CPLR Articles 50-A and 50-B are exceedingly complex, perhaps because they have to do with numbers, but also because the statutes as written are "patently ambiguous" as the Court of Appeals has now stated in Rohring v. City of Niagara Falls, 84 N.Y.2d 60, 614 N.Y.S.2d 714, 638 N.E.2d 62 (1994). These statutes affect all personal injury actions in New York, requiring periodic payments of future damages. In this case the Court was asked to address three issues all dealing with the calculation of damages pursuant to this statutory scheme. These issues involve the proper calculation of attorney's fees, and the two escalators in damage awards: inflation and interest. The manner in which the Court addressed these issues presents interesting questions as to the role of mathematics in the science of jurisprudence.

Calculation of Attorney's Fees

Under these statutes, all courts have calculated attorney's fees attributable to future damages by taking the gross amount of future damages awarded by the jury over a specified period of years, reducing this gross amount to present value and then calculating the attorney's fee attributable to this future award (using typically a one-third contingency fee or the sliding scale fee applicable to medical malpractice actions). The question then arises as to how to reduce the future award to the plaintiff by the attorney's fee: are the attorney's fees deducted from the gross award to the plaintiff or are they deducted from the award which has been reduced to present value? The Court reasoned that since the attorney's fee is payable now, in a lump sum, it was calculated as a present value number. It would appear inherently illogical to deduct this present value number from a gross award of future payments. Rejecting this deduction of "apples from oranges" approach, the Court held that the proper method is "to determine the present value of ... future damages before attorney's fees and then reduce that amount by the present value of [or actual] attorney's fees." 84 N.Y.2d at 68, 614 N.Y.S.2d at 716, 638 N.E.2d at 64.

Significantly, and to its credit, the Court did not rely merely on appearances of what seemed logical (one should not subtract "apples from oranges"), but resorted to the numbers themselves. In a footnote the Court demonstrated, mathematically, that to do otherwise would result in an award which "would actually exceed the amount awarded by the jury." 84 N.Y.2d at 67, 614 N.Y.S.2d at 716, 638 N.E.2d at 64. This is like the mathematician who hypothesizes largely from "instinct," but ultimately a "proof" is required which confirms or destroys the hypothesis.

Now the high Court has instructed us on the proper deduction of attorney's fees from the future award to the plaintiff. But this leads to the inescapable conclusion that the defense bar has been overpaying on these judgments all this time, totalling perhaps into the millions of dollars, because of the misapplication of a statute effective since 1985. In our judicial system it sometimes takes that long for an issue to be heard by our high Court. Of course we can ask why the lower courts didn't get it right sooner? We all recognize that our judicial system is not perfect, and in this case, the statute involved is "not a model of clarity" Frey v. Chester E. Smith & Sons, Inc., 751 F. Supp. 1052, 1056), "patently ambiguous" (Rohring, supra), and has been "every judge's nightmare." Rohring v.City of Niagara Falls, 153 Misc. 2d 1001. But although every aspect of this statutory scheme has been difficult to understand and to apply, it is clear from the legislative history that the intent of these statutes was to save defendants money and to reduce insurance premiums because of the medical malpractice and insurance "crisis." This was part of New York's tort reform. How ironic that we now find out that defendants and insurance companies have been overpaying. Mathematics has now shown this to be the case.

Inflation Issue

An even more significant issue both in terms of amount of dollars and controversy, is the issue of the proper handling of inflation under this complex statutory scheme. Defendants contend that the statute as applied by nearly all our state courts allows a double recovery to the plaintiff for inflation. This is because the courts have permitted evidence of inflation to be admitted at the trial and considered by the jury despite the fact that the statute imposes a 4 percent adjustment compounded annually, under CPLR 5031(e) and 5041(e). In terms of dollars this issue is costing defendants far, far more than the improper calculation of attorney's fees. The issue has been raised and disputed for several years. Disagreement is evident by the fact that the Federal courts which sit in New York have apparently decided this issue differently from the vast majority of the state courts; federal courts apparently do not permit testimony of inflation at trial as this would be a double counting of inflation.

In light of the significance of this dispute in terms of dollars, and the clear purpose of these statutes, it is most unfortunate that the Court of Appeals found that this issue had not been preserved for its review. Had the Court applied mathematics to this issue, it would have found that defendants and the insurance industry have again been overpaying by literally billions of dollars. There are several reasons for the Court to conclude that most of our trial courts have been "double counting" inflation.

While the language of the statute does not specifically state that this is an inflation factor, in the Memorandum of the State Executive Department on Chapter 294 of the 1985 legislation (p. 3020), it is abundantly clear that the new legislation would have an "inflation factor" as part of its provisions. The court in Peterson v. Zuercher, 152 Misc. 2d 684 (Sup. Ct., Erie Co. 1992) found from the legislative history of the statute that "CPLR Article 50-B incorporates a 4% compounding factor to account for inflation." Id. at 690. Citing the 1985 Governor's Program Bill relating to CPLR 50-A, the Peterson court noted that the 4% escalation is described as inflation: "Payments would be adjusted by a four (4) percent inflation factor" (emphasis supplied by the court) Id.

