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Prejudgment Interest Where More Favorable Offer of Judgment is Rejected

Metzler v. BCI Coca-Cola Bottling Co., 668 Ariz. Adv. Rep. 38 (App. Div. II, August 28, 2013) (J. Vasquez)

INTEREST ON A FAILURE TO ACCEPT A MORE FAVORABLE OFFER OF JUDGMENT THAN THE VERDICT IS AT 10%

Plaintiff obtained a $1.5 million verdict as a result of a fall in a grocery store. The trial court entered judgment for $1,855,398.86 which included prejudgment interest under Rule 68(g) of the Arizona Rules of Civil Procedure as a result of defendant's failure to accept an offer of judgment for $150,000. The trial court awarded plaintiff prejudgment interest at ten percent. Defendant argued that prejudgment interest under Rule 68(g) should be one percent plus the prime rate, or 4.25 percent, pursuant to ยง44-1201, as amended. Plaintiff argued prejudgment interest pursuant to Rule 68 is a sanction, which is more appropriately classified as an 'obligation' or 'indebtedness'" under the statute and thus ten percent was the right rate of interest. The trial court agreed with plaintiff and defendant appealed. The Arizona Court of Appeals affirmed and modified the judgment.

ARS sec 44-1201 was amended in 2011 to provide that prejudgment interest on a loan, debt or obligation shall be ten percent whereas interest on a judgment shall be one percent plus the prime rate at the time of the judgment. The court of appeals found the Rule 68 sanction to be an obligation and hence the ten percent interest rate was appropriate. " We believe the commonly accepted meaning of "obligation" encompasses prejudgment interest imposed as a sanction pursuant to Rule 68(g). Rule 68(g) provides that an offeree "must pay" sanctions if the offeree rejects an offer and fails to obtain a more favorable judgment. The word "must" is commonly used to express an obligation or duty. . . . contrary to BCI's argument, the source of prejudgment interest imposed as a sanction under Rule 68(g) is the rule itself, not the judgment."

Finally the court found that the judgment contained a mathematical error of $62.40 in favor of the plaintiff and modified the judgment to deduct that error.

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