Post-Judgment Interest Rates – A Good Reason to Forum Shop

When deciding whether to file a lawsuit in state or federal court, there are several different factors to consider. One of these is the rate of post-judgment rate of interest. shutterstock_97867295

  • In New York State, CPLR 5004 sets the post-judgment rate of interest 9% per annum.
  • In the context of private construction contracts in New York, the N.Y. Prompt Payment Act sets an even higher rate of interest, 1% per month (or 12% per annum), which the NY Appellate Division (1st Dep’t) has held controls post-judgment.
  • However, in federal court, 28 U.S.C. 1961(a) sets the post-judgment rate of interest based on U.S. Treasury yields, which has recently hovered around 0.12%. Recent cases have held that federal rate controls even in diversity cases, which means that on a basic breach of contract case where state law is controlling, federal law will govern post-judgment interest. The differences can be drastic.  

For example, if a contractor obtains a judgment for $1 million that is subject to the NY Prompt Payment Act rate of post-judgment interest (i.e. 12% per year), the contractor would earn $120,000 per year on its judgment. However, if the very same judgment is issued by a federal court, at the current federal rate the contractor would earn a mere $1,200 per year. Considering that collection can sometimes take years, and appeals can delay collection efforts even further, post-judgment interests should be considered in deciding where to bring a lawsuit.

Moreover, businesses should consider drafting language into their contracts specifying the rate of post-judgment interest. If properly drafted, such a clause would get around the federal rate. However, simply placing a standard cookie cutter clause like “New York State law applies,” is not specific enough to hold up in court. To be effective, the clause needs to be tailored by an experienced lawyer to fit each company’s situation, taking both case law and statutes into account.    

The old adage, “An ounce of prevention is worth a pound of cure,” is especially true with contracts. However, even the best-laid plans encounter roadblocks, and prevention does not inoculate against all possibility of lawsuits. 

The first step a construction-related company should take in the event of a breach of contract is to reach out to an attorney with a proven track record. Together, with all of the facts, they can determine whether the federal or the state interest rate is preferable and proceed accordingly.

At Marco & Sitaras, PLLC, we practice in all areas of construction law, from contract drafting and negotiation to litigation. If you have questions, please call us at 212.430.6410 or visit our Contact page here.

George Sitaras
Marco & Sitaras, PLLC
33 Whitehall Street, 16th Floor, New York, NY 10004
phone: 212-430-6410 (ex 190)