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Interesting issues in interest imbroglios

By

 “I hate him for … [h]e lends out

money gratis … He hates my well-worn thrift,
which he calls ‘interest’”

-Shylock in the Merchant of Venice by William Shakespeare (1605)

Interest is a tag-on to damages recoverable in civil litigation and some related proceedings. Although usually small in amount, it can be sizeable if the proceedings are lengthy, the outcome large, or both.

A pair of recent rulings of the Minnesota Court of Appeals addressed interesting issues in imbroglios concerning the amount of interest to prevailing parties. The concurrently-decided appeals shared some similarities. They both arose from arbitration proceedings, were reviewed by the Hennepin County District Court, and reversed by the Appellate Court.

Otherwise, they differed. One set aside the amount of pre-award interest in an insurance arbitration, while the other overturned denial of post-award interest in what Donald Trump might refer to as a HUGE trade secrets misappropriation dispute.

Appraisal award

An insured was not entitled to pre-award interest on an appraisal arbitration for a first-policy claim under the policy in Poehler v. Cincinnati Ins. Co., 2016 Minn. App. LEXIS 7 (Minn. January 25, 2016). The Hennepin County District Court upheld pre-award interest on an appraisal award of $264,144 for damages due to a fire at the insured’s home.

But the Court of Appeals reversed, holding that the pre-judgment interest law, Minn. Stat. § 549.09, subd. 1(b), does not extend to appraisal proceedings under insurance policies.

Under Minnesota Court rulings, pre-award first party insurance claims are allowed “only in cases heard on an underlying breach of contract or actionable wrongdoing.”  Since neither occurred here, the award of interest award was impermissible under the statute.

Nor was pre-award interest allowable as “compensatory damages.” That prejudgment interest statute does not extend, by its terms, to “noncompensatory damages.” But payments made under an insurance policy like this are not “not compensatory damages,” which are regarded as money to be paid by a “wrongdoer … for the wrong.” Because the insurer that denied the claim was not a “wrongdoer,” it has no obligation for interest prior to issuance of the appraisal award. The insurance carrier did not deprive the homeowner of any money because it promptly paid the full amount of the appraised award, and did not “wrongfully” withhold payment.

While the insured claimant advanced “strong” public policy arguments, they were not sufficient to prevail because the statute “unambiguously” does not permit such an award.

Interrogation issue

But post-award interest was allowed in the latest chapter of the longstanding arbitration award and ensuing litigation over misappropriation in Seagate Technology, LLC v. W. Digital Corp., 2016 Minn. App. LEXIS 96 (Minn. App. January 25, 2016) (unpublished). The Hennepin County District Court denied the requested post-award interested on grounds that it was encompassed within the large arbitration award of $630 million, which had grown by another $140 million with pre-award interest to more than $773 million.

The successful claimant sought an additional $28,884, which it asserted was post-arbitral interest that was not part of the award. The Court of Appeals, holding that the issue of interest following the award was not addressed in the arbitral award. But the “plain language” of Minn. Stat. § 549.09 “mandated” that such interest be granted on the entire amount.

Both parties took a “mercurial approach to the issue,” each taking a position earlier in the mammoth dispute “exactly opposite” to their present stances. But review of the award reflects that it “did not decide the issue of post-award interest,” which is mandatory under the “plain language” of Minn. Stat. § 549.09. Therefore, the lower court’s denial of such interest was erroneous, and the case was remanded to calculate the mandated interest amount.

This pair of reversals show that the Court of Appeals, like Shakespeare’s iconic character Shylock, are not shy when it comes to dealing with charges of interest.

PERSPECTIVES POINTERS

When pre-judgment interest not allowed under Minn. Stat. §549.09

  • Workers compensation cases.
  • Future damages.
  • Punitive damages.
  • Fines.
  • Costs, disbursements, and attorney’s fees.

 

*Originally published in Minnesota Lawyer.