Lucretia and the Nine Percent Solution: Illinois' Pre-Judgment Interest Bill and the Need for JusticeBy: Justyna M. Kruk, Amy M. Kunzer, and Mitchell A. Orpett, Tribler, Orpett & Meyer, P.C. March 2021 Like a modern-day Lucretia, on January 13, 2021, our own Lady Justice was recently assaulted in the Illinois Statehouse, falling victim there to the overwrought desires of covetous politicians and their donors. By the time the assault was over, her scales were out of balance and her blindfold, like her dreams, lay in tatters. One can only hope that the Governor, in the fine traditions of ancient Rome, can prevent Lady Justice’s further demise and that he chooses instead to uphold her honor. Such is the state of fair play in the Illinois courts. But it is the legislature, and not the judicial branch, that is responsible for the latest mayhem. In passing a bill (HB 3360) that mandates that pre-judgment interest be added to any judgment in a personal injury case at the astounding rate of 9% per annum, our state representatives and senators have sent a clear message. Like Daddy Warbucks in a bad Monopoly game, they have made it clear that they can put their thumbs on one side of the scales of justice whenever they choose, disrupting fairness and balance. Given the wide-spread application of this proposed legislation and the profound impact it is likely to have on personal injury litigation in the State of Illinois, it is important to understand precisely what it does and what the real-world implications of its potential enactment are likely to be. Perhaps most important of all, it is crucial that those still holding on to the besieged notions of justice and fair play begin now to work for a solution. Those who value equal treatment of all litigants under the law and a system of justice that ensures fairness while and encouraging the prompt resolution of disputes will recognize that HB 3360 poses a real danger that should not be ignored. What the Bill SaysIt has forever been the law in Illinois that plaintiffs cannot recover pre-judgment interest in personal injury cases. Northern Trust Company v. County of Cook, 135 Ill. App. 3d 329 (1st Dist. 1985) (reversing an award of pre-judgment interest in a medical malpractice action, stating that it was “clear that Illinois statutes do not authorize prejudgment interest in tort cases”); Gardner v. Geraghty, 98 Ill. App. 3d 10 (1st Dist. 1981). Indeed, Illinois courts have been extremely clear that such relief is neither proper nor desirable. Superior Structures Co. v. City of Sesser, 277 Ill. App. 3d 653 (5th Dist. 1996) (“Interest statutes are in derogation of the common law and must be strictly construed). Suddenly, however, in the literal dark of night and after more than 100 years of jurisprudence to the contrary, the Illinois legislature has decided to turn personal injury and wrongful death into attractive investment opportunities, in which allegations can earn nine percent per annum. If signed by the governor, HB 3360 will amend 735 ILCS 5/2-1303 as follows:
As of the date of this article, there has been no indication from the Governor’s Office whether or not this bill will be signed. If this bill is signed into law, judgments rendered in personal injury and wrongful death cases in Illinois will be subject to an additional nine percent per annum pre-judgment interest. The Bill provides that interest will accrue even in cases where liability is disputed and a good-faith defense exists. This additur is to accrue from the date the defendant has notice of the injury, either from the incident itself or as a result of written notice. Not content with upsetting the landscape of litigation merely on a going-forward basis, the legislature has also mandated that the bill apply as well to injuries already suffered and lawsuits already being litigated. The legislature has chosen not to offer a definition of “notice of the injury,” thereby creating an issue for substantial uncertainty and future litigation. The bill also imposes interest on future damages, as well as on damages that are not fixed and
are uncertain. What the Bill Really Means
Passage of this HB 3360 would have profound and immediate effects on personal injury and wrongful death litigation in Illinois. 1. Delay in Filing
As mentioned above, interest would begin to accrue on the date a tortfeasor has actual or written notice of the injury. In Illinois, most tort actions carry a two-year statute of limitations period; however, some limitations periods can be even longer
and then, under certain circumstances, tolled for additional periods of time beyond that. Regardless of when a plaintiff or a defendant has notice of the injury, however, the Bill would incentivize plaintiffs not to file suit until right before the
statute of limitations expires in order to drive up damages and maximize a potential judgment. Given that, with a nine percent price tag, the Bill enriches plaintiffs who delay at a much greater rate than if they had been fully compensated on the
date of their injuries, this proposed legislation would give plaintiffs a significant advantage if they delay filing and do nothing, rather than proceeding expeditiously in furtherance of their claims. 2. Delay in Trying
