July 12, 2016 – Lands’ End, the clothing and apparel store, won a significant judgment against the City of Dodgeville. Recently, the Wisconsin Supreme Court decided how much interest applies to the judgment under a judgment interest statute.
In Lands’ End Inc. v. Dodgeville, 2016 WI (July 12, 2016), a four-justice majority ultimately affirmed the judgment and order of the Iowa County Circuit Court.
The circuit court awarded Lands’ End “interest at the statutory rate of interest in effect when Lands’ End recovered a judgment” – one percent plus the prime rate – as opposed to the 12 percent annual interest rate that was in effect when Lands’ End made its offer of settlement. The judgment interest statute changed during litigation.
Lands’ End appealed the circuit court order, since it would receive more interest on its $724,292 judgment if the old 12 percent rate applied. The case bypassed the appeals court. And a supreme court majority affirmed the circuit court’s interest award.
The decision overturns a published appeals court decision from 2015, which had applied the 12 percent interest rate in effect at the time of a settlement offer instead of applying the new interest rate in effect at the time the court entered judgment.
Judgment Interest Statute
Under Wis. Stat. section 807.01(4), the interest rate on judgments applies starting on the date of an offer of settlement if the offer is rejected and the subsequent money judgment is equal to or more than the offer. That’s precisely what happened here.
Lands’ End, headquartered in Dodgeville, challenged its 2008 property tax assessment, arguing the city based it on a faulty valuation methodology. The company made an offer of settlement in 2009 for $724,000. Dodgeville rejected the offer. At that time, the judgment interest rate in effect under section 807.01(4) was 12 percent annually.
In April 2010, an Iowa County judge affirmed the city’s valuation. But Lands’ End appealed. In 2013, a state appeals court reversed, “with directions to enter judgment in favor of Lands’ End in the amount of $724,292.68, plus statutory interest. …”
The case returned to circuit court. That’s when the parties began arguing about the interest rate that would apply, because in 2011 the Wisconsin Legislature changed the interest rate applicable to cases in which a settlement offer is rejected. The circuit court ultimately awarded Lands’ End the interest rate that applied under the new law.
The new interest rate was equal to “1 percent plus the prime rate in effect” at the time of judgment, as reported by the federal reserve board, statistical H.15. In this case, “1 percent plus the prime rate” was equal to 4.25 percent at the time of judgment, far less than the 12 percent interest rate that applied before the law changed in 2011.
Lands’ End argued that applying the new interest rate violated constitutional protections because the company’s interest rate vested at the time of the settlement offer. That is, Lands’ End made an as-applied constitutional challenge to section 807.01(4), arguing that it was retroactively applied to the detriment of their vested property interest.
A majority did not agree.
In a lead opinion, Justice Shirley Abrahamson said “the circuit court’s judgment and order do not violate the Due Process clauses of the federal and state constitutions or Wis. Stat. § 990.04,” which says the repeal of a statute must not impair or defeat certain rights that accrued before that statute was repealed.
Abrahamson noted that the new statute applies to judgments entered after the law’s effective date, and the final judgment here was executed after the new law took effect.
Joe Forward, Saint Louis Univ. School of Law 2010, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6161.
In addition, Justice Abrahamson explained that the new statute did not impair any of Lands’ End’s rights because the right to interest on a judgment was contingent on the uncertain future event of recovering a judgment. That wasn’t certain to happen.
“Lands’ End’s right under the amended version of the statute at the effective date of the statute was inchoate, not perfected, not ripened, nor accrued,” she wrote. “Lands’ End had not yet recovered a judgment.”
In addition, there was no “vested right” in the 12 percent interest rate, Justice Abrahamson explained, because Lands’ End “did not acquire a legally enforceable right to recover interest until it recovered a judgment.”
Abrahamson noted that in tying interest to market rates, the legislature ensured that a party entitled to interest on judgments “is fairly and reasonably compensated for being unable, during the pendency of the litigation, to use the money to which it is entitled.”
Finally, a majority ruled that applying the new judgment interest rate to Lands’ End did not violate the Equal Protection clauses of the federal and state constitutions, as there were no similarly situated groups who were treated differently under the law.
That is, one group had a vested property interest in a judgment entered before the new judgment interest law took effect in 2011. The other did not.
“We conclude that, having regard to the public good, the legislature could reasonably conclude that treating parties with vested rights differently from parties who do not have vested rights is rational,” Justice Abrahamson wrote.
Justice Annette Ziegler wrote a 42-page concurrence, agreeing that the lower court’s order should be affirmed and the appeals court’s 2015 decision should be overturned.
She wrote separately “to reemphasize the relevant framework when the court analyzes a claim that legislation is retroactive and cannot be applied in a particular case” and to clarify “rational basis review” when used in conjunction with a “balancing test.”
Justice David Prosser wrote a dissent, joined by Chief Justice Patience Roggensack. Justice Prosser said the judgment interest statute clearly “entitled” Lands’ End to the interest rate in effect when the offer of settlement was made and rejected.
That is, section 807.01(4) says a party “is entitled to interest” if: 1) there is an offer of settlement; 2) it is not accepted; and 3) the party recovers a judgment which is greater than or equal to the amount specified in the offer of settlement.
Section 807.01(5) says sub-paragraph (4) applies to offers “which may be made by any party to any other party who demands a judgment or setoff against the offering party.”
“Lands’ End demanded a judgment and ultimately received a judgment,” Prosser wrote. “The statute in 2009 and 2010 imposed no timing requirement for the judgment.”
Justice Prosser says Lands’ End was entitled to the interest that was in effect when it made the settlement offer that Dodgeville rejected, which reflects the statute’s purpose to encourage settlement and prompt payment of judgments.
“Retroactive application of the 2011 changes in the law undermines the entitlement to 12 percent interest set out in the statute,” Prosser wrote. “It creates an incentive to extend litigation and thereby delay payment.
“The City is effectively being rewarded for overtaxing Lands’ End and for stringing out the litigation that followed,” Prosser noted, also noting “that Lands’ End would have been required to pay 1 percent interest every month plus potential penalties, if it had not timely paid the 2008 tax and if it had not eventually succeeded in court.”
Prosser also explained that the outcome largely hinged on the timing of court decisions. An appeals court had sided with Lands’ End, based on the same challenges to 2005 and 2006 assessments, six weeks after the circuit court sided with the city on 2008 assessments in this case.
“[T]he lead opinion forces Lands’ End to bear the burden of the right court making the wrong decision at a critical time,” he wrote. “Had the same court decided the case six weeks later, the result would have been different.”