LDM partners Cathy Trent-Vilim and Adam Feeney published a featured article in the November/December 2019, The Nebraska Lawyer, Vol 22 Issue 6.  The article relates to the Nebraska Supreme Court’s clarification of decades of confusing case law related to prejudgment interest.

Link to the article: https://cdn.ymaws.com/www.nebar.com/resource/resmgr/nebraskalawyer_2017plus/2019/novemberdecember/TNL-1119c.pdf

Nebraska Supreme Court Shows the Weyh forward on Recovery of Prejudgment Interest

Earlier this year, in Weyh v. Gottsch, the Nebraska Supreme Court clarified decades of competing and contradictory case-law concerning the circumstances under which a party may recover prejudgment interest. At the crux of the confusion was how two statutes—Neb. Rev. Stat. §§ 45-103.02 and 45-104 —interplayed with one another. The prior 25 years of case-law confounded rather than clarified the law. Most of the cases

coming out of the Court focused exclusively on whether the claim was “liquidated” and made no mention of § 45-104 at all. In a second line of cases, the Court analyzed the prejudgment interest question by examining whether the claim was liquidated and whether it fell within one of the categories under § 45-104. Finally, in a third line of cases, the Court applied the categories under § 45-104 without regard to whether the claim was liquidated. In short, the case-law was a jumbled mess with no clear answer or direction.

Then came Weyh. There, the Court announced that § 45-104 stands alone and is a separate basis for the recovery of prejudgment interest from § 45-103.02. Additionally, the procedural and liquidity requirements under § 45-103.02 do not apply to interest claims under § 45-104.

Section 45-104 was adopted over a century ago. It identifies four contract-based categories of claims for which a plaintiff may recover prejudgment interest at the rate of twelve percent per annum.

The current text of § 45-104 provides as follows:

Interest; other contract obligations.
Unless otherwise agreed, interest shall be allowed at the rate of twelve percent per annum on money due on any instrument in writing, or on settlement of the account from the day the balance shall be agreed upon, on money received to the use of another and retained without the owner’s consent, express or implied, from the receipt thereof, and on money loaned or due and withheld by unreasonable delay of payment. Unless otherwise agreed or provided by law, each charge with respect to unsettled accounts between parties shall bear interest from the date of billing unless paid within thirty days from the date of billing.

Nearly a hundred years later, § 45-103.02 was enacted in 1986 to allow prejudgment interest where a judgment exceeds the plaintiff’s settlement offer. The goal was to encourage resolution of disputes.

The statute was amended in 1994 and added that “interest as provided in section 45-104 shall accrue on the unpaid balance of liquidated claims from the date the cause of action arose until the entry of judgment.”

The current text of § 45-103.02 reads as follows:

Prejudgment interest; accrual; when; conditions.
(1) Except as provided in section 45-103.04, interest as provided in section 45-103 shall accrue on the unpaid balance of unliquidated claims from the date of the plaintiff’s first offer of settlement which is exceeded by the judgment until the entry of judgment if all of the following conditions are met:
(a) The offer is made in writing upon the defendant by certified mail, return receipt requested, to allow judgment to be taken in accordance with the terms and conditions stated in the offer;
(b) The offer is made not less than ten days prior
to the commencement of the trial;
(c) A copy of the offer and proof of delivery to the defendant in the form of a receipt signed by the
party or his or her attorney is filed with the clerk of the court in which the action is pending; and
(d) The offer is not accepted prior to trial or within thirty days of the date of the offer, whichever occurs first.
(2) Except as provided in section 45-103.04, interest as provided in section 45-104 shall accrue
on the unpaid balance of liquidated claims from the date the cause of action arose until the entry
of judgment.

