The opinion
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
ASSIGNED ON BRIEFS OCTOBER 12, 2001
TERRY BROUGH, ET AL. v. MURIEL GERMAINE ADCROFT
Direct Appeal from the Circuit Court for Shelby County
No. 77512 T.D.; The Honorable George H. Brown, Jr., Judge
No. W2001-00786-COA-R3-CV - Filed January 17, 2002
This appeal involves a trial court’s grant of prejudgment interest on arbitration awards. Subsequent
to an automobile accident, the plaintiffs filed suit against their uninsured motorist policy carrier and
another individual involved in the accident. The case proceeded to arbitration and the plaintiffs were
awarded $140,000.00, which was paid by the insurance company. Upon obtaining new counsel, the
plaintiffs learned of a relationship between the arbitrator and the insurance company and motioned
the court to vacate the arbitration award. The trial court granted plaintiff’s motion and resubmitted
the case for a second arbitration. The plaintiffs were awarded $245,000.00 at the second arbitration
and, soon after, motioned the court for prejudgment interest on the award. The trial court awarded
the plaintiffs $71,042.72 of prejudgment interest. The insurance company appealed the decision to
grant prejudgment interest and both parties have contested the method of calculation employed by
the trial court. For the following reasons, we affirm in part, vacate in part, and remand this case for
further proceedings consistent with this opinion.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Circuit Court Affirmed in Part,
Vacated in Part and Remanded
ALAN E. HIGHERS , J., delivered the opinion of the court, in which DAVID R. FARMER , J., and HOLLY
KIRBY LILLARD , J., joined.
Gary R. Wilkinson, Russell C. Rutledge, Memphis, TN, for Appellant
R. Sadler Bailey, Memphis, TN, for Appellees
OPINION
Facts and Procedural History
Mary Brough (Mrs. Brough) and Terry Brough (Mr. Brough) were injured in an automobile
accident on July 4, 1995 in Memphis, Tennessee. The accident occurred when the Broughs, while
traveling down Kirby Road with their minor children, collided with an oncoming car driven by
Muriel Adcroft (Ms. Adcroft). At the time of the accident, the Broughs held an uninsured motorist
policy with State Farm Mutual Automobile Insurance Company (State Farm).
On April 6, 1996, the Broughs and their minor children filed suit against Ms. Adcroft.
Process was served on State Farm as the uninsured motorist carrier pursuant to sections 56-7-1201,
et. seq. of the Tennessee Code. Ms. Adcroft and State Farm filed answers to the complaint
contesting their liability.
The Brough’s case, however, never proceeded to trial. On April 28, 1998, the court issued
orders approving settlements for the claims of the Broughs’ minor children. Soon after, the
individual claims of Mr. and Mrs. Brough were submitted to an arbitrator. All parties agreed to
minimum and maximum awards deemed appropriate for the arbitration. The minimum award was
set at $140,000.00, with $300,000.00 as the maximum. As a result of successful arbitration, Mr. and
Mrs. Brough were awarded $140,000.00, which State Farm paid on December 16,1998. Following
payment of the $140,000.000, the parties entered a consent order of dismissal with prejudice
acknowledging the settlement between the parties.
Upon retaining new counsel, on June 2, 2000, Mr. and Mrs. Brough motioned the court to
vacate the arbitration award pursuant to section 29-5-313 of the Tennessee Code.1 Although the
court failed to find that the arbitrator acted corruptly, fraudulently, or improperly, the court
nevertheless granted the motion. The court’s decision was based on an appearance of impropriety
resulting from relationships between the arbitrator and other parties to the suit.
Pursuant to the court’s order, the matter was resubmitted to arbitration. This time, the
arbitrator awarded the Broughs $245,000.00: $235,000.00 to Mrs. Brough for her injuries and
$10,000.00 to Mr. Brough for loss of consortium. The court entered an order of judgment on
December 1, 2000 confirming the arbitration award.
The Broughs filed a motion with the court seeking prejudgment interest on the awards. On
March 13, 2001, an order was entered awarding $71,042.72 of prejudgment interest to the Broughs.
