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Recovering Pre-Judgment Interest in Tennessee Breach of Contract Cases

Pre-judgment interest is the interest which accrues from the date an obligation is due to the plaintiff until the day the judge or jury enters a verdict in favor of the plaintiff.

Given that a breach of contact case or other commercial litigation case may take a year or more to get to the point where a verdict is rendered once the case is filed, pre-judgment interest can be substantial in many cases. Consider also that, for various reasons, many cases are not filed until months, even years, after the debt was due to the plaintiff.

Where the parties in litigation do not have a contract about the amount of any interest due, as is often the case, T.C.A. §47-14-123 allows a judge or jury to award pre-judgment interest at any rate not in excess of ten percent (10%).  Under Tennessee case law, if you are relying on the statute for pre-judgment interest, you can never receive anything more than simple interest. You cannot compound statutorily awarded pre-judgment interest.

In my experience, pre-judgment interest is awarded frequently to successful plaintiffs in breach of contract cases.  The award of pre-judgment interest is a matter of discretion for the judge or jury.  So, there certainly are breach of contract cases in which pre-judgment interest has not been awarded.

I, and at least two other courts, interpret the 1998 decision of the Supreme Court of Tennessee in the case of Myint v. Allstate Insurance Company as favoring the award of pre-judgment interest in cases where it is appropriate.   Under Myint, trial courts have expansive discretion when it comes to awarding pre-judgment interest. In Myint, the court said the standard for determining whether pre-judgment interest should be awarded is to be based on whether it would be fair considering all of the facts.

In determining whether to award pre-judgment interest, expect a Tennessee court to look at the following factors: (1) Whether the amount of the debt was definite; (2) whether there were reasonable grounds for the defendant to dispute the debt; and (3) whether there was delay by the plaintiff in bringing the lawsuit or in the litigation process.

In cases where the amount of the debt cannot be disputed, such as for example, where invoices for definite amounts have not been paid, the award of pre-judgment interest is highly likely in my experience. In cases where the amount of the debt is not so definite, such as, for example, in a case where a plaintiff sues for lost profits, in my experience, obtaining an award of pre-judgment interest may be more difficult.

An informative and well written opinion on the matter of pre-judgment interest is Scholz v. S.B. International, Inc. (Tenn. Ct. App. 2000).  In that case, the plaintiff was an executive with an employment agreement which entitled him to twelve months of severance pay if he was terminated without cause.  After being terminated, the plaintiff filed a breach of contract case. The jury found in favor of the plaintiff.

The trial court in the Scholz case declined to award the plaintiff pre-judgment interest on the grounds that the defendant had presented a “reasonable defense.”  Relying on Myint, the Court of Appeals of Tennessee reversed the trial court and remanded the case with instructions for the trial court to award pre-judgment interest.

In Scholz, the Court of Appeals of Tennessee reversed the trial court for six reasons: (1) the amount to which the plaintiff was entitled to for severance was not disputed even though his entitlement to it was; (2) the plaintiff did not delay unreasonably in filing suit; (3) the plaintiff did not delay the case once it was filed: (4) the jury determined that the plaintiff was entitled to his severance; (5) the defendant, not the plaintiff, had full use of the plaintiff’s severance monies during the case; and (6) the plaintiff was not compensated for the loss of the use of his severance benefits.

In my experience, Tennessee judges, as well as federal judges in federal district courts in Tennessee, have tended to award interest at a rate of around six percent (6%) over the last few years. Some courts have awarded the full ten percent (10%), and at least one has awarded pre-judgment interest at one percent (1%).  Since the rate of interest is also discretionary, expect it to vary based on the facts of each case.