TEXAS STANDARD OIL & GAS, L.P., Grimes Energy Co., and Petroval, Inc., Appellants, v. FRANKEL OFFSHORE ENERGY, INC. and FRANKEL RESOURCES LLC, Appellees.
No. 14-11-00125-CV.
Court of Appeals of Texas, Houston (14th Dist.).
July 7, 2011.
344 S.W.3d 628
Panel consists of Justices FROST, JAMISON, and McCALLY.
Charles A. Sharman, Bellaire, John Kim, Robert M. Roach, Jr., Houston, for appellants. Geoffrey L. Harrison, Ashish Mahendru, Houston, for appellees.
SHARON McCALLY, Justice.
Appellants Texas Standard Oil & Gas, L.P., Grimes Energy Co., and Petroval, Inc. April 4, 2011, motion to lower bond is pending before the Court. By the motion, Appellants seek review of the trial court’s order signed March 30, 2011, determining the amount of security required for them to suspend enforcement of the court’s judgment pending appeal. See
This is Appellants’ second motion to lower bond. Appellant’s first motion asked that this Court “reverse the Order setting bond, hold that Appellants are not required to post a supersedeas bond on amounts awarded for purpose of punishing Appellants, and set the proper amount of the bond based on costs and interest only.” (emphasis supplied) By March 3, 2011, order1, this Court granted appellant’s first motion and reversed the trial court’s initial determination of security, as it was improperly calculated upon damages that are, by order of the trial court, punitive in nature. Specifically, the March 3, 2011, order granted all relief Appellants sought and remanded the issue to the trial court to determine security from interest for the duration of the appeal and costs. On remand, the trial court calculated security solely from interest for the duration of the appeal because zero costs were awarded.2
By Appellant’s second motion, they now ask that this Court reverse the new supersedeas order of the trial court and hold that they are not required to post security at all. In light of the record as a whole, including Appellant’s initial request for relief, and this Court’s March 3, 2011, order, we cannot say that the trial court abused its discretion in calculating security precisely as directed by this Court in its order granting Appellant’s first motion.
Without the necessity of resort to a statutory construction of
JAMISON, J., concurring; FROST, J., dissenting.
MARTHA HILL JAMISON, Justice, concurrence to order.
This case, unique on its facts, brings to light an interesting question of statutory construction concerning
1. The statute setting the amounts necessary to supersede a judgment states that it includes “interest for the estimated duration of the appeal.”
In 2003, the Texas Legislature decided that the amount of security necessary to supersede a judgment would no longer include punitive damages. Specifically, it changed the amount of security required from ”at least the amount of the judgment, interest for the estimated duration of the appeal, and costs” to ”the sum of compensatory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs awarded in the judgment.” Compare former Tex.R.App. P. 24.2(a)(1) (eff. Sept. 1, 1997) (amended Aug. 29, 2003 and Sept. 10, 2003, eff. Sept. 1, 2003; amended Mar. 10, 2008 and Aug. 20, 2008, eff. Sept. 1, 2008), with Tex.R.App. P. 24.2(a)(1) (implementing
Movants suggest that a reading of subsection 52.006(a)(2) without implying the following extra words would be unreasonable: “interest [on the amount of compensatory damages awarded in the judgment] for the estimated duration of the appeal.” See id.
The legislature easily could have included additional language restricting the sums on which post-judgment interest was to be calculated for security purposes, if that were its intention, but it did not do so. By specifically referencing only “compensatory damages” in subsection 52.006(a)(1), the legislature clearly expressed an intent to omit punitive damages themselves from the total to be secured, but it did not express the same intent with regard to interest on punitive damages.
