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McConkey v. Hart (11/29/96), 930 P 2d 402
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Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska 99501, phone (907) 264-0607, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
SAM A. McCONKEY, M.D., )
) Supreme Court Nos. S-7104/7154
Appellant and )
Cross-Appellee, ) Superior Court No.
) 4FA-93-857 CI
v. )
)
BARBARA L. HART, ) O P I N I O N
)
Appellee and ) [No. 4441 - November 29, 1996]
Cross-Appellant. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks,
Richard D. Savell, Judge.
Appearances: Craig F. Stowers, Clapp,
Peterson & Stowers, Anchorage, for Appellant
and Cross-Appellee. Lloyd I. Hoppner, Hoppner
& Paskvan, P.C., Fairbanks, for Appellee and
Cross-Appellant.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, and Fabe, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
This appeal presents a question of interpretation of the
prejudgment interest statute, AS 09.30.070, and a question of the
appropriateness of awarding prejudgment interest on an award of
future damages. The cross-appeal challenges the constitutionality
of AS 09.30.070 on equal protection and due process grounds.
II. FACTS AND PROCEEDINGS
The facts are undisputed. Barbara Hart visited Dr. Sam
McConkey, an opthamologist, on October 10, 1990, for an eye exam.
Dr. McConkey's diagnosis was that Hart had a condition known as
macular degeneration in her left eye; he performed laser surgery on
the eye on November 14, 1990. Hart's eye was damaged. Dr.
McConkey has since admitted negligence both in diagnosing her
condition and in performing the surgery.
Hart telephoned McConkey at some point in March 1992,
telling him that she considered him responsible for damage to her
eye and that if he did not compensate her she would bring suit.
McConkey asked her to come to his office. On March 24, 1992, Hart
and her husband visited McConkey to discuss the matter. McConkey
wrote a note in his file:
3/24/92 Pt. & husband in to see re: phone
call
if not compensated will sue re: laser Rx OS.
Pt. says Dr DeR. told her no leaks existed
She says he had to do more laser to stop
hemorrhage
Pt. holds me respons for ultimate outcome &
says she will seek attorney.
On September 11, 1992, Hart's attorney wrote McConkey:
I represent Barbara Hart . . . in
connection with injuries she sustained as a
result of a laser procedure that was initiated
by you on her in November of 1990. As a
result of our investigation in this matter, it
appears that the complications she has
sustained, and the permanent damage to her
vision, is as a result of negligence on your
part in that laser procedure.
After asking for information relating to McConkey's medical
malpractice carrier, the letter concluded: "It is necessary that
some agreement for handling this claim be reached as soon as
possible if the filing of a lawsuit is to be avoided."
Hart filed a medical malpractice suit against McConkey.
On January 10, 1995, McConkey made a settlement offer of $100,000,
including costs, interest, and attorney's fees. Hart did not
accept the offer, and the case went to trial on damages.
After the trial, the jury returned a verdict of $69,592
against McConkey. This figure broke down as follows:
Past economic loss $ 5,592
Past non-economic loss $ 2,000
Future economic loss $15,000
Future non-economic loss $47,000
Total: $69,592
At the stipulation of the parties, the future economic and non-
economic losses were not discounted to present value. (EN1)
On April 14, 1995, the trial court entered judgment
awarding Hart $69,592 plus prejudgment interest on the entire award
accruing from March 24, 1992, the date Hart met with McConkey in
his offices. This prejudgment interest amounted to $21,041.02.
The court also awarded attorney's fees of $11,563 and costs of
$6,988.51, for a total judgment of $109,184.53.
Because the final judgment was greater than Dr. McConkey's
offer of $100,000, the court denied McConkey's motion for
application of Civil Rule 68. These appeals were then taken.
III. STANDARD OF REVIEW
Questions of the application and constitutionality of the
prejudgment interest statute and questions of the application of
Civil Rule 68 are questions of law subject to this court's
independent judgment. Tookalook Sales and Serv. v. McGahan, 846
P.2d 127, 129 (Alaska 1993); Langdon v. Champion, 745 P.2d 1371,
1372 n.2 (Alaska 1987).