It is perhaps significant to note that the 4% annual increase over each year's previous payment corresponds to an index of inflation used by our Federal Government in the Social Security Trust Fund and the Trust Fund for Medicare. It cannot be said to be coincidental that the "4% figure" used by the New York State Legislature in CPLR 5031(e) and 5041(e) corresponds to these national inflation figures utilized by the Secretary of the Treasury, and the Board of Trustees for these Trust Funds. The 4% annual increase embodied in the CPLR 5031(e) and 5041(e) are cost of living adjustments (COLAS), which make unnecessary any consideration of inflation by the jury.

Thus, to permit plaintiff's economist to testify as to inflation, and for the jury to make such findings would be in effect to add the statutory 4% "inflation factor" on top of the rate of inflation testified to by plaintiff's economist, thus providing a windfall to plaintiff, which was clearly not the legislative intent of these statutes. In one actual case damages were calculated assuming an 8% inflationary growth to be considered by the jury. The injured plaintiff had a 70-year life expectancy. Utilizing the 4% statutory escalation and "projecting this 8% annual growth factor over 70 years, the $450,000.00 annual cost would total $1.2 billion, a sum exceeding the net worth of most major corporations" (Mauro, Staller and Sullivan, Current State of CPLR Articles 50-A, 50-B: Few Answers, New Questions, New York Law Journal, January 27, 1994, p. 1, col. 1).

Despite the above arguments, the Fourth Department in Brown v. State of New York, 184 A.D.2d 126, refused to hold that the 4% escalation factor in the statute was intended to account for inflation. The federal courts in New York, however, have held otherwise. Judge Stanton instructed the jury not to take inflation into account since Article 50-B provides an inflation factor when the court enters a structured judgment. Alisandrelli v. Kenwood, 1990 WL 20158 (SDNY Feb. 27, 1990), aff'd, 923 F.2d 844 (2d Cir. 1990); see also Sales v. Republic of Uganda, 828 F. Supp. 1032, 1042, 1993 WL 267755 (SDNY July 9, 1993).

Interest Issue

The high Court did address the issue of the proper calculation of interest on future damages, but perhaps only partly. Rohring was a bifurcated trial. It has long been the general rule, although perhaps a "legal fiction that damages were known and became a fixed obligation at the moment liability was determined" (Rohring, supra, 84 N.Y.2d at 68, 614 N.Y.S.2d at 716, 638 N.E.2d at 64). Hence the Rohring Court reiterated that interest should be calculated from the date of the verdict on liability. (In many personal injury actions, liability and damages are not separately tried and therefore this holding has no impact on those cases.) But the new statutory scheme presents a new problem. Although there always have been awards in personal injury actions for both past damages sustained and for anticipated future damages, this is the first time that future damages are payable in the future. Hence in calculating interest on damages from the date of the liability verdict, should the court also calculate interest on the future portion of the award which is payable in the future and is therefore not yet due and owing?

The Court begins with an analysis of the interest statues, CPLR 5001, 5002 and 5003. But the Court's analysis should not end there. It must incorporate an understanding of what interest is, i.e. delay damages, and continue with a "mathematical" analysis as this same Court did in Milbrandt v. A. P. Green Refractories Co., 79 N.Y. 2d 26 (1992). Regrettably the Court failed to do so.

The Court reasoned that since the date of the verdict determines the defendant's "obligation," payment becomes "fixed" at that time. Hence interest is due on the entire judgment from that time. The Court did not go beyond the wording of the statutes which require interest to be applied. It did not incorporate an understanding of what interest is, i.e., delay damages, nor did it apply any mathematical analysis to test the correctness of its reasoning and assumptions. The Court's conclusion, however, may be correct. This depends on the answer to a yet unanswered question: when do periodic payments for these future damages begin? Based on the Court's conclusion, the mathematically correct answer is that payments are to begin after judgment and not after verdict.

The Court's holding appears to be limited to CPLR 5002 interest, i.e., interest calculated from date of verdict to date of judgment, which is typically added to the judgment by the judgment clerk. The Rohring Court stated: "Thus we hold that ... interest was properly charged against the present value of future damages from [the verdict] under CPLR 5002." (Emphasis added) Indeed the Judgment in Rohring did not raise as an issue the calculation of interest beyond the date of Judgment (CPLR 5003); hence it was not before the Court. If the Court's reasoning were applied to CPLR 5003 interest, the result would, mathematically, provide an overpayment to the plaintiff. Perhaps the Court intended this limitation; at the very least there remains another question. Specifically when defendants write the check to pay a judgment, how much CPLR 5003 interest should be added up to the date of payment? Defendants agree that the statutory 9% should be added to all past and lump sum damages due at date of verdict, including attorney's fees, but what about the future periodic payments which have been adjusted by statute to be paid in the future?

