Fairways Offshore Exploration, Inc. v. Patterson Services, Inc. and Cudd Pressure Control, Inc.

Published Order issued July 21, 2011

In The

Court of Appeals

For The

First District of Texas

————————————

NO. 01-11-00079-CV

———————————

FAIRWAYS OFFSHORE EXPLORATION, INC., Appellant

V.

PATTERSON SERVICES, INC. AND CUDD PRESSURE CONTROL,

INC., Appellees

On Appeal from the 215th District Court

Harris County, Texas

Trial Court Cause No. 2007-59388

O R D E R

Judgment creditors, Patterson

Services, Inc. (“Patterson”) and Cudd Pressure Control, Inc. (“Cudd”), have

filed in this Court a Motion for Enlargement of Supersedeas Bond, [1]

challenging the trial court’s order setting the amount of the bond filed by judgment

debtor, Fairways Offshore Exploration, Inc. (“Fairways”), to suspend

enforcement of the underlying judgment against it. Patterson and Cudd contend

that the trial court erred in not including in its calculation of the amount of

the supersedeas bond its award of attorney’s fees to Patterson and Cudd and its

award of prejudgment interest on the damages awarded to Patterson on its

negligence claim.

We grant Patterson and Cudd’s motion

and order the supersedeas bond increased to include the amount of the trial

court’s award of attorney’s fees to Patterson and Cudd and prejudgment interest

to Patterson.

Background

In its judgment, the trial

court awarded Patterson $375,426.30 as actual damages on its negligence claim,

$521,427.05 as actual damages on its breach of contract claim, $99,022.44 as pre-judgment

interest on its actual damages, $385,000 for its attorney’s fees expended

through trial, and $7,387.40 in court costs. The trial court awarded Cudd $198,079.28

as actual damages on its breach of contract claim, $21,924.39 as pre-judgment interest

on its actual damages, $312,375 for its attorney’s fees expended through trial,

and $4,748.78 in court costs.

Fairways initially filed a

supersedeas bond in the amount of $1,162,422.25, plus post-judgment interest at

the rate of five percent (5%) for one year from the date of judgment, to secure

the contract and negligence damages awarded to Patterson, the contract damages

awarded to Cudd, and the post-judgment interest awarded to both Patterson and

Cudd. Patterson and Cudd then filed a motion, requesting that the trial court

increase the amount of supersedeas bond to secure the trial court’s awards of

attorney’s fees awards and prejudgment interest. The trial court granted this

motion in part, ordering the amount of the bond increased by $79,495.65 to secure

the portion of the prejudgment interest awarded to Patterson ($57,571.26) and

Cudd ($21,924.39) for their respective contract damages. The amount of the

bond, as increased by the trial court’s order, did not secure the trial court’s

award of attorney’s fees to Patterson and Cudd or its award of prejudgment

interest to Patterson for its negligence damages. [2]

Standard of Review

On the motion of a party, an

appellate court may review the sufficiency or excessiveness of the amount of bond

set by a trial court to secure payment of a money judgment during the pendency

of an appeal in a civil case. Tex. Civ. Prac. & Rem. Code Ann.

§ 52.006 (d) (Vernon

Supp. 2010); Tex. R. App. P. 24.4(a) . We review the trial court’s

determination of the amount of security under an abuse of discretion standard.

Ramco Oil & Gas, Ltd. v. Anglo Dutch (Tenge) L.L.C. , 171 S.W.3d 905,

909 (Tex. App.—Houston [14th Dist.] 2005, no pet). Generally, the test for

abuse of discretion is whether the trial court acted without reference to any

guiding rules and principles or whether the trial court acted arbitrarily and

unreasonably. See McDaniel

v. Yarbrough , 898 S.W.2d 251, 253

(Tex. 1995) .

However, a trial court has no discretion in determining what the law is and

applying the law to the facts. See Gonzalez

v. Reliant Energy, Inc. , 159 S.W.3d 615 ,

623–24 (Tex. 2005) .

