Whether the prejudgment interest rate owed on property condemned by the Metropolitan Transportation Authority is properly calculated at nine percent, (as provided by Unconsolidated Law §2501) rather than at four percent (as provided by Public Authorities Law §1276(5)).

Yes. The higher rate of interest was clearly intended to apply in condemnation actions, both because the Public Authorities Law providing for a lower rate was a "consent to suit" statute and therefore inapplicable to a condemnation action, and because the higher rate in the Unconsolidated Law is consistent with similar statutes dealing with just compensation for takings of private property.

Defendant Metropolitan Transportation Authority (MTA) condemned easements over plaintiff American Pen's property in 1988. In 1992, MTA had paid American Pen $120,000 (MTA's estimate of fair compensation), plus $35,619.29, which amounted to nine percent interest "'from title vesting date to the date of payment.'" American Pen disputed the amount of compensation. A lawsuit followed, and the supreme court entered a judgment in February 1998 ordering MTA to pay an additional $420,000 plus nine percent interest. MTA appealed, alleging that both the award and the rate of prejudgment interest were excessive. After the notice of appeal was filed, the parties settled the matter for $400,000, lowering the principal amount of the award. The MTA paid American Pen the additional $280,000 (on top of the prior payment of $120,000) along with a negotiated six percent interest payment, paid without prejudice, while the parties appealed the issue of the proper interest rate.

The appellate division modified the court's order, and found that prejudgment interest incurred could be awarded at a rate as high as nine percent and ordered a hearing to determine if nine percent was reasonable under the circumstances. The court found, however, that postjudgment interest was limited to four percent by the terms of Public Authorities Law §1276(5). The court determined that the four percent rate was reasonable in this case. The supreme court, on remittal, found that nine percent was a fair rate of interest for the prejudgment portion of the award. The MTA appealed directly to the Court of Appeals. American Pen did not cross appeal this determination of postjudgment interest, so the Court of Appeals ruled only on the issue of prejudgment interest.

The Court of Appeals held that nine percent was the proper rate. The Court identified Public Authorities Law §1276 as a consent to suit statute, authorizing suits against the MTA for injuries to people and property; these suits would otherwise be barred by sovereign immunity. The Court then determined that the four percent interest rate in the Public Authorities Law was applicable only in the kind of suits contemplated by the statute. By contrast, a claim of eminent domain arises under the Constitution. The state is never immune from suit for its exercise of eminent domain power. Because the MTA is obligated to pay a fair rate of compensation, the Public Authorities Law cannot be an appropriate basis for determining just compensation.

In addition, the Court noted that Unconsolidated Law §2501, which entitles claimants to a nine percent interest rate on any judgment or accrued claim against a public corporation, is similar to State Finance Law §16, which governs condemnation proceedings against the state. Applying consistent interest rates to condemnation proceedings against the state and other government entities is more fair, as it compensates all property owners similarly when their property is taken by eminent domain.