by Judge William W. Herring
As a civil division county judge who has been trying over the past six years, with mixed results, to get plaintiffs’ attorneys to draft their final judgments so as to provide for an award of postjudgment interest on prejudgment interest, the undersigned read with dismay the second part of attorney Jorge A. Lopez’s otherwise excellent article, “Prejudgment and Postjudgment Interest—What’s in a Name?,” in the March 2002 issue of The Florida Bar Journal.
On page 23, the author discusses the holding of the Florida Supreme Court in Quality Engineered Installation, Inc. v. Higley South, Inc., 670 So. 2d 929, 931 (1996), a unanimous holding, that prejudgment interest, as with the other component parts of a judgment, becomes a part of and merges into a total, single sum awarded, such that it should not be treated differently than the other component parts, vis-a-vis the bearing of postjudgment interest under F.S. §55.03(1). The following observations are made: 1) its rule always overcompensates prevailing parties by allowing compounded interest; 2) the compounding of interest goes beyond compensating the judgment creditor for the lost use of its money, of placing it in the same position it would have been had the loss/damages not have occurred, placing it in a better situation, allowing for retribution not restitution; and 3) permitting compounded interest results in an unfair windfall to the creditor, the larger the judgment and the longer the passage of time until collected, the larger the windfall.
Only by the award of interest on interest is a judgment creditor made whole, with no punishment aspect involved. Why? Because had the judgment debtor paid off the entire judgment in all its component parts, as of the date of the judgment’s entry, then the creditor would have been able to invest the prejudgment interest portion of the judgment, as well as the principal, court costs, and attorneys’ fees. A contrary view ignores the very real fact that the creditor has lost the use of the prejudgment interest during the often lengthy interim between a judgment’s entry and its payment. It further defies logic that the creditor somehow obtains a windfall because a large amount was originally owed and the debtor took a long time to pay off the judgment. Creditors universally, if acting in good faith without ulterior motive, desire to have their judgments paid off sooner rather than later. Why? Because during the time lapse between judgment entry and collection, the creditor has lost the use of the entire judgment amount, with the chances of recouping the ever-increasing amount owed diminishing with the passage of each day. Judgment creditors are not hard to find; yet the author would lay the blame at the creditor’s door.
A review of the cases relied upon in the article for the proposition that the compound interest theory, as punishment, has been “uniformly rejected” discloses that they contain no underlying rationale or critical analysis in support of their bald pronouncement that interest may not be awarded on interest. In Gilliard v. Wright, 667 So. 2d 815, 816 (Fla. 2d DCA 1996), the court reversed an award of prejudgment interest on that portion of a civil theft judgment representing treble damages, holding that such interest could not be awarded on a statutory penalty, presumably because punitive legislation is strictly construed. Language followed that interest should be an instrument of restitution, not punishment. The decision did not stand for the proposition that compound interest could not be awarded. However, the other decisions cited in the article do fully support the author’s position: Brown v. Estate of Stuckey, 710 So. 2d 679 at 680 (Fla. 1st DCA 1998) (interpreting Rule 9.340(c), F.A.R., as prohibiting the award of postverdict prejudgment interest in a situation in which the trial court’s grant of a new trial after verdict was reversed, with reinstatement of the verdict, as to rule otherwise would allow the appellees-plaintiffs interest on interest, since they were already entitled to postjudgment interest from the date of the verdict. The citation of this decision in support of his position is entirely contradictory to the argument made earlier that prejudgment interest should be awarded as to both economic and noneconomic damages, from the date of verdict up to the date of judgment, to make a plaintiff whole); Joseph S. Arrigo Motor Co., Inc. v. Lasserre, 678 So. 2d 396, 397 (Fla. 1st DCA 1996) (on reversal regarding an over-award of damages for breach of a commercial lease, the trial court was instructed to recalculate the prejudgment interest with no compounded interest, because “interest should not be allowed on a sum that is itself interest”); Aetna Casualty & Surety Co. v. Protective National Insurance Company of Omaha, 631 So. 2d 305, 310 (Fla. 3d DCA 1993) (“‘As a matter of logic, and therefore of law, it is irrefutable that an award of prejudgment interest cannot itself bear interest.’” The court noted direct conflict with Peavy v. Dyer, 605 So. 2d 1330 (Fla. 5th DCA 1992), the cogent analysis of which the Florida Supreme Court somewhat glossed over in adopting and approving Higley South—irrefutable indeed!); and City of Tampa v. Janke Construction, Inc., 626 So. 2nd 239, 240 (Fla. 2d DCA 1993) (simply concluding that prejudgment interest cannot bear postjudgment interest, with citation of cases and reference to Form 1.988(b), Fla. R. Civ. P., a form clearly, albeit implicitly, disapproved by the court in Higley South; yet, the form has not been corrected to date.).
