Avoiding “Punitive” Post-Judgment Interest

WDC Journal Edition: Winter 2011
By: Joshua B. Cronin, Borgelt, Powell, Peterson & Frauen, S.C.

Predictably, when I asked the plaintiff’s economic expert to tell me what a “reasonably prudent investment” would be, he responded that the plaintiff should invest his money in US Treasury bonds. A 30-year US Treasury bond has an interest rate in the range of 3.5 to 4.5%. When I asked my economic consultant what an alternative “reasonably prudent investment” would be for the plaintiff, the expert consultant explained to me that municipal bonds were a reasonable alternative. Municipal bonds have a 30-year interest rate of approximately 4.5 to 5.5%. Despite these interest rates, when a plaintiff obtains a judgment against my client and I proceed to appeal possible errors made at the trial court level, my client is asked to pay post-judgment interest at the exorbitant rate of 12%.

In a healthy economy, an interest rate of 12% is high; however, in an unhealthy economy, like the one in which the United States now finds itself, this 12% interest rate can be only be described as a punitive measure against all defendants seeking an appeal. This Article describes procedures supported by Wisconsin jurisprudence that can be used by defendants to avoid this punitive effect while still furthering the statutory objectives embodied in section 815.05(8) of the Wisconsin Statutes. In short, this Article discusses precedent allowing a defendant to avoid statutory post-judgment interest by requesting and successfully obtaining court approval to pay the judgment into court while having execution of the judgment stayed pending appeal.

In Management Computers Services, Inc. v. Hawkins, Ash, Baptie & Co.,[i] a decision from 1998, the Wisconsin Court of Appeals approved of a procedure that would allow a defendant to avoid the punitive effect of the 12% interest rate.[ii] In that case, the plaintiff, MCS, appealed the trial court’s order staying execution of the judgment.[iii] The circuit court allowed the defendant, HABCO, to pay the judgment to the court, thereby tolling HABCO’s liability for post-judgment interest under section 815.05(8) of the Wisconsin Statutes.[iv] The court then placed the funds paid by the defendant into private banks so that the deposits would earn interest and be covered by FDIC insurance.[v] If the judgment were affirmed on appeal, the plaintiff would then receive the funds along with any accrued interest.

The court of appeals held that “the trial court was within its discretion to permit HABCO to pay the contested amount to the court, and that HABCO’s payment to the court terminated its liability for statutory post judgment interest under Section 815.08(8).”[vi] The court stated that its decision was supported by the plain language of sections 808.07(2) and 815.05(8) of the Wisconsin Statutes.[vii] In addition, the court of appeals held that the trial court’s decision comported with the dual statutory purposes of Section 815.05(8).[viii]

First, with regard to the language of Section 808.07(2), the court of appeals noted that the trial court has broad discretion to stay the execution of the judgment and to condition such a stay upon terms it deems appropriate.[ix] The court found that the trial court properly exercised its discretion in granting the stay requested by HABCO conditioned on HABCO’s payment of the amount of the judgment into the court.[x] The court noted that although the private bank interest was less than the 12% interest, the “trial court’s arrangement” was sufficiently in accord with its broad discretion under Section 808.07(2).[xi]

Second, with regard to the language of Section 815.05(8), the court rejected MCS’ argument that it was entitled to 12% interest under the statute.[xii] The court noted that the plain language of Section 815.05(8) required only that post-judgment interest accrue until a judgment is “paid.”[xiii] Because HABCO “paid” the judgment into the court, the statutory interest stopped running.[xiv] To this end, the court stated that the “rate is set by statute to accrue on judgments only until they are ‘paid,’ which we have determined includes payment to the court as HABCO has done here.”[xv]

Lastly, in considering the statutory objectives of Section 815.05(8), the court noted that the procedure followed by the trial court comported with the statute’s dual objectives.[xvi] The first objective of imposing 12% post-judgment interest is to compensate prevailing parties for the time value of their money.[xvii] The second statutory purpose is to provide an incentive for post-judgment debtors to timely pay amounts that are deemed due.[xviii] The court held that “[t]he present stay order achieves both goals while guaranteeing for both parties that the effectiveness of the judgment subsequently to be entered at the conclusion of this appeal will be preserved.”[xix] In making this ruling, the court preserved both parties’ rights.