Likewise, the Bill encourages plaintiffs to delay and prolong litigation once suit is filed in order to take advantage of as many days of an artificially inflated rate of interest as possible. Under the Bill, getting a result at trial – even a favorable one – is likely to cost plaintiffs money compared to waiting a few more years before getting to that result. It is therefore feasible that, in some cases, especially those presenting high damage potential but little chance of liability, plaintiffs may resort to the use of dilatory practices to artificially increase the value of a case and pressure defendants into settling otherwise meritless claims. Proponents of the Bill claim that defendants – not plaintiffs – manipulate the legal system and use delay tactics to pressure plaintiffs into accepting lower settlements. This argument ignores the fact that litigation delays inflate defense costs and, for those cases that go to trial, plaintiffs’ judgments, as juries already take inflation into account when deciding awards. Generally, even relatively simple cases require defendants to expend resources drafting pleadings, answering written discovery, and attending depositions. However, cases with ever-lasting shelf lives necessarily cost more to defend, either because of the need to complete additional discovery, engage in unnecessary motion practice, attend status hearings, or simple case management. In addition to the above, larger, more complex cases may also require defendants to hire expert witnesses or review and preserve voluminous records, the costs of which increase the longer a case goes on. In an era with interest rates near zero, there is no “profit” to be made by defendants or their insurance companies from delaying cases and holding on to their settlement dollars. To the contrary, an open case is much more typically viewed as one with ever-increasing transaction costs and higher expense. Early resolution – where possible and reasonable – is heavily favored by the defense industry across the board. The potential for abusive delay is exacerbated by plaintiffs’ existing ability to nonsuit a case and to delay any proceedings for up to an additional year. HB 3360 appears to leave defendants powerless to prevent the potential award from continuing to
increase while plaintiff sits back and the case is suspended due to plaintiff’s own conduct. Such a result has no relationship whatsoever to the Bill’s stated purpose, fosters an inefficient and lengthy judicial process and serves no legitimate public
interest.
3. Unfair Windfall for Plaintiffs
A guaranteed nine percent interest rate on prejudgment interest would result in a windfall for plaintiffs, as it is significantly higher than the current federal reserve rate and has no rational relationship to a plaintiff’s actual damages or to the legislature’s
goals in enacting the Bill. In today’s market, a nine percent interest rate exceeds a reasonable return a prudent investor would have obtained with the money in his or her possession during the period of time that plaintiff was deprived of the funds.
Moreover, an interest rate this high does not further the legislative goal of compensation because it does not compensate at a rate that accurately reflects the value of plaintiff’s loss. Gambino v. Boulevard Mortg. Corp., 298 Ill. App. 3d
21 (1st Dist. 2009) (The purpose of awarding compensatory damages is to make the injured party whole and restore him to the position he was in before the loss, but not to enable him to make a profit or windfall in the transaction). If a plaintiff
is awarded prejudgment interest at a rate of nine percent, he or she is better off economically (and is made more than whole) than if the plaintiff had not suffered any damages and had access to the same amount of money in the same time frame. 4. Settlement Blackmail
It has long been the settled law and public policy in Illinois to favor the voluntary resolution of disputes. To that end, courts strongly encourage the settlement and compromise of litigation in an effort to produce more just results between the parties,
conserve judicial resources, and increase the public’s access to the court system. Johnson v. United Airlines, 203 Ill. 2d 121 (2003). Champions of the Bill argue that prejudgment interest is nothing more than another mechanism to bring about
the earlier resolution of civil disputes. However, this line of thinking ignores the likelihood that a mandatory award of prejudgment interest at a rate of nine percent per annum will actually discourage settlement by significantly and artificially
increasing plaintiffs’ settlement demands and the ultimate cost of resolving the case. Indeed, where the prejudgment interest rate is much higher than the market rate, the likelihood of settlement may decrease as the expected judgment amounts increase,
thereby widening the chasm between the parties’ expectations regarding what constitutes a “reasonable settlement.” When viewed from this angle, the imposition of prejudgment interest undermines the legislature’s stated goal of encouraging settlement
where warranted. What Can Be Done?