Calculation of 5003 Interest

Since future payments (that portion of future damages which are payable in the future) are not due and owing, they are not late; since there has been no delay as to this portion of the award, interest should not accrue.

Certainly the statutory 9% interest should be applied to the lump sum portion of the award which represents payment for damages due and owing. But it makes no conceptual sense to apply day to day interest on the "future" portion of the award. In the event that a judgment is stayed by virtue of the taking of an appeal, and the appellate court affirms the award, interest should be due only on each monthly payment due and owing at the time that the judgment is paid and not on the present value of all future damages which have yet to be paid and are not yet due.

This concept of how interest is to be calculated has strong support in the recent opinion by the Court of Appeals in Milbrandt v. A.P. Green Refactories Co., 79 N.Y.2d 26 (1992) which discusses the calculation of interest in wrongful death actions. Although not addressing periodic payments, it provides strong support for the concept that interest should not be calculated on future damages which are not yet due and owing. The Court of Appeals opined:

We conclude that . . . interest [is to be] computed from the time that the particular loss is sustained upon which the interest becomes due. Id., 79 N.Y.2d at 37.

The New York Court of Appeals cited the Second Circuit Court of Appeals in Woodling v. Garrett Corp., 813 F.2d. 543 (2nd Cir. 1987), where it is stated that interest should be calculated "upon each item from the date it was incurred" Id. Simply stated, it makes no conceptual sense to award interest on damages to be paid in the future.

California's Solution

As part of the tort reform in California, the legislature enacted the Medical Injury Compensation Reform Act of 1975 (MICRA), which provides for periodic payment of future damages in medical malpractice cases. Computation of interest on periodic payments was recently addressed by the California Court in Schiernbeck v. Haight, 7 Cal. App.4th 869 (Court of Appeal, 4th Dist. 1992). The Schiernbeck court struck an award of interest on future damages payable in periodic payments. Although the Schiernbeck court acknowledged a "constitutional entitlement to post-judgment interest", the court held that this does not apply to the question of "when interest should accrue" id. at 873. The Court of Appeal held (873):

Where a party will suffer no loss until a future date, constitutional considerations do not require interest to accrue on such sum before the damages are sustained. . . .

The California Court of Appeal further stated that the purpose of the statute requiring periodic payments is to provide compensation for losses that are to occur in the future. "A plaintiff suffers no detriment if the future damages portion of the award is not paid when judgement is entered because the injury for which the payment is intended to compensate has not yet occurred. By definition therefore, a periodic payment due on some future date is not unpaid until that date. 'Interest is only awardable to compensate for a delay in payment and compensation for future needs, involves no such delay.' (Schneider v. Kaiser Foundation Hospitals, 215 Cal. App. 3rd 1311, 1320, fn. 7)." Id. at 874.

The Uniform Periodic Payment Of Judgments Act approved by The National Conference of Commissioners on Uniform State Laws in 1990 advises courts not to calculate interest on future periodic payments. Section 8 of the Uniform Act states quite simply: "Interest does not accrue on a periodic payment before payment is due. If the payment is not made on or before the due date, interest accrues as of that date." This is a simple principal: it makes no conceptual sense to award interest on damages which are payable in the future. The Comment by the Commissioners explains further that:

[i]nterest should not accrue on periodic payments for any period of time before the payments are due. Where judgments are concerned, interest is awarded on amounts which are owed but as yet unpaid. By definition, a future periodic payment is not owed until some date in the future. It is not "unpaid" until after that future date

(citing Schneider supra.).

As mentioned above, despite a lack of mathematical reasoning, the Rohring Court's holding may be correct. This depends on the answer to the yet unanswered question: When do periodic payments for these future damages begin? It would be appropriate to calculate 5003 interest on the present value of future damages if, and only if, all payments of the annuity are delayed. Until the first periodic payment is made, interest is properly due. But no court has decided the pivotal question as to when the annuity begins where there is a delay or a stay in the execution of the Judgment.

In fairness to the injured plaintiff, payments should begin no later than at entry of Judgment. Otherwise, a plaintiff would be receiving payments at a time which will not match his or her needs. For example, a delay in all payments of an annuity to compensate for lost earnings would mean such payments would continue after age 65, despite a jury's finding of work expectancy up to age 65. It would seem preferable for payments to be due and owing at Judgment time, with back payments due plaintiff if there is any delay in execution of the Judgement so that the annuity for lost earnings will still end at age 65, as intended. Additionally, since most payments cease upon the death of plaintiff, entitlement to those payments sooner will mean that plaintiff will receive more of the award in the event of a premature death. If this is what the Courts hold, then it would be inappropriate to pay any 5003 interest on the annuity payments which are still due and owing; interest should be paid only on those payments which were due following entry of Judgment, but were stayed or delayed. This is precisely what the Commissioners have concluded in the Uniform Periodic Payment of Judgments Act.

