Rates of Interest on State and Federal Court Judgments: an Update
| Publication year | 1983 |
| Pages | 446 |
| Citation | Vol. 12 No. 3 Pg. 446 |
1983, March, Pg. 446. Rates of Interest on State and Federal Court Judgments: An Update
Recent amendments have been enacted at both the state and federal levels which significantly change the interest rates applicable to judgments. The effect of these changes is to cause the statutory interest rates to be more closely aligned with the cost of money, thereby more fully compensating plaintiffs who must await the outcome of the appellate process before collecting judgments. An obvious purpose of the amendments is to remove an incentive to appeal that might otherwise exist where the statutory interest rates are far lower than other money rates.(fn1)
Although the goals of the federal and state interest statutes are the same, Congress and the Colorado legislature have chosen different ways of accomplishing them. The purpose of this article is to explain the changes in the Colorado and federal interest statutes and to explore how these changes will affect litigation strategy.
Prior to amendment, 28 U.S.C. § 1961 provided that the interest rate on a money judgment recovered in a federal district court would be the interest rate allowed by state law. Effective October 1, 1982, pursuant to § 302 of the Federal Courts Improvement Act of 1982,(fn2) post-judgment interest rates applicable to federal district court judgments are uniform nationwide and are computed at a new and fluctuating rate.
Under the new law, the interest rate is tied to the rate applicable to fifty-two-week United States Treasury bills. This rate is determined by auction; the Treasury Department holds auctions of fifty-two-week Treasury bills every four weeks.(fn3) Thus, the rate may fluctuate up to thirteen times a year. Following each auction, the rate will be certified by the Treasury Department to the Director of the Administrative Office, and the Administrative Office will then advise the judges and clerks of the court of the current rate. The rate on Treasury bills is known as the "Investment Rate (Equivalent Coupon-Issue Yield)" and is reported in the Wall Street Journal and other financial publications.(fn4)
The rate applicable to a particular judgment is the rate on the date of the judgment. The rate does not "float." In other words, once the rate has been established for a particular judgment, the rate will not change, even if a subsequent auction should be held before the judgment is satisfied.(fn5) Interest at the governing rate is to be computed daily and compounded annually.(fn6)
The interest rate described above applies to cases in which the United States is a party, as well as to private suits.(fn7) The new rate also applies to judgments of the Court of Appeals for the Federal Circuit.(fn8) However, it does not apply to tax cases. The interest rate for tax cases is set under 26 U.S.C. § 6621 and is currently 16 percent. The new interest rate is likewise inapplicable in the bankruptcy courts.(fn9)
Finally, the new statutory rate applies to post-judgment interest only. Although the legislative history states that prejudgment interest may be essential in order to compensate plaintiffs,(fn10) the statute contains no provision for prejudgment interest. As discussed below, prejudgment interest is allowed as an element of damages in some federal actions.
Under the new statute, unless a money judgment is appealed, the legal rate of interest on judgments in actions other than personal injury actions is 8 percent.(fn11) The 8 percent interest rate is consistent with prior law. Under the recently enacted statute, however, a new rate of interest is applied where a judgment debtor appeals a judgment and the judgment is affirmed, modified or reversed with a direction that a judgment for money be entered in the trial court.(fn12) As of January 1, 1983, where a judgment is appealed and a money judgment upheld, the applicable interest rate is one which is based upon the Federal Reserve's discount rate.(fn13) This new rate of interest in Colorado is established at the beginning of each year and is set at two percentage points above the discount rate.(fn14)
The "discount rate" is defined...
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