I.          INTRODUCTION

After years of pressure by Clark County Legal Services and other agencies, the Clark County District Attorney’s Office finally agreed to start calculating and collecting interest on judgments as of about 2005.  In the meantime, political consolidation within the Nevada Welfare bureaucracy brought the District Attorneys of the various counties under the effective control of the State Welfare Division,[2] resulting in a few political games, some unfortunate choices and orders, and some less than forthright assertions as cover.

Having been compelled to comply with the child support laws, the bureaucracy has attempted to subvert both those laws and even public policy to serve its internal limitations and interests.  Frustrated in that effort, the bureaucracy has become increasingly strident in its defense of its own errors, to the point of attacking those attempting to serve the public good, and voluntarily assisting those whom it should be prosecuting.  It seemed appropriate to bring to the attention of the Bench and Bar what brought us to this point, with the hope that someone in a position of sufficient authority might actually see fit to do something about it.

II.        A TRIP DOWN MEMORY LANE

A.        Why Our Interest Laws Are What They Are

Unpaid installments in child support or spousal support become judgments as a matter of law as of the date they come due and remain unpaid.[3]

The Nevada legal rate of interest was 7% from 1960 to 1979, 8% from 1979 to 1981, and 12% from 1981 to 1987, altered repeatedly in reaction to the hyper-inflation that raged periodically in that time.  The Nevada Legislature had to keep amending the legal rate of judgment interest statute – NRS 17.130(2) (along with NRS 99.040(1), governing contracts) each session, and always “behind the curve” of whatever was happening in the economy, since the Legislature met only every two years.

In 1987, the Legislature decided to have the legal interest rate “float,” self-adjusting every six months to the prime rate at the largest bank in Nevada, plus 2%.[4]  The legislation itself was devoid of details as to precisely how such calculations were to be done, but some instructions were supplied by Nevada Supreme Court decisions before and after the statutory change.[5]

Unfortunately, the cases were not much studied by the Bar or their hired experts.  Most lawyers simply ignored interest, except in the biggest cases.  Others (such as my office) either developed the ability to perform the calculations by spreadsheet, or hired a local accountant to do the calculations for them.  Most of those accountants, however, applied “generally accepted accounting principles” when they were hired to do such calculations – even when such principles directly conflicted with the controlling case law (which, of course, the accountants had never read).

This led to significant variability in whether, how, and how much, interest was applied to judgments in Nevada cases.  The multiple changes to applicable interest rates also made the calculations technically difficult.  For example, pre-July, 1987, arrears had a “fixed” interest rate, while post-July, 1987, arrears “floated,” and the number of changes increased every six months.  Spreadsheets done by hand had to have separate columns tabulating interest for each “class” of arrearage, to determine when each individual dollar of arrears was paid.

To my knowledge, my office was about the only one to try to do so consistently in family law cases, but even with experience the supporting spreadsheets grew increasingly complex and difficult to follow within a year or so of the 1987 amendments.[6]

B.        Calculations by the Bar and Agencies Differed a Little

In September, 1990, I wrote the first article recapping Nevada law on this subject,[7] explaining both what was known and unknown, and how the problem was being addressed.  From that time to this, there has been no published authority of which I am aware criticizing or contradicting any of the positions reached and recited.

Following the Nevada Supreme Court’s directions to calculate interest from and to specific dates,[8] the private Bar has always calculated interest on a daily basis.  The Clark County D.A.’s legacy mainframe computer system – NOMADS[9] – was set up originally to operate and report on a monthly batch cycle, and had no provision to calculate or track interest.

There were some variations between what public agencies and private attorneys did that could create differences when interest was being calculated.  For example, back in the days when URESA was the controlling interstate law (now replaced by UIFSA), one distinction between the District Attorneys’ and Family Courts’ methodologies was the proper first application of an incoming payment.  The IV-D methodology required application of payments to present support first, but Nevada case law required application of payments to the oldest arrearage first.[10]

This made a difference to the totals reached, at least when arrears were due from before July, 1987.  Rates before that date were fixed, so changing the arrearage to which a payment was applied altered the calculation.  It still was no problem, really, since the uniform policy of the District Attorney’s offices throughout Nevada was to conform to any total judgment as found by a district court.

C.        Some Politics in Attempted Service to the Poor

After 1987, the original Pro Bono Project had been unhappy with the failure of the Clark County District Attorney’s Office to calculate or collect interest on child support arrearages, and made requests that the agency perform its statutory mandate to do so.[11]  The Board of Directors of that organization was repeatedly told that the limitations of NOMADS made it impossible for the D.A.’s Office to comply with the law.  This stalemate continued for many years.

