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Danises were represented by John L. Capone (Capone) and were
insured by Allstate Insurance Co. (Allstate).
On January 3, 1990, the trial court entered a default
judgment against the Danises, and, on May 18, 1990, filed a final
entry of judgment in which the court awarded Mrs. Serpa $115,000
plus interest and costs. The clerk of the court added statutory
prejudgment interest totaling $46,079 as required by R.I. Gen.
Laws section 9-21-10 (1985). This totals $161,079. The award of
$115,000 is 71.39 percent of $161,079. The statutory prejudgment
interest of $46,079 is 28.61 percent of $161,079.
On June 19, 1990, the Danises filed a motion to vacate the
judgment. On January 23, 1991, the trial court denied the
Danises' motion. The Danises appealed the denial of their motion
to the Rhode Island Supreme Court.
C. The Settlement
After filing the notice of appeal, the Danises agreed to pay
Mrs. Serpa $150,000 for a release and discharge of any and all
past or future claims. Petitioners and Lewis J. Paras signed the
release on May 24, 1991. The parties did not discuss tax
consequences during settlement negotiations. The release did not
state whether any of the $150,000 was interest, and the parties
did not otherwise allocate any of the amount to interest. On
June 5, 1991, the parties filed a stipulation of dismissal with
the trial court. Another stipulation was filed on June 14, 1991,
that the "matter may be dismissed with prejudice; no interest, no
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