The potential enactment of HB 3360 offers a cause that adherents of justice and equal treatment under law should rally around and work to change. Given the profound imbalance this legislation is likely to cause – turning the notion of fair compensation
for injuries into a legislative version of a Reddit plot to blow up the value of GameStop – the defense bar and insurance companies in particular should determine how the impact of this legislation can be reversed or minimized. Legislative Changes
One such obvious avenue is to amend the bill. The notion that a mandatory interest award at a rate of nine percent is anything other than punitive, in the era of the federal interest rate being maintained at near zero, lacks all credibility. Thus, even those supporting HB 3360 should be prepared to lower the pre-judgment interest rate to make it compensatory. Clearly, the rate of interest should reflect the current economy and rates available in the marketplace. The State of Illinois has no business making personal injury litigation an investment vehicle for allegedly injured individuals and their attorneys. Delay in resolving disputes, the inevitable byproduct of offering an exorbitant, above-market interest rate for as long as cases remain pending, should not be encouraged by Illinois legislation. Indeed, this runs contrary to long-established and strong Illinois public policy to encourage settlements and the efficient resolution of lawsuits. Antonicelli v. Rodriguez, 2018 IL 121943, ¶ 25. Other changes that should be made to HB 3360 should it be enacted include:
Each of these changes would return some degree of balance and improve the resulting quality of justice in personal injury and wrongful death litigation. Each would offer a more intellectually honest approach to the concept of compensation for injury.
Each would also mitigate the inevitable game-playing by plaintiffs which is otherwise encouraged by a bloated nine percent interest rate. Together, these changes could allow Illinois courts to continue to encourage settlements rather than delay and
compensate rather than punish. Legislative amendment offers a number of palliatives to the clear excesses of HB 3360. Allow Offers of Judgment
If the Bill is to become law, it is incumbent that additional legislation be enacted in order to maintain some sense of justice in personal injury litigation and to preserve a balanced field for all parties. In particular, in order to offset the windfall presented to plaintiffs by the Bill, Illinois should enact a rule authorizing parties in litigation to extend offers of judgment. This process is available under federal law and in many states and would serve as an effective and much-needed counterweight to the manifestly unfair pre-judgment interest rate that can otherwise be collected by plaintiffs under the Bill. Although the Bill’s interest rate is too high regardless of whether or not a defendant can make an offer of judgment, if the Bill is not modified to lower that rate, an offer of judgment would be a necessary protection. Such an antidote to the legislature’s “nine percent solution” would be neither radical nor unique. For example, under Fed. R. Civ. P. 68, a defendant may offer to allow a judgment in a specified amount at least 14 days before trial. An offer not accepted is deemed withdrawn but, if the judgment is less than the offer, the offeree (usually the plaintiff) must pay all costs incurred after the offer was made. Fed. R. Civ. P. 68. In determining whether the judgment at trial exceeds the amount of the offer, the court does add the plaintiff’s pre-offer attorneys’ fees to the amount of the judgment, depending on the underlying claim. Grosvenor v. Brienen, 801 F. 2d 944 (7th Cir. 1986). The intent of Rule 68 is, of course, to encourage settlement by removing the incentive for the plaintiff to pursue a claim whose probable final outcome is not more than the defendant's offer. Marek v. Chesney, 473 U.S. 1, 105 S. Ct. 3012, 3015, 87 L. Ed. 2d 1 (1985); Delta Air Lines, Inc., v. August, 450 U.S. at 352, 101 S. Ct. at 1150 (1981); Advisory Committee Notes on Rules of Civil Procedure, Report of Proposed Amendments, 5 F.R.D. 433, 438 n. 1 (1946). The United States Supreme Court has ruled that Rule 68 does not require payment of costs if the settlement offer is a sham or in an unrealistic amount even if the plaintiff goes to trial and loses. Delta Airlines, Inc. v. August, 450 U.S. 346, 101 