Thursday, May 21, 2015

Calculating Security - Don't Assume that all of the Damages Awarded must be Secured on Appeal. (Hilaree Casada)

By Hilaree Casada

To suspend execution of a money judgment on appeal, the judgment debtor must post a bond, cash deposit, or other security that equals the sum of “compensatory damages,” interest for the estimated duration of the appeal, and costs, subject to certain caps. TEX. R. APP. P. 24. It is not always clear, however, what part of the judgment constitutes “compensatory damages.” The Texas Supreme Court has recently added two categories of awards that are not compensatory damages and should not be included in the security amount: (1) attorney’s fees awarded to a prevailing party pursuant to a statute and (2) disgorged profits.

In 2013, the Texas Supreme Court made clear that attorney’s fees incurred in the prosecution or defense of a claim are not compensatory damages and should not be included in the security calculation. In re Nalle Plastics Family L.P., 406 S.W.3d 168, 174 (Tex. 2013). But the Court left open the possibility that certain fee awards could be considered compensatory damages. Id. at 175–76 (“[i]f the underlying suit concerns a claim for attorney fees as an element of damages, as with [a claim] for unpaid fees” those fees may be considered compensatory damages).  

The Court recently narrowed the scope of such an exception in In re Corral-Lerma, 451 S.W.3d 385, 386–87 (Tex. 2014). There, the judgment creditor argued that Nalle Plastics did not apply to the fees awarded under the Texas Theft Liability Act because the Act mandates that a prevailing defendant be awarded fees even without being awarded compensatory damages. Id. at 386–87, 388. The Court rejected that argument and reemphasized that attorney’s fees are inherently different from compensatory damages and “[w]hile attorney’s fees for the prosecution or defense of a claim may be compensatory in that they help make a claimant whole, they are not and have never been damages.” Id. at 387 (quoting Nalle Plastics) (emphasis added). The Court further held that the calculation of the security amount should not include interest on fees “[n]or on any other category of a judgment not required to be included in the security amount.” Id.

Earlier this month, the Texas Supreme Court had added profit disgorgement to the list of awards that are not compensatory damages and should not be included in the security calculation. In re Longview Energy Co., No. 14-0175, 2015 Tex. LEXIS 438 (Tex. May 8, 2015). Comparing profit disgorgement to attorney’s fees, the Court held that disgorgement of profit is “compensatory in the same sense [as] attorney fees, interest and costs are,” profit disgorgement is not a form of damages. Id. at * 15–16.

Both Corral-Lerma and Longview Energy provide simple explanations why certain awards are not compensatory damages.  The next time you need to calculate security for an appeal, you might want to take a look at these cases and see if any “damages” awarded against your client can be carved out of the security calculation based on the Texas Supreme Court’s current view and the Court’s reasoning on this issue.

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