Court Opinion

ID: 9691120
Source: CourtListenerOpinion
Date Created: 2023-08-24 20:11:22.23402+00
Date Added: 2024-06-11T18:19:10.929274
License: Public Domain

*500Brickley, J.
(dissenting). The Court holds today that a judgment for future damages must be reduced to present cash value by the use of simple interest. In my view, the Court errs by adhering to an antiquated common-law doctrine that unfairly penalizes defendants by overstating their financial liability. While restraint is a judicial virtue, where the Court has the justification and the authority to change the common law, it should not hesitate to do so if justice will be better served. Because the use of simple interest lacks the precision to accurately reflect the time value of money, and consequently overcompensates the plaintiff by overstating the present value of the judgment, I respectfully dissent.
i
MCL 600.6306(l)(e); MSA 27A.6306(l)(e) provides that the trial court shall reduce gross future noneconomic damages to present cash value. This reduction is computed at five percent per year.1 The question that the statute leaves unanswered, and which is before us today, is whether that reduction should be accomplished through the use of simple or compound interest.
Neither party in this case disputes the need to reduce, or discount, a judgment for future damages to a present value. Money has earning power and can accumulate interest over time. For this reason, a dollar today is worth more than a dollar some time in the future. The purpose of discounting awards of *501future damages to a present value is to reflect that earning power. Consequently, the use of simple interest to discount a future payment produces an imprecise result because the underlying assumption — that during the period before the payment is due the money could be earning simple interest — is faulty. Even the most staid investments, such as passbook savings accounts and certificates of deposit, pay interest on a compound basis.
“[I]nterest on interest may seem a detail, but is not . . . .”2 The use of simple interest to discount a future payment is imprecise because money invested during the period before the payment is due earns compound interest. This inaccuracy would be less troubling if it fell equally on both parties. It does not, however, because the use of simple interest always understates the earning power of money, and thus overstates the defendant’s liability because it fails to fully discount the future payment. The additional liability imposed by an imprecise calculation falls entirely on a defendant who must pay a judgment.
Although the amounts involved in this case were relatively small, they sufficiently demonstrate this principle. The jury awarded the plaintiff damages for pain and suffering at a rate of $1,000 a year for forty-two years. Recognizing that inflation would diminish the value of the award each year, the jury increased the annual award by five percent, compounded annually. The total amount of the payments was $135,218.68. Discounted to present value using five percent simple interest, the judgment would be $60,611.31. Discounted to present value using five *502percent interest, compounded annually, the judgment would be $42,000.3 The difference between the two judgments is $18,611.31, or thirty-one percent. Thus, the difference between simple and compound interest is not a mere detail in this case, but an increase in the defendant’s liability of thirty-one percent. Using the simple interest approach advocated by the majority, the defendant would have to pay an additional thirty-one percent on his judgment. It goes without saying that the Court’s decision will affect every personal injury award for future damages.
No principled reason exists to give the plaintiff an additional thirty-one percent, when the plaintiff has the opportunity to earn compound interest on that judgment through the use of common, everyday investments such as certificates of deposit or passbook savings accounts.
The common-law rule requiring simple interest can be traced to Rivers v Bay City Traction & Electric Co.4 In Rivers, the plaintiff was awarded damages equal to the expected lifetime earnings of her husband, who had been killed in a railroad accident. The Court was presented with how to reduce the decedent’s total lifetime earnings to a present lump-sum value. Recognizing that it would be inequitable to simply award the plaintiff the total amount of the future wages, the Court concluded that the future damages *503should be reduced to a present value at a rate of five percent interest.
Although the Rivers Court explained its holding in terms of simple interest, i.e., divide the first year’s lost wages by 1.05, the second year’s by 1.10, etc., the Court also approved of the use of compound interest.
With variations depending upon the interest rate, and upon whether simple or compound interest may be received, it is, so far as we are informed, the rule in common use for determining the sum of money required to secure a given annuity for any number of years, and the present worth of a sum payable in the future.[5] [Emphasis added.]
Thus, even in 1910, the Court contemplated the use of compound interest in the context of reducing future judgments to a present value. The Rivers opinion appears to indicate that if the plaintiff was earning compound interest on her investment, the judgment could be discounted using a compounded interest rate. At that time, the Court rejected the defendant’s argument that the plaintiff could earn compound interest, citing risks and contingencies. Because the Rivers case predated the Federal Deposit Insurance Corporation,6 depositing money in a bank in 1910 certainly entailed a minor risk of default. Today, however, bank deposits are insured up to $100,000 an account, thus removing any real risk. Consequently, the prospect of earning compound interest is no longer contingent or risky.
*504n
As I understand the majority, the primary objection to using compound interest is not that simple interest is more equitable, but that the Legislature, by not disrupting the existing common-law scheme, intended to maintain the “status quo.”
When this Court is interpreting a statute, its singular role is to give effect to the intent of the Legislature.7 But where this Court is interpreting the common law, its function is different. The Michigan Constitution provides that the common law remains in force until “changed, amended or repealed.”8 “Amendment” and “repeal” allude to legislative acts, while “change” contemplates judicial change.9 The constitutional authority of this Court to change the common law is unquestioned, and when faced with judge-made law, this Court “has not disregarded its corrective responsibility in the proper case.”10 As we noted in People v Aaron,11
“[I]t is for this Court to decide whether a common-law rule shall be retained unless the Legislature states a rule that is inconsistent with or precludes a change in the common-law rule.”
Obviously, the Legislature has not stated a rule that is inconsistent with the adoption of compound interest because it has never explicitly stated a preference *505for either compound or simple interest in the area of future damages.
Although People v Aaron was a criminal case, the situation then before the Court is analogous to the present case. In Aaron, the Court addressed the status of the common-law felony-murder rule.12 Although the Legislature had criminalized the crime of murder, “murder” was not defined in the statute.13 The Court referred to the common law to define murder.14 Therefore, by criminalizing “murder,” the Legislature had indicated its awareness, and apparent acceptance, of the common-law doctrine of felony murder. So, as in the present case, the Court was faced with a statute that left certain definitions to the common law. In Aaron, it was the definition of “murder,” and in this case, it is the definition of “interest.” Finding the felony-murder doctrine unjust, this Court resolved to “exercise our role in the development of the common law by abrogating the common-law felony-murder rule.”15 Accordingly, the Court exercised its inherent authority to amend the common law to reflect modem perceptions of justice, despite the Legislature’s apparent acceptance of the existing common-law mle.
This Court has also modified the common law in civil cases when the ends of justice so required.16
*506In Placek v Sterling Heights, the Court acknowledged that in some situations we may be in a better .position than the Legislature to propose a change in the common law.17 Because this case involves the computation of the present value of future judgments, it is a matter of practice and procedure in the courts, which makes it particularly within the domain of this Court.18
. '.Because the rule of Rivers, supra, overstates the defendant’s liability by understating the earning power of money, and because this Court is authorized , to change the common law, I would affirm the deci/si'on of the Court of Appeals.
Riley and Weaver, JJ., concurred with Brickley, J.

