Pre- and Post-Judgment Interest Explained: What You Need to Know

What is Pre-Judgment Interest?
You just had a lawsuit filed against you or your company in civil court for damages, and naturally, you begin to prepare for the worst-case scenario. What exactly would you be on the hook for if you do not prevail at trial? While that question may yield a multitude of topics to contemplate, one goes wildly unnoticed—interest. Every jurisdiction has different methods of calculating how exactly the amount of interest tied to damages is measured.
Like most interest rates, pre- and post-judgment interest may initially seem negligible on their face, but they can quickly become significant when applied to larger judgments.
Pre-Judgment Interest Explained
Pre-judgment interest refers to the amount of interest that accrues from the day a demand (or a settlement offer, depending on the jurisdiction) is “rejected” until the day the judgment is entered. This interest compensates the plaintiff for the “loss of use” of the money during the legal process, ensuring that the victorious party is not penalized by the delay.
Example:
- Person A sues Person B for $100,000 and demands payment.
- Person B can either pay the $100,000 or proceed to court.
- If, after 3 years of litigation, Person A wins and is awarded $100,000, they are also entitled to the pre-judgment interest that accrued over the 3 years.
Federal and State Perspectives on Pre-Judgment Interest
In the federal court system, pre-judgment interest is generally available for claims seeking monetary judgments. However, trial courts have discretion in awarding it, and the decision is made on a case-by-case basis. Factors considered include:
- The need to fully compensate the wronged party for actual damages suffered.
- Considerations of fairness and equity.
- The remedial purpose of the statute involved. Other relevant general principles (Wickham Contracting Co., Inc. v. Loc. Union No. 3, 955 F.2d 831, 833-34 (2d Cir. 1992)).
Courts may also exercise discretion in awarding pre-judgment interest at all, requiring only a reasonable justification (Andes Petro Ecuador Ltd. v. Occidental Expl. & Prod. Co., 2023 U.S. App LEXIS 14861 (2d Cir. June 15, 2023)). Additionally, it is considered an abuse of discretion to deviate from the “prime rate” unless a statutorily defined rate or refined rate-setting is applied (First Nat’l Bank of Chicago v. Standard Bank & Trust, 172 F.3d 472 (7th Cir. 1999)).
- Current Prime Rate: 7.5%, as delineated by the Federal Reserve Statistical Release H.15.
State-Specific Rates for Pre-Judgment Interest
State laws often govern pre-judgment interest rates, which federal courts may defer to when calculating awards. Below are examples from jurisdictions where MWH Law Group operates:
- Wisconsin: Pre-judgment interest is codified under Wis. Stat. § 807.07(4). The rate is 1% plus the prime rate in effect on January 1 or July 1, depending on when the judgment is entered.
- Illinois: The rate is 6% per year, as codified under the Illinois Pre-Judgment Interest Act (735 ILCS 5/2-1303(c)).
- Iowa: According to Iowa Code § 668.13, pre-judgment interest on monetary judgments is calculated based on the one-year Treasury constant maturity rate published by the Federal Reserve, plus an additional 2%. This rate is updated monthly by the state court administrator and applies to cases involving tort and contract claims in Iowa.
- Indiana: Pre-judgment interest rates are set between 6% and 10%, under the Tort Prejudgment Interest Statute (IN Code § 34-51-4-9 (2024)). I find this interesting, yet pleasantly straightforward; deviations account for circumstances while boundaries restrict over or underwhelming interest amounts.
- New York: New York State’s statutory rate for pre-judgment interest rate is 9% annually, except for consumer debt cases, where it’s 2% (NY CLS CPLR § 5004).
- For clients in Wisconsin, Illinois, and Indiana, pre-judgment interest is viewed as compensation. Courts in the Seventh Circuit are more likely to award pre-judgment interest when damages are concrete and determinable early in the litigation process (Pickett v. Sheridan Health Care Ctr., 813 F.3d 640, 642 (7th Cir. 2016)). Rates may defer to state statutes.
What is Post-Judgment Interest?
Post-judgment interest is simpler. It is the amount of money that accrues every day the judgment remains unpaid. Unlike pre-judgment interest, post-judgment interest is mandatory and must be awarded. It is a codified rate that is constant and controlling among all Federal Circuits. The rate is etched into law under 28 U.S.C. 1961. No matter what deviations may happen during the litigation process, the rate is locked into the one that was in effect at the time of the award, so no fluctuations subsequent to the entry of judgment are considered.
- Federal Rate: 4.21% (based on the weekly average 1-year constant maturity Treasury yield).
- This rate constantly changes and can be found here.
State-Specific Rates for Post-Judgment Interest:
- Wisconsin: 8.50% (1% + prime rate) (Wis. Stat. §814.04(4)).
- Illinois: 9% annually (735 ILCS 5/2-1303) (6% if the judgment debtor is a “unit of local government”).
- Iowa: 6.21% (1 Year Treasury Constant Maturity + 2%) (Iowa Code § 535.3(1) and 668.13).
- Indiana: 8% annually, unless a contract stipulates a lower rate (Indiana Code 24-4.6-1-101).
- New York: 9% annually (N.Y. C.P.L.R. §5004).
Conclusion
Like most things in the legal world, these topics are multi-faceted and require constant monitoring to keep up with legislative shifts in rates. Although some of the interest rates mentioned above are seemingly nominal, they become increasingly significant as the litigation process lengthens. For instance, a $1M judgment with a 10% post-judgment interest rate would yield $100,000.00 annually. Hyper-attention to every minute detail and education surrounding all elements at play during litigation is at the apex of effective representation.
Consult with a member of the General Litigation Practice Group at MWH Law Group regarding any questions or concerns related to pre- or post-judgment interest.