When a court awards a judgment to a party, it might seem as though the process of recovery has concluded. The successful party expects to collect and return to business. Yet, in some cases, the collection of the award begins another dispute, which companies should anticipate. Because many judgment awards include a total for damages plus an amount for interest set at a certain percentage to accrue per annum from the payment due date, an additional dispute may arise over the collection of interest owed. In the case of one construction company that served as contractor, three years have passed for the courts to resolve the issue of when interest began to accrue on judgments for work completed on state projects.

A construction company brought a claim against a state agency for amounts due for work performed in five construction projects. The company claimed that it had not been compensated for additional work performed because of unforeseen site conditions and flawed design plans. The company was driven to file for Chapter 11 bankruptcy, and then began this recovery proceeding against the state agency. Not only did the construction company seek its damages, but it also sought interest accruing from the date the amounts should have been due on the projects— “prejudgment interest.” The bankruptcy court agreed and awarded a $1 million judgment that included a six percent prejudgment interest rate accruing from the contractual payment date for each of the projects. This decision was upheld in the district court, yet the state authority appealed on several grounds, including an argument that the wrong interest rate had been applied, that the state agency had not engaged in bad behavior to merit the prejudgment interest award, and that too much in taxes had been calculated into the construction company’s award.

The appellate court inspected the award and determined that the construction company may not have been entitled to prejudgment interest at all, and that the construction company had not presented sufficient evidence to support the $1 million award. The appellate court also brought up the issue that “postjudgment interest” should have been awarded to the construction company—representing the interest accruing from the initial judgment until the time when the state agency made a payment deposit with the court. Ultimately, the case was sent back to the lower courts, and the construction company is still awaiting recovery.

This contractor’s dispute over the appropriate amount of interest on a judgment could have just as easily occurred against an owner or other corporation, rather than against a state agency. In either case, contractors and owners should prepare a litigation strategy that not only addresses accurate calculation of damages, but the accurate calculation of interest on the claims and the appropriate law to support the interest calculation.

In Re: Redondo Construction Corporation, 700 F.3d 39 (1st Cir. Nov. 21, 2012).