As detailed in various Nevada Supreme Court opinions, the purpose and function of statutory interest is merely to compensate the claimant for the use of money from the time the cause of action accrues until the time of payment.[12]  In other words, even when interest is actually calculated on behalf of an obligee, and the sum is actually collected from an obligor, the person owed the money pretty much only breaks even on the original sum owed.

In 1993, the Nevada Legislature tried to come up with some additional way of encouraging delinquent child support obligors to pay their back child support sooner rather than later.  This ultimately became the “penalties provision,” NRS 125B.095.

The Executive Council of the Family Law Section of the Nevada Bar followed and participated in the development of the new statute, but did not actually draft the language, which read:

The amount of the penalty is 10 percent per annum, or portion thereof, that the installment remains unpaid.  Each district attorney or other public agency in this State undertaking to enforce an obligation to pay support for a child shall enforce the provisions of this section.[13]

A two-year deferral period was built into the effective date of the new “penalty” statute (from 1993 to October 15, 1995) – the idea was to give delinquent support obligors that long to catch up on their back support before the penalty began applying to them, and the Welfare Division claimed that it would take another couple of years before they could get NOMADS programmed to calculate or track the penalty.

The private Bar began applying the penalty in late 1995 when it became effective, and the Family Courts uniformly included a penalty assessment per the statute whenever counsel requested (and calculated) it.  The calculation was not particularly difficult.  The statutory language directed assessing a penalty of “10 percent per annum, or portion thereof, that the installment remains unpaid.”

That language on its face required calculation of an annual penalty, calculated by focusing on each “installment” to see if it had yet been paid and, if not, calculating a penalty at a 10% annual rate from the time that the sum went unpaid until the Court heard the case.  The only information needed was whether a particular “installment” of child support “remains unpaid” (i.e., was in arrears), then multiplying the sum by 10% and figuring out how long the installment remained unpaid.

So if a $500 installment of child support remained totally unpaid for a month, a penalty of $4.17 ($500 x 10% ÷ 12) accrued, calculated on a monthly basis.[14]  If it still remained unpaid the next month, another such penalty accrued, and so forth.  Throughout the 1990s, such penalty calculations were done by spreadsheet and submitted as exhibits to child support motions.[15]  To my knowledge, every judge who ever heard a child support motion where a penalty was so calculated approved the reasoning, methodology, and totals, over all objections that have ever been made.

In the public sector, however, 1995 came and went without the mandatory calculation of penalties – or the long-awaited calculation and collection of interest – being performed by the Clark County D.A., or apparently anywhere else in Nevada.[16]  Meanwhile, the Attorney General’s Office, in conjunction with the Welfare Division, began a process of unifying procedures relating to support collection (and other things) in the 1990s.  Reportedly, millions of dollars were expended in efforts to get the outdated NOMADS system to correctly perform interest and penalty calculations.

D.        Progress . . . of a Sort

Until the year 2000, the Clark County Pro Bono Project existed independently of Clark County Legal Services (CCLS).  That year, the former was folded into the latter, and it became far more capable of meeting the needs of the poor.

Periodically, the unhappiness of CCLS with the continuing failure of the D.A. to collect interest and penalties on back child support was raised in communications, leading to several meetings over the years between the CCLS Board of Directors and a variety of representatives from the Welfare Division, District Attorney’s Office, and Attorney General’s Office.  Like the Pro Bono Project before it, CCLS was consistently told that the problem was the NOMADS computer system, which just could not be made to do the calculations in the way that they obviously should be done.

At some unspecified point in the past several years,[17] a rough interest calculator was finally engrafted onto the NOMADS programming.  It was made capable of tabulating interest in the “whole month” increments that its batch process allowed.

In other words, if a child support installment came due sometime in January, and was not paid, NOMADS could take the then-applicable interest rate, divide it by 12 to get a monthly percentage, and multiply it by the prior month’s unpaid installment.  Since NOMADS retained its last-day-of-the-month batch cycle, it remained oblivious to any “odd days” and could see no difference between child support obligations due on the first, or the 30^th, day of a month, calculating interest on both identically.

III.       THE TAIL WAGS THE DOG

A.        Bureaucratic Hiney-Covering

The continuing pressure from CCLS for the District Attorneys to comply with the statutes eventually led to the promise from the public agencies to begin collecting interest and penalties for the poor.[18]  CCLS was invited to participate in the “public workshop” convened by the Welfare Division on that subject in 2004.  Essentially, in addition to calculating rough interest on a monthly basis, Welfare proposed to assess a single lump-sum ten percent penalty on the last day of the first month that a child support payment was due and unpaid, because NOMADS was capable of performing and tracking such a month-end calculation.

