Opinion ID: 1187046
Heading Depth: 2
Heading Rank: 1

Heading: Did the trial judge err in the method he used for subtracting the amount of Pendley's settlement from the jury's verdict against ANWC?

Text: The jury delivered a verdict which found that Manville had suffered $146,715 in damages. The trial judge then subtracted Manville's 5% comparative negligence and the $60,000 settlement with Pendley and added prejudgment interest, attorneys' fees, and costs to arrive at the final judgment. The court computed the final judgment as follows: Total Jury Verdict $146,715.00 Manville's 5% Negligence - 7,335.75 ___________ Subtotal 139,379.25 Settlement - 60,000.00 ___________ Subtotal 79,379.25 Prejudgment Int. 8% 3/11/77 - 1/17/79 + 11,778.58 Rule 82(a) Atty Fees + 9,965.78 ___________ Subtotal 101,123.61 Costs + 5,298.31 ___________ (Incorrect Total Shown on the Judgment Because of Addition Error) (104,373.61) Correctly Added Judgment $106,421.92 Principal =========== Before the trial court computed the above final judgment, Manville requested it to use the following method of computation instead: Total Jury Verdict $146,715.00 Manville's 5% Negligence - 7,335.75 ___________ Subtotal 139,379.25 Prejudgment Int. 8% 3/11/77 - 1/17/79 + 20,712.48 ___________ Subtotal 160,091.74 Rule 82(a) Atty Fees + 16,859.17 ___________ Subtotal 176,950.91 Settlement - 60,000.00 ___________ Subtotal 116,950.91 Costs + 5,298.31 ___________ Judgment Principal $122,249.22 =========== In support of her proposed method of calculation, Manville argues three basic theories. First, she maintains that the wording of AS 09.16.040(1), Alaska's Uniform Contribution Among Tortfeasors Act, requires that the amount of the settlement be subtracted after adding prejudgment interest and attorneys' fees to the jury verdict. She states that this result follows from the requirement that one tortfeasor's settlement reduces the claim against the others. She contends that claim must mean total judgment, including prejudgment interest and attorney fees. Manville has cited no authority for this interpretation of the word claim, and it is entitled to little merit in light of the considerations discussed later under this issue. Second, Manville claims that Civil Rule 68, regarding offers of judgment by defendants, supports her suggested computations. On this contention, Manville is correct insofar as Rule 68 cases indicate that an offer of judgment (or settlement) must be construed as including the defendant's assessment of all of the damages that plaintiff is entitled to, including that occasioned by the loss of use of the money. Davis v. Chism, 513 P.2d 475, 482 (Alaska 1973). Third, Manville argues that the public policy toward encouraging settlement requires her suggested computation. We believe that this public policy interest will be adequately served by our holding expressed below. On the other hand, ANWC maintains that the superior court's method was correct. ANWC objects to Manville's suggested computation chiefly on the grounds that it would amount to a windfall recovery in that Manville would recover interest on the settlement money from the date it was paid her, until the date of judgment, even though she had not been deprived of the money during that time. This court originally began the broad application of prejudgment interest on all claims, whether or not liquidated, in State v. Phillips, 470 P.2d 266, 272-74, (Alaska 1970), [5] an action against the state. Later, the court made it clear that the broad application of prejudgment interest applies against all types of defendants, not just the state. Beech Aircraft Corp. v. Harvey, 558 P.2d 879, 888 n. 30 (Alaska 1976); National Bank of Alaska v. J.B.L. & K. of Alaska, Inc., 546 P.2d 579, 590-91 (Alaska 1976). In Davis v. Chism, 513 P.2d 475, 481 (Alaska 1973), this court held that prejudgment interest is in the nature of compensatory damages, not costs. Since Davis, this court has repeatedly reaffirmed this characterization and used it as the guiding rationale in deciding when and how to award prejudgment interest. City and Borough of Juneau v. Commercial Union Ins. Co., 598 P.2d 957, 959-60 (Alaska 1979); Guin v. Ha, 591 P.2d 1281, 1285-86 (Alaska 1979); Beech Aircraft Corp. v. Harvey, 558 P.2d 879, 888 (Alaska 1976); Haskins v. Shelden, 558 P.2d 487, 494 (Alaska 1976); ERA Helicopters, Inc. v. Digicon Alaska, Inc., 518 P.2d 1057, 1063 (Alaska 1974); State v. Stanley, 506 P.2d 1284, 