Alarmax Distributors, Inc. v. New Canaan Alarm Co., Inc. (2013)

MEMORANDUM OF DECISION RE PREJUDGMENT INTEREST

I. Background

This case comes before the court on remand from the Appellate Court for the limited purpose of considering the plaintiff's claim for prejudgment interest.  Alarmax Distributors, Inc., v. New Canaan Alarm Co., Inc., 141 Conn.App. 319, 336–37 (2013).

The plaintiff Alarmax, a wholesale distributor of fire alarm and home security equipment, sued the defendant New Canaan Alarm, an installer, servicer and monitor of such equipment, for breach of contract alleging that the defendant owed $109,984.55 for equipment delivered and not paid for.   The defendant has not denied it ordered and received the equipment at issue, and asserted that it was unable to pay the amount owed because its bookkeeper was charged with, and eventually convicted of, embezzling an amount exceeding $600,000.   New Canaan Alarm's final purchase was made in May 2005;  Alarmax sent a demand letter for $112,309.90 in November 2005, and New Canaan Alarm made two small payments in December 2005 and February 2006.

Alarmax commenced this suit in September 2009.   New Canaan Alarm's principal defense was its claim that the four year statute of limitation contained in General Statutes § 42a–2–725 barred the action.   After trial the Superior Court (Hon. A. William Mottolese, judge trial referee) found in favor of Alarmax on the ground that the statute of limitations had been tolled and entered judgment for the plaintiff in the principle amount of $109,984.55 and accrued finance charges of $105,486.88 pursuant to the initial credit agreement between the parties.   The trial court denied plaintiff's motion for prejudgment interest on the ground that such additional interest cost would be inequitable in light of the imposition of the finance charge.

On appeal, the Appellate Court affirmed the trial court's finding that the limitations period had been tolled and the judgment in the amount of the principal, but reversed the judgment imposing the finance charges holding that since the trial court found that the parties had entered into a new agreement superceding the original credit agreement, the finance charges set out in the original agreement could not be imposed.   Further, since the trial court had not imposed prejudgment interest in light of the imposition of the finance charges, a remand was in order so that the trial court could consider the prejudgment interest issue.   The Appellate Court also noted that an award of prejudgment interest is an “equitable determination ․ informed by the demands of justice rather than through the application of an arbitrary rule,” citing Stratford v. Secondino & Son, Inc., 133 Conn.App. 737, 751, cert. denied, 304 Conn. 918 (2012).

After remand, the case was assigned to this court to determine the issue of prejudgment interest.   Arguments were heard on May 23, 2013, and both parties, through counsel, agreed there was no need to hear testimonial evidence.   The defendant filed a brief on May 21, 2013, and the court allowed additional memoranda which were filed on June 6, 2013 by the plaintiff and June 12, 2013 by the defendant.   An additional memorandum, not requested by the court, was filed by the plaintiff on June 18, 2013.

II. Discussion

An award of prejudgment interest is authorized by General Statutes § 37–3a which states “interest at the rate of ten percent a year, and no more, may be recovered and allowed in civil actions ․ as damages for the detention of money after it becomes payable.”   In its decision, the Appellate Court, as noted above, reminded us that a decision whether such interest is owed should be decided in view of the “demands of justice” and not by applying arbitrary rules.   The Appellate Court has also stated that a trial court must make two determinations pursuant to Section 37–3a:  whether the party against whom interest is sought retained money due the other party “wrongfully” and when did the wrongful detention begin.  Advanced Financial Services, Inc., v. Associated Appraisal Services Inc., 79 Conn.App. 22, 31 (2003).  “Wrongful” does not mean in bad faith, but simply a retention without legal right to do so.  Ferrato v. Webster Bank, 67 Conn.App. 588, 596, cert. denied, 259 Conn. 930 (2002).   The ten percent maximum rate set forth in Section 37–3a is just that, a cap, and a court may exercise discretion to make an award at a lower rate.  Sears Roebuck & Co. v. Board of Tax Review, 241 Conn. 749, 765–66 (1997).   The Appellate Court has stated that while “our law recognizes prejudgment interest as a component of damages, it does not follow that it must be awarded.”  Stratford v. Secondino & Son, Inc., supra, 133 Conn.App. 571;  see also Carrello v. Goldberg, 141 Conn.App. 299, 38–319 (2013).

