id., at 266).

In Matter of County of Nassau (Eveandra Enterprises), (42 NY2d 849), the Court of Appeals was again unimpressed by the evidentiary showing made by a claimant seeking to demonstrate the constitutional infirmity of a pre-judgment interest rate of 6% in a condemnation proceeding: "The appropriate interest rate is not measured by particular fluctuations in categories of interest rates for public or private securities or lending. So long as the statutory rate constitutes a judicially acceptable, fair return for the deprivation of the use of that property or the money equivalent of that use, either or in combination, the statutory rate should be considered proper" (id., at 850-851) (emphasis added).

The Court of Appeals found otherwise, however, in Matter of City of New (Brookfield Refrigeration Corp.), (58 NY2d 532), a case considered to resemble Matter of City of New York (Manhattan Civic Center Area), (57 Misc 2d 156, affd 32 AD2d 530, affd 27 NY2d 518, supra), since both presented affirmed findings of fact supporting claimants' challenges. While noting that it had "frequently rejected challenges to the applicable statutory rate of interest . . . because claimants failed to demonstrate that the rate was so ‘unreasonably low' that it deprived them of just compensation" in cases where "there were only slight variations between the statutory rate and the prevailing interest rates for public and private securities" (Matter of City of New York [Brookfield Refrigeration Corp.]., supra, at 537-538) (emphasis added), the Court in Brookfield pointed to affirmed findings indicating that
the 6% statutory rate of interest was inadequate to afford just compensation during the years 1978-1981. At that time, average interest rates on stable investments, such as medium term public securities, ranged between 8.3% in 1978 and 12.5% in 1981. . . . Similarly, the evidence supports the determination that claimant had failed to rebut the reasonableness of the statutory rate for the years 1972-1977, when interest rates fluctuated around 6%.

(Id., at 538 [emphasis added] [cited with approval in Adventurers Whitestone Corp. v City of New York, 65 NY2d 83 ("The amount of interest necessary to bring the payment into accord with the constitutional requirement is a judicial question, although the interest rate fixed by the Legislature will be deemed presumptively reasonable unless the claimant rebuts the presumption with evidence of prevailing market rates establishing that the statutory rate is so ‘unreasonably low' as not to constitute just compensation"), id. at 87]).

To summarize, when called upon to determine whether the presumptively reasonable statutory interest rate adequately compensates for the delay in payment in condemnation cases, New York's courts have traditionally done so by comparing the statutory rate to actual market interest rates for the relevant time.[9] This Court adopts the same approach and considers prevailing market interest rates at the time of the decision and until entry of judgment (CPLR 5002), and at entry of judgment and until payment (CPLR 5003) to be the relevant evidentiary touchstone for evaluating the reasonableness of the statutory interest rate in a contested case and determining any alternative rate of interest.

B. Findings

Interest is "the cost of having the use of another person's money" (Love v State of New York, 78 NY2d 540, 544, citing Siegel, NY Prac § 411, at 623 [2d ed]) or "the return paid to those who lend money" (Paul A. Samuelson and William D. Nordhaus, Economics at 748 [16th ed. 1998][ hereafter Economics]); and an interest rate is "the price of money" (id., at 469). Put colloquially, a dollar today is worth more than a dollar tomorrow, and post-decision and post-judgment interest compensate a successful litigant for this loss of value and for the loss of access and use of the damages award during the interval of delay between verdict or decision and payment.

The three basic components of an interest rate have been described as (1) the opportunity cost of capital (net of any risk of loss and of any expectation of inflation or deflation); (2) the anticipated inflation rate over the period of time until the loan is paid off; and (3) the risk premium necessary to compensate the investor for the risk of loss of the funds loaned (see, Richard A. Posner, Economic Analysis of Law [5th ed.] § 6.11 at 212-213; see also, Economics at 469-471).

The State asks the Court to award interest on this claim at a rate of 5% to 5.25%, which reflects the interest rates on certain Treasury securities offered since the date of decision. Since Treasury securities are virtually riskless because backed by the full faith, credit and taxing powers of the United States government, the State, in effect, seeks an interest rate devoid of the risk premium component.

Claimants, on the other hand, shun analysis or discussion of market interest rates altogether. They urge the Court to award interest at the presumptively reasonable statutory maximum rate of 9% because this rate was exceeded by the rate of return on a diversified portfolio of stocks and bonds constructed in hindsight; and/or the average annual compounded total rate of return on the Standard & Poors Index; and/or the rate of return for an "average" mutual fund for the relevant time.

