Nation v. W D E Electric Co.

563 N.W.2d 233, 454 Mich. 489

• Court: Michigan Supreme Court
• Decided: June 3, 1997
• Docket: 104659, Calendar No. 14
• Status: Published

Opinions

Boyle, J.

We granted leave in this case to decide whether reduction of future damages to present cash value under MCL 600.6306; MSA 27A.6306 is to be calculated using compound or simple interest. We reverse the decision of the Court of Appeals and hold that simple interest is appropriate under the statute.

FACTS AND PROCEDURAL HISTORY

Plaintiff Michael Nation, an independent contractor employed by the W. D. E. Electric Company, was engaged in electrical work at the C. J. Link Lumber Company on June 24, 1992, when he fell from a ladder.¹ He sued defendants C. J. Link, Ecolo-Tech, Inc., and W. D. E. Electric Company in the Genesee Circuit Court on various tort theories for the injuries he sustained in the fall. The jury found plaintiff sixty-five percent at fault, but awarded damages against one defendant, W. D. E. Electric, for its comparative negligence as follows: $15,000 for past lost earning capacity and medical expenses, $2,700 for past pain and suffering, $6,372 for future medical expenses, and $1,000 a year for future pain and suffering until the year 2034. The jury applied annual compound interest of five percent to the $1,000 award. It did not award damages for future lost earning capacity.

The trial court, at defendant’s request, reduced plaintiff’s future damages to a present cash value of $42,000, using compound interest. The court rejected plaintiff’s request that simple interest be employed to arrive at a present cash value of $60,611.31.² The plaintiff appealed on various grounds, including whether the court used the proper method to reduce the award of future damages. The Court of Appeals affirmed, 213 Mich App 694; 540 NW2d 788 (1995), and we granted leave “limited to whether MCL 600.6306; MSA 27A.6306 requires interest compounding to reduce a jury award to present cash value.” 453 Mich 915 (1996).

i

Section 6306 provides in relevant part:

(1) After a verdict rendered by a trier of fact in favor of a plaintiff, an order of judgment shall be entered by the court . . . against each defendant ... in the following order and in the following judgment amounts:

* * *

(c) All future economic damages, less medical and other health care costs, and less collateral source payments . . . reduced to gross present cash value.

(d) All future medical and other health care costs reduced to gross present cash value.

* * *

(2) As used in this section, “gross present cash value” means the total amount of future damages reduced to present value at a rate of 5% per year for each year in which those damages accrue ....

Before 1986, under the common law, the obligation to perform the reduction of future damages to present cash value in personal injury actions was the obligation of the jury. SJI2d 53.03 instructed the jury to perform the calculation using simple interest. Under the tort reform legislation passed in 1986, § 6306 transferred the obligation to perform the calculation to the trial judge. We decline the invitation to hold that this transfer abrogated the method in place under the common-law scheme. The Legislature did not explicitly require the use of compound interest as it did in the context of judgment interest.³ Moreover, the Legislature contemporaneously rejected a bill seeking to require just that.⁴

The common law has long favored simple interest and disfavored compound interest, which it has characterized as “interest on accrued interest.” See, e.g., Schwartz v Piper Aircraft Corp, 90 Mich App 324, 327; 282 NW2d 306 (1979). The Court of Appeals aptly there observed:

[T]hose courts which have dealt with similar problems have uniformly rejected compound interest except where specifically authorized by statute or in cases where compounding of interest was granted as a penalty for some misconduct on the part of a defendant. [Id. at 326.][⁵]

For nearly eighty years .before the enactment of § 6306, Michigan approved the use of simple interest to reduce damages to present value. Rivers v Bay City Traction & Electric Co, 164 Mich 696; 128 NW 254 (1910). SJI2d 53.03, still applicable to damage awards in cases not covered by § 6306,⁶ reflects the state of the common law under Rivers before the enactment of § 6306. A dispute arises now, however, with regard to the meaning of § 6306 because the Legislature did not explicitly specify which method should be employed by the court in reducing future damage awards to present value.