Interestingly, the Fourth Department in Johnston v. Joyce, 192 A.D.2d 1124, 596 N.Y.S.2d 625, was asked to consider 5003 interest; the issue had been properly preserved. The Court's reasoning in Rohring is notably similar to that of Johnston. In considering 5003 interest, the Johnston Court stated that: "Plaintiff became entitled to interest on her award until such time as defendant satisfies it ... by paying the lump sum provided in the Statute and delivering an annuity contract for the payment of periodic installments" (emphasis supplied) Johnston, supra, at 1126. Perhaps the Johnston Court intended the "delivering of an annuity contract" to mean that the plaintiff would begin with the first payment of the annuity upon execution of the Judgment. But, it would be a disservice to plaintiffs to have the commencement of their entire annuity deferred by virtue of any delay or stay in execution of a Judgment in their favor. Far better for the annuity to be deemed to begin immediately after Judgment. At execution of the judgment, back payments would be due. But in such circumstances, the payments which have not been delayed should accrue no interest.

It is of great interest to note that the Commissioners of the Model Act make a further Comment as to the use of inflation and interest in periodic payments, stating:

Moreover, where the trier of fact has taken inflation into consideration in determining the amount of future damages, to award interest on the periodic payments before they are due would be to account for inflation a second time. This is because interest rates consist of a real rate of return, plus a premium for risk plus a premium to compensate for expected inflation.

Commissioners' Comment to '8, Hindert, Structured Settlements and Periodic Payment Judgments, 1992, p. B-37.

It should be apparent to the reader that the New York statute should not be interpreted to allow inflationary testimony at the time of trial plus a 4% inflation factor plus interest on damages which are due and owing in the future, since such an interpretation creates extraordinarily high future damage payouts, much greater than under the old law and wholly inconsistent with the intent of the statute.

Mathematics as a Jurisprudential Tool

Jurisprudence itself is a science, having very much to do with reasoning. The contribution of mathematics to the development and advancement of science cannot be disputed. Mathematics is not a branch of science itself; rather, it is pure reasoning, the masterpiece of human reasoning. Mathematics is a tool which we all ought to try to acquire so that we can at least have use of it when needed. We all ought to know the true value and utility of the sciences and arts with which we do not meddle in order to recognize how these may help, lest we overlook some reasoning or observation already made which may escape us. We must neglect nothing in the search for truth. Indeed, the true scholar must have a passport across all disciplines. An aspect of our profession which I like most is the law's ability, indeed necessity, to benefit from all areas of knowledge. Mathematical reasoning is one of those areas of human knowledge that can be useful to legal analysis and jurisprudence. Perhaps entrance to law school should require undergraduate training in mathematics. Indeed, entrance into Plato's Academia was forbidden to non-mathematicians. Plato believed that the young mind should study mathematics before embarking upon philosophy. Something needs to be done about the lack of mathematical sophistication in the law. All other "sciences" require it.

Indeed, mathematical knowledge is commonly deemed to have a high degree of validity, binding on mankind, irrespective of cultural conditioning and predilection. If Appellate Courts do not wish to "make new law," or if they do not wish to take a "political" position, they can do no better than to employ mathematical reasoning. The employment of mathematical reasoning, as done by the Rohring Court in a footnote "proving" what the answer to the question posed must be, gives a certain "non-political" validity to the Court's decision. All the more reason for an appellate court to develop its mathematical reasoning. In the footnote the Court demonstrated, mathematically, that to hold otherwise would result in an award which "would actually exceed the amount awarded by the jury." 84 N.Y.2d at 67, 614 N.Y.S.2d at 716, 638 N.E.2d at 64. With solid mathematical reasoning on such issues, the Court's conclusions are indisputable. Where the issue lends itself, the Court should apply a mathematical analysis to test the correctness of its reasoning and assumptions.

But why the Rohring Court used a mathematical analysis to determine the manner in which attorney's fees should be deducted from plaintiff's annuity, but failed to employ a mathematical analysis to determine how interest should be calculated, is baffling. Mathematics can explain such things since the statute involves damages awarded as monetary amounts; mathematics is the science of numbers. A jury's reasoning in awarding such damages may not be entirely mathematical, but once the jury has decided the numbers, the structuring of such a judgment is purely mathematical. Although future damages are reduced to present value by statute, and it may appear correct to calculate interest on this reduced present value, appearances are not everything. What appears to be is not always right; and this is such an instance. The Court failed to employ a mathematical analysis to test the correctness of its reasoning and assumptions.