SACRAMENTO – The Civil Justice Association of California (CJAC) today urged state legislators to support a bill that will eliminate rules that unfairly penalize public and private defendants for appealing civil trial decisions to a higher court.
Senate Bill 1117, authored by Senator Mimi Walters (R-Laguna Niguel) and sponsored by CJAC, would ensure that defendants pursuing legal appeals would pay interest on judgments at a rate comparable to market rates during the appeals process, not the fixed 10 percent currently set by state law.
“Although the issue seems obscure, the current process makes defendants think twice about appealing because if they lose the appeal, the amount of money owed to the plaintiffs can jump by as much as 20 percent,” said CJAC President John H. Sullivan. “For example, if the appeal of a $1 million judgment took two years to complete and was unsuccessful, a defendant would owe an additional $200,000.”
Interest accrues on judgments from the time they are awarded by the trial court until collected by the plaintiff. Since 1982, the interest rate in California prejudgment and postjudgment interest has been fixed at the rate of 10 percent per year. The bill would set the judicial interest rate at the federal short-term rate plus 2 percent. During the past few years, the short-term rate has fluctuated between half a percent and about 5 percent.
Sullivan noted that by supporting SB 1117, legislators will send a message that the state is becoming friendlier to job-creating business investment, and also benefit cash-strapped state and local governments.
“The current system is a financial boon to plaintiffs’ lawyers and a hit on taxpayers,” Sullivan said. “In these difficult economic times, this prudent proposal would not only be recognized by business decision-makers, but would benefit cities, counties, and other public entities which are struggling with budget shortfalls.”
At least eight states have recognized that high locked-in judicial interest rates that are far higher than current interest rates are not fair to defendants and don’t make economic sense. Alaska, Florida, Illinois, Michigan, New Jersey, Ohio, Texas, and Washington have adopted legislation basing the judicial interest rate on rates set by the Federal Reserve or the United States Treasury, plus a certain number of percentage points.
A similar bill, SB 393, was introduced by Senator Tom Harman (R-Huntington Beach) last year but failed passage.