2. Post-judgment interest—even on punitive damages—is compensatory.
The purpose of post-judgment interest is compensatory. It compensates a plaintiff for the time-value of money as of the date of judgment: it is not punitive. See Long v. Castle Tex. Prod. Ltd. P‘ship, 330 S.W.3d 749, 751 (Tex.App.-Tyler 2010, pet. filed) (“Postjudgment interest is compensation allowed by law for the use or detention of money, computed from the date of rendition of judgment until the date of satisfaction.“); Sisters of Charity of the
Post-judgment interest for the lost use of a punitive damages award, calculated from the date of judgment until payment of the award, compensates the judgment creditor in the same way as post-judgment interest on a compensatory damages award does.2 By not expressly excluding punitive damages from the calculation of post-judgment interest under
“The early common law viewed any interest as usurious and illegal.” Anthony E. Rothschild, Prejudgment Interest: Survey and Suggestion, 77 Nw. U.L. Rev. 192, 195 (1982). Ultimately, however, the rise in commercial activity led courts to view interest as proper consideration for the use of money. See id. at 195-96 (citing C. McCormick, Damages § 5 (1935)) (“It could by then be seen that the real evil was not the taking of payment for the lending of money, but taking such payment in an extortionate or unconscionable amount“). Courts began to see that it was necessary for awards to include interest for the primary goal of damages—full compensation—to be achieved. Id. at 196; see also Newburgh Land & Dock Co. v. Tex. Co., 227 F.2d 732, 734 (2d Cir.1955) (explaining that “interest is awarded on the theory that it is indemnity for the delay in paying for the loss.“).3
Post-judgment interest in Texas is governed by the Finance Code and other statutes. See Phillips Petroleum Co. v. Riverview Gas Compression Co., 409 F.Supp. 486, 496 (N.D.Tex.1976) (“In Texas, the right to post-judgment interest is provided by Statute.“); Jarrin v. Sam White Oldsmobile Co., 929 S.W.2d 21, 25 (Tex.App.-Houston [1st Dist.] 1996, writ denied) (“Post-judgment interest is ... mandated by statute.“). Thus, whether it should be limited on certain types of damages or should not be considered in the calculation of a supersedeas bond is a matter left entirely to the legislature and not within the purview of this court: it is a matter of pure statutory construction rather than a common law issue.4 The legislature, as set
3. The legislature left a gray area in rebalancing interests between judgment creditors and judgment debtors.
Section 52.006 was enacted as part of the seminal 2003 legislation commonly referred to as House Bill Four (H.B.4). See Act of June 2, 2003, 78th Leg., R.S., ch. 204, § 52.006(a), 2003 Tex. Gen. Laws 847, 863, codified at
H.B.4 attempted to strike a balance between the interests of judgment creditors and judgment debtors. Instead of being required to provide security in the full amount of the judgment, interest, and costs (as judgment debtors seeking to appeal formerly were required to do), the judgment debtor may now more easily suspend enforcement of money judgments by posting security only on “compensatory damages,” “interest for the duration of appeal,” and “costs awarded in the judgment.” Id. at 1038 (citing section 52.006). Additionally, section 52.006 places a cap of the lesser of $25 million or 50% of the debtor’s net worth on the amount of security to be provided. Id. Further under H.B.4, the legislature decreased the prejudgment and post-judgment interest rates. Id. at 1038, 1084-85. Under Finance Code section 304.003(c), the post-judgment interest rate was lowered from a minimum of 10% to a minimum of 5% tied to the prime rate. Id. at 1084-85 (citing
This rebalancing effort did not, however, wholly discard the original interest in protecting judgment creditors from suffering the harms of unsecured and unpaid judgments. See id. at 1038, 1084. Indeed, just
I would find that reducing the supersedeas bond in the instant case from over four million dollars to $300,628.12, as the trial court did here, is a rebalancing in accordance with the legislature’s intent and thus not an abuse of the trial court’s discretion. To the extent that there is doubt regarding whether the award of post-judgment interest on punitive damages should be included in the amount of security required to supersede a judgment, I urge the legislature to provide additional guidance to the courts on this issue.
KEM THOMPSON FROST, Justice, dissenting.
“Interest shall follow the principal, as the shadow the body.”
Beckford v. Tobin, 27 Eng. Rep. 1049, 1051 (Ch. 1749).