I challenge anyone to cite a Florida decision which explicates an underlying rationale or some analysis in support of the proposition that compound interest, in the very limited context involved, is impermissible. It would not be surprising if the notion did not arise out of some antiquated, medieval concept of usury, despite the knowledge of the centuries that there is nothing evil or immoral, much less illegal, about putting money to work.
One reason, perhaps, why the Florida Supreme Court did not lay the issue definitively to rest in Higley South is the court’s abbreviated, summary treatment of the issue. The holding was subordinate to the main one that an attorneys’ fee award bears prejudgment interest from the date entitlement thereto is determined. Read carefully the very well-reasoned decision in Peavy v. Dyer, 605 So. 2d 1330 (Fla. 5th DCA 1992), which was expressly approved and adopted in Higley South. The Peavy court relied heavily on Argonaut Insurance Co. v. May Plumbing Co., 474 So. 2d 212 (Fla. 1985), in holding that an award of interest on interest was appropriate:
In Argonaut . . . our Supreme Court determined that prejudgment interest is simply an element of pecuniary damages. Under this loss theory of damage, the failure of the defendant to surrender monies it owed to the plaintiff was itself a wrongful deprivation of the plaintiff’s property, which the final judgment restores to the plaintiff. Once this element of damages is awarded in the final judgment, prejudgment interest, like all other elements of damage, becomes part of a single total sum adjudged to be due and owing. (citation omitted) The amount awarded for prejudgment interest, like all other components of the “judgment,” automatically bears interest as provided by §55.03, Florida Statutes . . . when applied to a judgment that contains an award of prejudgment interest, does not impermissibly compound interest on interest; rather it awards interest on a final judgment that remains unpaid after entry.
605 So. 2d at 1332.
The March article refers repeatedly to the Argonaut decision in its first portion, asserting that it should be extended to permit the award of prejudgment interest as to noneconomic damages from the date of verdict in a tort action. However, I refer readers to that portion of the opinion which repudiated the concept of a “penalty theory” or retribution in favor of a “loss theory” vis-a-vis prejudgment interest. The court went through the following analysis:
Thus, since at least before the turn of the century, Florida has adopted the position that prejudgment interest is merely another element of pecuniary damages. While doing so, the Court recognized and rejected an alternative but traditional rationale—that prejudgment interest was to be awarded as a penalty for defendant’s “wrongful” act of disputing a claim found to be just and owing . . . . The distinction between liquidated and unliquidated claims is closely linked to this “penalty theory” of prejudgment interest. To punish a defendant for failure to pay a sum which was not yet certain or which he disputed would be manifest injustice. But where the amount is certain and the defendant refuses to surrender it because of defenses determined to be meritless, the defendant may properly be punished for abuse of his privilege to litigate. Under the ‘loss theory,’ however, neither the merit of the defense nor the certainty of the amount of loss affects the award of prejudgment interest. Rather, the loss itself is a wrongful deprivation by the defendant of the plaintiff’s property. Plaintiff is to be made whole from the date of the loss once a finder of fact has determined the amount of damages and defendant’s liability therefor.
Argonaut, 474 So. 2d at 214–215.
In quashing the decision of the Fourth District Court of Appeal by holding that a plaintiff’s out-of-pocket, pecuniary losses are essentially liquidated, despite the comparative negligence doctrine in a negligence subrogation case, so that the right to prejudgment interest is fixed at the time of verdict or judgment, relating back to the date of loss, the court held “as a matter of law” that prejudgment interest is an element of damages. Thus, no finding of fact is required, the computation of prejudgment interest being merely mathematical, a ministerial duty of the clerk or judge, under the “loss theory.” (Interestingly, at 215, footnote 2, the court observes, “The ‘penalty theory’ of prejudgment interest has been linked to the medieval disapproval of all interest as a form of usury. (citation omitted)”.)
The “loss theory” and the concept that prejudgment interest is a component part of the principal damages serves also as the conceptual basis for holdings under federal1 and sister jurisdiction case law2 that the award of interest on interest is not only permissible but appropriate.
The well-reasoned analyses in Peavy and Argonaut, as adopted by Higley South, make quite clear that the “penalty theory,” on which the author rests his argument for the disallowance of an award of interest on interest, has been rejected. Such a holding and rationale, embracing the “loss theory,” merely reflects and supports the reality that money should be allowed to work, and that a judgment creditor is no less improperly deprived of the use of prejudgment interest than of any other component part of a judgment—principal, costs, and attorneys’ fees—from and after the entry of the judgment. The Higley South decision should not be revisited but should be faithfully followed by all courts of this state. That task will be facilitated, and unnecessary confusion eliminated, if the Florida Supreme Court would withdraw amended Form 1.988(b) to the Florida Rules of Civil Procedure and substitute a modified form that comports with its current, correct pronouncement of the law.
