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Calculating judgment interest in the wake of Wis. Act 69

A basic understanding of Wisconsin’s judgment interest law is a valuable asset for civil lawyers. Attorneys need to understand how to correctly calculate judgment interest when advising clients, proposing a judgment or advising the court and working with already entered judgments.

 Wisconsin Act 69 and the new rates

As part of a Back to Wisconsin special session in the Legislature in 2011, Gov. Scott Walker signed a bill into law that dramatically reduced Wisconsin’s pre- and postjudgment interest rates.

Before Wisconsin Act 69, the interest rate on Wisconsin civil money judgments was 12 percent — among the highest in the nation. Act 69 adjusted the rate to 1 percent plus the Federal Reserve prime rate as indicated on Jan. 1 or July 1 of the year in which the judgment was entered. As of July 1, 2012, the rate was 3.25 percent; so postjudgment interest on a judgment entered from July 1, 2012, to the end of year would be 4.25 percent until the judgment is paid off. The new rate scheme applies to all civil money judgments entered on or after Dec. 2.

The difficulty with calculating interest rates under the new formula is that the Federal Reserve prime rate is continuously changing. As a result, creditors may be required to track multiple interest rates within the same case.

To avoid confusion, parties may choose to opt-out of the new interest rates by negotiating a contract rate of interest where feasible. This can occur when the parties enter into a consent judgment, a voluntary agreement between the parties that can memorialize the payment of damages. If the consent decree does not set a specific rate for judgment interest, the interest rate mandated by Bill 14 applies.

Prejudgment interest

The difference between prejudgment and postjudgment interest is defined by when the interest rate is set. The court determines when the judgment starts accruing interest and, if this date is before the judgment was entered, it is determined as prejudgment interest, even as it accrues years after the entry of judgment.

Prejudgment interest “is awarded where the amount of damages is determinable, either because the damages are liquidated or because there is a reasonably certain standard of measurement.” City of Merrill v. Wenzel Bros., 88 Wis.2d 676, 697, 277 N.W.2d 799, 808 (1979). It is also awarded if the parties have explicitly agreed, either in their principal contract or in a supplementary stipulation or agreement, that damages will include prejudgment interest. Kleinschmidt v. Aluminum & Bronze Foundry, 274 Wis. 231, 79 N.W.2d 802 (1956).

Finally, prejudgment interest is available as a matter of law when the final judgment award exceeds a prior settlement offer by the winning party. In this instance, interest begins to accrue on the date the settlement offer was made.

Prejudgment interest is designed to promote settlement between litigants. In all cases, once set, the prejudgment interest rate remains constant for the life of the judgment.

Calculating judgment interest

All parties awarded money damages by the court are entitled to postjudgment interest. Following is a step-by-step guide to calculating either pre or postjudgment interest.

Step 1: Determine whether the plaintiff is entitled to postjudgment interest

In all instances where prejudgment interest is not awarded (with the theoretical exception for when parties negotiate a consent judgment with a no-interest provision) parties are entitled to postjudgment interest.

Step 2: Determine the applicable Federal Reserve prime rate

If the judgment was entered on or before June 30, then the judgment interest rate is based on the Federal Reserve prime rate on Jan. 1 of the judgment year. If the judgment was entered on July 1 or later, then the interest rate is based on the Federal Reserve prime rate as indicated on July 1 of the judgment year.

You will almost always need to look up historical Federal Reserve prime rates, which you can do HERE. If you ever need to look up the current Federal Reserve prime rate, maybe to estimate what the judgment interest rate will be on an anticipated judgment, you can do so HERE.

Step 3: Add 1 percent

Add 1 percent to the applicable Federal Reserve prime rate to get the rate of interest that will be applied to the judgment.

Step 4: Determine when the judgment began accruing interest

Postjudgment interest accrues from the date the judgment is entered until the judgment is satisfied, discarded or otherwise expired.

Prejudgment interest accrues from the date of the court order, again for the life of the judgment. If you are working with prejudgment interest in the context of an offer of settlement, the interest begins accruing from the date that the offer was made. Nonetheless, the date the judgment is entered is the operative one to determine the applicable interest rate.

In both cases, the judgment interest rate remains constant for the life of the judgment.

New rate system in context

Proponents of the new judgment interest rate argue that the earlier 12 percent interest rate far exceeded market rates and overcompensated plaintiffs. The Wisconsin Civil Justice Council Inc. referred to the 12 percent rate as “exorbitantly high,” “excessive,” and “unfair.” The Council also argued that it impeded settlement. Similarly, the American Tort Reform Association condoned the earlier 12 percent interest rate as imposing a punitive burden on judgment debtors.

Critics of the new bill are concerned that it unnecessarily complicates the calculation of such rates.

With the new rate, the Wisconsin legislature aims to fairly reflect the current market value. Because the rate is dependent on the Federal Reserve prime rate, it does bear the possibility of again reaching 12 percent. This, however, is unlikely. The peak for the Federal Reserve prime rate is 11 percent in February of 1989.

Kimberly Alderman is the owner of The Alderman Law Firm, a Madison-based civil litigation firm that enforces Wisconsin civil money judgments.

 

2 comments

  1. The comment by the American Tort Reform Association that the 12 percent interest rate imposed a punitive burden on judgment debtors is interesting. The bill, Senate Bill 14, supported by ATRA and ALEC, was originally drafted to keep the interest rate at 12 percent except in “a civil action founded in tort, in an action brought by a customer to enforce rights under chs. 421 to 427, or in a consumer protection action…”, in which case the interest rate was reduced to one percent over prime. Thus, the lower rate would only have applied to tort and consumer cases. It would not have applied to judgments taken by corporations. That original bill was later amended to its present form because of public outrage about the bill negatively impacting consumers, but not corporations. The original bill made a mockery of the concepts of justice and equal protection.

  2. This is an excellent article. It makes me wonder why we replaced a simple system with a very complex one. Is it because 12% interest was too high? If so, then why does the State of Wisconsin continue to charge people 12% interest on taxes owed? 12% is surely much less than the typical credit card. And why is the state helping judgment debtors? 12% interest was a motivating factor in having people pay their judgments. Now they won’t be so motivated.

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