The proposed policy Manual contained several mathematical, factual, logical, and other errors.[19]  Those attending indicated how and why it would be unfair, unwise, and probably unconstitutional, to assess the same penalty on sums overdue for a week, and sums overdue for a year or longer.

It has since then been made clear that the “workshop” had nothing to do with figuring out what might be mathematically and legally correct, but was the announcement of a “done deal” that Welfare would do what NOMADS was capable of doing, irrespective of logic or consequences.  As explained by Deputy District Attorney Edward Ewert in his revision and expansion of the Child Support section of the Nevada Family Law Practice Manual:[20]

            NOMADS, like other computers, has its limitations. . . .  in the mass production, conveyer-belt case processing world of Nevada’s child support enforcement program, the tail wags the dog.  To make computerization work for child support enforcement in Nevada, the law and the courts, and most of all, our orders, have to conform to the computer’s needs.

Still, the assorted glaring deficiencies of the Welfare methodology could not simply be ignored after being pointed out in public, without fear of potential litigation.  So the left and right hands of the Welfare bureaucracy had a conversation, resulting in the 2004 request by Administrator Nancy Ford of the Welfare Division to the Attorney General’s Office, asking “Does the Welfare Division, Child Support Enforcement Program, have authority under NRS 125B.095 to calculate the child support delinquent penalty on a monthly basis as a one-time late fee penalty?”

Essentially, Welfare asked its Deputy A.G. for legal cover to interpret the statute incorrectly, permitting calculations in a manner that just happened to be what the archaic NOMADS computer system was capable of providing.

So it is not at all surprising that on October 22, 2004, the Welfare Division was able to obtain a letter[21] from Deputy Attorney General Donald W. Winne reaching the conclusion that the statute was sufficiently ambiguous to allow Welfare to interpret it to permit doing the calculations the way that their computer system was capable of calculating.

1.         Less is More and More is Less . . . More or Less

The opinion letter had several errors in its own right – such as the conclusion, in the introductory “Background” section, that to follow the “public input” (i.e., the CCLS critique of the Welfare proposal at the “workshop”) would “result in significant increases in the amount of child support judgments that obligors would be required to pay.”  That is just not so, depending on when the matter is determined.

For example, the Welfare method of calculation has an entire year’s penalty coming due on the first day of the first month that a month’s support is overdue.  Welfare then ignores the penalty forever, failing to calculate any penalty for the second (or any later) year a sum remains outstanding.

The private Bar, by contrast, calculates the penalty in accordance with how much of a year has passed, so that the penalty imposed on an obligation due in January, is less in February than it is in March, and continues to be assessed for however many years an installment remains outstanding, giving meaning to the statutory phrases “per annum” and “remains unpaid.”

We replicated the table of hypothetical sums due and sums paid from the Welfare Division’s Manual,[22] at the request of the District Attorney.  Over the same one-year time period as the sample in the Manual, the private Bar calculates a total penalty (as of 12/31/04) of $85.90.  The Welfare calculation shows $230, grossly overstating the penalties actually owed, in the short term, by immediately assessing in toto a penalty that is supposed to be applied “per annum.”

The Welfare penalty is three times greater than the private Bar would claim as due – at least on the one-year hypothetical facts in the Welfare table – so the statement that the private Bar’s methodology would “significantly increase” the sum owed is just incorrect as a matter of math.

2.         Welfare’s Critical Error

The 2004 opinion letter is an exercise in sophistry.[23]  It starts with accepted rules of statutory construction, such as that all the words of a statute must be given effect if possible, and then cherry-picks from the legislative history to find a way to disregard nearly all of the actual words in the statute.

Specifically, the opinion letter took the simple phrase “10 percent per annum, or portion thereof, that the installment remains unpaid,” and sought to give effect to the modifier “or portion thereof” by reading the words “per annum” and “that the installment remains unpaid” completely out of the statute.  By linguistic backsprings, the letter concludes that since the precise phrasing of NRS 125B.095 appears nowhere else in the NRS, the intent of the drafters must have been to perform a one-time-only penalty assessment, which by miraculous coincidence is the only thing NOMADS is capable of doing.[24]

The legislative intention was stated with overwhelming clarity: to provide an incentive for child support obligors to pay support sooner, rather than later – a purpose that would be entirely frustrated by a calculation that did not get any worse no matter how much time elapsed from the due date.  And there is no known rule of statutory construction that permits three-quarters of the actual words of a statute to be rendered a nullity in order to give effect to a three-word incidental modifier.

