Arete Partners, LP v. Gunnerman
643 F.3d 410
5th Cir.2011Background
- Arete Partners, L.P. sued Gunnerman for fraud and breach of contract related to a securities sale and settlement; settlement payments ceased.
- After a bench trial, the district court found damages of $1,060,649.27 plus $500,000 exemplary on fraud; Arete elected to recover under fraud, but on remand pursued breach of contract damages.
- Gunnerman deposited $1,113,469.61 into the district court registry to stay enforcement of judgment pending appeal; the appeal vacated fraud damages and remanded to allow breach recovery.
- On remand Arete elected breach of contract recovery; district court awarded actual damages of $1,060,649.27 and prejudgment interest at 5% from November 21, 2005 through final judgment.
- Gunnerman deposited the full damages into the registry on October 6, 2006; final judgment was entered June 23, 2010, and this appeal followed challenging prejudgment interest.
- Question before court: whether deposit into registry stops accrual of prejudgment interest and what rate and accrual period apply under Texas law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does registry deposit stop prejudgment interest accrual? | Arete: deposit does not halt accrual; interest continues to compensate for lost use. | Gunnerman: funds in registry stop accrual after deposit date. | Deposit does not stop accrual; prejudgment interest accrues. |
| What is the proper rate for prejudgment interest on a contract claim? | Arete: rate is statutory/common-law; aligns with postjudgment rate and five percent floor. | Gunnerman: rate should reflect interest earned by funds in registry. | Rate is postjudgment rate computed as simple interest with a five percent floor. |
| From when to when should prejudgment interest accrue? | Arete: from breach on November 21, 2005 to final judgment. | Gunnerman: limit to time until registry deposit plus earned registry interest. | Accrual from breach date to the date of the final judgment. |
| Should Texas law on Johnson & Higgins apply, given registry deposit vs interpleader cases? | Arete: Johnson & Higgins aligned accrual and rate; registry deposit does not alter entitlement. | Gunnerman: Texas cases after Johnson & Higgins suggest no prejudgment interest on registry funds. | Texas law would apply Johnson & Higgins framework; prejudgment interest at statutory rate. |
| Is the Erie-guess approach warranted given conflicting Texas authority? | Arete: rely on persuasive Texas authority and Johnson & Higgins. | Gunnerman: rely on intermediate appellate decisions post-Johnson & Higgins that limit accrual. | Court uses Erie guess; Texas Supreme Court would apply Johnson & Higgins framework. |
Key Cases Cited
- Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998) (prejudgment interest accrues at statutory rate for postjudgment calculation; aligns accrual date with common-law interpretation)
- Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex. 1985) (established early Cavnar rule for prejudgment interest as compensation for use of funds)
- Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d 451 (Tex. 1998) (aligned rate and accrual with statutory provisions; reaffirmed Johnson & Higgins framework)
- Meaux Surface Protection, Inc. v. Fogleman, 607 F.3d 161 (5th Cir. 2010) (Texas law on prejudgment interest in diversity cases; informs standard for accrual and rate)
- State Farm Life Ins. Co. v. Martinez, 216 S.W.3d 799 (Tex. 2007) (interpleader context; discusses interest on registry funds relevance)