Though the defendant in Management Computer Services was successful with the above approach, it should be noted that not all defendants will have similar results. This is because trial courts retain a certain amount of discretion in their authority to grant a stay of a money judgment pending appeal. To this end, there are four factors for a circuit court to consider when asked to grant a stay: (1) the issues appealed and the likelihood of success on those issues; (2) the need to ensure the collectability of the judgment and accumulated interest if the appellant does not succeed on appeal; (3) the interest of the appellant; and (4) the harm to the respondent that may result if the judgment is not paid until completion of an unsuccessful appeal.[xx] Despite the discretion the trial court has and the uncertainty that follows from that discretion, such motions may still be a prudent financial move for many litigants seeking appellate review in cases with high damage sums awarded at the trial court level.

Like the defendant in Management Computer Services, there are many ways defendants may be able to avoid punitive post-judgment interest while satisfying the requirements of Section 815.05(8). For example, a defendant could attempt to pay the judgment amount into the court with interest accruing on the judgment at a rate set by one of the parties' economic experts. This methodology seems to have the most intellectual integrity because the jury’s award is presumably based upon one of these projections. In turn, the plaintiff’s expectation of what she would have received is also based on one of these projections. Of course, to maintain this intellectual integrity, some additional amount may be warranted to account for the time value of money. Also, it may be desirable to propose a reasonable period of time over which to calculate the interest. One year may be an appropriate period, as an appeal normally takes about that much time.

To be sure, there are additional costs and procedures that may be necessary to make a court more comfortable with this recommendation. For example, FDIC limits are set at $100,000. If one has a judgment in excess of $1 million, one would need at least eleven bank accounts to ensure that all of the money is insured. A court may be reluctant to take on the burden of managing these accounts. Therefore, a defendant may want to recommend appointment of a referee to manage and oversee the accounts.

It should be emphasized that the potential costs associated with pursuing this sort of motion are appropriate in many cases given the amount of money at risk. Take, for example, a case in which the jury awards $1 million to the plaintiff. Because most appellate decisions take approximately one year from judgment to final disposition in an appellate court, there is potentially $120,000 at stake with respect to post-judgment interest. Additionally, if one’s client plans to petition the Supreme Court of Wisconsin for review, the time period between judgment and finality could be even further extended—potentially lasting years. Thus, in the $1 million hypothetical, hundreds of thousands of dollars could potentially be saved by utilizing the procedures recommended above.

In a case involving a high dollar judgment, then, it hardly seems to be a close call whether to file a motion to stay execution of the judgment. However, clients are often reluctant to pay money into the court before a final decision from an appellate court is given. This reluctance is understandable because clients often times do not want to disperse large sums until the finality of a particular case is absolute. Moreover, clients may be reluctant to pay for the costs of filing such a motion and the potential costs associated with paying someone to maintain the bank accounts. Finally, there may be an emotional reluctance to pay the money because of a sincere and justifiable belief that the result was unjust.

However, clients may be increasingly willing to overcome this reluctance when confronted with the prospect of paying a significant amount in post-judgment interest. For example, in considering the hypothetical above, if the defendant were successful in moving the court to pay interest at the rate of a U.S. Treasury Bond (4-percent), post-judgment interest on a 1 million dollar judgment upheld on appeal one year after the judgment is paid would total $40,000. By paying 1.4 million into the court, the defendant could save $80,000 ($120,000 minus $40,000). In fact, the defendant in Management Computer Services did far better than this result. As a practical matter, it may be better to propose a number of options to the court.

In summation, defense counsel would be wise to propose to their clients the various methods described above in order to potentially avoid the downfalls of the punitive post-judgment interest rate. Although these methods are not guaranteed to be successful due to the discretion a trial court has, they nevertheless provide a viable option in the face of having to pay enormous post-judgment interest. Until the time comes when the legislature amends the statute to change the punitive interest rate so that it correlates with normal investment interest rates, this approach is likely to be the best approach to deal with the punitive post-judgment interest rate now in effect.

It should be noted that on October 11, 2011, Governor Scott Walker introduced bills to reduce the pre and post-judgment interest rates through September 2011 Special Session, Assembly Bill 14 and Senate Bill 14. These bills would reduce the pre- and post-judgment interest rate from 12 percent to the Prime Rate set by the Federal Reserve Board, plus one percent.

[i] 224 Wis. 2d 312, 592 N.W.2d 279 (Ct. App. 1998).

[ii] See generally id.

[iii] Id. at 317.

[iv] Id. at 331.

[v] Id.

[vi] Id. at 317.

[vii] Id. at 331.

[viii] Id.

[ix] Id.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv] Id.

[xv] Id. (emphasis added).

[xvi] Id. at 331–32.

[xvii] Id.

[xviii] Id.

[xix] Id. at 332.

[xx] Weber v. White, 2004 WI 63, ¶ 35, 272 Wis. 2d 121, 681 N.W.2d 137.