IV. DISCUSSION
A. Prejudgment Interest
1. From what date should interest have accrued?
Alaska Statute 09.30.070(b) governs the accrual of
prejudgment interest in this case:
Except when the court finds that the
parties have agreed otherwise, prejudgment
interest accrues from the day process is
served on the defendant or the day the
defendant received written notification that
an injury has occurred and that a claim may be
brought against the defendant for that injury,
whichever is earlier. The written notifica-
tion must be of a nature that would lead a
prudent person to believe that a claim will be
made against the person receiving the
notification, for personal injury, death, or
damage to property.
The superior court calculated interest from March 24,
1992, the date Hart met with McConkey in his offices to follow up
her telephone call. Following this meeting, but on the same day,
McConkey made a note in his chart indicating that Hart considered
him responsible for her eye problems, that she would sue if she
were not compensated, and that she would seek an attorney.
McConkey argues on appeal that prejudgment interest
should not accrue until he received the September 11 letter from
Hart's attorney threatening the lawsuit. Hart maintains that the
superior court's calculation was correct, and that McConkey's
written note to himself in Hart's file indicating that Hart "holds
[him] responsible"and "will seek [an] attorney"constitutes
receipt of written notice to McConkey under AS 09.30.070(b).
We have held that a statutory requirement of written
notice may be satisfied by proof of actual notice. See In re
Estate of Evans, 901 P.2d 1138, 1142 & n.3 (Alaska 1995); Morkunas
v. Anchorage Tel. Util., 754 P.2d 1117, 1120 (Alaska 1988); In the
Matter of L.A.M., 727 P.2d 1057, 1061 (Alaska 1986). We adhere to
these decisions in this case. The statute provides for prejudgment
interest accrual upon notice to the defendant of the claim; the
requirement that the notice be written assures proof that notice
was received and of the date when notice was received. In this
case, the written note in the file provides reliable proof of
notice and when it was given. McConkey does not deny that the
content, as distinct from the form, of the notice he received on
March 24, 1992, satisfied the statute.
The superior court did not err in holding that interest
accrued from the date of actual notice, March 24, 1992.
2. Was prejudgment interest on the future losses
proper?
The purpose of awarding prejudgment interest to a
plaintiff is to make a plaintiff whole by compensating her for the
use of money rightfully hers between the time of the injury and the
trial. See, e.g., State v. Phillips, 470 P.2d 266, 274 (Alaska
1970) ("All damages then, whether liquidated or unliquidated,
pecuniary or nonpecuniary, should carry interest from the time the
cause of action accrues, unless for some reason peculiar to an
individual case such an award of interest would do an injustice.");
Bevins v. Peoples Bank & Trust Co., 671 P.2d 875, 881 (Alaska
1983). Alaska Statute 09.30.070(b) modifies this rule by providing
that the starting date for prejudgment interest on certain tort
judgments shall be the date on which the defendant receives written
notice that a claim may be brought, or the date on which process is
served, whichever is earlier.
McConkey argues that the award of prejudgment interest on
a nondiscounted award of future damages constitutes an
impermissible double recovery. See Sebring v. Colver, 649 P.2d
932, 936 (Alaska 1982); Farnsworth v. Steiner, 638 P.2d 181, 184
(Alaska 1981); Haskins v. Shelden, 558 P.2d 487, 494-95 (Alaska
1976). Hart responds that there was no double recovery and that
the award of prejudgment interest was therefore appropriate.
Both sides frame the issue as if it turns on their
decision to follow the Beaulieu rule and not discount future
damages. The discounting issue is, however, only secondary. The
key to the case lies in the legislative requirement that tort
awards be split into past and future components from the time of
trial.
As part of the 1986 Tort Reform Act the legislature
enacted AS 09.17.040. See ch. 139, sec. 1, SLA 1986. Subsection
(a) requires that jury verdicts in personal injury cases be
itemized into past economic loss, past noneconomic loss, future
economic loss, future noneconomic loss, and punitive damages.
Subsections (b) and (c) require that future losses be discounted
unless the parties agree otherwise.
In Navistar International Transportation Corp. v.
