• December 15, 2011

Minnesota law provides for post-judgment interest on the unpaid balance of money judgments.  Until 2009, such interest was tied to the yield of one-year United States Treasury bills.  In 2009, however, the legislature changed the law.  Interest on judgments of $50,000 or less is still based on the yield of T-Bills; interest on judgments of more than $50,000 is set at a statutory annual rate of ten percent.

In a recent case, the Court of Appeals considered the question of whether the statutory rate for large judgments is also mandated for judgments arising out of property settlements in divorces, or whether the district court, as part of its obligation to divide assets in a just and equitable manner, has the discretion to apply a lower rate of interest.

Andrew and Elizabeth Redleaf agreed to dissolve their marriage in a Marital Termination Agreement (“MTA”) in February 2008.  Under the terms of the MTA, Elizabeth agreed to waive her interest in Andrew’s businesses – Whitebox Advisors, LLC, AJR Financial, LLC, and Whitebox Intermarket Fund, LP – in exchange for cash payments totaling $140,750,000.

The payment schedule called for two lump-sum payments totaling $20,750,000 on or before February 15, 2008 and another lump-sum payment of $30,000,000 on March 15, 2013.  The remainder was to be paid in monthly installments of $1,500,000 over a five-year period beginning March 15, 2008.  The MTA was silent as to the rate of interest to be applied in the event of a default.  On February 20, 2008, the court entered a judgment and decree incorporating the terms of the MTA.

Andrew made the initial lump-sum payments and all monthly installment payments through January 2009.  Alleging a decline in income, he missed payments from February 2009 through March 2010.  Elizabeth then obtained a judgment for $21,000,000.

In May 2009, Andrew moved to reopen the judgment and decree.  This motion was denied and he eventually paid Elizabeth $21,000,000 in arrears.  He then missed payments for July, August ,and September 2010.

Elizabeth moved for judgment in the amount of $4,500,000, which Andrew opposed arguing that it was inequitable based on his substantial performance.  He also requested that if judgment was granted, interest thereon be limited to a simple rate of four percent per year because the statutory rate was inequitable in light of the market interest rates.

The district court subsequently issued an order to enter and docket the judgment and awarded the statutory interest rate of ten percent, concluding that to do otherwise would be improper and an abrogation of legislative intent.  Andrew appealed, arguing that the court had a statuory obligation to divide marital assets equitably and that this obligation superseded the statutory interest rate.

The Court of Appeals disagreed and began by finding that the statutory provision was unambiguous in using the word “shall” when setting the rate of interest.  The court also noted that it had previously held that the statute applied to marriage-dissolution judgments.  Delving into the legislative history of the 2009 amendment, the court found that the purpose of the ten-percent rate was not just to compensate the creditor for the loss of the use of money, but to encourage prompt payment, penalize debtors who bring frivolous appeals, and equalize Minnesota’s post-judgment interest rate with neighboring states.  Accordingly, the court held that the district court did not err in setting the post-judgment interest rate at the statutorily-mandated ten percent.

This case thus provides a lesson to those drafting marital termination agreements.  The possibility of default should be considered and a mutually-acceptable interest rate on any resulting judgments should be included in the agreement.

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