A failure by a trial court to analyze or apply the law correctly constitutes an

abuse of discretion. Id. If we conclude that the trial court

abused its discretion, we may order the amount of the security decreased or

increased in an amount not to exceed the lesser of 50 percent of the judgment

debtor’s net worth, or $25 million. See Tex. Civ. Prac. & Rem. Code Ann.

52.006 (d); Tex. R. App. P. 24.4(a) , (d). For example, this Court,

under former Texas Rule of Appellate Procedure 47(b), increased the amount of a

supersedeas bond to include post-judgment interest, explaining that “[a]

supersedeas bond that does not include interest is ‘patently ineffective.’” Nat’l

Convenience Stores, Inc. v. Martinez , 763 S.W.2d 960, 960 (Tex.

App.—Houston [1st Dist.] 1989, no writ).

A Good and Sufficient Bond

The key issue presented to this Court

is whether the amount of the supersedeas bond set by the trial court is “good

and sufficient” to secure the money judgment of Patterson and Cudd from losses

caused by the delay of Fairways’ appeal. See Tex. R. App. P. 24.1(a)(2). The “primary purpose” of a

supersedeas bond is “security” and it is “intended to indemnify the judgment

creditor from losses caused by delay of appeal.” Muniz v. Vasquez , 797

S.W.2d 147, 150 (Tex. App.—Houston [14th Dist.] 1990, no writ). As has been

explained,

The effect of a supersedeas bond is to suspend

execution of judgment, so the judgment creditor can look only to the bond for

satisfaction of the judgment. To prevent recovery on the bond posted by the

judgment debtor is to prevent recovery of the judgment.

Butron v. Cantu , 960 S.W.2d 91, 95 (Tex. App.—Corpus

Christi 1997, no writ).

A judgment debtor may file a “good

and sufficient” bond to supersede a trial court’s judgment in a civil case and

thereby suspend enforcement of the judgment during the pendency of an appeal. Tex. R. App. P. 24(a)(2); see also Tex. Civ. Prac. & Rem. Code Ann. §

52.006. When a judgment is for the recovery of “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 Ann. § 52.006(a) (emphasis added); see also Tex. R. App. P. 24.2(a)(1). However, the amount of security

“must not exceed” the lesser of 50 percent of the judgment debtor’s net worth

or $25 million. [3]

Tex. Civ. Prac. & Rem. Code Ann.

§ 52.006(b); see also Tex. R.

App. P. 24.2(a)(1).

Here, the parties dispute whether the

trial court, in calculating the amount of the supersedeas bond, was required to

include in its sum, as compensatory damages, the award of attorney’s fees to

Patterson and Cudd and the award of prejudgment interest on the damages awarded

to Patterson on its negligence claim. Both sides recognize that since the

Texas Legislature enacted section 52.006 in 2003, some have called into

question whether the amount of attorney’s fees and prejudgment interest awarded

in a money judgment must be included in calculating the amount of security

necessary to suspend enforcement of the judgment pending an appeal. See

Elaine A. Carlson, Reshuffling the Deck: Enforcing and Superseding Civil

Judgments on Appeal After House Bill 4 , 46 S. Tex. L. Rev. 1035 , 1038, 1088 (2005) (stating that “[i]t

is unclear whether attorneys’ fees and prejudgment interest must be secured”

under section 52.006 and that “[u]ltimately the issue of what is considered

compensatory damages will be judicially determined”).

