C.P.L.R. Articles 50-A and 50-B, the complicated legislative scheme of tort damage calculation, set forth procedures for the periodic payment of future damages where future damages are in excess of $250.000. Each court attempting to apply the statutes has come up with its own unique method of calculation. Now, the Court of Appeals in Rohring v. City of Niagara Falls¹ has settled some questions by addressing two major issues: the calculation of attorney's fees and post-verdict interest. However, the Court of Appeals has left hanging a host of other issues, most notably the function of the four percent growth factor applied to future-damages periodic payments.

The most complex calculations under 50-A and 50-B are those determining attorney's fees attributable to future damages and the concomitant calculation of the present value of the periodically-paid future damages. The laws state that past damages are to be paid in a lump sum.² Future damages, which the jury awards without reduction to present value,³ are awarded separately. The first $250,000 of the future-damages portion of the jury verdict is paid as a lump sum unreduced to present value. The remaining portion of the future-damages verdict is paid in periodic installments⁴ after attorney's fees are deducted.

C.P.L.R. 5041/5031(c) addresses the calculation of the portion of attorney's fees attributable to future damages in excess of $250,000. These fees are to be paid in a lump sum "based on the present value of the annuity contract" that will be used to pay the periodic installments pursuant to C.P.L.R. 5041/5031(e). Subdivision (e) requires that "after making any adjustment [including for attorney's fees], the court shall enter a judgment for the amount of the present value of an annuity contract that will provide for the payment of the remaining amounts of future damages". Subdivision (e) also requires that the present value is to be calculated by applying "the discount rate in effect at the time" to "the full amount of the remaining damages, as calculated pursuant to this subdivision."

Under these two subdivisions as written, it is unclear whether the attorney's fees are to be deducted before or after the future damages are reduced to present value. Subdivision (c) requires that attorney's fees related to future damages in excess of $250,000 be based on the present value of future damages, which should be determined pursuant to subdivision (e). However, subdivision (e) indicates that the adjustment for attorney's fees should be made before reducing the future damages to present value.

To simplify, the question presented is this:
A=Gross amount of future damages (in excess of $250,000).
B=Future damages reduced to present value.
C=Attorney's fees (1/3 of "B" in 50B cases; a sliding-scale value of "B" in 50A cases)

1. Is the future-damages award A minus C, then reduced to present value?


OR


2. Is the future-damages award B minus C?

Several courts have attempted to break down the calculation of attorney's fees and periodic payments of future damages under C.P.L.R. 50A and 50B. The first jurist to walk step-by-step through the calculation of future periodic payments was Judge Ira Gammerman in Ursini v. Sussman,⁵ a medical malpractice action. Gammerman basically recommended interpretation I (the present-value attorney fees are deducted from the gross future damages, which are then reduced to present value).

However, the court in Frey v. Chester E. Smith & Sons, Inc.,⁶ noting that 50B "is not a model of clarity," reduced to present value, then reduced by the 1/3 attorney's fees due in personal-injury actions (interpretation II). The courts in Marulli v. Pro Security Service Inc.,⁷ Peterson v. Zuercher,⁸ and others grappled with the statutes, each imparting its own spin to the problem, and none exactly agreeing with Judge Gammerman.

The trial court in Rohring⁹ took specific exception to Judge Gammerman's methodology. Judge Jacqueline H. Koshian's resolution of the circularity problem was to deduct the present value of attorney's fees from unreduced future damages, as did Judge Gammerman in Ursini. However, while Gammerman then reduced the remaining future damages to present value, Judge Koshian simply divided the remainder by the number of years the jury said each item of damages would persist (limited to 10 years for pain and suffering) and entered judgment using that figure as the first year annuity payment to grow at 4 percent annually. Rohring stated that the correct method is "to determine the present value of subdivision (e) future damages before attorney's fees and then reduce that amount by the present value of attorney's fees."¹⁰

While the Rohring interpretation has answered the circularity question, it has done little to simplify the calculations required to arrive at attorney's fees and future damage payments. Here is a step-by-step illustration of the method suggested by Rohring. This example uses the verdict returned by the jury in Ursini -- a medical malpractice verdict that includes several categories of damages and amply illustrates the complexity of the calculations.

1. The jury is instructed under C.P.L.R. 4111(d) to separate past from future damages. The jury must also indicate "for how many years" each separate item of future damages the award is to be given. The award in this case is for $5.5 million. Past damages are $500,000 and future damages are $5 million.