The Texas Legislature has decided that in calculating the amount of security necessary to supersede a money judgment punitive damages are not included in the principal amount of the calculation. The trial court concluded that, although the four million dollars in punitive damages it awarded are excluded from the principal of the security-amount calculation, these damages are included in calculating the interest. In doing so, the trial court contradicted the unambiguous language of the applicable statute and violated the firmly embedded rule that interest follows principal. In its order today, this court does not address the construction of the applicable statute; instead, the court concludes that the trial court did not err because it calculated the security amount precisely as directed by this court in a prior order and as requested by the judgment debtors in a prior motion in this court. In the prior motion, the judgment debtors did not request that interest on the punitive damages be included in the security-amount calculation, and this court did not order the trial court to calculate the security amount in this manner. This court should grant the judgment debtors’ pending motion to lower bond to the extent they request this court to order that the security amounts be lowered to zero for each judgment debtor.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellee/plaintiff Frankel Offshore Energy, Inc. (hereinafter “Frankel“) filed suit in the trial court against appellants/defendants Texas Standard Oil & Gas, L.P., Grimes Energy Co., and PetroVal, Inc. (hereinafter collectively, the “Judgment Debtors“), asserting various claims including fraud and breach of fiduciary duty.1
The case was tried to a jury, which found, among other things, that the Judgment Debtors breached fiduciary duties that they owed to Frankel. But the jury found that Frankel did not prove that these breaches of fiduciary duty proximately caused any damages to Frankel. In its final judgment, the trial court ordered that Frankel recover separate monetary awards against each of the Judgment Debtors, the total of which exceeds four million dollars.2 The trial court ordered that Frankel recover these amounts as disgorgement of some of the profits the Judgment Debtors obtained through breach of their fiduciary duties. The trial court awarded these amounts to Frankel under an equitable-disgorgement remedy based upon the Judgment Debtors’ breaches of fiduciary duty, rather than as actual damages. The trial court did not award any costs of court in its judgment, nor did the trial court award any other monetary relief against the Judgment Debtors.3
After the trial court signed the judgment, the Judgment Debtors filed a motion asking the trial court to determine whether the amounts awarded as disgorgement were compensatory or punitive in nature, so that the Judgment Debtors could determine whether these awards were “compensatory damages” included in the amount of security necessary to supersede the judgment. See
The Judgment Debtors filed a “Motion to Lower Bond” in this court under
In an order issued March 3, 2011, this court granted the Judgment Debtors’ first two requests but did not grant their third request. This court concluded that the trial court abused its discretion in setting the security amount for each of the Judgment Debtors at the amount of the respective disgorgement award. This court noted that the trial court had characterized the disgorgement awards as punitive rather than compensatory in nature and that Frankel had not challenged that finding. Therefore, this court concluded that, as a matter of law, these punitive disgorgement awards were not “compensatory damages” to be used in calculating the amount of security required to supersede the judgment. See
On remand, the Judgment Debtors argued that interest on the amounts of the disgorgement awards should not be included in calculating the security amounts; Frankel argued that such interest should be included. In its March 30, 2011 order the trial court adopted the construction of
Now pending before this court is the Judgment Debtors’ “Second Motion to Lower Bond.” The Judgment Debtors have filed this motion under
The alleged excessiveness of the amount of security, as determined by the trial court, is reviewed under
III. ANALYSIS
Interest on punitive damages is not included in calculating the security amount.
The Judgment Debtors seek to supersede the trial court’s money judgment against them, and they are contesting the trial court’s determination of the security that they must provide to supersede that judgment. In this context, the Texas Legislature has decided that the amount necessary to supersede the judgment is the sum of the following:
(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.
In its February 9, 2011 order, the trial court characterized the disgorgement awards in its judgment as punitive in nature, and these awards are the only monetary awards made to Frankel in the judgment. In light of this characterization and the trial court’s failure to award any costs in the judgment, the trial court correctly concluded on March 30, 2011, that it had not awarded any compensatory damages or costs in the judgment. Therefore, the only part of the section 52.006(a) calculation at issue is the amount of “interest for the estimated duration of the appeal.”