The Legislature’s intent in adding part two to § 45-103.02 was to overrule the Nebraska Supreme Court case Knox v. Cook, 233 Neb. 387 (1989). In Knox, the plaintiff was seeking prejudgment interest on a claim to collect past-due rent under common law precedent that prejudgment interest was recoverable for liquidated claims, such as contractually specified rent amounts. The Court held that the original enactment of §
45-103.02 in 1986 created the exclusive basis for recovery of prejudgment interest and supplanted common law precedent that prejudgment interest was available on liquidated claims.  Knox did not analyze § 45-104 because it was not at issue in the case. When the Legislature amended § 45-103.02 in 1994, its stated intent was to statutorily supersede Knox and restore the common law rule that prejudgment interest was available for liquidated claims. Therefore, § 45-103.02 would provide for prejudgment interest on both claims where plaintiff obtained a judgment higher than the plaintiff’s settlement offer and on liquidated claims. The Legislature was silent on the interplay, if any, between its amendment to §§ 45-103.02 and 45-104.

The 1994 amendment to § 45-103.02 raised the question of whether § 45-103.02 limited the bases for prejudgment interest enumerated in § 45-104. Not surprisingly, parties defending against pre-judgement interest claims under § 45-104 argued that prejudgment interest under § 45-104 could not be awarded without a showing the claim was “liquidated” under § 45-103.02. The Court initially adopted this position, holding that “even if a litigant’s action is one of those actions listed in § 45-104, that party first must comply with the requirements of § 45-103.02 to be entitled to prejudgment interest at that rate.”1 The Court reasoned that “[s]ection 45-104 merely provides the interest rate on prejudgment interest in specific types of actions.”2
The Court subsequently softened its holding in Records and followed with a series of cases that analyzed
whether the requirements of either §§ 45-103.02 and 45-104 were met, finding neither was met. Still, these cases did not definitively answer the question of whether § 45-104 remained an independent basis to recover prejudgment interest since none of the cases required a determination of that particular issue. Instead, these cases indicated a plaintiff seeking prejudgment interest at the rate set forth in § 45-104 had to satisfy the requirements of both §§ 45-103(2) and 45-104, meaning that the claim that had to both be liquidated and be the type of claim enumerated in § 45-104.

The Court acknowledged in Brook Valley that the interplay
between these two sections was an open issue to be resolved in the appropriate case. That opportunity presented itself in Weyh.

In Weyh, the litigants, David Weyh and Barry Gottsch, had known each other for many years. They entered into an oral agreement to farm Gottsch’s farmland. Under the parties’ agreement, Gottsch would provide the land, some of the equipment, and keep the books. Weyh would do all the farming and provide the labor. The arrangement would continue indefinitely until one or the other decided he wanted to terminate the agreement. Profits would be split 50-50.  The operation lasted for a decade. The parties did not settle up after each farming year. After Gottsch terminated the relationship, the parties disagreed over the original terms of the agreement and the amount of profits to be divided for the life of the operation. When Weyh filed suit,
he alleged entitlement to prejudgment interest under § 45-104 on the basis that his money was “received to the use of another [Gottsch] and retained without the owner’s [Weyh’s] consent, express or implied, from the receipt thereof.” Under § 45-104, interest accrues at the rate of 12 percent per year through the date of judgment. Weyh argued this provision applied to all of Weyh’s 50 percent share of the profits Gottsch had held in his own personal bank account and commingled with monies from other business ventures.

After a bench trial, the trial court found for Weyh and awarded him damages of about $1.2 million and prejudgment interest under § 45-104 totaling nearly $1 million. In doing so, the court did not address whether the liquidated” requirement of § 45-103.02(2) had to be satisfied.  Gottsch appealed, and the Nebraska Supreme Court accepted the parties’ bypass motions and assigned the case to its own docket.

Seven months after oral arguments, the Court issued its opinion. Though Gottsch assigned eight distinct errors, the Court devoted nearly half of its 38-page opinion to the prejudgment interest question. Justice Stacy, writing for the Court, noted, The unresolved tension between §§ 45-103.02(2) and 45-104 is central to the parties’ arguments, and they  are not the first litigants to grapple with the issue.  Resolving that tension requires that we recognize, and reconcile, competing and contradictory lines of authority in our own jurisprudence.