S. Ct. 1146 (1981). “Costs” typically include charges for copying and preparing transcripts and, in some cases, attorneys’ fees. Fisher v. Kelly, 105 F.3d 350 (7th Cir. 1997) (term “costs” under Rule 68 includes all costs awardable under relevant substantive statute). For example, in the context of civil rights litigation, Fed. R. Civ. P. 68 may be used to cut off the defendant’s responsibility for a plaintiffs’ attorneys’ fees earned after the offer was extended. Because the average attorneys’ fees award in civil rights litigation can equal or exceed the verdict itself, Rule 68 can be an effective tool for defense counsel looking to mitigate exposure. Marek v. Chesny, 473 U.S. 1, 87 L.Ed. 2d 1, 105 S. Ct. 3012 (1985). The requirement that plaintiffs pay post-offer costs can obligate plaintiff to pay his or her own fees, but it does not obligate plaintiff to pay the defendant’s post-offer attorneys’ fees. There is no rescission of Rule 68 contracts. Once the acceptance has been filed, judgment must be entered. Webb v. James, 147 F.3d 617, 621 (7th Cir. 1998). Rather, to avoid the affect of an offer of judgment, a party must seek relief under Fed. R. Civ. P. 60(b). In addition, Rule 68 does not authorize counteroffers. Nordby v. Anchor Hocking Packaging Co., 199 F. 3d 390 (7th Cir. 1999). When a Rule 68 offer fails to expressly include attorneys’ fees, courts are within their discretion to grant fees and costs in an additional and separate award. Garcia v. Oasis Legal Finance Operating Co., 608 F. Supp. 2d 975, 978 (N.D. Ill. 2009). Defendants should mention attorneys’ fees explicitly in Rule 68 offers in order to avoid ambiguity. Nordby at 393)(holding Rule 68 judgment did include attorneys’ fees, even though the offer did not use the magic words “attorneys’ fees, but recommending defendants to mention them explicitly in order to avoid ambiguity). Currently, Illinois state courts do not have an offer of judgment provision. In some states, whether or not pre-judgment interest is allowed is dependent on an offer of judgment being made prior to trial (also known as an “offer of compromise”). While an offer of judgment is not a pre-requisite to obtaining pre-judgment interest in several states, the form of an offer of judgment can impact the recovery of interest, such as when the interest begins to accrue. It is also important to note that offers of judgment in various jurisdictions may not apply to all causes of action. For purposes of this discussion, however, the examples below are limited to tort actions. For example, in California, prejudgment interest is allowed where plaintiff makes an offer of compromise that is rejected and the judgment is greater than the offer, and the accrual date is the offer of compromise. Cal. Civ. Code §3291. This encourages plaintiff to make an offer of compromise early on. Conversely, if an offer made by a defendant is not accepted and plaintiff fails to obtain a more favorable judgment or award, the plaintiff cannot recover his or her post-offer costs and must pay the defendant’s costs from the time of the offer. If the costs awarded exceed the amount of the damages awarded to the plaintiff, the net amount is awarded to the defendant and judgment or award is entered accordingly In Connecticut, prejudgment interest is not allowed absent an offer of compromise. If the plaintiff recovers an amount equal to or greater than the sum specified in the plaintiff’s offer of compromise, the court adds to the amount recovered, eight percent annual interest on said amount. If the offer is filed within 18 months of the complaint, the accrual date is the date the complaint is filed. If the offer of compromise is filed later than 18 months from the filing of the complaint, interest is calculated from the date the offer of compromise was filed. Conn. Gen. Stat. §52-192a(c). In Delaware, in order to be awarded pre-judgment interest, the plaintiff must have extended a valid written settlement demand valid for 30 days in an amount less than the amount of damages under which the judgment was entered. Del. Code Ann. Tit. 6 §2301(d). In Indiana, no prejudgment is allowed if the plaintiff or defendant fail to make an offer of settlement. Ind. Code. §34-51-4-1. Section 34-51-4-6 requires plaintiff to make a qualified written offer of settlement within one year of filing a claim in order to be eligible to receive prejudgment interest arising from that claim. Section 34-51-4-5 