SCOTX: Attorney Fees Need Not Be Superseded on Appeal

In November 2011, I posted about whether attorney fees must be superseded to stay execution of a judgment pending appeal. Today, in In re Nalle Plastics Family Limited Partnership (No. 11-0903), the Texas Supreme Court resolved a split among the intermediate courts of appeals and answered the question, “No.”

Let me set the stage a little. With some exceptions, filing a notice of appeal does not prevent a judgment from being enforced. Before 2003, an appellant seeking to supersede a money judgment had to post security in “at least the amount of the judgment, interest for the estimated duration of the appeal, and costs.” House Bill 4, the infamous tort-reform package, altered the security required by substituting “the amount of compensatory damages awarded in the judgment” for “the amount of the judgment.” So, for a money judgment, the appellant must now post security equaling the sum of compensatory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs. Tex. Civ. Prac. & Rem. Code § 52.006; TRAP 24.2(a)(1).

Under the old rule, “the amount of the judgment” included not only actual or compensatory damages, but also any punitive or additional damages authorized by law. Commentators generally agreed that HB4 removed these sorts of “noncompensatory” damages from what must be secured, making it easier for defendants to suspend money judgments on appeal as the Legislature intended. But questions arose about whether a judgment debtor needed to supersede attorney fees and other matters making up “the amount of the judgment,” yet arguably outside HB4’s “compensatory damages” standard. A split developed among the intermediate courts on whether attorney fees must be included in the amount of security a judgment debtor must post to prevent execution on the judgment pending appeal.

As discussed in Chief Justice Jefferson’s unanimous opinion, two decisions illustrate the opposing lines of cases. In Shook v. Walden, the Third Court of Appeals relied on the definition of “compensatory damages” that HB4 added to a different part of the Civil Practice and Remedies Code (Chapter 41) to conclude that “compensatory damages” does not include attorney fees. In Fairways Offshore Exploration, Inc. v. Patterson Services, Inc., the First Court of Appeals rejected the Chapter 41 definition, holding instead that attorney fees were compensatory damages because they represented money spent to obtain relief against the judgment debtor.

The Supreme Court came down on the Shook side of the split, but did not go so far as to expressly hold that the Chapter 41 definition of “compensatory damages” governs. Rather, the Court concluded, “based on the phrase’s ordinary meaning and [SCOTX] precedent[,] that attorney’s fees incurred in the prosecution or defense of a claim are not compensatory damages” and therefore need not be superseded.  The Supreme Court also determined that attorney fees are not “costs,” as the lower court held.

The Court nevertheless made clear that attorney fees may qualify as compensatory damages in some situations. For example, when the underlying suit concerns a claim for attorney fees as an element of damages—such as an attorney’s suit against a client for nonpayment—then those fees are properly classified as compensatory damages. After studying this opinion, however, it is difficult to imagine other circumstances in which attorney fees will have to be secured.

Lawyers representing judgment creditors who have recovered large attorney-fees awards will lament this decision as depriving them of a potential negotiating chip and a powerful collection tool. As a practical matter, however, this result flows from what happened in 2003, when the Legislature enacted HB4 and narrowed the scope of supersedeas from “the amount of the judgment” to “the amount of compensatory damages awarded in the judgment.” Because supersedeas issues rarely make their way into appellate-court opinions, the split took longer than normal to emerge.