The State ripostes that claimants can hardly expect a damages award to reflect equity rates of returns without having incurred the significant risk of loss of funds inherent in any equity investment--even in a bull market--and the Court agrees. While claimants imply that a "riskless" interest rate necessarily undercompensates them, the Court notes that the purposes to be served by post-decision and post-judgment interest--to compensate a successful litigant for the loss of value (i.e., the inflation component of an interest rate) and the loss of access and use of the damages award (i.e., the opportunity cost component of an interest rate) during the interval of delay between verdict or decision and payment--do not imply a premium for risks, in fact, not taken. In any event, the key issue for the Court to decide is whether the State has provided sufficient evidence to establish that the presumptively reasonable 9% statutory interest rate is unreasonably high in relation to prevailing market interest rates for the relevant time.

As Professors Samuelson and Nordhaus have remarked, while "[t]extbooks often speak of ‘the interest rate,' . . . in fact today's complex financial system has a vast array of interest rates" (Economics, at 469 [emphasis in original]). Nevertheless, interest rates on Treasury securities are routinely characterized as the "benchmark" interest rates throughout the U.S. economy and in international capital markets as well (see, e.g., Frank J. Fabozzi, Ed., The Handbook of Fixed Income Securities [5th ed. 1997], at 149) because other major categories of interest rates rise and fall in concert with them. This phenomenon is graphically illustrated by Professors Samuelson and Nordhaus (see, Economics, Fig. 25-2 at 470), and leads them to select the interest rate on short-term Treasury securities, such as the 90-day bill rate, as the indicium of the general level of interest rates in the economy (Economics, at 470).

The State's expert likewise utilizes the interest rates on Treasury securities as a proxy for prevailing market interest rates and opines that in the interval between November, 1998 (the date of the liability decision) and the date of his affidavit (April, 2000) a series of 3-month (i.e., 90-day) Treasury bills would have earned an average annual yield of 4.91% and a 30-year Treasury bond would have yielded 5.25% (Decker Aff.,¶¶ 9, 10).[10] The Court also takes judicial notice that since November, 1998 the Treasury Department, Bureau of the Public Debt, has held nineteen auctions for 52-week Treasury bills, and that the coupon issue yield equivalent of the average accepted auction price at these auctions, when averaged, yields 5.23%.[11]

Based on the foregoing, the Court finds that (1) the interest rates for Treasury bills (i.e., Treasury securities issued with maturity dates of one year or less) reasonably reflect prevailing market interest rates for the interval since November, 1998 as well as currently; (2) the consistent several percentage point disparity between the statutory 9% interest rate and these rates over this interval as well as currently amounts to more than "slight variations" or "fluctuat[ions] around" the statutory rate (see, Matter of City of New [Brookfield Refrigeration Corp.], supra, at 538) and renders the presumptively reasonable 9% statutory interest rate unreasonably high; (3) an interest rate of 5.23%, which falls within the range of interest rates supported by the State's expert and also reflects an average of results of auctions for 52-week Treasury bills during this interval, represents a fair and reasonable post-decision (CPLR 5002) interest rate to apply pursuant to State Finance Law § 16; and (4) an interest rate equal to the average of the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price at the June 1, 2000 auction of 52-week Treasury bills (6.375%) and all succeeding auctions up to and including the last auction settled immediately prior to payment of the judgment (rounded to the nearest hundredth of a percentage point), represents a fair and reasonable post-judgment (CPLR 5003) interest rate to apply pursuant to State Finance Law § 16.

IV. Disbursements

Claimants' attorneys ask for disbursements of $467,531.24 to be included in the lump- sum payment to be made pursuant to CPLR 5041 (c), and have provided the Court with three notebooks of invoices and copies of checks for in camera inspection to support this figure. The materials in these notebooks, in fact, substantiate disbursements in an amount of $467,716 (rounded), which the Court agrees are proper.

V. Conclusion

Based on the foregoing:
(1) The Court finds 6.25% to be the appropriate discount rate to calculate the present value of future damages awarded to claimant Sarah E. Auer as guardian of Melody Dawn Auer;

(2) The Court grants claimants' motion to amend the award for past damages by increasing the amount of past medical expenses and decreasing the amount of lost wages and employment benefits, and the itemization set forth in the table entitled "Revised Award" shall govern future calculations;

(3) The Court denies claimants' motion to redesignate as past damages the amounts awarded for the heterotopic operation and for the initial home renovation, and those items will remain in the category of future damages;

(4) Pursuant to Court of Claims Act § 9 (8), the Court vacates so much of the judgment entered on January 11, 2000 as directed payment of interest on the awards to claimants Sarah E. and Franklin H. Auer at a rate of 9% from November 4, 1998 to January 11, 2000;

(5) The Court exercises its discretion pursuant to State Finance Law § 16 to award post-decision (CPLR 5002) interest on the awards to claimants Sarah E. and Franklin H. Auer at a rate of 5.23% from November 4, 1998 to January 11, 2000;