Pleasant, 887 P.2d 951 (Alaska 1994), we discussed the significance
of the point back to which an award is discounted. We held that,
where an award of future damages is discounted to the time of trial
and not to the time of the injury, then prejudgment interest is
inappropriate:
[T]he assumption in the Phillips hypothetical
[illustrating the use of prejudgment interest
to allow similar compensation for otherwise
identical victims who go to trial at different
times] does not take into account cases in
which a future stream of income is discounted
not to the time of injury (or the time of
accrual of prejudgment interest) but to the
time of trial. If future damages were
discounted back to the time of injury, it
would be appropriate to allow prejudgment
interest on future damages so discounted. It
is, however, a double recovery to permit
prejudgment interest on future sums which are
discounted only to the time of trial, for such
sums are greater than they would be if they
were discounted to the time of injury -- a
difference attributable to the interaction of
the discount rate and the intervening period.
Id. at 959-60 (citing Phillips, 470 P.2d at 274).
In Navistar we also alluded to an "ideal system"in which
a trial could be conducted immediately follow-
ing the injury at which time all of the plain-
tiff's claims could be valued and a judgment
entered. The judgment, of course, would bear
interest until it was paid. Since the ideal
of instant adjudication cannot be met, and
money is worth less the later it is received,
it is ordinarily unjust not to award prejudg-
ment interest between the time of the accident
and the adjudication.
Id. at 959. The assumption on which this discussion is based is
that damages will be calculated as of the time of the plaintiff's
injury. "Indeed, as a plaintiff has 'a right to be made whole
immediately upon being injured,' nearly all damages at that point
are future damages." Id. (EN2)
The legislature has essentially precluded the uniform
application of the assumption on which the foregoing discussion is
based by requiring awards to be itemized into past and present
categories, clearly using the time of trial as a reference point.
AS 09.17.040(a). An award of future damages by definition contains
no element of economic or noneconomic loss suffered before the
trial. There is therefore no reason to discount such a future
award to any time before trial. If it were discounted to a time
before trial, then prejudgment interest would be appropriate to
make up for the exaggerated discount, as Navistar held. But
because the award is for future damages prospective from the time
of trial, the award should only be discounted to the time of trial.
(EN3)
"The real question in awarding interest to a judgment
creditor is whether the debtor has had use of money for a period of
time when the creditor was actually entitled to it." Farnsworth,
638 P.2d at 184. As noted, one can imagine a system under which
the tort victim would be "entitled to"a single sum which would
make her whole immediately upon her injury. This amount could
later be determined at trial, with prejudgment interest awarded to
account for the loss of use of the money between injury and trial.
Alaska Statute 09.17.040(a) compels a bifurcation of the award,
however, into damages incurred before the trial and damages to be
incurred after the trial. In a very real sense, then, before the
trial the tort victim is only "entitled"to the damages found to
have been incurred before the trial. Thus, prejudgment interest
should be awarded only as to the past damages. It should not be
awarded as to any future damages, discounted or nondiscounted,
except as to future damages which were discounted to a date earlier
than the date of trial.
This holding is consistent with Sebring v. Colver, 649
P.2d 932 (Alaska 1982). There, we inferred that one part of a
damage award had been for repair expenses already incurred, and
another had been for expenses yet to be incurred:
We now turn to whether prejudgment
interest should be granted on that portion of
the jury verdict awarded to compensate the
Colvers for future repairs. . . . [W]e
conclude that the probable basis for the jury
award was the estimated cost of repairs at the
time of trial. Since the financial impact of
the passage of time was thus incorporated into
the jury's damage award, any award of
prejudgment interest on this amount would
therefore constitute a double recovery.
Id. at 936. Since the jury made its award for future damages from
the perspective of the trial date and not of the date of the
injury, prejudgment interest was held inappropriate. Cf. Haskins,
558 P.2d at 495 (holding prejudgment interest inappropriate on
punitive damage award where jury likely assessed punitive damages
defendant should pay at time of trial, not at time of injury).
Hart may have received a windfall under the agreement not
to discount the future damages. By investing her award, her likely
ultimate compensation may be significantly greater than her actual
losses. But it makes no difference to the prejudgment interest
analysis whether the future award was discounted or not. Under AS
09.17.040(a), the losses at issue were future losses and Hart had
no claim on the money before the trial. Future damage awards
should receive prejudgment interest only where they are discounted
to a time before trial, in order to give the award the effect of
being discounted to the time of trial. Here, the parties chose not
to discount future damages; this does not change the fact that they
were awarded as future damages.