The Court found Weyh provided the perfect opportunity to finally resolve this issue because (a) the trial court had clearly awarded interest under § 45-104 alone, and (b) there was no dispute Weyh’s claim fell under § 45-104’s provision allowing prejudgment interest on “money received to the use of another. . . .” This perfect storm teed up the long-standing question: can interest be awarded under § 45-104 without showing the claim was “liquidated” under § 45-103.02(2).

After outlining the conflicting authorities, the Court made it clear that §§ 45-103.02 and 45-104 provide independent grounds for recovering prejudgment interest. The Court reasoned that nothing in the plain language of § 45-103.02 or its legislative history supported a conclusion that § 45-103.02 became the exclusive means of recovering prejudgment interest in Nebraska. Instead, the legislative history suggested the adoption and amendment of § 45-103.02 were not intended to have any effect on the substantive provisions of § 45-104. The Legislature clearly knew § 45-104 existed when it amended § 45-103.02 in 1994 because it explicitly referenced § 45-104.  Since the Legislature never discussed the impact § 45-103.2(2) would have on § 45-104, the Court inferred no impact was intended.

The Court expressly disapproved its prior line of cases holding or implying that § 45-103.02 was the exclusive means of obtaining prejudgment interest in Nebraska. The Court further held that there are three separate avenues for recovery of pre-judgement interest in Nebraska:
1) Obtaining a judgment higher than the plaintiff’s settlement offer under § 45-103.02(1).
2) Showing a claim is liquidated under § 45-103.02(2).
3) Showing a claim falls under one of the four contract-based categories of claims set forth in § 45-104.

Although the Court clarified when prejudgment interest can be awarded, it also found the trial court had calculated the start date incorrectly and reduced the award to $460,210.66.

Even after Weyh, questions remain unanswered. As the Court commented,
For more than a century, § 45-104 was the only statute authorizing the recovery of prejudgment interest in Nebraska. Yet there are surprisingly few appellate decisions construing or analyzing the categories described in § 45-104.  In fact, before 1994, most of this court’s opinions addressing prejudgment interest did not even mention § 45-104.

Now that § 45-104 has regained its independence, look for the next round of legal disputes to largely turn on the construction and interpretation of the four categories under § 45-104. Another area ripe for consideration is when prejudgment interest starts to accrue. Though the Court modified the start date and recalculated the interest amount, it provided little concrete guidance. This may simply be because the start date is fact-specific and no one-sized legal principle fits all. The Court’s conclusion, however, suggests that where interest is being sought on the basis of ‘money received to the use of another without consent,’ the key date is when consent is denied. That said, to the extent the Court also found the record was imprecise, one take-away is to make sure your record is clear. Otherwise, you may be stuck with a start date based on when you first filed suit. Regardless of the trigger date, the Court made it clear that the end date for calculating interest under § 45-104 is the date judgment is entered.

Weyh is a significant development in commercial litigation. Nebraska law is now clear: prejudgment interest is available under § 45-104 at the rate of 12 percent per year on any claim for (1) money due on any instrument in writing; (2) settlement of an account from the day the balance is agreed upon; (3) money received to the use of another and retained without the owner’s consent, express or implied, from the receipt thereof; and (4) money loaned or due and withheld by unreasonable delay of payment.3 This is true even if liability, the amount of damages, or both are genuinely disputed. An argument could be made that prejudgment interest under § 45-104 applies to just about every commercial dispute where one party retains funds another party claims are rightfully his or hers. Given the high interest rate available under § 45-104, and the fact that commercial litigation generally takes years to reach judgment, an award of prejudgment interest under § 45-104 can substantially increase the final judgment amount for a successful plaintiff. Not only can it allow a successful party to potentially offset his or her litigation costs, it substantially raises the stakes for the opposing party as well. Interestingly, by clarifying § 45-104, the Court may have done more in Weyh to bring about dispute resolution than the Legislature’s enactment of § 45-103.02.

1 Records v. Christensen, 246 Neb. 912, 918 (1994).
2 Id.
3 Neb. Rev. Stat. § 45-104.