WisBar News: Court Applies Judgment Interest Rate in Effect at Time of Settlement Offer:

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  • January
    14
    2015

    Court Applies Judgment Interest Rate in Effect at Time of Settlement Offer

    Joe Forward
    Legal Writer

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    Jan. 14, 2015 – Currently, the interest rate that applies to judgments equals one percent plus the prime rate in effect at the time of the judgment. Prior to 2012, the interest rate on judgments was 12 percent. Recently, a state appeals court said the old interest rate applies to a 2013 judgment because the plaintiff made his offer of settlement in 2008.

    In 2006, Robert Johnson was the passenger in his own car when the driver, Marvin Crandall, caused an accident. Both were drunk. Johnson sustained injuries, but had auto insurance coverage through his employer, Cintas Corporation No. 2 (Cintas).

    In 2007, Johnson sued to recover damages from Cintas and its insurer, but named the wrong corporate entity in the complaint. In 2008, he filed an offer of settlement for $300,000. The parties litigated defective service and no settlement was reached.

    Ultimately, a trial was held in 2013. The jury concluded that Johnson was 20 percent negligent for putting himself in harm’s way, but returned a verdict for more than $412,000. That award was reduced by 20 percent to almost $330,000.

    Cintas appealed. Johnson also appealed because the trial court applied the interest rate on judgments in effect on the date of the judgment, which was 4.25 percent in 2013. Judgment interest changed legislatively to one percent plus prime in December 2011.  

    Johnson argued that the pre-2012 interest rate of 12 percent should apply under Wis. Stat. section 807.01(4) (2007-08) because he made an offer of settlement in 2008, and the judgment exceeded the offer of settlement amount, which was $300,000.

    Under that statute, the interest rate on judgments applies starting on the date of the offer of settlement if the offer is rejected and the subsequent judgment is equal to or more than the offer. The judge applied the interest rate in effect at the time of judgment, concluding that a litigant’s right to judgment interest vests at the time of judgment.

    But in Johnson v. Cintas Corp. No. 2, 2013AP2323 (Jan. 14, 2015), a three-judge panel for the District II Appeals Court reversed, concluding “that retroactively changing the interest rate that attaches to a statutory offer of settlement … would be unconstitutional” and the applicable rate is the rate that was in effect when the offer was filed.

    “Our conclusion would be the same if the tables were turned and the legislature attempted retroactively to impose an increased rate of interest,” wrote Chief Appeals Court Judge Richard Brown. “That would substantially impair the defendant’s vested expectations concerning the likely scope of the damages in the litigation.”

    The panel noted that the new law specifically applies to any judgment executed after the effective date, but fails to consider offers of settlement made before the effective date.

    In addition, Cintas did not identify any public interest that outweighed Johnson’s interest in prejudgment interest, the panel explained. It rejected Cintas’s claim that the judge improperly instructed the jury on Johnson’s level of contributory negligence.




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