2. The future damages are itemized by the jury as follows:
   LOST EARNINGS: $2 million for 44 years
   THERAPY: $500,000 for 14 years
   ATTENDANT CARE: $500,000 for 50 years
   PAIN AND SUFFERING: $2 million for 58 years
   TOTAL: $5 Million
   
   
3. The lump sum payment must then be determined. All past damages are paid in a lump sum, as are the first $250,000 of future damages. Thus, the lump sum payment is:
   $500,000 past damages
   $250,000 future
   total $750,000



4. The next step is the calculation of future periodically-paid damages, i.e. those beyond the first $250,000 of future damages.

First, the $250,000 lump sum is deducted proportionally from the total future damages:

TOTAL FUTURE DAMAGES: $5,000,000
LOST EARNINGS:    2,000,000
5,000,000 = 40%
THERAPY: 50,000
5,000,00 = 10%



ATTENDANT CARE: 500,000
5,000,000 = 10%
PAIN AND SUFFERING: 2,000,000
5,000,000 = 40%

5. The respective percentage values of the lump sum $250,000 are then calculated:
   
40% of $250,000 = 100,000
10% of 250,000 = 25,000
10% of 250,000 = 25,000
40% of 250,000 = 100,000

6. These values are then subtracted from the corresponding items of future damages, leaving these future damage values to be transformed into periodic payments:

LOST EARNINGS: $1,900,000
THERAPY: $475,000
ATTENDANT CARE: $475,000
PAIN AND SUFFERING: $1,900,000
TOTAL: $4,750,000

7. These totals imply the following annual payments in the first year:
   
LOST EARNINGS = 1,900,000/44 = 43,181
THERAPY = 475,000/14 = 33,928
CARE = 475,000/50 = 9,500
PAIN AND SUFFERING = 1,900,000/10 = 190,000 (note that pain and suffering can be awarded only over a total of 10 or fewer years)

8. These values must be both grown at the statutory 4% and also
reduced to present value using the "discount rate in effect at the time." The variables are:
first-year payout
# of years of payout
annual increase (4%)
discount rate (7.5% - the same as was used in Ursini)

The present-value of each category of future damages (after the first $250,000 has been proportionally deducted), determined with a computer, is:
LOST EARNINGS: $1,000,477
THERAPY: $380,125
ATTENDANT CARE: $232,154
PAIN AND SUFFERING: $1,617,480

TOTAL $3,230,236

9. An attorney retained after July 1, 1985 in a medical malpractice case is entitled to the following fee:
   
30% of the first $250,000
25% of the next $250,000
20% of the next $500,000
15% of the next $250,000
10% of damages in excess of $1,250,000

Thus, attorney's fees in this case are:
LUMP-SUM DAMAGES
30% of 250,000 = 75,000
25% of 250,000 = 62,500
20% of 250,000 = 50,000
TOTAL LUMP SUM ATTORNEY'S FEES = 197,500

FUTURE DAMAGES TO BE PAID PERIODICALLY
20% of 250,000 = 50,000
15% of 250,000 = 37,500
10% of 2,730,263 = 273,023
TOTAL ATTORNEY'S FEES ON FUTURE DAMAGES = 360,523
TOTAL ATTORNEY'S FEES (LUMP-SUM AND FUTURE) = 558,023

10. The future damages portion of attorney's fees must be allocated proportionallv to each category of future damages, in proportion to the present value.

LOST EARNINGS = 1,000,477 / 3,230,236 = .3097
THERAPY = 380,125 / 3,230,236 = .1176
ATTENDANT CARE = 232,154 / 3,230,236 = .0718
PAIN AND SUFFERING = 1,617,480 / 3,230,236 = .5007

ATTORNEY'S FEES
LOST EARNINGS = .3097 X 360,523 = 111,654
THERAPY = .1176 X 360.523 = 42,397
ATTENDANT CARE = .0718 X 360,523 = 25,885
PAIN AND SUFFERING = .5007 X 360,523 = 180,513


For each category Of future damages, the present value of attorney fees are then deducted from the present value of future damages. (Note: It is at this point that the Rohring method diverges from Ursini.)

