Central bankers have been the bane of a saver’s return for awhile now, but Wisconsin’s court of appeals appears to have carved out a place for litigants to earn a market-beating return. In a decision issued by District II (written by Chief Judge Brown and joined by Judges Reilly and Gundrum), the court recently decided that it was unconstitutional for the legislature to change, retroactively, the rate of pre-judgment interest that applies to offers of settlement. Johnson v. Cintas Corp. No. 2, 13AP2323 (Wis. Ct. App. Jan. 14, 2015).
An “offer of settlement” is a statutory cost-shifting procedure in Wisconsin designed to encourage settlement. Under Wis. Stat. § 807.01, a party can serve an “offer of settlement” on an adverse party, and, if the offeree accepts within 10 days, the court enters judgment in the amount of the offer. The case is over. If the offeree does not accept, however, it makes that choice at its own peril, for the statute shifts litigation costs to that party if it fails to secure a judgment more favorable than the offer. When a plaintiff is the offeror, § 807.01 also tacks on pre-judgment interest, calculated based on the final amount of the judgment and running from the time of the offer until the time that the judgment is paid.
Pre-judgment interest became part of the statute in 1980 and was set at 12% annual interest—a nominal amount in the days of the Volcker Fed and its battle against stagflation, but a rate of return that Wall Streeters lust after now. That rate remained at 12% until 2011, when the legislature changed it to 1% plus the prime interest rate in effect at the time the judgment is entered.
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