Manufacturer's & Traders Trust Co. v. Reliance Insurance

8 N.Y.3d 583 (2007) 870 N.E.2d 124 838 N.Y.S.2d 806

MANUFACTURER'S & TRADERS TRUST COMPANY, Named in the Relevant Escrow Agreements as MANUFACTURER'S & TRADERS BANK, Plaintiff,
v.
RELIANCE INSURANCE COMPANY et al., Defendants, O'BRIEN & GERE TECHNICAL SERVICES, INC., et al., Appellants, and
FRU-CON/FLUOR DANIEL JOINT VENTURE, Respondent.

Court of Appeals of the State of New York.

Argued March 28, 2007. Decided May 3, 2007.

Harter Secrest & Emery LLP, Rochester (Richard E. Alexander and A. Paul Britton of counsel), for Cives Corporation and another, appellants.

Frank A. Bersani, Jr., Syracuse, for O'Brien & Gere Technical Services, Inc., appellant.

Gresens & Gillen LLP, Buffalo (Patricia Gillen and James W. Gresens of counsel), for respondent. As to: Cives Corporation and Cives Steel Company, Mid-South Division.

Chief Judge KAYE and Judges CIPARICK, GRAFFEO, READ and JONES concur; Judge PIGOTT taking no part.

OPINION OF THE COURT

SMITH, J.

We hold that CPLR 5001 (a) does not authorize an award of interest against unsuccessful claimants in an interpleader action.

Facts and Procedural History

This case arises out of a contract to build a paper plant. The general contractor, Fru-Con/Fluor Daniel Joint Venture (the Joint Venture), awarded a subcontract to O'Brien & Gere Technical Services, Inc. (O'Brien) for the construction of several buildings that were to be part of the plant. O'Brien in turn awarded a number of subcontracts, including one for steel fabrication and erection to Cives Corporation. Problems developed, payments were delayed, and several of O'Brien's subcontractors threatened to stop or slow their work if they were not paid.

To keep the project going, the Joint Venture and O'Brien agreed in late March 1999 that the Joint Venture would deposit approximately $5.3 million with an escrow agent, Manufacturer's & Traders Trust Company, until June 15, 1999. The plan was that, during that 2½-month interval, O'Brien would try to negotiate settlements with its subcontractors, and the escrowed money would be used to pay subcontractors in accordance with settlement agreements. Any balance left over on June 15, 1999 was to be returned to the Joint Venture.

By June 15, payments had reduced the escrow fund to some $2.4 million, but it took more than four years for the Joint Venture to recover that balance. Before June 15, Cives's lawyer wrote to the escrow agent, saying that O'Brien owed Cives approximately $3.4 million and requesting "that there be no further disbursement of any escrowed funds" pending a resolution of Cives's claim. As a result, the escrow agent began this interpleader action, naming the Joint Venture, O'Brien, Cives and others as possible claimants to the fund. A few weeks later, Supreme Court discharged the escrow agent and ordered it to deposit the escrowed money with the court clerk "where said funds shall remain until further Order of the Court."

The pleadings in the interpleader action are not in the record before us, but it is clear that O'Brien, Cives and others asserted claims to the fund at various points, and that the resolution of them was time-consuming. Finally, in March 2003, the Appellate Division ruled that the fund should be returned to the Joint Venture. After some further skirmishing, the clerk paid the Joint Venture the money in late 2003 and early 2004. For reasons that no party explains, the payments from the clerk to the Joint Venture included only a nominal amount of interest.

The Joint Venture then moved for entry of judgment against O'Brien and Cives in an amount equal to interest at the statutory rate of nine percent (less the small amount of interest paid by the clerk) for the time during which the funds had sat in court. Supreme Court granted the motion, and the Appellate Division affirmed. We granted leave to appeal, and now reverse.

Discussion

Interest awards in New York are "purely a creature of statute" (Matter of Bello v Roswell Park Cancer Inst., 5 NY3d 170, 172 [2005]). The statute governing interpleader, CPLR 1006, provides for an award of interest against a stakeholder up to the time of discharge (CPLR 1006 [f]), but not against unsuccessful claimants. Thus the interest award here must be authorized, if at all, by the general interest statute, CPLR 5001 (a), which provides:

"Interest shall be recovered upon a sum awarded because of a breach of performance of a contract, or because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion."

