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Redondo Redux: Postpetition Post-Judgment Interest Governed by Federal Law

Posted on: February 12, 2016

The First Circuit, in the latest installment of In re Redondo Construction Corporation, ruled that when it comes to overlapping pre- and postjudgment interest, you can’t have your cake and eat it too: under any federal case, including diversity and bankruptcy cases, where a plaintiff is entitled for the same period to both prejudgment interest under state law and postjudgment interest under federal law, plaintiff may only recover postjudgment interest during the overlap. P.R. Highway & Transp. Auth. v. Redondo Constr. Corp. (In re Redondo Constr. Corp.), No. 15-1397, __ F.3d __ (1st Cir. Feb. 10, 2016) (available here). 

In the 1990s, Redondo Construction Corporation contracted with the Puerto Rico Highway and Transportation Authority to work on three construction projects. Redondo later sued the Authority seeking payment for additional work under the contracts. However, Redondo filed for bankruptcy under chapter 11 before the claims were resolved. Post-petition, Redondo filed its complaints through the bankruptcy court and sought prejudgment and postjudgment interest in connection with its claims under federal and Puerto Rico statutes.

After initially prevailing in its claim for prejudgment interest under 41 U.S.C. § 7109(a)(1), the bankruptcy court’s decision was subsequently overturned. When Redondo claimed on remand that it was then entitled to prejudgment interest under Article 1061 of the Puerto Rico Civil Code, having preserved its claim by mentioning Article 1061 in its earlier motions as an alternative to 41 U.S.C. § 7109(a)(1).

Redondo was also entitled to postjudgment interest under 28 U.S.C. § 1961. Although prejudgment interest is usually governed by state law, in a federal case such as this one, postjudgment interest is governed exclusively by federal law under 28 U.S.C. § 1961. The prejudgment interest payable under Puerto Rico law accrued past the entry of judgment, creating an overlap period during which both pre- and postjudgment interest were due. While the bankruptcy and district courts allowed full recover under both statutes, the First Circuit vacated the district court’s judgment on the basis that a plaintiff is only entitled to a full recovery and the overlap would result in an excess recovery to Redondo. Because postjudgment interest under 28 U.S.C. § 1961 is exclusive and mandatory (“the prevailing party is entitled to it even if the district court made no provision for its payment”), only Article 1061 postjudgment interest applies during the overlap period.