Opinion
90 Civ. 2929 (FM)
September 8, 2000
John F. Triggs, Esq., Camhy Karlinsky Stein, LLP, New York, New York, Attorney for Plaintiff.
Paul J. Hirsch, Esq., Parsippany, New Jersey, Attorney for Defendants.
MEMORANDUM OPINION AND ORDER
Following a two-week trial of this diversity contract action, the jury awarded Plaintiff Caldor, Inc. ("Caldor") damages in the amount of $1,430,280. Under Article 47 of the contract, the law of the place where the work was performed i.e., New Jersey, is controlling. Despite that provision, Caldor has now moved for prejudgment interest at the New York statutory rate of 9% per annum, see New York Civil Practice Law and Rules ("CPLR") §§ 5001 and 5004, rather than the variable rates set forth in New Jersey Court Rule 4:42-11. Caldor argues that the application of the New York interest rate is more equitable in light of the higher-than-expected rates of return enjoyed by many investors during the late 1990s. Defendant Logan Company opposes the motion in its entirety, arguing that any award of prejudgment interest in a contract action is barred under New Jersey law. For the reasons that follow, Caldor's motion for prejudgment interest is granted, but interest shall be calculated at the rates set forth in New Jersey Court Rule 4:42-11.
"The decision whether to award prejudgment interest and the rate used 'are matters confided to the district court's broad discretion. . . .'"Endico Potatoes. Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1072 (2d Cir. 1995) (quoting Commercial Union Assurance Co. v. Milken, 17 F.3d 608, 613-14 (2d Cir. 1994)). In exercising that discretion in a diversity case, the Court must look to the law of the forum state to determine which state's substantive law applies. See Terwilliger v. Terwilliger, 206 F.3d 240, 249 (state law governing diversity action applies to the question of prejudgment interest); Schwimmer v. Allstate Ins. Co., 176 F.3d 648, 650 (2d Cir. 1999)(same). Here, given the choice of law provision in the contract, it is clear that New York courts would look to New Jersey law to determine whether to award prejudgment interest and, if so, the rate to be applied. See Finucane v. Interior Constr. Corp., 264 A.D.2d 618, 619, 695 N.Y.S.2d 322, 325 (1st Dep't 1999);Marine Midland Bank, N.A. v. United Missouri Bank, 223 A.D.2d 119, 122-23, 643 N.Y.S.2d 528, 530 (1st Dep't 1996).
Under New Jersey law, a trial court may award prejudgment interest on a contract claim "in accordance with equitable principles." Electric Mobility Corp. v. Bourns Sensors/ Controls, Inc., 87 F. Supp.2d 394, 402 (3d Cir. 2000) (citing various state court cases, and extending New Jersey Court Rule 4:42-11(b) to contract claim). New Jersey Court Rule 4:42-11 (b) provides, in pertinent part, that "the court shall, in tort actions . . . include in the judgment simple interest, calculated as hereafter provided, from the date of the institution of the action or from a date 6 months after the date the cause of action arises . . . calculated in the same amount and manner provided for by paragraph (a) of this rule . . . ." N.J. R. SUPER TAX SURR. CTS. Civ. R. 4:42-11(b). Paragraph (a)(ii) of the rule provides that "the annual rate of interest shall equal the average rate of return, to the nearest whole or one-half percent, for the corresponding preceding fiscal year terminating on June 30, of the State of New Jersey Cash Management Fund (State accounts) as reported by the Division of Investment in the Department of the Treasury." Id. (a)(ii). The "Publisher's Note" indicates that the respective annual interest rates, under subparagraph (a)(ii), for the relevant years are as follows: 1990 — 8%, 1991 — 8.5%, 1992 — 7.5%, 1993 — 5.5%, 1994 — 3.5%, 1995 — 3.5%, 1996 — 5.5%, 1997 — 5.5%, 1998 — 5.5%, 1999 — 5.5%, 2000 — 5%. Additionally, in cases in which the damages award exceeds the $10,000 monetary limit of the New Jersey Court Special Civil Part see N.J. R. LAW DIV. CIV. PT. R. 6:1-2(a)(1), paragraph (a)(iii) provides that the annual interest rates under subparagraph (ii) shall be increased by 2% for judgments entered after September 1, 1996. N.J. R. SUPERTAX SURR. CTS. Civ. R. 4:42-11(a)(iii).
I find, in the exercise of my discretion, that the provisions of Rule 4:42-11 should also be applied to this contract action. Based on Caldor's estimate, prejudgment interest on the jury's damages award of $1,430,280 will therefore amount to $952,017.88, or approximately 67% of the total damages awarded by the jury. Although the CPLR interest rate would yield a larger judgment for Caldor, there has been no convincing showing that this is the appropriate rate to apply. Indeed, the contract drafted by Caldor includes a choice of law provision expressly stating that New Jersey law will govern any disputes. Moreover, I am not persuaded that unexpected increases (or decreases) in the rates of return for Wall Street investments are factors appropriate for consideration in deciding the interest rate to be applied to a contract damages award. Finally, although it took more than ten years to bring this case to trial, the extensive delays were not attributable to any of the parties (or this Court). Accordingly, the use of an interest rate higher than that contemplated by the contract in an effort to compensate Caldor for the delays is not warranted.
Prejudgment interest on the damages awarded by the jury in this case shall therefore be calculated pursuant to New Jersey Court Rule 4:42-11. Caldor is directed to settle a judgment on notice within ten days.
SO ORDERED.