Alarmax contends it is entitled to 10% interest on the $109,984.55 debt beginning February 14, 2006, the date of the last payment by New Canaan Alarm, compounded, because Judge Mottolese found that New Canaan Alarm wrongfully withheld the money, and because it fought this case through trial and appeal aided by abusive and dilatory litigation tactics.

New Canaan Alarm argues there was no finding by Judge Mottolese of wrongful detention of the money;  there were no abusive or dilatory tactics, and Alarmax did not meet the requirement of diligently prosecuting its claim, and in the exercise of discretion and the inability to pay, justice calls for the imposition of no prejudgment interest.

The court concludes from a careful reading of Judge Mottolese's decision in this case, that he found the defendant New Canaan Alarm wrongfully withheld the money from Alarmax, but declined to award prejudgment interest in light of his award of finance charges for the same withholding.   It also seems clear that the period of the wrongful withholding began on February 14, 2000, the date the Appellate Court has held to be the date of breach of contract.   New Canaan Alarm also argued there is an additional requirement for awarding prejudgment interest to the two requirements set forth in Advanced Financial Services.   The third requirement according to the defendant is that plaintiff must pursue his case diligently, citing Brandewiede v. Energy Worldwide, 890 F.Sup. 79, 82 (D.Conn.1994);  Cristwood Contracting, Inc. v. Bridgeport Community Health Care Center, Inc., Superior Court CV 95 0319486 (August 31, 1998, Gormley, J.).   It is true that the two cited cases, neither of which is binding on this court, state that diligently prosecuting the claim is a requirement.   However, in this case while there may have been a gap in time before filing suit against New Canaan Alarm, there is no evidence that the plaintiff relinquished its claim or that the failure of the defendant to pay resulted from a lack of diligence.   It has also been found that the plaintiff's suit was timely filed in regards to the statute of limitations.   Therefore, the court does not find that the alleged lack of diligence should bar the imposition of prejudgment interest.

The court does not agree that interest should be compounded.   The authority cited for this proposition is scant.   Furthermore, the arguments offered by Alarmax to support compound interest are not persuasive.   New Canaan Alarm admitted it owed the money, and its efforts to use the statute of limitations as a defense, while ultimately unsuccessful, were hardly abusive, dilatory or in bad faith.   Indeed, this court denied plaintiff's motion for summary judgment on January 11, 2011 primarily on the basis of contested material facts surrounding the defendant's statute of limitations defense.   Dkt. Entry 171.00.

As to the rate of interest, the court believes it has considerable discretion within the following boundaries:  the maximum allowable rate is ten percent annually, and as set forth above, the court is not obligated to order any interest.   At least in recent years this has been an era of low interest rates.   As back-drop, information from the Federal Reserve shows that on February 14, 2006 the federal funds rate was 4.45%, the prime rate was 7.50%, and a six month Certificate of Deposit earned 4.89%;  on July 23, 2009 (the day Alarmax returned its complaint to court) the federal funds rate was 0.15%, the prime rate 3.25% and a six month CD provided 0.48%, and on June 14, 2013 federal funds rate was 0.10%, the prime rate was 3.25% and a six month CD earned 0.25%. Www.federalreserve.gov/releases/h15. In this case the court finds that prejudgment interest from February 14, 2006 to the date of this decision at 4.0% to be appropriate.   Thus, judgment in the principal amount of $109,984.55 is entered plus prejudgment simple interest of $4,399.38 per year for 7 years ($30,795.66) plus $12.05 daily interest for 125 days ($2,506.25).   The total amount of the judgment entered is $143,286.46, plus costs.

TAGGART D. ADAMS

JUDGE TRIAL REFEREE

Adams, Taggart D., J.T.R.