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In re Redondo Constr. Corp.

United States Court of Appeals, First Circuit

February 10, 2016



         Héctor Benítez-Arraiza, with whom Quiñones & Arbona, P.S.C., was on brief, for appellant.

         Charles A. Cuprill-Herná ndez, with whom Law Offices Charles A. Cuprill, P.S.C., was on brief, for appellee.

         Before Torruella, Hawkins,[*] and Barron, Circuit Judges.


         TORRUELLA, Circuit Judge.

         This case returns to us following our remand in In re Redondo Construction Corp. (Redondo III), 678 F.3d 115 (1st Cir. 2012). The Puerto Rico Highway and Transportation Authority (" the Authority" ) appeals the district court's affirmance of the bankruptcy court's award of prejudgment interest to Redondo Construction Corporation (" Redondo" ) on its contract claims under Article 1061 of the Puerto Rico Civil Code, 31 L.P.R.A. § 3025, accruing through the payment of principal. As explained below, we reject the Authority's contention that Redondo forfeited its claim to prejudgment interest under Article 1061 but agree with its argument that 28 U.S.C. § 1961 exclusively controls awards of postjudgment interest in federal court. We thus find that we must vacate and remand for a calculation of § 1961 interest and, to prevent double recovery, a recalculation of Article 1061 interest.


         Because one of the main issues in this appeal is whether Redondo preserved its claim to Article 1061 interest, we focus on the parties' motion practice. We direct readers interested in the factual history of this case to the bankruptcy court's opinion in Redondo Construction Corp. v. Puerto Rico Highway & Transportation Authority (Redondo I), 411 B.R. 89 (Bankr. D.P.R. 2009).

         In the 1990s, Redondo contracted with the Authority to work on three construction projects.[1] Each contract described the projects' design plans, the construction sites' anticipated conditions, and the procedures for implementing variances. In certain situations, Redondo could claim extra compensation for unforeseen additional work. These terms proved important because all three of the construction projects experienced unanticipated problems.

         Redondo filed claims against the Authority on all three contracts seeking compensation for additional work performed. Before these claims were resolved, however, Redondo filed for Chapter 11 bankruptcy. Through the Chapter 11 proceedings, Redondo filed three complaints against the Authority for money owed under the construction contracts. In each of these complaints, Redondo stated it was entitled to not only damages, but also prejudgment interest accruing at a rate of 6.5% per annum. Following a bench trial, Redondo filed a memorandum reiterating its request for prejudgment interest at a rate of 6.5% per annum.[2]

         The bankruptcy court ruled in Redondo's favor. Id. at 89. In addition to awarding Redondo damages, the bankruptcy court, without stating its legal basis for doing so, found that Redondo was entitled to prejudgment interest accruing at 6.5% per annum.

         The Authority subsequently filed a timely motion to amend the judgment pursuant to Federal Rule of Civil Procedure 59(e) and Federal Rule of Bankruptcy Procedure 9023. Among other claims, the Authority argued that the bankruptcy court erred in awarding Redondo prejudgment interest. Noting that prejudgment interest is typically a matter of state law, the Authority argued that it had not acted with temerity or obstinacy as required by Puerto Rico Rule of Civil Procedure 44.3(b) in order to impose prejudgment interest.[3]

         Redondo filed a response motion defending the bankruptcy court's prejudgment interest award, arguing (1) that the three construction projects " had federal funds participation allowing for the computation of the pre-judgment interest award[]" (presumably referring to 41 U.S.C. § 7109(a)(1), which allows parties to recover interest on the principal on contracts in which the federal government is a party) and (2) that Article 1061 allowed for " indemnity" interest under Puerto Rico law.

         Although the bankruptcy court ruled in the Authority's favor on some claims, it left the prejudgment interest award intact. In re Redondo Constr. Corp. (Redondo II), 424 B.R. 29, 36 (Bankr. D.P.R. 2010). The bankruptcy court concluded that the parties contracted to incorporate the rate used for government-party contracts as set by 41 U.S.C. § 7109(a)(1).[4] Id. at 33.

         Following the bankruptcy court's ruling, the Authority sought review first in the district court, and then in this Court. In Redondo III, we found that the record did not show that 41 U.S.C. § 7109(a)(1) applied either independently or by incorporation through contract. 678 F.3d at 125-26. We considered alternative bases under which the bankruptcy court could have awarded prejudgment interest (including Civil Rule 44.3 and Article 1061), but concluded there was no support in the record that the bankruptcy court did so. Id. at 126. As a result, we instructed the district court to " vacate the award of prejudgment interest and return the case to the bankruptcy court for a determination of whether prejudgment interest [was] appropriate and, if so, at what rate and for what periods." Id.

         On remand, Redondo argued it was entitled to prejudgment interest under Article 1061. The bankruptcy court agreed and awarded Redondo Article 1061 interest accruing at a rate of 6% per annum from the date of substantial completion for each construction project, through the date of the Authority's final payment on the principal. In re Redondo Constr. Corp. (Redondo IV), 505 B.R. 388, 401 (Bankr. D.P.R. 2014).

         Following the bankruptcy court's decision, the Authority moved to amend the judgment, arguing that Redondo forfeited its Article 1061 claim and that the bankruptcy court used incorrect start and end dates for the accrual period. After the bankruptcy court denied the Authority's motion, In re Redondo Constr. Corp. (Redondo V),515 B.R. 410, 416 (Bankr. D.P.R. 2014), the Authority appealed to the district court. The district court affirmed the bankruptcy court's ...

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