(6) The Court exercises its discretion pursuant to State Finance Law § 16 to award post-decision (CPLR 5002) interest on the award to claimant Sarah E. Auer as guardian of Melody Dawn Auer at a rate of 5.23% from November 4, 1998 until entry of judgment;

(7) The Court exercises its discretion pursuant to State Finance Law § 16 to award post-judgment (CPLR 5003) interest on the awards to claimants Sarah E. and Franklin H. Auer at a rate equal to the average of the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price at the June 1, 2000 auction of 52-week Treasury bills (6.375%) and all succeeding auctions up to and including the last auction settled immediately prior to payment of their awards (rounded to the nearest hundredth of a percent);

(8) The Court exercises its discretion pursuant to State Finance Law § 16 to award post-judgment (CPLR 5003) interest on the award to claimant Sarah E. Auer as guardian of Melody Dawn Auer at a rate equal to the average of the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price at the June 1, 2000 auction of 52-week Treasury bills (6.375%) and all succeeding auctions up to and including the last auction settled immediately prior to payment of this award (rounded to the nearest hundredth of a percent); and

(9) The Court directs that the sum of $467,716 (rounded), representing litigation expenses, shall be included in the initial lump-sum payment pursuant to CPLR 5041 (c).


The parties have agreed to submit a joint article 50-B computation of the judgment or, in









the alternative, to submit for the Court's consideration separately proposed article 50-B computations. Such submissions shall be made on or before July 6, 2000.