The interest award consisted of two parts. First, the court awarded interest on the $140,000.00 from
1
Sectio n 29 -5-3 13 o f the T enn essee Code states in pertinent part:
(a) Upon application of a party, the court shall vacate an award where:
(1) Th e awa rd wa s procu red by corrup tion, fraud o r other un due m eans;
(2) There was evident partiality by an arbitrator appointed as a neutral or corruption in any
of the arbitrators or misconduct prejudicing the rights of any party;
....
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the initial arbitration calculated at ten percent annum beginning at the date of injury and extending
until December 16, 1998, the date the $140,000.00 was paid to the Broughs. Second, the court
awarded interest on the additional $105,000.00 from the second arbitration calculated at ten percent
annum beginning December 16, 1998 and extending until entry of the judgment. State Farm now
appeals the circuit court’s decision to award prejudgment interest and disputes the court’s method
of calculation. The Broughs also contend that the trial court erred in calculating the prejudgment
interest.
Issues
There are two issues, as we perceive them, presented for our review:
I. Whether the lower court abused its discretion in awarding the Broughs prejudgment
interest; and
II. If the Broughs were entitled to prejudgment interest, whether the lower court erred
in its calculations of the award.
Standard of Review
Section 47-14-123 of the Tennessee Code vests trial courts with the authority to grant awards
of prejudgment interest as equity requires. Such awards are granted in the court’s sound discretion
and will not be disturbed on appeal “unless the record reveals a manifest and palpable abuse of
discretion.” Spencer v. A-1 Crane Serv., Inc., 880 S.W.2d 938, 944 (Tenn. 1994). As stated by our
supreme court:
This standard of review clearly vests the trial court with considerable deference in the
prejudgment interest decision. Generally stated, the abuse of discretion standard does
not authorize an appellate court to merely substitute its judgment for that of the trial
court. Thus, in cases where the evidence supports the trial court’s decision, no abuse
of discretion is found.
Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998).
The deference given to trial courts with regard to prejudgment interest, however, should not
be considered “synonymous with rubber stamping a trial court’s decision.” Scholz v. S.B. Int’l, Inc.,
40 S.W.3d 78, 82 (Tenn. Ct. App. 2000). Instead, “an abuse of discretion exists when the reviewing
court is firmly convinced that the lower court has made a mistake in that it affirmatively appears that
the lower court's decision has no basis in law or in fact and is therefore arbitrary, illogical, or
unconscionable.” State v. Brown & Williamson Tobacco Corp., 18 S.W.3d 186, 191 (Tenn. 2000).
Law and Analysis
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With regard to the first issue, several factors guide courts in determining whether to award
prejudgment interest. First and foremost, equity should serve as the guiding principle. TENN. CODE
ANN . § 47-14-123 (2000); Myint, 970 S.W.2d at 927. Accordingly, courts must look to the facts of
each case and determine whether awarding prejudgment interest would be fair under the
circumstances. Myint, 970 S.W.2d at 927.
When considering fairness, certainty concerning either the existence or amount of an
obligation bolsters a litigant’s claim that prejudgment interest would be proper. Id. As noted by our
supreme court, however, the converse is not necessarily true. Id. Instead, when the existence or
amount of a claim is uncertain, general notions of equity can still support an award for prejudgment
interest. Uncertainty of a claim or its amount will never mandate the rejection of a litigant’s claim
for prejudgment interest. Id.
When reviewing the issues, this Court must also remember the purpose of awarding
prejudgment interest. Prejudgment interest is not awarded to punish a wrongdoer. Instead, its
purpose is to ensure that plaintiffs receive full and adequate compensation for their injuries. Id.
Plaintiffs, in effect, often receive two injuries because of a tort: actual damages from the tort itself
as well as lost use of funds over time resulting from the tort. Scholz, 40 S.W.3d at 82. By awarding
prejudgment interest, a court compensates the plaintiff for lost use of funds.
In the case sub judice, we find sufficient evidence supporting the lower court’s decision to
award prejudgment interest and hold that the lower court did not abuse its discretion in that respect.