In construing a statute, our objective is to determine and give effect to the Legislature’s intent. See Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). If possible, that intent must be ascertained from the language the Legislature used in the statute and not from examining extraneous matters for an intent the statute does not state. Id. If the meaning of the statutory language is unambiguous, this court adopts the interpre
The term “interest” is not defined in this statute. In general, “interest” refers to compensation for the use, forbearance, or detention of money. See Carl J. Battaglia, M.D., P.A. v. Alexander, 177 S.W.3d 893, 907 (Tex.2005). In section 52.006(a), the Texas Legislature has established a formula to calculate the amount of the bond, deposit, or security necessary for the judgment debtor to supersede a money judgment and preclude efforts by the judgment creditor to collect the money judgment while appellate proceedings are pending. If a superseded judgment survives the appellate process intact, the judgment creditor is entitled to try to collect the amounts awarded in the judgment; however, the judgment creditor cannot collect these amounts while the judgment is superseded during the appellate process. To protect the judgment creditor, the law on superseding judgments seeks to provide the judgment creditor with an easy collection remedy after the appellate process ends. See Tex. R. App. P. 24.1(a) (generally allowing a judgment debtor to supersede a civil judgment by filing a good and sufficient supersedeas bond, making a deposit with the trial court clerk in lieu of a bond, or providing the alternate security ordered by the trial court); Tex. R. App. P. 43.5 (requiring a court of appeals that affirms or affirms as modified a trial court judgment to render judgment against any sureties on the appellant’s supersedeas bond in the court of appeals’s judgment).
Absent the superseding of the judgment by the judgment debtor, the judgment creditor might be able to quickly collect the full amount of the judgment. In that event, the judgment creditor would have the use of that money for the duration of the appellate process, and the judgment creditor would be allowed to keep this money if the judgment survives the appellate process intact. Therefore, in the context of section 52.006(a), “interest” compensates the judgment creditor for its inability to potentially obtain and use money collected on the judgment during the appellate process. The judgment creditor can receive this compensation only to the extent the judgment is upheld as a result of the appellate process. In that event, this interest component represents the time value of money for the duration of the appeal. See State v. Public Utility Comm’n of Tex., 344 S.W.3d 349, 376-77 (Tex.2010) (equating interest with compensation for the time value of the principal amount of money); State Farm Mut. Auto. Ins. Co. v. Norris, 216 S.W.3d 819, 821 n. 1 (Tex.2006) (same as Public Utility Comm’n of Tex.); Carl J. Battaglia, M.D., P.A., 177 S.W.3d at 907 (same); City of Pearland v. Reliant Energy Entex, 62 S.W.3d 253, 256 (Tex.App.-Houston [14th Dist.] 2001, pet. denied) (same).
Today, this court must decide the principal amount upon which the interest in section 52.006(a)(2) is to be calculated. Frankel asserts that this interest should be calculated upon the full amount of the judgment, including the amounts of any punitive damages awarded therein. But this construction of section 52.006(a) would mean that the interest component would compensate judgment creditors for the time value of awards that are not considered in calculating the security amount under section 52.006(a). Under this proffered construction, the interest calculated upon punitive damages awarded in the judgment would protect the full value of these awards in the event the judgment is affirmed on appeal. Yet, the Texas Legislature decided in 2003 that awards of punitive damages should not be protected by
By means of House Bill 4, the Texas Legislature, in 2003, effected sweeping changes to Chapter 52 and to Texas law regarding the superseding of civil judgments on appeal. See Act of June 2, 2003, 78th Leg., R.S., ch. 204, art. 7, 2003 Tex. Gen. Laws 847, 863; Ramco Oil & Gas Ltd., 171 S.W.3d at 916-17; Elaine A. Carlson, Reshuffling the Deck: Enforcing and Superseding Civil Judgments on Appeal After House Bill 4, 46 S. Tex. L.Rev. 1035, 1093 (Summer 2005). These changes “‘reflect a shift in concern from that of protecting the judgment creditor’s ability to collect the judgment if affirmed on appeal, to protecting the judgment debtor from substantial economic harm by appellate security requirements that may effectively preclude the ability to seek appellate review.’” Ramco Oil & Gas Ltd., 171 S.W.3d at 916-17 (quoting Carlson, 46 S. Tex. L.Rev. at 1093).