1 American Telephone and Telegraph Co. v. Jiffy Lube International, Inc., 813 F. Supp. 1164, 1170–1171 (D. Md. 1993) (“The prejudgment interest should begin running from . . . and should be calculated upon a compound interest basis for the same reasons that prejudgment interest should be awarded in the first instance. ‘Prejudgment interest is an element of complete compensation.’” Likewise, for the same reasons, the interest should be compound interest . . . . (C)ompound prejudgment interest is the norm in federal litigation. (citations omitted) [Emphasis added]; Drovers Bank of Chicago v. National Bank and Trust Company of Chariton, 829 F.2d 20, 23 (8th Cir. 1987) (although trial court erred in awarding both statutory and contract prejudgment interest, the former being duplicative, postjudgment interest was properly awarded on the contract prejudgment interest; in this diversity action, state law controlled as to prejudgment interest and federal law as to postjudgment interest, see p. 23 n.3); Gorenstein Enterprises, Inc. v. Quality Care - USA, Inc., 874 F.2d 431, 437 (7th Cir. 1989) (“We also reject the Gorensteins’ argument that the judge should not have awarded compound prejudgment interest. Their dilatory tactics denied Quality Care the use of its money including the opportunity to obtain interest on interest . . . .”); Dynamics Corporation of America v. United States, 766 F.2d 518, 520 (Fed. Cir. 1985) (On remand to claims court in patent infringement case and accounting phase thereof, held that under the “just compensation clause” of the Fifth Amendment that compounded prejudgment interest was awardable as to delay damages); and Federal Barge Lines, Inc. v. Granite City Steel, Division of National Steel Corp., 664 F. Supp. 453, 454 (E.D. Mo. 1987), modified 809 F.2d 497 (8th Cir.) (general rule in admiralty that prejudgment interest be awarded to serve purpose of restitution and full compensation, with the compounding of interest annually promoting “the spirit and intent of this general rule . . . .”).
2 Big Bear Properties, Inc. v. E.M. Gherman, M.D., 157 Cal. Rptr. 443, 446–447 (Ct. App., 2d Dist. 1979) (“This rule (that a judgment generally bears interest on the whole amount thereof) is not affected by statutes which prohibit the allowance of compound interest, such statutes being intended merely as regulations of interest on contracts and not interest on judgments, and designed to prevent the imposition on borrowers of the heavy exactions by compounding interest at frequent intervals . . . .”); Hatcher v. Weatherall, 551 S.W.2d 179, 183 (Ct. Civ. Apps. Tex. 1977) (“Logically, there appears to be no good reason why a judgment containing principal and interest should not draw interest on the combined amount . . . . The lender may still be without the use of his principal if the judgment is not immediately paid, and therefore the lender is entitled to interest on the judgment which includes the principal and interest owed by the debtor before judgment. This seems only right since, if the debtor had paid the principal and interest on the debt when due, the lender would have had that combined amount to lend to someone else so that he could have drawn new interest on the combined principal and interest paid by the debtor . . . . We therefore hold that the appellees are entitled to interest on their judgment which included both principal and interest . . . .”); Hopper v. Denham, 661 S.W. 2d 379, 383 (Ark. 1983); Walker v. St. Louis-San Francisco Railway Co., 671 P.2d 672, 674 (Okla. 1983) (“[T]he general rule is that ‘a judgment bears interest on the whole amount thereof, although such amount is made up partly of interest on the original obligation, and even though the interest is separately stated in the judgment’ . . . Oklahoma law is in accord with this rule.”); Testa v. Roberts, 542 N.E. 2d 654, 662 (Ct. Apps., Lucas Co. Ohio 1988); Consolidated Oil and Gas, Inc. v. Southern Union Co., 762 P.2d 889 (N.M. 1988); Long v. Hendricks, 754 P.2d 1194, 1198 (Idaho Ct. Apps. 1988), aff’d in part 799 P.2d 1223 (Idaho 1990) (dictum); Fisher v. Carolina Door Products, Inc., 331 S.E. 2d 368, 370 (S.C. Ct. Apps. 1985); Stokosa v. Waltuch, 393 N.E. 2d 350, 352 (Mass. 1979); and Helmley v. Ashland Oil, Inc., 571 P.2d 345, 350 (Kan. Ct. Apps. 1977). But see Nika Corp. v. City of Kansas City, Missouri, 582 F. Supp. 343, 366–367 (W.D. Mo. 1984) (diversity action with Missouri substantive law as controlling); and West v. Jamison, 356 S.E. 2d 659, 663 (Ga. Ct. Apps. 1987) The two contra cases apparently are based on interpretation of those states’ statutes on postjudgment interest. The cases in these footnotes were located by perusal of West’s Decennial Digest from 1976–1993 under the key number of Interest 39(3), that applicable to the Peavy v. Dyer decision. These cases remain good law through Shepardization, although the author’s research was only exhaustive as to the manner of research and time period utilized.
William W. Herring has been a county judge in Broward County for the past 24 years, the last 15 in the civil division. He is an active member of the Florida Conference of County Court Judges, serving on its Civil Rules and Small Claims committees for many years.