Generally a judge will include in the judgment amount:
- Pre-judgment interest
- Post – judgment interest
- Initial court costs
- Typically NOT included are attorney fees, penalties, and damages
Pre-judgment interest is calculated from the original due date to the date the judgment is issued at either the interest rate stated on invoices or in a contract. If there is no mention of interest on the invoices or in the contract, then a judge may either use the statutory rate (different for each state and easy to find using Google and often is between 6% and 10%) or may determine that our client is not entitled to pre-judgment interest. Post-judgment interest generally will be based on the same criteria and accrues from the date of the judgment until it is fully paid.
If the interest rate on invoices or in contracts is unusually high or above the usury limit, the judge may not allow it or may limit interest to a lower rate.
When the attorney makes the final application for the judgment (at trial or during a hearing), the attorney will also add the amount of court related out-of-pocket expenses already incurred to the judgment amount and this is usually approved as an item separate from principal and interest. If the debtor makes judgment collection difficult and our client incurs extensive out of pocket costs during that process, we can go back to the judge and request that these be added to the judgment. We do not usually go back to the judge when collection costs are under $1,000 but this possibility is always a threat to the debtor that eventually they have to cover all of these costs.
When we collect, we charge the quoted litigation contingency fee on any money recovered, whether it is principal, interest or court costs. When we successfully collect via court ordered processes (instead of a voluntary agreement), we typically do recover these additional amounts and this substantially or fully offsets the cost of litigation for our clients. When a voluntary payment agreement is reached, our clients often agree to a discount in order to get paid at that time without the extra costs, delays and uncertainties of the court ordered judgment collection efforts.
Penalties
Courts typically take a dim view of contracts that have severe penalty clauses such as 5% per month for late payments on commercial invoices. We tell clients to not expect to be awarded any penalty that is included in your contract. If a contract has a Liquidated Damages provision, that is different from a penalty but they are extremely rare in collection cases.
Attorney Fees
It is extremely rare that our clients recover any money for attorney fees.
Attorney fees will be awarded if there is an attorney fee provision in a contract executed by your client. If the attorney fees clause is mentioned in documentation but not in a signed contract, the judge has some discretion as to whether to add or not add attorney fees. If there is no attorney fees clause then in most jurisdictions in the USA they cannot be added.
In many jurisdictions, the amount of the attorney fee award is not based on the contingency rate but on a schedule. For example, on a $20,000 case, the attorney fee award may be $700 to $1,000, or less than 5% of the principal amount while the contingency rate is 33%.
Even if attorney fees are awarded and added to the judgment, we first need to collect 100% of principal, interest and court costs. Since a large percentage of litigation cases result in a voluntary payment for a reduced amount, we don’t collect 100% of the original judgment amount which included interest and court costs and therefore we do not collect attorney fees even if they were awarded.
Many of the contingency attorneys we use quote their contingency fee with the condition that they get to keep 100% of any attorney fees that are awarded. This is part of their business model (i.e. how they quote contingency rates and non-contingency fees) and gives them extra incentive to collect 100% of principal, interest and court costs for clients because if they do that, then can then try to collect the attorney fees which they get to keep in full.
As a result of all of these factors, we tell clients to never expect any recovery of attorney fees except in very rare cases for claims in excess of $100,000.