1295 (Alaska 1973). The purpose of awarding prejudgment interest is that money is worth less the later it is received. Therefore, in order to make a plaintiff whole, prejudgment interest is necessary to compensate plaintiff for the loss of the use of the money from the date of injury until the date of judgment. Davis v. Chism, 513 P.2d at 481; City and Borough of Juneau v. Commercial Union Ins. Co., 598 P.2d at 959. Conversely, prejudgment interest deprives a defendant of unjust enrichment resulting from the use of money which actually belongs to the plaintiff from the date of injury, thereby encouraging settlement. Drickerson v. Drickerson, 604 P.2d 1082, 1087 n. 8 (Alaska 1979); State v. Phillips, 470 P.2d at 274. Finally, in applying prejudgment interest, courts are warned to carefully guard against the possibility of double recovery. Beech Aircraft Corp. v. Harvey, 558 P.2d at 888; Haskins v. Shelden, 558 P.2d at 495; State v. Stanley, 506 P.2d at 1295. With the above policy considerations in mind, we hold that ANWC's and the trial court's method of computing the final judgment was incorrect. This method deprived the plaintiff of her prejudgment interest on $60,000 from the date of injury until the date of settlement. On the other hand, Manville's suggested computation is also wrong. Her calculations provide her with a windfall recovery since she recovers interest on the $60,000 settlement from the date of settlement to the date of judgment, when she was not deprived of the use of the money during that period. [6] Therefore, the right solution lies somewhere between the contentions of the parties. The plaintiff should receive that amount which would make her whole, and no more. This can be done by treating the $60,000 as a payment on the final judgment, with the $60,000 itself containing both prejudgment interest and principal. Principal here means the amount that is credited as payment on the total which the jury found as damages after subtracting the plaintiff's 5% comparative negligence and before considering prejudgment interest. It is the principal amount of the settlement for which ANWC should get allowance. Our first task is to calculate the principal. We can derive an algebraic formula as follows: 1) We start with two formulas that express our premises: a) S = I + P, Where S is the amount of settlement, I is the amount of interest, and P is the amount of principal. b) I = RP, Where R is the applicable rate of interest. 2) Then we simply manipulate these formulas to get one that will solve for P. a) S = I + P Premise. b) I = RP Premise. c) S = RP + P Substitute the b formula into the a formula. d) S = P (R + 1) Factor out P from the right side of the c formula. e) S Divide both sides of R + 1 = P the d formula by R + I in order to solve for P. 3) P = S This formula will yield R + 1 the principal amount of the settlement. To apply the formula, we need to know S and R. It is clear that S is the $60,000 settlement amount. While the statutory prejudgment interest rate then in effect was 8% per annum, we have to calculate the applicable rate of interest, R, which covers the one year and two hundred and ninety-two days between when the cause of action arose, March 11, 1977, and the date of settlement, December 28, 1978. This calculation works out as follows: 1) 3/11/77 - 3/11/78: .08 per annum rate 2) 3/11/78 - 12/28/78: a) 292 = .8 portion of the year 365 b) .8 x .08 = .064 rate for .8 year =========== 3) sum of 1) and 2): .144 = R With these figures in place we can calculate the principal of the settlement: 1) P = S Formula R + 1 2) P = $60,000 .144 + 1 3) $60,000 = $52,477.55 1.144 4) $52,477.55 is the principal. After putting the principal amount into the calculation of the final judgment, the correct computations are: Total Jury Verdict $146,715.00 Plt's 5% Negligence - 7,335.75 ___________ Subtotal $139,379.25 Principal of Settlement - 52,447.55 ___________ Subtotal 86,931.70 Prejudgment Interest 8% 3/11/77 - 1/17/79 + 12,865.89 ___________ Subtotal 99,797.59 Rule 82(a) atty fees + 10,830.52 ___________ $110,601.65 Costs 5,298.31 ___________ Judgment Principal $115,899.96 ___________ In conclusion, the trial court is affirmed on all issues except as to its method of computing the final judgment principal. On that issue only, the trial court is reversed and the case remanded for the sole purpose of recomputation in accordance with this opinion. MATTHEWS and COMPTON, JJ., not participating.