At a recent continuing education seminar, one of the presenters stated as a fact that amounts awarded in a judgment for prejudgment interest do not need to be included in the amount of a supersedeas bond.  The presenter cited the Texas Supreme Court’s opinion in In re Nalle Plastics Family Ltd. Partnership, 406 S.W.3d 168 (Tex. 2013), as support for this statement.  There’s just one problem with relying on Nalle Plastics for this proposition—the issue in that case is whether attorney’s fees must be included in the amount of a supersedeas bond.

Nevertheless, Nalle Plastics has been relied upon by at least two intermediate appellate courts for the proposition that prejudgment interest does not have to be included in the total amounts that must be superseded.  Moreover, two of the justices that served on the panels of the intermediate appellate courts that decided those cases are now Texas Supreme Court justices.

Let’s see how we got to this point.  Of course, the starting point of any analysis is to look at what the supersedeas statute says.  Texas Civil Practice and Remedies Code Section 52.006(a) provides:

when a judgment is for money, the amount of security must equal the sum of:

(1)  the amount of compensatory damages awarded in the judgment;

(2)  interest for the estimated duration of the appeal;  and

(3)  costs awarded in the judgment.

Tex. Civ. Prac. & Rem. Code § 52.006(a).  The issue in Nalle Plastics was whether attorney’s fees had to be included in the amounts to be superseded.  The opinion focused upon whether attorney’s fees are “compensatory damages” and whether they are “costs.”  In addressing the issue of whether attorney’s fees are compensatory damages, the court observes that not every amount can be considered damages, even if it is compensatory.  As examples of other recoveries that may be compensatory but still not be damages, the court states, “court costs make a claimant whole, as does pre-judgment interest. Yet it is clear that neither costs nor interest qualify as compensatory damages. Otherwise, there would be no need to list those amounts separately in the supersedeas bond statute.”  Thus, the Court concludes that except for attorney’s fees that are awarded as damages (such as when an attorney sues a client for non-payment of fees), fees are not “compensatory damages” damages under Section 52.006(a)(1) that must be included in the amount of security for a supersedeas bond.

The Nalle Plastics dicta that court costs and interest are not “compensatory damages” under Section 52.006(a)(1) gets picked up later by both Houston appellate courts to arrive at the conclusion that prejudgment interest does not have to be included in the amounts superseded.

In Kennedy Con., Inc. v. Forman, 493 S.W.3d 103 (Tex. App.—Houston [14th Dist.] 2014, opinion on motion), the court considered a challenge to the amount of a supersedeas bond due to the fact that the amount did not include prejudgment interest.  Quoting Nalle Plastics, the Kennedy Court holds that there was no abuse of discretion in omitting prejudgment interest because prejudgment interest is not compensatory damages.

Two years later, the Houston First District Court of Appeals, when faced with the same question, quotes Nalle Plastics and cites Kennedy in holding that there was no abuse of discretion in omitting prejudgment interest because it is not “compensatory damages.”  Eagle Oil & Gas Co. v. Shale Explor., LLC, 510 S.W.3d 92 (Tex. App.—Houston [1st Dist.] 2016, opinion on motion).

Before relying upon any of these three authorities, practitioners should consider two things.  First, the reason the  Nalle Plastics Court said that prejudgment interest would not be compensatory damages is because the legislature had separately itemized interest as something to be included in the amount superseded in Section 52.006(a)(2) of the Civil Practice and Remedies Code.  Thus, merely saying that it is not “compensatory damages” doesn’t end the inquiry.

Second, arguably Section 52.006(a)(2)’s use of the phrasing “interest for the duration of the appeal” might be said to be limited to post-judgment interest, since by definition this phrasing describes post-judgment interest.   Such a construction of Section 52.006(a)(2) might require determining whether the dicta in Nalle Plastics precludes prejudgment interest from being “compensatory damages.”  It may be helpful to look at the dozens of Texas Supreme Court opinions that have uniformly described prejudgment interest as “compensatory” and often described it as form of damages.  See, e.g., Columbia Hosp. Corp. v. Moore, 92 S.W.3d 470, 473 (Tex. 2002) (“Prejudgment interest was, and continues to be, ‘compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.’”).

The Texas Supreme Court may ultimately hold that prejudgment interest is not an amount that must be superseded during an appeal, but for now, practitioners may want to be avoid advising clients that it is a foregone conclusion that prejudgment interest will not have to be superseded.

By Published On: September 30, 2020Categories: AppellateTags: ,

About the Author: Mike Northrup

Mike Northrup is a Shareholder and Section Head of the Cowles and Thompson Appellate Practice Group.