Here is another article by Lamothe Law Firm attorney Richard Martin that was recently published in Louisiana Association for Justice’s publication, “Louisiana Advocate.”
- PRE-JUDGMENT INTEREST IN FEDERAL COURT
by Richard M. Martin, Jr.
Prejudgment interest “is not a penalty, but compensation for the use of funds wrongfully withheld.”1 By compensating for the loss of use of money due as damages from the time the claim accrues until judgment is entered, an award of prejudgment interest helps achieve the goal of restoring a party to the condition it enjoyed before the injury occurred.2 Full compensation has long been recognized as a basic principle of admiralty law, and that prejudgment interest ensures that an injured party is fully compensated for its loss.”3
Setting the rate of interest on a judgment is within the trial court’s broad discretion.4 The Fifth Circuit has upheld awards at the Louisiana legal rate, at the federal legal rate, as well as at, among other rates, higher rates roughly equal to the plaintiff’s actual cost of borrowing.5 In the Fifth Circuit, prejudgment interest is ordinarily awarded from the date of loss, because this ensures that the injured plaintiff is compensated for the use of funds to which the plaintiff was entitled, but which the defendant had use of prior to judgment.6 The date of injury, rather than the date of judicial demand, is the proper date from which prejudgment interest should run.7 By compensating for the loss of use of money due as damages from the time the claim accrues until judgment is entered, an award of prejudgment interest helps achieve the goal of restoring a party to the condition it enjoyed before the injury occurred.8
Louisiana state law governs the availability of prejudgment interest in diversity cases.9 Further, Louisiana substantive law presumes that interest will be awarded on judgments,10 and that a debt or claim for the payment of money or damages under a contract is ascertainable and becomes due on the date an active violation occurred or the obligor was put in default, which can be earlier but never later than judicial demand, and legal interest runs from that date.11
Nonetheless, the Eastern District of Louisiana has concluded that awarding prejudgment interest on future lost profits is irreconcilable with the purpose of prejudgment interest and that the recovery of such interest is impermissible under Louisiana law.12 Prejudgment interest, which stems from the damages suffered by the victorious party, is meant to fully compensate the injured party for the use of funds to which he is entitled but does not enjoy because the defendant has maintained control over the funds during the pendency of the action.13 Accordingly, to allow a plaintiff to recover prejudgment interest on future damages would contradict this purpose because such an award consists of money that the plaintiff would not have had the use of until after judgment.14
It is well-settled that under maritime law, the awarding of prejudgment interest is the rule rather than the exception, and, in practice, is well-nigh automatic.15 A trial court has the discretion to deny prejudgment interest only where peculiar circumstances would make such an award inequitable.16 The Reeled Tubing court identified four such “peculiar circumstances”: (1) where plaintiff improperly delayed resolution of an action, (2) where a genuine dispute over a good faith claim exists in a mutual fault setting, (3) where some equitable doctrine counsels against the award, or (4) where the damages award was substantially less than the amount claimed by plaintiff.17 The Supreme Court has since held that neither a good-faith dispute over liability nor the existence of mutual fault justifies the denial of prejudgment interest in an admiralty collision case, thereby abrogating the second of Reeled Tubing’s “peculiar circumstances” test.18
1 Platoro Ltd., Inc. v. Unidentified Remains of a Vessel, 695 F.2d 893, 906 (5th Cir. 1983).
2 City Of Milwaukee v. Cement Div., Nat’l Gypsum Co., 515 U.S. 189, 199 (1995);Sea Link Cargo Servs. Inc. v. Mar. Centre Inc. , 380 F. App’x 460, 464 (5th Cir. 2010).
3 City of Milwaukee, 515 U.S. at 195-96.
4 Reeled Tubing, Inc. v. M/V Chad G, 794 F.2d 1026, 1028-29 (5th Cir. 1986).
5 Pillsbury Co. v. Midland Enters., Inc., 715 F. Supp. 738, 770-71 (E.D. La. 1989).
6 Reeled Tubing, 794 F.2d at 1028.
7 Sea Link, 380 F. App’x at 464, citing In re Signal Int’l, LLC, 579 F.3d 478, 500-01 (5th Cir. 2009).
8 City of Milwaukee, 515 U.S. at 196.
9 Meaux Surface Prot., Inc. v. Fogleman, 607 F.3d 161, 172 (5th Cir. 2010).
10 La. Civ. Code art. 2000.
11 St. Paul’s Evangelical Lutheran Church v. Quick Response Restoration, Inc., 381 F. App’x 408, 412 (5th Cir. 2010), citing Mini Togs Prod., Inc. v. Wallace, 513 So. 2d 867, 873 (La. App. 4 Cir. 1987).
12 Walle Corp. v. Rockwell Graphics Sys., Inc., No. No. 90-2163, 1992 WL 245963 (E.D. La. Sept. 21, 1992).
13 Corbello v. Iowa Prod., 850 So. 2d 686, 706 (La. 2003) (overruled on other grounds).
14 Hollybrook Cottonseed Processing, LLC v. Carver, Inc., 2015 WL 3771781, at *2 (W.D. La. June 17, 2015), quoting Walle, 1992 WL 245963 at *9.
15 Reeled Tubing, Inc. v. M/V Chad G, 794 F.2d 1026, 1028 (5th Cir. 1986); accord Sea Link Cargo Servs. Inc. v. Mar. Centre Inc. , 380 F. App’x 460, 464 (5th Cir. 2010).
16 Reeled Tubing, 794 F.2d at 1028; see also Sea Link, 380 F. App’x at 464.
17 Reeled Tubing, 794 F.2d at 1028.
18 City Of Milwaukee v. Cement Div., Nat’l Gypsum Co., 515 U.S. 189, 199 (1995).
