Interest Case Analysis

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The case is a likely one to be reviewed by the Supreme Court for several reasons: the inconsistency in the court of appeals’ classification of whether or not sec. 807.01(4) is punitive; the court’s invitation that it do so; and most importantly, that the decision entirely guts the purpose of the statute in contract actions, at least those providing for interest in excess of 12 percent.

In the one paragraph that the majority devotes to explaining why it would deny concurrent interest, even if it didn’t feel bound by prior precedent, the majority explained that it considers the 30 percent interest rate that would result from stacking an excessive amount that would compel capitulation to unreasonable settlement offers, rather than provide incentive to reasonable offers.

However, this wholly ignores the fact that 18 percentage points of those 30 were agreed to by the defendant in the contract. In weighing whether 30 percent interest is excessive, the base for comparison is the 18 percent that was set by contract, not zero.

The difference between those rates is 12 percentage points, the same as in any action in which sec. 807.01(4) would be applied.

Ironically, the error in the court’s reasoning is particularly obvious in the case at bar, because the 18 percent interest was the whole object of the litigation, rather than the principal.

In this case, the litigation by the defendants appears to have been undertaken as a delaying tactic. They never disputed their liability for the underlying contract; the only dispute was when interest begins to accrue, and whether all or only some of the defendants are liable for it.

Thus, they could have paid the principal, roughly $283,000, and then, if they lost on the merits, effectively, they would only be risking paying an additional 12 percent interest on the disputed interest, rather than on the whole amount.

The majority’s assumption that the defendants are unreasonably coerced to settling by paying 30 percent interest on the entire amount is thus fundamentally flawed.

	Links Wisconsin Court of Appeals Related Article Interest under sec. 807.01(4) can’t be stacked

Nevertheless, even accepting the above analysis, the case points out another fundamental flaw, but in the statute itself rather than in either the majority opinion or dissent, at least when applied to a contract case involving interest.

The relevant question in a case such as this should not be whether the final judgment is greater than the plaintiffs’ offer. Instead, in order to stack interest, the plaintiff should be required to show that, at the time of the offer, the interest had already piled up enough to exceed that offer.

Here, the plaintiff offered to settle for $370,000 on July 9, 2001. The ultimate award was roughly $407,000. Assuming that, on July 9, 2001, the amount of the underlying contract plus interest up to that point exceeded $370,000, the offer was reasonable, and the purpose of the statute would be served by stacking interest after that point.

If the principal plus interest on July 9, 2001 was less than $370,000, then the offer was unreasonable, and stacking would not serve the purpose of the statute.

Thus, the majority opinion is correct that the approach of the dissent could produce coercion to accept unreasonable offers. However, that is due to a flaw in the statute, rather than the reasoning of the dissent.

– David Ziemer

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David Ziemer can be reached by email.