We reverse and remand on this issue. (EN4)
3. Did the court err in denying McConkey's Rule 68
motion?
Alaska Civil Rule 68 provides in relation to unaccepted
settlement offers:
(b) If the judgment finally rendered by the
court is not more favorable to the offeree
than the offer, the prejudgment interest
accrued up to the date of judgment is entered
shall be adjusted as follows:
(1) if the offeree is the party
making the claim, the interest rate
will be reduced by [5%] and the
offeree must pay the costs and
attorney's fees incurred after the
making of the offer (as would be
calculated under Civil Rules 79 and
82 if the offeror were the
prevailing party). The offeree may
not be awarded costs of attorney's
fees incurred after the making of
the offer.
The trial court denied McConkey's motion in light of an
estimated judgment in excess of $100,000, the amount of the offer.
The final judgment was for $109,184.53. In light of the trial
court's error in calculating prejudgment interest, however, the
final judgment should have been for an amount less than $100,000,
and Rule 68 should have been applied. (EN5)
B. Constitutionality of AS 09.30.070(b)
Hart's cross-appeal challenges the constitutionality of
AS 09.30.070(b). (EN6) She makes due process and equal protection
arguments, essentially asserting that the statute creates an
impermissible classification with no rational basis.
We assume, for purposes of this argument only, that
Hart's interpretation of AS 09.30.070(b) is correct. Hart adopts,
and McConkey accepts, a reading of the statute that limits the
accrual of prejudgment interest to the earlier of notice or service
only in cases involving personal injury, death, and damage to
property, while preserving the right to prejudgment interest from
the time of injury in other tort cases, such as legal malpractice
or defamation. (EN7) But see Shaw v. State, Dep't of Admin., 861
P.2d 566, 569 (Alaska 1993) (applying statute in legal malpractice
case to calculate prejudgment interest from date of service of
process).
As Hart points out in her briefs, this court uses the
following test for an equal protection challenge to a statute's
classification: (EN8)
Under the rational basis test, in order for a
classification to survive judicial scrutiny,
the classification "must be reasonable, not
arbitrary, and must rest upon some ground of
difference having a fair and substantial
relation to the object of the legislation, so
that all persons similarly circumstanced shall
be treated alike."
Isakson v. Rickey, 550 P.2d 359, 362 (Alaska 1976) (citing State v.
Wylie, 516 P.2d 142, 145 (Alaska 1973)).
Alaska Statute 09.30.070(b) was enacted as part of the
1986 Tort Reform Act. Ch. 139, sec. 3, SLA 1986. The Senate
offered a statement of findings and purpose for the Act. We thus
need not hypothesize legitimate justifications for the statute,
since they are provided for us:
* Section 1. FINDINGS AND PURPOSE. (a) Tort
law in this state has generally been developed
by the courts on a case-by-case basis. While
this process has resulted in some significant
changes in the law, including amelioration of
the harshness of many common law doctrines,
the legislature has periodically intervened in
order to bring about needed reforms. The
purpose of this Act is to enact further
reforms in order to create a more equitable
distribution of the cost and risk of injury
and increase the availability and
affordability of insurance.
. . . .
(c) The legislature also finds comparable
cost increases in professional liability
insurance. Escalating malpractice insurance
premiums discourage physicians and other
health care providers from initiating or
continuing their practice or offering needed
services to the public and contribute to the
rising costs of consumer health care. Other
professionals, such as architects and
engineers, face similar difficult choices,
financial instability, and unlimited risk in
providing services to the public.
. . . .
(e) It is the intent of the legislature
to reduce costs associated with the tort
system, while ensuring that adequate and
appropriate compensation for persons injured
through the fault of others is available.
Senate Findings and Purpose, C.C.S. S.B. 377, 14th Leg., 2nd Sess.
(1986) (available in Conference Committee files).