empowers the defendant to avoid prejudgment interest on any judgment award if the defendant makes a qualified offer of settlement within nine months of the time at which the claim is filed and the amount of the offer is at least two-thirds of the amount of the judgment award. In Louisiana, Michigan, and Minnesota, New Jersey, South Carolina, offer of judgments or settlement offers by plaintiff or defendant may impact the amount of interest recoverable. La. Code Civ. Proc. Ann. Art. 970; Mich. Comp. Laws §600.6013(9),(10), (13); Minn. Stat. §549.09(b); In Missouri, pre-judgment interest is allowed if the claimant has made a demand for payment or an offer of settlement and the offer of judgment exceeds the demand for payment or offer of settlement. The accrual date is 90 days after the demand or offer was received or from the date the demand or offer was rejected without counteroffer, whichever is earlier. Mo. Rev. Stat. §408.040(3). Nebraska calculates the accrual of pre-judgment interest from the date of plaintiff’s first offer of settlement which is exceeded by the judgment. Neb. Rev. Stat. §45-103.02. In Ohio, prejudgment interest is allowed where parties fail to make a good faith effort to settle the case. Ohio Rev. Code Ann. §5703.47. Clearly, Illinois would not be breaking new ground or adopting radical legislation were it to counter the extreme imbalance that would be created by the enactment of HB 3360 with a rule allowing for offers of judgment. As consistently demonstrated in
both the federal system and in state-court litigation around the country, offers of judgment help preserve fairness for all litigants, balancing prejudgment interest, costs of litigation and delay in obtaining judgment with an opportunity to recover
costs unnecessarily expended and incentivizing early settlement. If Illinois is serious about enacting the one-sided scheme of HB 3360, fairness and an equal playing field must be re-established by lowering the rate of interest, creating exceptions
to when prejudgment interest may be recovered and instituting offers of judgment. Limit Prejudgment Amounts:Many states limit the amount of prejudgment interest that may be awarded to “ascertainable damages” and do not include non-economic (such as pain and suffering, emotional distress, loss of consortium), future damages (future medical expenses and wage loss) or punitive damages. Excluding noneconomic damages from prejudgment interest is consistent with the goal of making the plaintiff whole. The purpose of pre-judgment interest is to make the plaintiff who was deprived of the use of his money during the litigation. Under this logic, the Supreme Court has held that prejudgment interest is not available on awards which represent penalties as opposed to damages. Rodgers v. United States, 332 U.S. 371, 373-374 (1947); West Virginia v. United States, 479 U.S. 305 (1987). The prejudgment interest rate varies among states, but many adopt the one-year Treasury bill rate plus 2-3%. Some states leave the rate of interest to the discretion of the court, but have a maximum rate of 10% per year. Almost all other jurisdictions
are less punitive towards defendants than HB 3360 as passed by the legislature and do more to treat all litigants in a fair and balanced manner consistent with our sense of justice. Conclusion
At its core, HB 3660 tramples traditional notions of justice. It is unwise and overreaching. The legislature’s “nine percent solution” is both intemperate and dangerous. The governor should refuse to sign HB 3660 into law and demand meaningful amendments to the Bill that would ensure a fair and equitable judicial system. If he does not do so, however, additional steps must be taken to persuade the legislature to enact a bill authorizing meaningful offers of judgment that would prevent HB 3660 from creating vast windfalls for plaintiffs, causing undue and unwarranted delay in the filing and prosecution of personal injury lawsuits and otherwise making a mockery of our sense of justice and its place in our courts. It is said that the popular rebellion that rose up following the rape of Lucretia changed ancient Rome from a kingdom to the great republic that is still recognized today for its great contributions to government, law, politics and western ideals. While,
in antiquity, it was necessary to parade Lucretia’s bloody corpse before the city gates to remind people of the dishonor committed, in more modern times we can only hope that our justice system will not be reduced to that state in order to preserve