11. This present value minus attorney's fees will be used to determine the first-year payout for each category of damages:

EARNINGS: 1,000,477 - 111,654 = 888,823
THERAPY: 380,125 - 42,397 = 337,728
CARE: 232,154 - 25,885 = 206,269
PAIN AND SUFFERING: 1,617,480 + 180,513 = 1,436,967

12. A computer then is used to find the implied first-year payment, growing by 4% per year for the stated number of years, consistent with the stated present value. In this example the first-year payments for each category will be:

LOST EARNINGS: $39,000
THERAPY: $30,646
ATTENDANT CARE: $8,581
PAIN AND SUFFERING: $171,609

13. The defendant must then purchase an annuity making these first-year payments and growing at 4 percent per year for the specified number of years in each category.
    
    
    

Though tedious and complicated, the attorney's fees and future-damages calculation now should be applied uniformly by courts. Unanswered questions remain, however.

Interest: The defendants in Rohring took issue with the fact that they were charged interest on the present value of future damages. This was unfair, the defendants argued, since post-judgment interest should not be assessed on damages payments until the payments are due and owing. The Court of Appeals held that interest is to be assessed based on the total sum awarded from the date the verdict was rendered. The Court held that future damages are properly deemed to be liabilities fully owed by defendants as of the date of the liability verdict. The structured judgment schemes of 50A and 50B do not delay liability. Instead, the articles merely made payment incremental.¹¹

Growth Factor: The Rohring court declined to address the purpose behind the four percent future-damages growth factor mandated by C.P.L.R. 5031 / 5041(e). Different trial judges have reached different conclusions on this issue. Gammerman himself in Ursini held that the four percent growth factor was over and above inflation and allowed trial testimony on inflation. The court in Gambardelli¹² held that the four percent growth factor did not prohibit testimony to the jury on inflation, but the courts in Peterson and Alisandrelli reached the opposite conclusion.

How significant is this issue? Suppose economic testimony on future earnings showed that a 20-year-old plaintiff would have earned $25,000 per year and would have worked for 40 years but for the tort.

If inflationary growth is left out of the testimony at trial (and in the absence of any productivity growth), the total loss claim would be $1 million. If the jury returned with that verdict, the court would reduce it to a present value of $770,000 (after deductions for attorney's fees and assuming a 6% discount rate), then divide that amount by the 40-year payout period to arrive at a first-year payout of $19,250, which would grow by 4% annually over the course of 40 years.

If, however, testimony at trial included the effects of inflation on the 40-year loss, and if inflation was 4%, the gross loss would be valued at $2.4 million. If the jury returned that verdict, the court would reduce to a present value of $1,720,000 (after deductions for attorney's fees and assuming a 6% discount rate) for a first-year payout of $43,000, with subsequent annual payments growing at 4% for 40 years.

Clearly, the difference is significant. This issue should reach an appellatecourt in the very near future, since it arises in virtually any case under the statutes where future damages exceed $250,000.

Even when the four-percent question is answered, however, the statutes will remain mathematically complex and difficult to apply. This difficulty is unrepaid by any apparent gain in fairness, equity or achievement of public-policy goals. Perhaps the best course will be to completely amend or eliminate these laws.

*Jerome Staller, an economist, is president of The Center for Forensic Economic Studies in Philadelphia, which provides economic and statistical analysis in litigation matters.

1. No. 117 (N.Y. Ct. App., June 30, 1994).
2. C.P.L.R. 5041; 5031(b).
3. C.P.L.R. 4111(f).
4. C.P.L.R. 5041; 5031(e).
5. 143 Misc. 2d 727, 541 N.Y.S.2d 916 (Sup. Ct. New York County 1989).
6. 751 F. Supp. 1052, 1054 (N.D.N.Y. 1990).
7. 151 Misc. 2d 1077, 583 N.Y.S.2d 870 (Sup. Ct. App. Term 1992).
8. 152 Misc. 2d 684, 584 N.Y.S.2d 968 (Sup. Ct. Erie County 1992).
9. Rohring v. City of Niagara Falls, 153 Misc. 2d 1001, 1002, 584 N.Y.S.2d 513, 514 (Sup. Ct. Niagara County 1992).
10. 84 N.Y.2d 60, 614 N.Y.S.2d 714, 638 N.E.2d 62 (1994).
11. 84 N.Y.2d at 70, 614 N.Y.S.2d at 717, 638 N.E.2d at 64.
12. 150 Misc. 2d 395, 576 N.Y.S.2d 770 (Sup. Ct. New York Countv 1991).