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

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.

© 2019 Bracewell LLP


About this Author

David L. Lawton, financial restructuring, lawyer, Bracewell law firm

David Lawton is a member of the firm's Financial Restructuring team. Mr. Lawton's practice focuses on the representation of hedge funds, institutional investors, fund managers and other lenders and equity groups in complex workouts, insolvency proceedings, and litigation in U.S. and international corporate restructurings with particular emphasis on Australian workouts. Mr. Lawton has worked in a variety of sectors. His industry highlights include tribal gaming, agribusiness and real estate. Mr. Lawton has also assisted corporate clients with mergers and acquisitions,...

Evan Flaschen, Financial Restructuring, Attorney, Bracewell law firm

Evan Flaschen is the chair of the Financial Restructuring Group at Bracewell LLP, described by Legal 500 as a "phenomenally committed team" that practices as a "seamless national firm" with "vast international experience." Who's Who Legal has named Evan as the 2015 "Most Highly Regarded Insolvency & Restructuring Individual in the World" who "is 'simply the best' according to our sources." His practice includes representation of many of the world's largest borrowers, institutional investors, private investment funds, Chapter 11 debtors and financial services companies in out-of-court restructurings, exchange offers and in-court proceedings, both domestically and internationally. Evan is described by Chambers Global as a practitioner "who serves clients extraordinarily well" and "praised by commentators for his ability to 'pull deals together when you really feel like all hope is lost'"; by Who's Who Legal as "an absolute star" who is "widely revered"; and in Global Turnaround as being "for the last fifteen years the 'go-to' guy for American distressed investors interested in Australia." Various other international surveys have described Evan as "one of the globe's leading practitioners," "articulate, focused, commercial, affable and highly respected," "feared and revered," and "singled out for his ‘superb knowledge, fine commercial sense, unending energy and sharp focus.’" A nationwide survey of industry participants and peers recently honored Evan as one of the ten "Most Admired Bankruptcy Attorneys in the United States."