our sense of justice and fair play. Late-Breaking News
Proposed Amendment to HB 3660 Subsequent to the preparation of this article, but prior to its publication, House Committee Amendment #1 to Senate Bill 72 was introduced, which would amend HB 3660 as follows if passed:
The proposed amendment does little to rectify the many legal inequities posed by HB 3660. A seven percent interest rate is still significantly higher than what a plaintiff would receive in the open market. The amendments do not prevent plaintiffs from
engaging in dilatory tactics to artificially increase the value of cases, nor do they authorize parties in litigation to extend offers of judgment. Worse still, the legislature and the State of Illinois would be shielded from the consequences of this
one-sided bill (apparently, for the Illinois Legislature, what is good for the goose is not always good for the gander). Although any effort by the legislature to mitigate the injustice that would result from the original bill should be applauded,
Amendment #1 to HB 3660 fails to provide the necessary safeguards to preserve fairness or create the even playing field the law should require. Like the legislation it seeks to modify, HB 3660 as amended, should be rejected in its entirety.
HA2 to SB72
In even later-breaking news, the House passed HA2 to SB72. This is not an amendment to HB 3660 and will be considered separately by the Governor from that legislation. HA2 seeks to further reduce some of the criticism leveled at HB 3660 (including those offered in this article) by:
The proposed provisions dealing with how and whether prejudgment interest will be awarded when the defendant has made a settlement offer provide the most serious attempt by the legislature to solve the issues raised by HB 3660. The proposed bill would allow the recovery of prejudgment interest only on amounts awarded in excess of the highest qualifying offer extended to the plaintiff. The bill provides, however, that, in order to limit prejudgment interest in this manner, the defendant must make the settlement offer within 12 months of the filing of the lawsuit. The plaintiff then has 90 days to accept the offer or it is deemed rejected for purposes of potentially limiting a subsequent prejudgment interest award. In this manner, the legislation would essentially introduce a mechanism akin to offers of judgment discussed above, without requiring entry of actual judgment. Although one can easily imagine circumstances in which defendants are not able to make fully-informed offers of settlement within 12 months of a lawsuit being filed (especially where court delays result in uncertainty about the viability of legal issues being presented), HA2 nevertheless is clearly more tailored to address any perceived need for prejudgment interest in Illinois in a more even-handed and fair manner. HA2 does not go far enough because it fails to tie the prejudgment interest rate to some existing and appropriate economic indicator and, at six percent, still represents a windfall now. Even the plaintiff’s bar should have some concern about this rate being established in the bill as it could well prove, under their world view, to be inadequate to fully compensate injured claimants should inflation take hold and interest rates return to double digits. Having a rate that is tied to the economy would build in the flexibility that may well be needed without having to return to the state house and introducing the world of politics into what should be a simple issue of administering justice. The late-night machinations of the legislature evidenced in the passage of HB 3660, together with the multiple attempts to amend or vitiate the bill, reflect an approach to our courts that is antithetical to traditional notions of justice and fair play. The legislature would be better suited to crafting solutions to perceived problems through court committees and bar associations, who are much more likely to serve as guardians of our Lady Justice and will ensure that she continue to look over and protect all litigants with her blindfold intact and her scales in balance.
1 It remains unreported whether this “seven percent solution” was intended as a tribute to Sherlock Holmes or the result of the more traditional residue of smoke-filled back rooms.
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