KERNS v. LOGICWORKS SYSTEM CORPORATION

Filing 79

OPINION. Signed by Judge William H. Walls on 7/28/15. (DD, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

GEORGE L. KERNS,

OPINION

Plaintiff,
V.

Civ. No. 12-04146 (WHW) (CLW)
LOGICWORKS SYSTEMS CORPORATION,
Defendant.

Walls, Senior District Judge

Following jury trial, Plaintiff George Kems moves for an order entering judgment and
awarding prejudgment interest. The parties dispute the appropriate interest rate for calculating
prejudgment interest. Ruling without oral argument under Federal Rule of Civil Procedure 78(b),
the Court enters judgment in Plaintiffs favor and awards Plaintiff prejudgment interest of
$19,764.57 plus $22.36 for each day of 2015 up to and including the day judgment is entered.
FACTUAL AND PROCEDURAL BACKGROUND

In June 2015, the Court presided over a jury trial in this matter to determine whether
Defendant Logicworks Systems Corporation (“LSC”) breached Mr. Kems’s employment contract
“by failing to use good faith efforts to set forth individual and corporate performance goals within
60 days of June 15, 2011.” Jury Verdict, ECF No. 77. After closing arguments, the Court instructed
the jury on New York law, which governed the parties’ contract. See Opinion 3 n.1 (Oct. 10, 2012),
ECF No. 18. On June 12, 2015, the jury returned a verdict finding that LSC breached the contract.
Id. The jury also rejected LSC’ s affirmative defense, and determined that Plaintiff is entitled to
damages of $365,148.97. Id. Plaintiff now moves for an order entering judgment against LSC and
an award of prejudgment interest. Pl.’s Mem. 3, ECF No. 73-1.
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DISCUSSION
There is no dispute regarding Plaintiffs request for an entry ofjudgment against LSC for
$365,148.97 in accordance with the jury’s verdict. See Def.’s Mem. 1, ECF No. 78. The parties’
dispute regards the appropriate interest rate for calculating prejudgment interest. Plaintiff argues
that New York law dictates the prejudgment interest rate because New York law governs the
employment contract and “prejudgment interest for breach of contract causes of action

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is a

matter of substantive law.” Pl.’s Mem. 4. Defendant argues that “prejudgment interest is a
procedural matter controlled by New Jersey law.” Def.’s Mem. 1.
1. New Jersey Law Governs Prejudgment Interest

“federal courts sitting in diversity must apply state law with respect to prejudgment
interest.” Gleason v. Norwest Mortgage, Inc., 253 F. App’x 198, 203 (3d Cir. 2007) (citingJarvis
v. Johnson, 668 f.2d 740, 746 (3d Cir. 1982)). The question of which state’s law to apply is
resolved using the forum state’s conflict of law rules. Draper v. Airco, Inc., 580 F.2d 91, 97 (3d
Cir.1978) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941)). The New Jersey
Supreme Court has determined that New Jersey law governs prejudgment interest awards “even
when a different state’s substantive law must govern” the dispute. N Bergen Rex Transp., Inc. v.
Trailer Leasing Co., 158 N.J. 561, 569 (1999).’ Accordingly, this Court must apply New Jersey
law regarding prejudgment interest when sitting in diversity, even though New York substantive
law governs the parties’ contract dispute. Gleason, 253 F. App’x at 203; see also Promotion in

Plaintiffs reference to Travelers Cas. & Sur. Co. v. Ins. Co. ofN Am., 609 F.3d 143, 169 (3d
Cir. 2010), is inapposite. That opinion dealt with how the Pennsylvania Supreme Court would
apply Pennsylvania’s conflict of law rules to identify the law applicable to prejudgment interest.
Id. at 169-74. It does not instruct as to how the New Jersey Supreme Court would apply New
Jersey’s conflict of law rules to identify the law applicable to prejudgment interest in this case.
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Motion, Inc. v. Beech-Nut Nutrition Corp., Civ. No. 09-1228, 2012 WL 5045135, at *2 (D.N.J.
Oct. 17, 2012); Munich Reinsurance Am., Inc. v. Am. Nat. Ins. Co., 999 F. Supp. 2d 690, 758
(D.N.J. 2014), aff’d, 601 F. App’x 122 (3d Cir. 2015).
2. Mr. Kerns Is Entitled to a Prejudgment Interest Award
Under New Jersey law, “the award of prejudgment interest in a contract case is within the
sound discretion of the trial court.” Litton Industries, Inc. v. IMO Industries, Inc., 200 N.J. 372,
391 (2009). The New Jersey Supreme Court has guided that
the rate at which prejudgment interest is calculated is within the discretion of the
court. We have explained that the primary consideration in awarding prejudgment
interest is that the defendant has had the use, and the plaintiff has not, of the amount
in question; and the interest factor simply covers the value of the sum awarded for
the prejudgment period during which the defendant had the benefit of monies to
which the plaintiff is found to have been earlier entitled.
Id. at 390 (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474,506 (1974)) (internal
citations omitted). Prejudgment interest should not be imposed as a punitive measure. New Jersey
Mfrs. Ins. Co. v. Nat’l Cas. Co., 393 N.J. Super. 340, 354 (App. Div. 2007). Considering this
guidance, the Court finds that Mr. Kerns is entitled to an award of prejudgment interest. The jury
returned a verdict in his favor, finding that LSC breached his employment contract and caused him
monetary damages. An award of prejudgment interest will compensate Mr. Kems for his lost use
of the money during the pendency of this litigation.
LSC presents two arguments against an award of prejudgment interest. First, LSC argues
that Mr. Kerns should not receive interest on the $22,148.97 bonus amount which LSC offered
him in May 2012 and he rejected. Def.’s Mem. 5. The Court agrees. Mr. Kems refused to accept
the $22,148.97 when it was offered to him, and the Court will not award him interest on an amount
that he could have had but repudiated.

