Declaratory Judgment Did Not Extinguish Right to Demand Prejudgment Interest Under Georgia Law

In FDIC v. Certain Underwriters at Lloyd’s of London, 2022 U.S. App. LEXIS 23203 (11th Cir. Aug. 19, 2022), the Eleventh Circuit held that a demand for prejudgment interest made after entry of a declaratory judgment was timely under Georgia law.

The FDIC, as receiver for Omni National Bank, sued some of Omni’s former officers and directors for negligence. Those cases settled, with the settlement agreements calling for the FDIC to seek to recover stipulated judgments against the defendants from an insurance policy issued to the bank by Lloyd’s Underwriters. The underwriters, in turn, sued the FDIC and the settling officers and directors, seeking a declaration that the policy did not cover the officers’ and directors’ negligence. One of the officers, Stephen Klein, asserted counterclaims against the underwriters and filed a separate lawsuit against them, but neither Klein’s counterclaims nor his complaint included a demand for prejudgment interest.

The district court in the suit filed by the underwriters issued a declaration that the policy covered the officers’ and directors’ negligence to the extent of the $10 million policy limit. The Eleventh Circuit affirmed that judgment. While the underwriters’ petition for certiorari to the Supreme Court was pending, the FDIC sent the underwriters a letter demanding payment of the $10 million policy limit and demanding, for the first time, payment of prejudgment interest. The underwriters disputed the FDIC’s entitlement to interest but paid the $10 million after the Supreme Court denied certiorari.

After that, the FDIC sued the underwriters again, seeking to collect prejudgment interest on the $10 million. The district court granted the underwriters’ motion for summary judgment, holding that the demand for prejudgment interest, which had been asserted for the first time in the demand letter sent after the declaration issued, was untimely under Georgia law.

The Eleventh Circuit, in an opinion written by Judge Tjoflat and joined by Judge Rosenbaum and Judge John Steele visiting from the Middle District of Florida, reversed. Citing the Supreme Court of Georgia’s decision in Crisler v. Haugabook, 725 S.E.2d 318 (Ga. 2012), the court noted that a party claiming prejudgment interest under Georgia law must make a demand for prejudgment interest, on a liquidated claim, before the entry of final judgment for the liquidated claim, so that the other party has an opportunity to litigate its liability for interest. “Critically for this case,” however, “the Georgia courts have held that a mere determination of liability does not preclude the recovery of prejudgment interest because a full and fair opportunity to litigate liability for interest remains until the entry of a coercive final judgment.” The declaratory judgment as to coverage issued in the case at hand was not a “coercive final judgment,” the court held, characterizing the underwriters’ argument to the contrary as “obviously wrong.” The court was unmoved by the underwriters’ claim that they had not had an opportunity to litigate the issue of prejudgment interest: “This entire lawsuit has been dedicated to extensively litigating prejudgment interest.”

The court also rejected the underwriters’ argument that the $10 million was not liquidated, noting that the underwriters had paid that amount after the denial of its certiorari petition and that “a dispute as to liability”—as opposed to amount—“does not make a claim unliquidated.” Nor was the claim barred by claim preclusion as a result of the suit brought by Klein, one of the defendant officers. Prejudgment interest was not actually litigated in Klein’s case, and the FDIC could not have brought its claim for interest when it answered Klein’s complaint because it did not have a claim for interest until later, when Klein settled with the FDIC and assigned to the FDIC his rights under the insurance policy.

Posted by Valerie Sanders.

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