Redondo Construction Corp. v. Puerto Rico Highway and Transportation Authority (In re Redondo Construction Corp.)

Summarized by Hale Lake , Hinshaw & Culbertson, LLP
13 years 3 months ago

Citation:

Redondo Constr. Corp. v. Puerto Rico Highway & Transp. Auth. (In re Redondo Constr. Corp.), No. 12-1326 (1st Cir. Nov. 21, 2012)

Tag(s):

Ruling:

The First Circuit remanded the matter to the United States District Court for the District of Puerto Rico to vacate a judgment entered by bankruptcy court and affirmed by the district court and for further assessment of postjudgment interest and whether prejudgment interest is appropriate. Following a prior appeal to the First Circuit which resulted in a remand back to the bankruptcy court, the Puerto Rico Highway & Transportation Authority (“Authority”) filed this appeal concerning the award of interest by the bankruptcy court to the Chapter 11 Debtor, Redondo Construction Corporation (“Redondo”). The First Circuit analyzed both the purported postjudgment interest component and prejudgment interest component of bankruptcy court’s judgment in favor of Redondo on its complaint against the Authority and the amount of the judgment entered by the bankruptcy court on one of its claims. On the issue of postjudgment interest, the Court agreed with the parties that postjudgment interest is governed by 28 U.S.C. § 1961 and is mandatory even if the district court made no provision for its payment. However, the First Circuit found that the interest awarded by the bankruptcy court was not intended to be postjudgment interest and further there was nothing to suggest that the accrual of interest in Redondo’s favor would extend beyond the date of entry of judgment (September 30, 2011) until the funds were deposited with the Clerk of the district court (February 17, 2012), which date stops the accrual of postjudgment interest. The First Circuit found that because the accrual of postjudgment interest stalls on the date the Authority deposited the amount of the judgment with the Clerk of the district court, Redondo was entitled to interest for the period between the entry of judgment and the date of the deposit, and remanded the matter for assessment of postjudgment interest between September 30, 2011, February 17, 2012, at the rate provided in Section 1961. On the issue of prejudgment interest, the First Circuit determined that the matter was one of state law, but the parties disagreed as to whether the award of 6% interest was assessed as a sanction under Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure or as damages for contractual delay under Article 1061 of the Puerto Rico Civil Code. The First Circuit determined that while the bankruptcy court quoted the language of Rule 44.3(b) when awarding interest to Redondo, such interest is only awarded when the court determines that a losing party was “obstinate in the course of the litigation,” which finding does not appear to have been made by the bankruptcy court. With respect to Article 1061, the First Circuit was not able to determine if the bankruptcy court awarded interest in accordance with that section as aside from the fact that the bankruptcy court quoted Rule 44.3(b), Article 1061 requires interest as indemnity for default of payment, and the First Circuit was unable to determine if and when a demand for payment was made thereby creating an occurrence of default and whether such dates of default corresponded to the dates the bankruptcy court designated for accrual of interest. The First Circuit, therefore, remanded the matter to the district court to vacate that award of interest and return the case to the bankruptcy for further determinations of the applicability, basis and rate of prejudgment interest. On the last issue concerning the amount of the judgment, the First Circuit remanded the matter for entry of a revised partial judgment as the bankruptcy court awarded $1,082,654.56 to Redondo on one of its claims, despite the fact that Redondo revised the amount to $818,302 at trial and only presented evidence as to the lower amount.

Procedural context:

Redondo filed a petition for relief under Chapter 11 and commenced an adversary proceeding against Authority seeking certain amounts allegedly due to Redondo with respect to particular construction projects, were tried in the bankruptcy court. Following a prior appeal where First Circuit remanded matter to determine if prejudgment interest is appropriate, under what rate and for what periods, the bankruptcy court entered judgment in favor of Redondo on its complaint against the Authority and awarded interest on all damages at a rate of 6% per annum from the “payment due” date for each project. The district court affirmed the judgment without elaborating on its reasons for affirming the award of interest. The First Circuit remanded the matter back to the district court with instructions to enter a revised partial judgment bearing a modification on the claim with the lower amount proved at trial and to vacate the bankruptcy court’s judgment and to return the case to the bankruptcy court for further assessment of appropriate interest.

Facts:

Redondo, a construction company, entered into contracts with the Authority for certain construction projects. Prior to the bankruptcy, Redondo completed all three projects and submitted claims for additional amounts allegedly owed under the contracts. Before resolution of its claims, Redondo filed for bankruptcy and then commenced an adversary proceeding against the Authority seeking payment under the contracts. Judgment on the complaint in the adversary proceeding was entered in Redondo’s favor on September 30, 2011, with interest awarded on all damages at a rate of 6% per annum from the “payment due” date for each project. The Authority did not deposit the amount of the judgment with the clerk of the District Court until February 17, 2012.

Judge(s):

Torruella, Howard and Thompson, C.J.

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