The Senate findings directly address the rising costs of
medical malpractice insurance and the disincentives those costs
create for health care providers. In this medical malpractice
case, then, the argument that there is no rational basis for the
statute is unconvincing. Reducing health care costs and
encouraging the provision of health care services are legitimate
goals which can reasonably be thought to be furthered by lowering
the amount of medical malpractice judgments. There is thus no
merit to Hart's constitutional argument, even assuming her
interpretation of the statute is correct.
V. CONCLUSION
The superior court did not err in calculating prejudgment
interest from the date of the meeting in McConkey's office, when
McConkey had actual notice. However, the superior court erred in
awarding prejudgment interest on future damages. Consequently, it
also erred in denying McConkey's motion for application of Civil
Rule 68. The superior court's judgment is REVERSED and REMANDED
for recalculation of the award.
The cross-appeal on equal protection grounds has no
merit, since the statute has a clearly stated and rational
legislative purpose in so far as it applies to medical malpractice
claims.
ENDNOTES:
1. The parties stipulated that they would follow the rule of
Beaulieu v. Elliott, 434 P.2d 665 (Alaska 1967). Beaulieu held
that the trial court in a tort case did not err by failing to
reduce future wage losses to present value. Id. at 670-72. It
held that the uncertainties inherent in investment of a present
lump sum did not allow one to guarantee that the returns on the
investment of that money would exceed the rate of inflation. Id.
at 671. This, coupled with a concern that future wage increases
would not be factored into a present value for future economic
losses, led the court to reject the majority view that future
damage awards should be discounted. Id.
While AS 09.17.040(b) now requires a fact finder to reduce
future economic damages to present value, subsection .040(c)
provides that the requirement "does not apply to future economic
damages if the parties agree that the award of future damages may
be computed under the rule adopted in the case of Beaulieu v.
Elliott, 434 P.2d 665 (Alaska 1967)."
2. A footnote in Navistar also stated:
At one time it was thought appropriate to
distinguish between compensating a plaintiff
"for the loss of time from his work which has
actually occurred up to the time of trial"and
compensating him "for the time he will lose in
[the] future." This suggested that estimated
future earning capacity should be discounted
to the date of trial, and a separate
calculation should be performed for the
estimated loss of earnings between injury and
trial. It is both easier and more precise to
discount the entire lost stream of earnings
back to the date of injury -- the moment from
which earning capacity was impaired. The
plaintiff may then be awarded interest on that
discounted sum for the period between injury
and judgment, in order to ensure that the
award when invested will still be able to
replicate the lost stream.
887 P.2d at 959 n.12 (quoting Jones & Laughlin Steel Corp. v.
Pfeifer, 462 U.S. 523, 538 n.22 (1983)) (internal citations
omitted).
3. AS 09.17.040(a) thus returns us to the system "at one time .
. . thought appropriate"as described in Navistar, 887 P.2d at 959
n.12. See supra note 2.
4. We recognize that this holding may be facially inconsistent
with some language of Hertz v. Berzanske, 704 P.2d 767 (Alaska
1985). There, after reversing a superior court's refusal to set
aside a judgment, we wrote:
Finally, Hertz maintained on appeal that the
superior court erred by awarding prejudgment
interest on Pierce's damage award for lost
future earning capacity. We wish to state at
this time that the superior court's award was
proper under State v. Phillips, 470 P.2d 266
(Alaska 1970).
Id. at 773 n.9. However, that opinion was decided before the
enactment of AS 09.17.040(a) in 1986. Under Phillips, we
considered damages "future"from the date of injury and did not
separate damages as past and future from the time of trial. Thus
the reasoning of Hertz was correct as the law then stood, even
though a different result obtains today under the current statute.
5. That is, although the jury award remains unchanged at $69,592,
the prejudgment interest should have only run upon the past portion
of that award, and the attorney's fees awarded upon that sum under
Rule 82 would have been lower.
We are unable to calculate the final judgment due because
under Rule 68 McConkey is entitled to attorney's fees and costs
accruing after the offer. The trial court will need to determine
this.
6. See Part IV.A.1 above for the text of the statute.
7. To accomplish this reading, the phrase "for personal injury,
death, or damage to property"in the second sentence of subsection
.070(b) would have to be applied to the first sentence as well.
8. Hart does not argue that any test other than a rational basis
test should apply.
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