 “As used in this section, ‘gross present cash value’ means the total amount of future damages reduced to present value at a rate of 5% per year for each year in which those damages accrue . . . MCL 600.6306(2); MSA 27A.6306(2).

 In re Chicago, M, St P & P R Co, 791 F2d 524, 529 (CA 7, 1986).

 By increasing the judgment by five percent compounded annually to account for inflation, and then reducing it by five percent compounded annually to account for the time value of money, the result is that the present value is the equivalent of $1,000 a year for forty-two years, presently payable and undiscounted.

 164 Mich 696; 128 NW 254 (1910).

 Id. at 710.

 12 USC 1811.

 Drouillard v Stroh Brewery Co, 449 Mich 293, 302; 536 NW2d 530 (1995).

 Const 1963, art 3, § 7; People v Stevenson, 416 Mich 383; 331 NW2d 143 (1982).

 Myers v Genesee Co Auditor, 375 Mich 1, 7; 133 NW2d 190 (1965).

 Placek v Sterling Heights, 405 Mich 638, 657; 275 NW2d 511 (1979).

 409 Mich 672, 723, n 112; 299 NW2d 304 (1980), quoting Gruskin v Fisher, 405 Mich 51, 58; 273 NW2d 893 (1979).

 Aaron, supra at 723.

 MCL 750.317; MSA 28.549 (“All other kinds of murder shall be murder of the second [2nd] degree”).

 Aaron, supra at 715.

 Id. at 733.

 Placek v Sterling Heights, n 10 supra (comparative negligence); Womack v Buchhorn, 384 Mich 718; 187 NW2d 218 (1971) (negligently inflicted prenatal injury); Felgner v Anderson, 375 Mich 23; 133 NW2d 136 (1965) (assumption of risk); Parker v Port Huron Hosp, 361 Mich 1; 105 *506NW2d 1 (1960) (charitable immunity); Montgomery v Stephan, 359 Mich 33; 101 NW2d 227 (1960) (common-law disability prohibiting a wife from suing for the loss of her husband’s consortium); Spence v Three Rivers Builders & Masonry Supply, Inc, 353 Mich 120; 90 NW2d 873 (1958)(privity requirement in actions for breach of an implied warranty); Bricker v Green, 313 Mich 218; 21 NW2d 105 (1946) (doctrine of imputed negligence).

 N 10 supra at 657-660.

 Const 1963, art 6, § 5.