n

In resolving disputed interpretations of statutory language, it is the function of a reviewing court to effectuate the legislative intent. Hiltz v Phil’s Quality Market, 417 Mich 335, 343; 337 NW2d 237 (1983).⁷ If the language used is clear, then the Legislature must have intended the meaning it has plainly expressed, and the statute must be enforced as written. Id. Section 6306 is silent with regard to the kind of interest rate to be employed. However, the Legislature is deemed to act with an understanding of common law in existence before the legislation was enacted. Nummer v Treasury Dep’t, 448 Mich 534, 544; 533 NW2d 250 (1995); Garwols v Bankers Trust Co, 251 Mich 420, 424-425; 232 NW 239 (1930).⁸ Moreover, “statutes in derogation of the common law must be strictly construed, and will not be extended by implication to abrogate established rules of common law.” Rusinek v Schultz, Snyder & Steele Lumber Co, 411 Mich 502, 508; 309 NW2d 163 (1981). In other words, “[w]here there is doubt regarding the meaning of such a statute, it is to be ‘given the effect which makes the least rather than the most change in the common law.’ ” Energetics, Ltd v Whitmill, 442 Mich 38, 51; 497 NW2d 497 (1993). “This Court will presume that the Legislature of this state is familiar with the principles of statutory construction.” People v Hall, 391 Mich 175, 190; 215 NW2d 166 (1974).

These principles of statutory construction alone are ample authority for the conclusion that simple interest was intended by the Legislature when reenacting § 6306 in 1986. The Legislature did not expressly provide for compound interest, instead making it clear only that the responsibility for making the calculation was being transferred from the jury to the trial judge. The tort reform legislation of 1986 was a comprehensive effort involving numerous compromises. It strains common sense to surmise that the Legislature was unaware of the interest-calculation question and simply overlooked the common-law scheme for reducing judgments to present cash value using simple interest. We therefore presume the Legislature intended to maintain the status quo when it changed the statute without expressly providing that compound interest would be required. To conclude otherwise would violate the clear dictates of well-established rules of statutory interpretation.

m

Extrinsic evidence in the form of legislative history supports our conclusion. First, the Legislature enacted § 6306 as part of 1986 PA 178. That same act also amended parts of MCL 600.6013(5); MSA 27A.6013(5) and MCL 600.6455; MSA 27A.6455, both of which provide for calculation of the interest on judgments using compound interest. Section 6013(6)⁹ provides in pertinent part:

[F]or complaints filed on or after January 1, 1987, interest on a money judgment recovered in a civil action shall be calculated at 6-month intervals from the date of filing the complaint at a rate of interest that is equal to 1% plus the average interest rate paid at auctions of 5-year United States treasury notes during the 6 months immediately preceding July 1 and January 1, as certified by the state treasurer, and compounded annually, pursuant to this section. [Emphasis added.]

Before being “extensively revised” in 1980, Gage v Ford Motor Co, 423 Mich 250, 253; 377 NW2d 709 (1985), § 6013 was silent regarding whether simple or compound interest applied. Acknowledging the common-law preference for simple interest that was dis-positive in Schwartz,10 Gage, supra at 259, this Court held that the Legislature’s silence in this regard demonstrated “that the Legislature did not intend to provide for compounding of [judgment] interest before June 1, 1980,” the effective date of the statute. Id. at 258. Rather, Justice Brickley, speaking for a unanimous Court, concluded that “[t]he analyses of the bill, as well as the wording of the amended statute, clearly indicate[d] the intent that before June 1, 1980, interest was to continue to be computed in the former manner — six percent interest without compounding.” Id. at 258. In reaching this conclusion, we reasoned, “It was clear to the Legislature when it embarked on this amendment that the six percent interest had been construed to be simple interest, Schwartz, supra, and it made no attempt to change it retroactively.” Gage, supra at 259. We find this reasoning to be compelling here.

Assuming the Legislature was aware of the common law as it previously existed, which disfavored compound interest in the context of interest on judgments, as well as in the context of reduction to present cash value, it could have explicitly abrogated the common-law rule for reduction as it had for § 6013. Given that § 6306 evidences no such decision by the Legislature,¹¹ and in light of our reasoning in Gage, we decline to depart from the established rule.

Second, the Legislature contemporaneously rejected House Bill 5176 in favor of the bill that became 1986 PA 178.¹² That bill would have expressly provided under subsection 6305(2) that “[fjuture damages must be reduced to present value by applying a discount factor of 3%, compounded annually.” We are not inclined to second-guess the process attending the legislative choice made in reaching agreement on the language contained in § 6306. Our province is to give effect to the statute as enacted in the context of the common-law scheme in place at that time. In light of the Legislature’s rejection of an explicit provision requiring compound interest, we presume the Legislature’s silence evidences an intent that courts continue to use simple interest.¹³

IV

Finally, we reject the decision of the United States Court of Appeals for the Sixth Circuit in Kirchgessner v United States, 958 F2d 158 (CA 6, 1992), on which both defendant and the Court of Appeals relied. We find the opinion in that Federal Tort Claims Act¹⁴ case unpersuasive because it fails to rely on Michigan authority and because its underlying rationale is incorrect.