Several facts support our conclusion. We first note that State Farm has never disputed the existence
of the Brough’s claim against it. Instead, State Farm argues that the damages under the Brough’s
claim were not ascertainable by computation or any recognized standard of valuation and, thus, were
uncertain. State Farm further argues that because the damages were uncertain, the lower court
abused its discretion in awarding prejudgment interest.
We find State Farm’s argument to be unpersuasive. Certainty of either the existence of a
claim or the proper amount of damages helps support awards of prejudgment interest. Id. State
Farm’s arguments concern only the latter. Our focus, however, must also look to whether there was
certainty of the claim itself. Our review of the record reveals that there was certainty as to the claim
held by the Broughs. Accordingly, this certainty helps support the trial court’s decision to award
prejudgment interest.
In addition, our supreme court has stated that the criteria used to determine the propriety of
prejudgment interest awards, “if strictly construed, could prohibit the recovery of prejudgment
interest in the vast majority of cases.” Myint, 970 S.W.2d at 927. Accordingly, even if uncertainty
of a claim or damages associated with that claim exists, such uncertainty should never mandate the
denial of prejudgment interest. Instead, as stated above, equity should always remain the polestar
in determining whether to award prejudgment interest.
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Here, the trial court found that an appearance of impropriety existed in the initial arbitration
proceedings. Further, because of the appearance of impropriety, a second arbitration was conducted,
wherein the Broughs received a considerably larger award. These circumstances clearly place equity
on the Brough’s side and support their claim for prejudgment interest. Accordingly, finding no abuse
of discretion, we affirm the trial court’s decision and hold that the Broughs were entitled to an award
of prejudgment interest.
Having determined that an award for prejudgment interest would be proper in this case, we
must now turn to the second issue raised for our review: whether the trial court erred in calculating
the prejudgment interest award. Both parties to this appeal allege that the trial court erred in
calculating the award. State Farm alleges in part that the award should not have included interest
on the initial award of $140,000.00 because the Broughs agreed to accept that amount as full
compensation for their damages. The Broughs argue that they deserve interest on the entire award
of $245,000.00 from the second arbitration.
As stated above, prejudgment interest serves to compensate plaintiffs for the lost use of their
funds. This goal fails to be served by the trial court’s method of calculation. Although an award of
$140,000.00 was initially entered in favor of the Broughs, the award was vacated due to an
appearance of impropriety and replaced with an award of $245,000.00 upon further arbitration. The
second award, being the only valid remaining award, represents the damages actually suffered by the
Broughs. Accordingly, we hold that the Broughs are entitled to receive prejudgment interest on that
amount.
State Farm argues that because the Broughs agreed to accept $140,000.00 as full
compensation for their damages in the first arbitration, equity requires a denial of prejudgment
interest on that amount. With the peculiar circumstances of this case, however, we disagree and find
that equity supports a greater award. When the Broughs agreed to accept the initial $140,000.00,
they were unaware of the facts which led to the necessity of the second arbitration. Specifically, the
Broughs were unaware of the potential impropriety resulting from a relationship between State Farm
and the arbitrator. Upon discovering this fact, however, a motion to vacate the arbitration award was
requested by the Broughs and granted. Simply put, the Broughs should not be bound by their
decision to accept the $140,000.00 under these circumstances.
A proper award of prejudgment interest in this case must reflect the final valid arbitration
award of $245,000.00. Accordingly, we vacate the court’s order awarding the Broughs $71,042.72
of prejudgment interest and remand this case to the trial court for a proper calculation of interest.
Upon remand, prejudgment interest should be awarded on the second award of $245,000.00
calculated at ten percent annum beginning the date of injury and extending until December 16,1998
when the $140,000.00 payment was made to the Broughs. The award should also contain interest
on the remaining $105,000.00 calculated at ten percent annum beginning on December 16, 1998 and
extending until entry of the final judgment.
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Conclusion
For the foregoing reasons, the decision of the chancery court is affirmed in part, vacated
in part, and remanded for further proceedings consistent with this opinion. Costs of this appeal
are taxed against the Appellant, State Farm Mutual Automobile Insurance Company, and its
surety, for which execution may issue if necessary.
___________________________________
ALAN E. HIGHERS, JUDGE
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