Page 57 - Calculating Lost Profits

That said, some states evaluate prejudgment interest as a tool to be considered as a question of equity,
which allows latitude in determining the availability of prejudgment interest.

For example, under Title 4, Chapter 304 of the Texas Finance Code (and Texas Common law), when
prejudgment interest is awarded in a case involving a contract that provides for a specific rate of interest,
it accrues at the lesser of the rate specified in the contract or 18% simple interest. fn 7 Prejudgment inter-
est in cases that do not have a contract with an interest rate specified accrue interest at a rate set monthly
by the Texas Consumer Credit Commissioner. fn 8 However, the availability of prejudgment interest un-
der Texas law may be limited by factors such as the date on which the defendant received notice of the
claim, as well as settlement offers. fn 9

Prejudgment interest is more often available for breach of contract causes of action than tort causes of
action, which is consistent with the theme of awarding prejudgment interest when an alleged wrongdoer
has reason to know of the alleged wrongdoing and, in some instances, the amount owed (for example,
after a complaint has been filed) — even if this mechanism does not necessarily make a plaintiff whole.

Sample Calculations of Prejudgment Interest

Simple interest is calculated as follows:

Interest = Damages Amount × Rate × Time

Total prejudgment interest is the sum of the individual years' prejudgment interest. fn 10 The calculation
that follows uses the mid-year (mid-period) convention, which assumes that the damages amount (in this
case, lost profits) is equally distributed within the time period. For example, the first period, from 3/1/16
to 12/31/16, has a mid-period date of 7/31/16. In addition, there is no prejudgment interest on future
damages, which is appropriate when using the ex post approach.

Figure 8.1. Prejudgment Interest Using Simple Interest

fn 7 Eighteen percent is the post-judgment interest rate, as defined in Texas Finance Code Section 304.002, which is also applied to
prejudgment interest under Texas common law. See Int'l Turbine Servs., Inc. v. VASP Brazilian Airlines, 278 F.3d 494, 500 (5th Cir.
2002).

fn 8 Texas Finance Code Section 304.003 and Int'l Turbine Servs., Inc. v. VASP Brazilian Airlines, 278 F.3d 494, 500 (5th Cir. 2002).
fn 9 Texas Finance Code Sections 304.104, 304.105.

fn 10 Prejudgment interest can also be calculated using smaller time periods, such as months or quarters, which may be appropriate
when there is reason to believe that the damages are not evenly distributed within the time period.

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