Opinion ID: 1198908
Heading Depth: 2
Heading Rank: 4

Heading: Value of Verdict in Comparison to Offer of Judgment

Text: Calculation of the value of a verdict to determine if it exceeded an offer of judgment presents questions of law, which we review de novo. See Pratt & Whitney Canada, Inc. v. Sheehan, 852 P.2d 1173, 1182 n. 13 (Alaska 1993).
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.
PCI separately challenges the trial court's determination setting December 18, 1985, as the date that prejudgment interest began to accrue. On that date, PCI submitted its cost-overrun claim to the City of Seward. PCI claims that the date should properly have been January 7, 1985, the date it first incurred damages from A/H's misrepresentations. Damages normally carry interest from the time a cause of action accrues. See State v. Phillips, 470 P.2d 266, 274 (Alaska 1970). A cause of action for misrepresentation in a business transaction is complete when the injured person has ... suffered pecuniary loss or has incurred liability as a result of a misrepresentation. Austin v. Fulton Ins. Co., 444 P.2d 536, 539 (Alaska 1968) (citing Restatement of Torts § 899 cmt. c (1939)). In the present case, the record provides no clear indication of the date when PCI first suffered pecuniary loss resulting from A/H's negligence and misrepresentation. Construction of the powerline occurred over many months, and PCI incurred costs over the entire period of construction. PCI's attempts to link specific cost increases to specific acts of negligence or misrepresentation were imprecise, and the submission of its overrun claim marked the first point at which its construction-related losses were clearly shown to have been incurred. The construction-related damages awarded by the jury were pegged to no particular event or expenditure. And a major part of the jury verdict covered the City's and PCI's arbitration expenses, which accrued after the construction project was completed. Under these circumstances, trying to determine exactly when PCI actually suffered the losses that the jury found compensable would be a futile endeavor. We are not persuaded that the trial court erred in selecting the date of PCI's cost-overrun claim as the date of commencement for prejudgment interest.
The trial court began its prejudgment-interest calculation by applying the normal statutory rate of 10.5%. See former AS 09.30.070(a). [25] PCI contends that the court should instead have applied interest at 11.5%. PCI asserts that during the powerline construction project, as a result of A/H's negligence and misrepresentations, it was forced to borrow two million dollars from Alaska Mutual Bank at 11.5% for operations. According to PCI, its rate for prejudgment interest should have been fixed at the rate it actually paid to Alaska Mutual. In support of this argument, PCI cites Tookalook Sales & Service v. McGahan, 846 P.2d 127, 130 (Alaska 1993). Tookalook is not entirely on point. Tookalook establishes that an aggrieved party who is forced to borrow funds may pursue and receive a compensatory damages award that includes the interest actually paid for the loan; in such cases, however, to avoid double recovery, the borrower is barred from claiming prejudgment interest on the compensatory interest award. See id., Tookalook thus gives borrowers in these circumstances an option: they may seek actual interest from the jury as damages or statutory interest from the court as prejudgment interest. Here, in presenting its underlying case against A/H and Ebasco to the jury, PCI chose not to claim the Alaska Mutual loan or the interest thereon as items of damage; the jury's damage award did not include these items. Having bypassed that option, PCI's remaining recourse was to seek prejudgment interest from the court, at the rate prescribed by law; this it did. [26] We find no error.
Under former Rule 68(b)(1) and former AS 09.30.065(1), [27] the normal statutory rate for prejudgment interest is reduced by 5% per year when a party's award of damages proves less favorable than an offer of judgment. After determining that PCI's jury verdict was less favorable than TH's pretrial offer of judgment, the trial court reduced the rate on PCI's prejudgment interest award from 10.5% to 5.5%. Because the trial court did not separately calculate prejudgment interest for the malpractice and underlying claims, however, its reduction of the prejudgment interest award reached back to December 18, 1985  the accrual date for prejudgment interest on the underlying claim. PCI claims error: Neither Rule 68 nor A.S. 09.30.065 clearly address[es] a malpractice action where part of the damages would be the prejudgment interest on the loss from the underlying action. This argument has merit. As we have previously indicated, prejudgment interest on the underlying claim in a legal malpractice action becomes part of the underlying judgment; as such, it stands apart from interest awarded on the judgment for the malpractice claim. Within the malpractice case, the interest component of the underlying judgment is part of the principal upon which interest is awarded. It follows that a reduction of interest under former Rule 68(b)(1) and former AS 09.30.065 should reach back only to the accrual of the malpractice claim. On remand, the trial court should recalculate the reduction accordingly.
TH's offer of judgment was inclusive of all costs (including court awarded attorney's fees and prejudgment interest)[.] PCI claims that the offer to pay all costs should be taken to mean the entire amount of the costs incurred by PCI, whether or not taxable under Civil Rule 79. PCI goes on to assert that the all costs provision has significance in assessing the relative values of the offer of judgment and the actual judgment, since the actual judgment incorporates only properly taxable costs. PCI thus argues that, for comparison purposes, the actual judgment should have been increased by an amount reflecting untaxable costs that TH ostensibly would have paid had PCI accepted the offer of judgment. In our view, however, this argument proceeds from a strained and untenable reading of the offer's all costs language. The trial court did not err in rejecting the argument.
Advancing an appropriate calculation of value adjusted to reflect all of its claims of miscalculation, PCI argues that the total judgment resulting from its jury verdict is worth $1,084,458. Because this amount exceeds the million-dollar pretrial offer of judgment, PCI proposes that the trial court erred in treating the offer as superior. This argument is governed by our rejection of most of PCI's miscalculation claims. The limited points on which we have found error will not affect the overall comparison.