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Second, LSC argues that the circumstances “do not justify punishing Logicworks further
by assessing prejudgment interest.” Id. The Court disagrees with L$C’s characterization of a
prejudgment interest as punitive. It is not. As discussed, New Jersey law only affords an award of
prejudgment interest to compensate for lost use of money. The jury has determined that LSC owed
Mr. Kerns $365,148.97 under his employment contract, but did not pay it to him. Because Mr.
Kerns lost the use of this sum during this litigation, the equities favor awarding him prejudgment
interest to compensate for the delay. The Court will award Mr. Kerns prejudgment interest on
$343,000.00, which represents the judgment amount of $365,148.97 less the $22,148.97 amount
Mr. Kerns refused in May 2012.
3. A 2.25% Annual Interest Rate is Appropriate

While equitable principles ultimately govern the award of prejudgment interest in contract
disputes, absent unusual circumstances, courts look to New Jersey Court Rule 4:42-11 for guidance
as to the appropriate prejudgment interest rate. Litton, 200 N.J. at 390-91; DialAmerica Marketing,
Inc. v. KeySpan Energy Corp., 374 N.J. Super. 502, 508 (App. Div. 2005). Rule 4:42-11(a)(ii)
establishes 0.25% or the rate of return of the New Jersey Cash Management Fund, whichever is
higher, as the appropriate prejudgment interest rate for judgments up to $15,000. N.J. Court Rules,
R. 4:42-11. For judgments equal to or greater than $15,000, Rule 4:42-11(a)(iii) adds two
percentage points to the rate. Id., R. 4:42-1 1(a)(iii). The New Jersey Cash Management Fund
returned less than 0.25% for 2012, 2013, and 2014. See Rates of Return, Division of Investment,
State ofNew Jersey Department of the Treasury, http ://www.nj .gov/treasury/doinvest/cash3 shtml
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(last visited July 14, 2015). As such, the applicable prejudgment interest rate for this case under
Rule 4:42-1 1 would be 2.25%.

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While this rate serves as a guidepost, courts have considered factors in analyzing the
equities such as “the amount of judgment at issue,” “the length of this litigation,” and “the
reasonable rates of return that [the nonbreaching party] might have earned.” See, e.g., WR. Huff
Asset Mgmt. Co., L.L. C. v. William Soroka 1989 Trust, Civ. No. 04-3093, 2009 WL 2436692, at
*7 (D.N.J. Aug. 6, 2009). The Court takes into consideration the significant amount of money at
issue in this case and the three year pendency of this litigation. Although the Court will not and
does not speculate as to whether or how Mr. Kerns would have invested any portion of the money,
the Court acknowledges his representation that the S&P 500 stock market index has increased by
an average annual rate of approximately 17% during this period. Pl.’s Mem. 7. Exercising its
equitable discretion, the Court finds that a 2.25% annual prejudgment interest rate is appropriate
to compensate Mr. Kerns for his lost use of the judgment amount.
It is also within the Court’s discretion to determine the date on which prejudgment interest
began to accrue. Cnty. ofEssex v. First Union Nat. Bank, 186 N.J. 46, 61(2006). Exercising this
discretion, the Court will award prejudgment interest for the period running from the date L$C
formally acknowledged service of the complaint initiating this action, June 26, 2012,2 until the
date on which judgment is entered. See, e.g., Devine v. Advanced Computer Concepts Inc., Civ.
No. 08-875, 2009 WL 78158, at *4 (D.N.J. Jan. 9, 2009). finally, the Court will calculate
prejudgment interest with annual compounding, as doing so serves the goal of compensating Mr.
Kerns for the lost time value of his money. Musto v. Vidas, 333 N.J. Super. 52, 75, 754 A.2d 586,
599 (App. Div. 2000). At a 2.25% annual interest rate, the prejudgment interest award shall be

2

See Notice of Removal, Ex. B, ECF No. 1-2.
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$19,764.57 for the period from June 26, 2012 to December 31, 2014, plus $22.36 for each day of
2015 up to and including the day judgment is entered.3
CONCLUSION
The Court enters judgment in Plaintiffs favor and awards Plaintiff prejudgment interest of
$19,764.57 plus $22.36 for each day of 2015 up to and including the day judgment is entered. An
appropriate order follows.

Date: Ju1y’015

United States Se

istrict Judge

These amounts reflect annual interest compounding. for the period from June 26, 2012 to
December 31, 2012 (128 days), $3,975.04 of interest accrued at a 2.25% annual rate on the amount
of $343,000.00. for 2013, $7,806.94 of interest accrued at a 2.25% annual rate on the $343,000.00
amount plus the 2012 interest amount (S346,975.04). For 2014, $7,982.59 of interest accrued at a
2.25% annual rate on the $343,000.00 amount plus the 2012 and 2013 interest amounts
($354,781.98). In 2015, at a 2.25% annual rate, $22.36 accrues each day on the $343,000.00
amount plus the 2012, 2013, and 2014 interest amounts ($362,764.57).
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