Opinion ID: 1198908
Heading Depth: 3
Heading Rank: 2

Heading: Prejudgment interest and attorney's fees on the underlying claim

Text: For purposes of comparing the value of PCI's $419,905 verdict with the value of TH's million-dollar pretrial offer of judgment, the trial court made a single award of prejudgment interest; the interest ran from December 18, 1985  the date on which PCI submitted its cost overrun claim to the City of Seward  to February 4, 1994  the date of TH's offer of judgment. PCI claims error, contending that two awards of prejudgment interest should have been calculated  one for the underlying claim against A/H and one for the malpractice claim against TH. PCI asserts that the court should first have calculated a total value for its underlying claim against A/H by awarding prejudgment interest from the accrual date of PCI's original cause of action against A/H to the accrual date of its malpractice claim against TH (that is, the date the court dismissed PCI's original case against A/H), and adding this award  together with an appropriate award of prevailing-party costs and attorney's fees  to the principal amount of PCI's recovery against A/H, as found by the jury. In PCI's view, the court should then have awarded prejudgment interest on the total value of the underlying judgment from the date PCI's malpractice cause of action accrued until the date of the offer of judgment. [22] PCI's argument has merit. We have long recognized that the purpose of prejudgment interest is to compensate the injured party for the time it has been less than whole. See Davis v. Chism, 513 P.2d 475, 481 (Alaska 1973). Since prejudgment interest is a form of consequential damages, see Farnsworth v. Steiner, 638 P.2d 181, 184 (Alaska 1981), an award of prejudgment interest becomes a part of the judgment proper. See Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 P.2d 745, 759 (Alaska 1992). Two judgments are at issue in a legal malpractice case, the judgment in the underlying cause affected by the malpractice and the judgment sought against the attorney for malpractice. In Bohna, we recognized that the value of each of these judgments must be separately considered when the trial court determines whether a jury award for malpractice exceeds a pretrial offer of judgment. See id. Since the malpractice award compensates for the loss of a favorable judgment or the entry of an unfavorable one, the total value of the lost or unfavorable judgment must first be established; this entails calculation of prejudgment interest and attorney's fees on that judgment. See id. Costs and attorney's fees in the malpractice case must then be based on the underlying judgment's total value. See id. TH seeks to distinguish Bohna because it was not a lost-claim case: the plaintiff in the malpractice action in Bohna had been held liable in the underlying action, and a judgment had actually been entered against him. See id. at 751. TH contends that the circumstances here are different, since no judgment was ever entered on PCI's lost claim against A/H. TH reasons that, because it is impossible to determine the date a final judgment would have been rendered in the underlying suit, prejudgment interest should not have been added to the fictitious judgment. This claim of uncertainty is more illusory than real. TH's negligence caused PCI to lose its claim against A/H. This loss constitutes PCI's injury in the malpractice case. The loss occurred when the superior court dismissed the underlying cause. It follows that the value of the underlying cause must be determined as of the date of the dismissal. Since the purpose of the malpractice award is to restore PCI as closely as possible to its position on the date of loss, [23] prejudgment interest accrued as of that date is properly included in the total value of the underlying recovery. See Bohna, 828 P.2d at 759. On the same date, PCI's malpractice action against TH accrued, thereby triggering accrual of prejudgment interest on the second cause. PCI also claims that $44,495 should have been added to the total judgment on the underlying case to reflect attorney's fees it would have received under Civil Rule 82 as a prevailing party against A/H. While the addition of these fees might have been appropriate had PCI's underlying claim been against A/H alone, PCI also proceeded against Ebasco in the underlying case, and it did not prevail against Ebasco. This added a twist to the attorney's fees issue in the underlying case, for, as the trial court correctly recognized: It would be logically inconsistent in determining the total loss to plaintiffs due to dismissal of the lawsuit to allow plaintiff to recover for attorney's fees as prevailing party against [A/H] in the underlying suit without deducting the amount which it would have had to pay to Ebasco as a prevailing party in the underlying suit. The trial court noted that Ebasco undoubtedly would have been awarded prevailing-party fees. Finding that Ebasco's fees against PCI actually might have exceeded PCI's fees against A/H, the court treated the overall outcome of the attorney's fees issue as a wash and declined either to add prevailing-party attorney's fees to the underlying judgment to reflect PCI's recovery against A/H or to deduct fees from the judgment to reflect Ebasco's entitlement to a recovery against PCI. In our view, the trial court's analysis of the attorney's fee issue is sensible and supportable. The court correctly determined that Ebasco would have been entitled to prevailing-party fees. See Myers v. Snow White Cleaners & Linen, 770 P.2d 750, 753 (Alaska 1989). Recognizing and providing for this award in the calculation of the total underlying judgment entails no more uncertainty than recognizing and providing for the award of fees PCI would have recovered against A/H. And given the breadth of trial court discretion in fixing reasonable fees under Civil Rule 82, we find no basis for concluding that the trial court abused its discretion in treating the opposing fee awards as a wash. In sum, the trial court erred in failing to allocate prejudgment interest separately to each judgment; the error will necessitate recalculation of the awards in both the underlying and malpractice actions. [24] The trial court did not abuse its discretion in failing to add prevailing-party attorney's fees to the underlying judgment.