Citing no Michigan or other authority to support its decision, the Sixth Circuit departed from the normal practice of employing simple interest in Michigan because “the difficulty and potential for juror confusion, have been statutorily removed.” Id. at 162. While it is true that the common law under Rivers, supra, viewed five percent simple interest as a rule of convenience, id. at 709, we disagree with the Sixth Circuit’s conclusion that the convenience sought had to do solely with the jury’s inability to grasp the complexities of compound interest. Rather, the convenience rationale underlying Rivers relates to the inability of courts to precisely arrive at a mathematical figure that represents the value money received today will have at some future date. For the sake of convenience, the system takes its best guess at what will be necessary today to compensate the plaintiff for damages expected in the future. It is not a scientific exercise requiring actuarial precision,¹⁵ but is “an effort to ascertain and apply a rale which can be conveniently applied to the facts and result in substantial right . . . .’’Id. Although defendant argues that this provides plaintiff a. windfall, calculation of five percent compound interest is not only well within the competence of the trial court, it is also within the competency of a jury provided with a calculator. The question what is a reasonable method for reducing future damages to present value is a policy judgment based on an assessment of economic indicators.¹⁶ The statute does not indicate that the Legislature has resolved this question in favor of compound interest. Until the Legislature sees fit to more clearly say otherwise, continued application of simple interest is the prudent way to proceed.

v

For the reasons stated above, we hold that future damages under § 6306 are to be reduced to present cash value using the same simple interest that has been employed under the common law for at least eighty years in Michigan. We reverse the decision of the Court of Appeals and vacate the trial court’s judgment as it pertains to future damages. We remand the case to the trial court for entry of a judgment consistent with this opinion.

Mallett, C.J., and Cavanagh and Kelly, JJ., concurred with Boyle, J.

1 C. J. Link had contracted with W. D. E. for the installation óf a dust-collection system.

2 Simple interest reduces damages arithmetically by dividing damages in the first year by 1.05, in the second by 1.10, in the third by 1.15, etc. Compound interest reduces damages exponentially each year by dividing the first year by 1.05, but then multiplying the denominator in each year by an additional five percent, so that the denominator in year two is 1.1025, in year three is 1.157625, etc. In effect, the compound method adds accrued interest to the principal before charging the applicable rate of interest to the adjusted principal. We do not dispute here that compound interest is the standard generally employed in the business and financial world today.

3 See MCL 600.6013(5); MSA 27A.6013(5), MCL 600.6455; MSA 27A.6455.

4 See House Bill 5176.

5 See also 47 CJS, Interest & Usury, § 6(c), p 31 (“The law does not favor compound interest or interest on interest .... As a general rule, in the absence of contract therefor ... or of [a] statute authorizing it, compound interest is not allowed to be computed on a debt”).

6 RJA, chap 63 concerns personal injury verdicts and damages.

7 See also Gage v Ford Motor Co, 423 Mich 250, 260; 377 NW2d 709 (1985) (“The cardinal rule of statutory construction is to give effect to the intent of the Legislature”).

8 See also Gordon Sel-Way, Inc v Spence Bros, Inc, 438 Mich 488, 506; 475 NW2d 704 (1991) (presuming that the Legislature acts with knowledge of statutory interpretations by the Court of Appeals).

9 The Legislature renumbered and reenacted subsections (5)-(10) as subsections (6)-(ll).

10 In Schwartz, supra, the Court of Appeals addressed whether § 6013 provided for simple or compound interest on a money judgment. Like the statute now before us, § 6013 was silent with respect to the kind of interest to be employed, and the Court concluded simple interest was appropriate because of the common-law preference. Id. at 326.

11 We reject defendant’s assertion that the contrary conclusion is required if the statutes are read in pari materia

12 “We are aided in discovering legislative intent in enacting any statute by examining the proposed legislation it considered and rejected, contrasted with the provisions as finally adopted.” Miller v State Farm Mut Automobile Ins Co, 410 Mich 538, 566; 302 NW2d 537 (1981).

13 Thus, we defer to the legislative choice and reject the dissent’s preference for changing the common law because compound interest may result in a more precise calculation.

14 28 USC 2674.

15 The Sixth Circuit has chosen a different path, using modern-day actuarial principles that employ compound interest. United States Steel Corp v Lamp, 436 F2d 1256, 1280, n 11 (CA 6, 1970). Thus, Kirchgessner is consistent with the course taken in federal courts, where “the determination of the discount rate . . . rests within the sound discretion of the District Court.” Lamp at 1280, n 11. We refuse to take such an approach because the Legislature has specifically provided the applicable discount rate without evidencing any intent to alter the common-law procedure.

16 Moreover, we find the Kirchgessner court’s assertion that the discount in later years will be greater than five percent confusing because the converse might as easily be said of compound interest.