One thing to consider during litigation is whether you may be entitled to collect interest on damages. Why? Litigation can take a long time, a very long time. If you can only collect damages and not interest on the damages, this decreases the value of the litigation the longer the litigation takes.
As I noted in a recent post, the world record for the longest litigation is 761 years. Don’t worry, your legal malpractice case won’t take nearly as long as it took Mr. Thorat’s descendents to have their day in court, but it will probably take two to four years, though sometimes cases take even longer.
How important is interest to your case? Potentially, very. In one case that made it to the United States Supreme Court, the prevailing party was awarded $9 million in actual damages PLUS $11 million in prejudgment interest. On the opposite end of the spectrum, but just as good news for the prevailing party, a plaintiff was awarded $50,000 in damages, and about $44,000 in interest.
Depending on the circumstances of your case and the laws of your state, interest could make a significant difference to the amount of money you are awarded. If your attorney has not discussed this issue with you, you may want to find out what the options are in your state.
But let’s not forget the persistence and patience of the 35 generations of Thorats. What happened in the their 761 year old case? While I haven’t found any record online as to the actual amount awarded the Thorats, I can tell you, more or less, what the potential award was. I have never previously had a chance to comment on a case that reportedly took 761 years to resolve. However, whether the Thorats had cause to celebrate in 1966 depends entirely on whether any interest awarded was simple or compound.
Simple interest is the amount of interest times the amount of principal. If you have one dollar and you get 5% simple interest, you would get five cents per year interest, year in and year out. Compound interest, on the other hand, is based on the original amount plus the interest that has accrued. In other words, you are also getting interest on interest previously earned.
Since we are talking about the year 1205, in the Middle Ages, in India, let’s assume the original Mr. Thorat had suffered 10 cents worth of damage and the judge in the year 1966 awarded 5% SIMPLE interest. If so, the total interest awarded in 1966 would have been $3.58. Add the 10 cents of original damages, and the total award would have been $3.68. If the Thorats’ attorney had been working on a 1/3 contingency, the attorney would have been paid about $1.22, and the Thorats would have gone home with $2.46 (before taxes). Probably not worth waiting 761 years.
However, if the Thorats had been awarded COMPOUND interest, they not only would have been very happy, it would have made headlines around the world. Why? Albert Einstein is reported to have once said that “the most powerful force in the universe is … compound interest.” When it comes to money, he was exactly right. Using an online compound interest calculator, it turns out that 5% compound interest on $.10 damages incurred in the year 1205 would be worth about 1.31 quadrillion dollars in 1966.
Estimates of the world’s wealth vary somewhere between 140 trillion dollars and 250 trillion dollars. Perhaps the higher estimate includes money kept in mattresses and piggy banks. But whatever the actual number, the Thorats would be at least five times wealthier than the entire rest of the world if only the original Mr. Thorat had been entitled to compound interest. Clearly he wasn’t, or most of us would now be working for the Thorats. Of course, if the amount awarded included compound interest there would have been the slight problem of trying to collect.
But what is really interesting to me is how that the huge quadrillion number at 5% interest quickly dwindles into almost nothing as the rate of interest goes down.
|Year 1205 Value||Rate of interest compounded once yearly||Value in 1966(761 years later)|
|Ten Cents||5%||$ 1,333,695,212,541,497.50 (That’s QUADRILLION dollars)|
|Ten Cents||4%||$ 917,003,949,940.31 (BILLION)|
|Ten Cents||3%||$ 587,662,530.17(MILLION)|
|Ten Cents||2%||$ 350,534.45|
|Ten Cents||1/10 of 1%||A MEASLY 21 CENTS|
The amount of interest drops dramatically to almost nothing at 1% and 1/10 of 1%. What is really interesting about the 1/10 of 1% is that is the approximate amount of interest being paid on regular bank accounts by the largest bank in the United States (J.P. Morgan Chase) as of the date I am checking this (February 2014). To describe that as an incredibly cheap amount of interest on the part of Chase would be a huge understatement. However, it’s understandable. J.P. Morgan holds about $2.3 trillion in assets which would not have covered even a small portion of the compound interest due to Mr. Thorat if he had managed to convince the judge to award 5% compound interest. But it does not look as if one of Chase’s main expenses is how much interest it pays out on regular accounts.
By the way, there actually was one person in the world with a net value of 92 quadrillion dollars. In July 2013, PayPal accidentally credited someone’s account for that amount. The temporarily lucky person said that he would have first paid off the national debt if he had been able to keep the money. Actually, he was thinking too small. He could have paid off the public debt for the entire world (currently about 53 trillion dollars and growing), and still have had enough money to give each person on the face of the earth about $140,000 per person, and would still have had about 280 trillion dollars left over. Of course, PayPal would no longer be in business, but that would be a small price to eradicate all debt on the planet.
Author: Howard Altschuler
(Click here for a brief summary of my other blog posts on various legal malpractice related issues)
(Disclaimer: Please note that nothing in this blog or website is legal advice, and this post does not create an attorney-client relationship. You should always consult with an attorney for any legal malpractice issues, fee dispute, or ethical concerns that you may have. Thanks!)
Copyright (c) 2014 by Howard Altschuler, All Rights Reserved