Before House Bill 4, the focus was on protecting the judgment creditor’s ability to collect the judgment if affirmed on appeal, and the law required the supersedeas amount to cover the entire amount of a money judgment, court costs, and “interest for the estimated duration of appeal.” See Former Tex.R.App. P. 24.2(a)(1) (requiring the security amount for money judgments to be at least “the amount of the judgment, interest for the estimated duration of appeal, and costs“). Under this former regime, though the appellate rule did not specify the principal upon which the interest was to be calculated, the context made it clear that the principal was the full amount of the judgment, which was a required part of the supersedeas amount.
Since the enactment of House Bill 4 into law, the full amount of the judgment is no longer protected.9 See
Under Texas law and the common law of England and of various American states, the longstanding rule is that “interest follows principal.” See Phillips v. Washington Legal Found., 524 U.S. 156, 165, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998) (concluding that “interest follows principal” rule has become “firmly embedded” in the common law of various states, including Texas); City of Pearland, 62 S.W.3d at 256 (stating “it is well settled in Texas that ‘interest follows principal’“); Beckford v. Tobin, 27 Eng. Rep. 1049, 1051 (Ch. 1749) (stating rule that “interest follows principal” under English law). So inseparable are principal and interest that they are said to be joined like a body and its shadow. See Phillips, 524 U.S. at 165. Under the law, the two are individual components of a unitary concept. Given the logic of the age-old “interest follows principal” rule, and in the absence of clear statutory language to the contrary, it is unreasonable to construe section 52.006(a) to require the calculation of interest on an amount excluded from the principal. The Texas Legislature has given no indication of any intention to depart from this long-recognized principle and separate the body (a punitive damage award) from its shadow (interest on the punitive damage award) by excluding the former and including the latter in the prescribed calculation of the security amount. In the context of section 52.006(a), the only reasonable construction of “interest for the estimated duration of the appeal” is that such interest is not calculated based upon punitive damages that are not included in the principal security amount.10 The
Research reveals only one other case addressing this issue. See Shook v. Walden, 304 S.W.3d 910, 929 (Tex.App.-Austin 2010, no pet.). In that case, the court held that interest under section 52.006(a)(2) includes interest on amounts that are not compensatory damages or costs awarded in the judgment. See id. The Shook court cited no authority and did not discuss the “interest follows principal” rule. See id. Instead, the Shook court based its conclusion on the lack of an express statutory statement that interest is based only on compensatory damages and costs awarded in the judgment. See id. Although there is no such express statement, there is likewise no express statutory statement that interest is based upon the entire judgment amount. See
The trial court expressly stated that it did not base its security-amount calculations upon “compensatory damages awarded in the judgment.” On appeal, Frankel’s
Under the unambiguous language of section 52.006(a), “interest for the estimated duration of the appeal” is not to be calculated based upon punitive damages awarded in the judgment. Even if the statute were ambiguous, there is no legislative history relating to this issue. Moreover, an analysis that entailed consideration of the object sought to be attained, the circumstances under which the statute was enacted, the former statutory provisions, and the consequences of each construction would result in the same conclusion.
The security amount for each of the Judgment Debtors is zero.
Under the Texas Legislature’s chosen formula, the security amount in this case is zero. Though this is an unusual result, this case involves an unusual judgment. Most judgments that parties seek to supersede on appeal contain compensatory damage awards, and even when no compensatory damages are awarded, the Texas Rules of Civil Procedure require every judgment to contain an award of court costs. See Tex. R. Civ. P. 131, 141; Garza v. Slaughter, 331 S.W.3d 43, 45, 48 (Tex.App.-Houston [14th Dist.] 2010, no pet.) (holding trial court erred in not awarding costs to any party in its judgment). The trial court rendered a judgment in which it awarded millions in punitive damages but no compensatory damages or court costs. Under this unusual circumstance, the security amount under section 52.006(a) is zero.
In enacting section 52.006, the Texas Legislature unambiguously provided that a security amount could be zero, given that a judgment debtor’s net worth can be zero or negative. See
For the reasons stated, this court should grant the Judgment Debtors’ “Second Motion to Lower Bond” to the extent they request that this court order that the security amounts be lowered to zero for each judgment debtor.13 Because it does not, I respectfully dissent.