An entire calculation methodology based on the phrase “or portion thereof” would eviscerate the obvious and plain meaning of the statute.  “Per annum” means “per annum” – the penalty is to be applied at the rate of 10% per year.  And “remains unpaid” also means what it says – the penalty is to be based on all child support that remains outstanding.

3.         Welfare’s Flawed Analogy

At several points, the 2004 opinion letter cited to the legislative intent to analogize the statutory penalty to “a [commercial] late payment fee as a motivator for other bills.”[25]  That analogy does not support a one-time-only penalty assessment.

Every known explanation of late fees notes that they get worse the longer they are late, as in this example for how credit card late fees work:

Late Fee

What is it: a charge for making less than the minimum payment or after the payment due date or both

Which cards have it: all cards

How much: $15 - $39 each billing cycle you miss a payment or pay less than the minimum

How often is it charged: once each billing cycle you are late

How to avoid it: pay your bills on time or call your creditor ahead of time to make payment arrangements.[26]

In other words, if you owe money to Best Buy, and don’t pay on time, they hit you up with a late payment fee.  And if you don’t pay the bill by the next month?  They charge you again – every time a billing cycle passes without you making the payment you owed originally.

Creating such a continuing incentive for obligors to make payments sooner, rather than later, was what the Legislature said it was trying to do in 1993 – a purpose that would be frustrated by any policy that did not provide a continuing incentive to actually make up arrears each passing day.[27]  The assertion in the 2004 opinion letter that making late fees continue to accrue over time would result in “double interest on total arrearages owed by an obligor” is just wrong as a matter of fact, and ignores the differences between interest and penalties.

The Nevada Supreme Court should have no problem finding that the statute should be interpreted to provide the incentive it was intended to provide:

A fundamental rule of statutory interpretation is that the unreasonableness of the result produced by one among alternative possible interpretations of a statute is reason for rejecting that interpretation in favor of another that would produce a reasonable result.[28]

No creditor would say “You owe this specific sum in January.  If you don’t pay, you get assessed a late payment penalty in February.  And then you’re off the hook – no further late fees in March, April, May, June, July – just pay when you can.”

But that is what Welfare wants to do with child support.  Such an unreasonable interpretation of a statute – one that does not actually accomplish the stated legislative goal – is to be rejected out of hand.

B.        The (Deflected) Attempt to Conform the Law to Error

The major problem facing bureaucracy is not the struggle for power but the evasion of responsibility; bureaucrats are very reluctant to take action.[29]

Having been informed during the 2004 “public workshop” that the proposed Welfare calculation methodology was counterproductive and not in keeping with the obvious legislative intent of the statute, Welfare did what a bureaucracy does in such circumstances – tried to get the law changed to support what it wanted to do.  Specifically, in 2005 Welfare cooked up AB 473, which would have altered the statutory penalty as follows:

[The amount of the penalty is] If imposed, a 10 percent [per annum, or portion thereof, that the] penalty must be applied at the end of each calendar month against the amount of an installment or portion of an installment that remains unpaid [.] in the month in which it was due.

All aspects of the calculation of interest and penalties were discussed at length in the resulting hearings held before the Assembly Judiciary Committee.  After hearing and reading everything about why the law was the way it was, why the Welfare Division was trying to change the law to conform to their outdated computer capabilities, and why it would be a really terrible idea to do so, the Legislature left the “how-to-compute-penalties” portion of the statute exactly as it was, knowing how the private Bar had been doing the calculations for 17 years (as to interest) and 10 years (as to penalties).

The same Deputy A.G. who wrote the misguided 2004 opinion letter testified and claimed that the law should be amended to conform to Welfare’s view of the legislative history and intent.  I testified immediately after, in part as follows:

Finally, the problem here, with due respect to the district attorneys and the Attorney General’s Office, is one of the tail wagging the dog.  They are attempting to solve a calculation methodology problem left over from legacy hardware and software . . . NOMADS, that they are trying make do a job that it is not suited to do.  They are attempting to conform the law to how their computer works.  I would suggest that this is a bad basis for altering public policy and altering statutes.  I suggest it may be time that they just face up to the fact that they have wasted a huge amount of money on trying to fix something which may or may not ever be fixable.  But certainly they should not start amending the law to conform to the problems that we know are built into that hardware system.

Immediately after that session, the Assembly Judiciary Committee deleted from the bill draft any mention of amending the how-to-calculate-the-penalty provision, rejecting the Welfare provision entirely.[30]