by J. Stephen Barrick, Hicks Thomas LLP

It just got cheaper for many judgment debtors to supersede a judgment in Texas.

On May 17, the Texas Supreme Court unanimously held that under section 52.006(a) of the Texas Civil Practice and Remedies Code, a judgment debtor need not post security for attorney’s fees or pre-judgment interest awarded in the judgment. See In re Nalle Plastics Family Ltd. P’ship, 56 Tex. Sup. Ct. J. 580, 2013 WL 2150717 (Tex. May 17, 2013). To suspend enforcement of a money judgment pending appeal, the judgment debtor need only post security for the actual damages awarded in the judgment, meaning damages that were awarded to compensate the plaintiff on the underlying cause of action, plus court costs and post-judgment interest for the estimated duration of the appeal. Attorney’s fees need only be included in the supersedeas bond when they are an element of actual damages.

The supreme court’s ruling settles a clear split among the appellate courts over whether attorney’s fees must be included in the bond and clarifies how the statute, enacted as part of House Bill 4 in 2003, is to be applied. Section 52.006(a) of the Texas Civil Practice and Remedies Code and Rule 24(a)(1) of the Texas Rules of Appellate Procedure (which is based on the statute) both provide that the amount required to suspend enforcement of a money judgment pending appeal “must equal the sum of compensatory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs awarded in the judgment.” None of these terms are expressly defined, which led to differing opinions about what is included in “compensatory damages” and “costs awarded in the judgment.”

Both Houston appellate courts, beginning with the Fourteenth court’s per curiam opinion in Clearview Props., L.P. v. Property Texas SC One Corp., 228 S.W.3d 262 (Tex. App.—Houston [14th Dist.] 2007, mand. denied), held that attorney’s fees were either a type of “compensatory damages” or were in the nature of “costs” that the Legislature did not intend to exempt from the bond requirement. Id. at 264; Fairways Offshore Explor., Inc. v. Patterson Servs., Inc., 355 S.W.3d 296, 301-03 (Tex. App.—Houston [1st Dist.] 2011, no pet.). The Eighth and Thirteenth courts agreed. See Nalle Plastics Fam. Ltd. P’ship v. Porter, Rogers, Dahlman & Gordon, P.C., No. 13-11-00525-CV, 2013 WL 1683618 (Tex. App.—Corpus Christi Apr. 18, 2013, mand. granted); Corral-Lerma v. Border Demolition & Environmental, Inc., No. 08-11-00134-CV, 2012 WL 1943763 (Tex. App.—El Paso May 30, 2012, mand. pending).

The Third and Fifth courts disagreed, holding that neither “compensatory damages” nor “costs awarded in the judgment” includes attorney’s fees. See Shook v. Walden, 304 S.W.3d 910, 923, 926 (Tex. App.—Austin 2010, no pet.); Imagine Automotive Group, Inc. v. Boardwalk Motor Cars, LLC, 356 S.W.3d 716 (Tex. App.—Dallas 2011, no pet.); PopCap Games, Inc. v. MumboJumbo, LLC, 317 S.W.3d 913, 914 (Tex. App.—Dallas 2010, no pet.). Imagine Automotive had expressly disagreed with the First court’s opinion in Fairways, which itself had expressly disagreed with the Third court’s opinion in Shook, demonstrating a deep division among the appellate courts.

What no appellate court appeared to disagree about, however, was whether pre-judgment interest must be included in the supersedeas bond. In fact, the two courts that most disagreed with each other on attorney’s fees – the First and the Third – agreed that pre-judgment interest was a compensatory award that was included in “compensatory damages.” Shook, 304 S.W.3d at 928; Fairways, 355 S.W.3d at 303-04. In Nalle Plastics, however, the supreme court dismissed this reasoning, saying: “Like attorney’s fees, court costs make a claimant whole, as does pre-judgment interest. Yet it is clear that neither costs nor interest qualify as compensatory damages.” 2012 WL 2150717, at *5. The statute otherwise requires that a supersedeas bond include “interest for the estimated duration of the appeal,” i.e., post-judgment interest, but it does not require security for the amount of pre-judgment interest. Thus, while the court did not explicitly hold that pre-judgment interest is excluded from the bonding requirement (pre-judgment interest was not before the court), that is clearly implied from the court’s opinion.

The supreme court’s decision in Nalle Plastics makes it easier – and in some cases, downright cheap – for a judgment debtor to suspend a judgment pending appeal. For instance, in DTPA cases where the plaintiff may recover actual damages, treble damages, pre-judgment interest and attorney’s fees, the judgment debtor will only have to post security covering the amount of actual damages, court costs, and post-judgment interest for the estimated duration of the appeal. In many cases, that amount will be only a fraction of the overall award. Similarly, in a declaratory judgment action where the plaintiff prevails and recovers a substantial award of attorney’s fees, the judgment debtor may have virtually no bonding requirement because there were no compensatory damages awarded (though the court can impose other conditions under Rule 24.2).

The types of cases most likely to be impacted by Nalle Plastics are contract cases and statutory cases where the prevailing plaintiffs may recover pre-judgment interest and attorney’s fees. Although the plaintiffs in those cases are entitled to recover these amounts, the judgment debtor has no obligation to post any security for them to suspend enforcement of the judgment during an appeal. According to the supreme court, this is part of the “new balance” reached by the Legislature “between the judgment creditor’s right in the judgment and the dissipation of the judgment debtor’s assets during the appeal against the judgment debtor’s right to meaningful and easier access to appellate review.” Nalle Plastics, 2012 WL 2150717, at *2 (quoting Elaine A. Carlson, Reshuffling the Deck: Enforcing and Superseding Civil Judgments on Appeal after House Bill 4, 46 S. Tex. L. Rev. 1035, 1038 (2005)).