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Fairness of Imposing Statutory Interest Rate on Private Entity Defendants When Rate is Significantly above Existing Market Interest Rates

Posted in Litigation Trends, Massachusetts Courts

 

interest rates for judgments in massachusetts

In Massachusetts, the interest rate for pre-and post-judgment interest is 12%, a number which was last revised in 1982 during the Reagan Administration.   See Mass. Gen. Laws ch. 231,§ 6B.   Massachusetts has not followed the lead of other states and federal district courts which use a floating rate or an economic benchmark for determining what the pre- and post-judgment interest rate should be and although six other states (see list to follow), which had set their interest rate at 12%, have recently lowered the percentage, Massachusetts remains an outlier on this issue.

Here’s a list of the six states that have recently lowered the interest rate for pre- and post-judgments:

At the time that the rate was set at 12%, it may have seemed reasonable given the market interest rates at the time, however given the current economic environment, providing a plaintiff with a significantly above market interest rate by which interest on damages is calculated may not serve the goal of compensating a plaintiff for his or her losses but instead serve to provide a plaintiff with a windfall.  See Sec’y of Admin. & Fin. v. Labor Relations Comm’n, 434 Mass. 340, 346 (2001).  At the time the rate was set it closely tracked the Federal Reserves’ annual one-year constant maturity Treasury Yield Rate of 12.27%, however that rate is currently 0.14%. Although Massachusetts utilizes a floating pre- and post-judgment interest rate and puts a cap on that rate, when calculating interest on damages to be paid by the Commonwealth to injured parties, it has not adopted the same floating rate for damages to be paid by private entities nor does a cap exist for damages to be paid by private entities.  See Mass. Gen. Laws ch. 231, §6I.

The Supreme Judicial Court arguably recently sent a signal to the defense bar that the court may be ready to evaluate the question of applying the 12% pre- and post-judgment interest rate to punitive damages in general when it sought briefs on the issue in the Willie Evans v. Lorillard Tobacco Company, et al. matter, SUCV-2004-02840 (pdf download).  In Lorillard, the jury awarded damages in the amount of $152 million, broken down into $71 million in compensatory damages and $81 million in punitive damages.  The trial judge reduced the compensatory damages to $35 million, but did not reduce the punitive damages award and Lorillard appealed.  Prior to issuing its opinion in Lorillard, the Supreme Judicial Court sought briefs on the question of the constitutionality of imposing the 12% interest rate on the punitive damages award in the case.

Ultimately, because the Supreme Judicial Court vacated the punitive damages award, in its opinion, the Court stated that it did not need to address the “various issues regarding the amount of interest on punitive damages.”  

One of the amicus briefs submitted to the Court was filed by the Massachusetts Defense Lawyer’s Association which included a review of other states and federal courts and their practices for handling pre- and post-judgment interest rates.  It found that MA is among 7 states with a fixed 12% pre- and post-judgment interest rate while there are 27 states that have a rate lower than 12% and 23 states and federal courts that utilize a floating rate. (pdf download). Additionally, it addressed the question of how other states have set out rules that clearly define the purpose for pre- and post-judgment interest, while Massachusetts statutes do not.  It offered examples to the Court of instances where the rate encourages settlements but at the same time limits the punitive nature of having such a high interest rate set by statute.  The brief urged the Court to find that the current rate set in Massachusetts is not only unconstitutional but also violates due process as an excessive punitive award and asked the court to determine a fair rate of interest for the Lorillard case.

The pre- and post-judgment interest rate on damages is the same for both tort and contract actions in MA, but there is an added risk of increased damages in contract actions based on the potential length of time that a plaintiff may be able to claim that damages have accrued from. In Tort actions, the interest on damages may only run from the date of the commencement of an action, however, the date that damages may accrue from can be one of three possible dates, including the date of the alleged breach. In a recent MBA article, MBA article, Matthew R. Fisher an attorney at Mirick O’Connell outlined how the potential rewards to a plaintiff in a contract action for interest on damages from a date as early as when an alleged breach could occur and instructed the plaintiffs’ bar the availability of the pre- and post-judgment interest rate as a potential source of added damages in such cases.

Conclusion

Given the risk of damages in a contract actions running from an even earlier date than the commencement of an action, the defense bar must be aware of the potential “windfall” that plaintiffs may be able to receive if they are successful in obtaining a verdict in their favor. The additional amount of time potentially available to plaintiffs in contract actions is another example of the problematic nature of the high pre- and post-judgment interest rate that is assessed on damages in Massachusetts.

The issue of questioning the fairness of maintaining the current rate of pre- and post-judgment interest remains an open one in Massachusetts.  The Defense Bar must recognize that it is an issue that should be raised throughout a trial so that it can be preserved and raised in an appeal of a damages award, particularly on the issue of the potentially excessive amount of damages that may be owed given the fact that the existing rate is so far above market interest rates.  By preserving the issue for an appeal, the defendants leave open the possibility for the Supreme Judicial Court to potentially weigh in on the issue that it may be ready to more fully evaluate and address