June 21, 2000
Albany, New York

HON. SUSAN PHILLIPS READ
Judge of the Court of Claims




[1]
In a separate request, claimants similarly ask for immediate payment of the monthly installment payments that would have become due in the interval since the damages decision was issued.
[2]
In at least two other cases, adjustments of the sort sought by claimants have simply been made with little discussion and no reference to the authority for making the changes. In Karagiannis v New York State Thruway Auth. (209 AD2d 993), the Fourth Department merely recited that the trial court "readjusted the past and future damages awards, two years having elapsed between the time of the initial award and the article 50-B hearing . . . ." In making this readjustment, the trial court calculated approximately two years "worth" of each category of future damages--medical costs, lost wages, lost household services, and pain and suffering--and moved those sums from the future damages part of the award to the initial lump-sum payment (Karagiannis v New York State Thruway Auth., Structured Judgment Order, filed Dec. 27, 1993, Hanifin, J., Claim No. 77716). Similarly, in Pay v State of New York (176 Misc 2d 540), an intervening appeal resulted in several years of delay before entry of a final judgment. At the request of both parties, that judgment included in the initial lump-sum payment an amount of over $90,000 described variously as "past due future damages" (id., at 546) or "past due periodic payments" (id., at 549).
[3]
In Williams, a fifty-two year old woman suffered injuries that would be catastrophic and incapacitate her for the rest of her life unless surgically corrected, but she refused the operations because her religion prohibited blood transfusions. This presented the question of whether her duty to mitigate her injury (i.e., to accept the surgery) should be judged by the standard of a "reasonable person" or by that of a "reasonable Jehovah's Witness" (230 AD2d at 551).
[4]
CPLR 5519 (a) (1) provides that where the appellant or moving party is the State, a State officer or a political subdivision of the State, service of a notice of appeal or affidavit of intention to move for permission to appeal "stays all proceedings to enforce the judgment or order appealed from pending the appeal or determination on the motion for permission to appeal."
[5]
Specifically, the Court did not adopt Defendant-Appellant New York City Housing Authority's reasoning that the interest rate "should be based on the assumption that a reasonable plaintiff would have placed the verdict or judgment amount in a relatively safe investment, such as a Treasury security" (Rodriguez, at 80-81, quoting Defendant-Appellant's Brief at 12). Defendant-Appellant had proposed an interest rate of 5.35%, somewhat vaguely described as "the average 52-week Treasury Bill rate established by the market for the 12-month period which ended on May 18, 1995 [the date of the verdict herein]" (Defendant-Appellant's Brief at 3).
[6]
For an informative historical overview of pre-Rodriguez condemnation caselaw addressing the prejudgment interest rate, see, Goldstein and Goldstein, The Right to Interest, and to How Much, NYLJ, Feb. 25, 1998, at 3, col 1).
[7]
As first enacted, General Municipal Law § 3-a did not make express reference to condemnation claims (see, L 1939, ch 594).
[8]
The trial court mentioned the bank prime rate and the interest rates on bank loans, home loans, corporate bonds, certificates of deposit, treasury securities, New York City tax-exempt bonds and notes and New York City's yield on its investments (Matter of City of New York [Manhattan Civic Center Area], supra, at 159-160).
[9]
Federal courts have likewise historically looked to market interest rates when setting the rate of prejudgment interest in eminent domain cases (see, e.g., Annotation, Method of Determining Rate of Interest Allowed on Award to Owner of Property Taken By United States in Eminent Domain Proceeding, 56 ALR Fed 477 [statutory interest rate is not a ceiling and federal courts follow one of three general approaches to establish the interest rate in an eminent domain proceeding; i.e., they examine (1) interest rates on good quality corporate bonds; or (2) interest rates of government securities; or (3) a mixture of corporate bond rates, government security rates and various bank interest rates, such as the prime rate and rates on certificates of deposit]). In Matter of Urban Dev. Corp., 176 Misc 2d 772, supra, the only published post-Rodriguez condemnation decision found by the Court in which a trial court provides a rationale for not deviating from the presumptively reasonable 9% statutory interest rate, the judge characterized "the universe of voluntary investment choices" since the taking at issue as "vast", noting a 61% average rate of return over the relevant time period from a portfolio of stocks, bonds and cash allocated as recommended by fourteen major Wall Street brokerage houses; and thus he concluded that the 9% rate was not unreasonable "[c]onsidering the range of investment choices" foregone by claimants (id., at 775). In so doing, the trial court cited Miller v United States (620 F2d 812) for the proposition that the Government should bear the risk of fluctuations in interest rates; however, the appeals court in Miller made this statement in the context of explaining
that the trial judge had erred by setting an interest rate based solely on economic circumstances prevailing at the time of the taking rather than throughout the years between the taking and payment; and the appeals court consequently fixed the interest rate based on an interest rate index of corporate bonds for the relevant time periods--not based on the rate of return of a portfolio of stocks, bonds and cash. Similarly, while the trial court in
Matter of Urban Dev. Corp. cited United States v 429.59 Acres of Land (612 F2d 459) for the proposition that "[w]hile the rate of return should be what a prudent investor would receive on investments, it is not prudent to accept the lowest possible return for the least possible risk, if one can receive a better return for a reasonable amount of risk" (Matter of Urban Dev. Corp., 176 Misc 2d 772, 776, supra), the appeals court in 429.59 Acres of Land affirmed an award of interest at a rate based on averaging the interest rates for six-month Treasury bills, four- to six-month prime commercial paper, 90-day bankers acceptances and six-month bank certificates of deposit during the relevant time period--again, not based on the rate of return of a portfolio of stocks, bonds and cash.
[10]
The Federal Reserve maintains historical and current interest rate information for selected instruments on its web site at <
; which the Court has also reviewed. The Federal reserve, for example, has posted historical interest rate information for calendar year 1999 for the following non-U.S. government fixed income securities (among others): 3-month commercial paper (non-financial), 5.18%; 3-month commercial paper (financial), 5.22%; 3-month bankers acceptances (top rated), 5.24%; 6-month bankers acceptances (top-rated), 5.30%; Moody's seasoned corporate bonds (AAA rating), 7.05%; and Moody's corporate bonds (BAA rating), 7.88%.
[11]
Since 1982, federal law has required post-judgment interest in most civil actions in federal court to be set at "a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of the judgment" (see, 28 USC § 1961). This rate is computed daily to the date of payment and compounded annually. The rate is not varied to reflect fluctuations in the coupon issue yield equivalent from auction to auction over time pending completion of the appeal. The sponsor of this provision, added on the Senate floor as an amendment to the Federal Courts Improvement Act of 1982 (Pub. L. No. 97-164, tit. III, pt. B, § 302, 96 Stat. 25, 55-56 [codified in pt at 28 USC § 1961[1982]) stated that "it would have the overall desirable effect of discouraging frivolous appeals in the Federal courts simply to gain the advantage of artificially low interest rates on judgments while judgments were tied up in courts for months or even years"; further, a formula pegged to the most recent sale of 52-week Treasury bills "which occur frequently throughout the course of the year more accurately reflect[s] prevailing money market conditions than the formula of section 6621 of the Internal Revenue Code" (127 Cong, Rec. 29865 [daily ed. Dec. 8, 1981] [statement of Sen. Grassley]). (At the time, 26 USC §6621 based the interest rate for underpayment and overpayment of taxes on the prime interest rate; however, since 1986, the section 6621 rate has also been based on Treasury securities.) Since January 1, 1982, the coupon issue yield equivalent has varied from a high of 14.92% (1/21/82) to a low of 3.13% (9/17/92). The most recent auction of 52-week Treasury bills on June 1, 2000 produced a coupon issue yield equivalent of 6.375%. The
"52-Week T-Bill Rate Table of Changes" is found at 28 USC § 1961 (Historical and Statutory Notes), and is kept up-to-date on several web sites maintained by federal courts;
e.g., <http://www.nysd.uscourts.gov/pjrate.htm>.