The Joint Venture argues that interpleader actions are "of an equitable nature," and that therefore Supreme Court had discretion to award interest against O'Brien and Cives. It also argues that the award of interest was correct because O'Brien was guilty of "breach of performance of a contract" (the escrow agreement) and because the conduct of O'Brien and Cives in litigating the interpleader case constituted "an act or omission depriving or otherwise interfering with ... possession or enjoyment of" property. We reject the Joint Venture's arguments.

Interpleader actions are indeed equitable, and substantial authority supports the view that CPLR 5001 (a) permits interest awards in all equitable actions, not just those based on breach of contract or interference with property (Weinstein-Korn-Miller, NY Civ Prac ¶ 5001.06, at 50-20; Selinger v Selinger, 250 AD2d 752 [2d Dept 1998]; Matter of Dow, 55 AD2d 323 [4th Dept 1977]). Still, the discretion given by the statute does not stretch as far as the Joint Venture claims. CPLR 5001 (a) authorizes interest "upon a sum awarded"—implying that the interest must be paid by the party against whom the sum was awarded. There was no "sum awarded" against O'Brien or Cives here, and thus no predicate for an award of interest against them.

The purpose of interest is to require a person who owes money to pay compensation for the advantage received from the use of that money over a period of time. No such justification for an interest award exists here: during the time at issue, the money was held by the clerk of the court, and O'Brien and Cives no more had the use of it than the Joint Venture did. To award interest against O'Brien and Cives would be to penalize them for a delay that brought them no benefit. But, as we explained in Love v State of New York (78 NY2d 540, 544 [1991]):

"[I]nterest is not a penalty. Rather, it is simply the cost of having the use of another person's money for a specified period.... It is intended to indemnify successful plaintiffs ``for the nonpayment of what is due to them' (Trimboli v Scarpaci Funeral Home, [37 AD2d 386,] at 389), and is not meant to punish defendants for delaying the final resolution of the litigation."

The Joint Venture's arguments that interest is authorized by the language in CPLR 5001 (a) referring to "breach of performance of a contract" and to "possession or enjoyment of" property are subject to the same objections: there is no "sum awarded" against O'Brien and Cives, and no benefit to them that would justify requiring them to pay interest. There is also a more fundamental objection: O'Brien and Cives have not been found to have breached any contract or to have interfered unlawfully with the possession or enjoyment of any property.

The Appellate Division did find, in an earlier appeal, that O'Brien had not performed the conditions that would have entitled it to payment under the escrow agreement, but no claim was asserted, and no judgment awarded, against O'Brien for breach of contract. Nor was there a judgment, or any basis for a judgment, against O'Brien or Cives for interference with the Joint Venture's "possession or enjoyment" of property. All that O'Brien and Cives did to delay payment of the escrow fund to the Joint Venture was litigate their claims to that fund. No court found that O'Brien's and Cives's claims were frivolous, that their conduct in the litigation was vexatious, or that they acted solely to cause delay. Since they were not found to have committed any "act or omission" that can be a basis for liability, the "possession or enjoyment" clause of CPLR 5001 (a) does not apply.

There is no doubt that the Joint Venture suffered a hardship in being deprived of the money in escrow for four years, with only meager compensation for the delay. This hardship, however, was the result not of any misconduct by O'Brien or Cives, but of the inexplicable failure by all concerned to arrange for the payment of a meaningful interest rate on the escrowed money. There is no apparent reason why the money could not have been put into an interest bearing account, with interest to benefit the successful claimant (see CPLR 2601 [d]; cf. Reliable Mar. Boiler Repair, Inc. v Mastan Co., 325 F Supp 58, 64 [SD NY 1971]). But the Joint Venture sought no such relief when the money was deposited with the clerk in 1999, and it cannot now complain that it was deprived of interest.

Accordingly, the order of the Appellate Division should be reversed with costs, and the motion of the Joint Venture for an award of interest against O'Brien and Cives should be denied.

Order reversed, etc.