Attorney’s Fees

In determining whether attorney’s

fees awarded in a money judgment should be secured pursuant to section 52.006,

we note that prior to the enactment of section 52.006, which was part of legislation

commonly referred to as “House Bill 4,” the amount of security required to

supersede a money judgment was governed by the former version of Texas Rule of

Appellate Procedure 24. See 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). The former version of rule 24 required a bond for “ at

least the amount of the judgment , interest for the estimated duration of

the appeal, and costs.” See id. (emphasis added). Texas courts

interpreted the former version of rule 24 to require security for the amount of

attorney’s fees awarded in a money judgment. See Shook v. Walden ,

304 S.W.3d 910, 918 (Tex. App.—Austin 2010, no pet.) (citing Hamilton v.

Hi–Plains Truck Brokers, Inc. , 23 S.W.3d 442 , 443 n.1 (Tex. App.—Amarillo

2000) (per curiam order)).

Fairways argues that section 52.006’s

reference to “the amount of compensatory damages awarded in the judgment,”

instead of the former version of rule 24’s reference to “the amount of the

judgment,” evidences a legislative intent to change the prior law so that attorney’s

fees awarded to a prevailing party in a money judgment no longer need be

secured for a judgment debtor to suspend enforcement of a money judgment. Fairways

acknowledges that there is no direct legislative history to support its argument

that the legislature intended to make such a change in the law, but it urges us

to consider the definition of “compensatory damages” in Chapter 41 of the Texas

Civil Practice and Remedies Code as well as the general purposes of House Bill

4. Fairways’ arguments are unpersuasive.

Although the Texas Legislature did

not define the term “compensatory damages” in section 52.006, the term

generally includes “[d]amages sufficient in amount to indemnify the injured

person for the loss suffered.” Black’s

Law Dictionary 445 (9th ed. 2009). Here, the trial court’s judgment

establishes that Patterson and Cudd, both of which prevailed against Fairways

in the trial court, expended attorney’s fees to recover a money judgment on

their respective breach of contract claims against Fairways. See Tex. Civ. Prac. & Rem. Code Ann. §

38.001(8) (Vernon Supp. 2010). Thus, the attorney’s fees awarded by the trial

court to Patterson and Cudd represent recoverable out-of-pocket losses that they

incurred in prosecuting their breach of contract claims against Fairways. See

id. We conclude that these fees, which the trial court awarded to Patterson

and Cudd to compensate them for the amount of money that they expended to

obtain relief against Fairways, fit within the common meaning of “compensatory

damages.” [4]

There is nothing in the plain language of section 52.006 that evidences a

legislative intent to either change the law in regard to securing an award of

recoverable attorney’s fees in a money judgment or exclude attorney’s fees from

the common meaning of “compensatory damages.”

In regard to the definition of

“compensatory damages” in Chapter 41, we note that, for purposes of that

chapter, the term “[c]ompensatory damages” is defined to mean “economic and

noneconomic damages” and it “does not include exemplary damages.” Tex. Civ. Prac. & Rem. Code Ann. §

41.001(8) (Vernon Supp. 2010). Chapter 41 defines the term “[e]conomic damages”

to mean “compensatory damages intended to compensate a claimant for actual

economic or pecuniary loss” and it “does not include exemplary damages or

noneconomic damages.” Id . § 41.001(4). And Chapter 41 defines the term

“[n]oneconomic damages” to mean “damages awarded for the purpose of

compensating a claimant for physical pain and suffering, mental or emotional

pain or anguish, loss of consortium, disfigurement, physical impairment, loss

of companionship and society, inconvenience, loss of enjoyment of life, injury

to reputation, and all other nonpecuniary losses of any kind other than

exemplary damages.” Id . § 41.001(12).

In its opinion in Shook , the

Austin Court of Appeals went to great lengths to explain why these definitions should

be applied when interpreting the term “compensatory damages” in section 52.006.

304 S.W.3d at 920–22; see also PopCap Games, Inc. v. Mumbojumbo LLC , 317

S.W.3d 913 (Tex. App.—Dallas 2010, no pet.) (agreeing with Shook and

holding that section 52.006 does not require superseding of attorney’s fees). The

court in Shook opined that Chapter 41 is not restricted to those cases

in which exemplary damages are awarded and “plainly extends more broadly” to

any action for “damages.” Id . at 920. The court further opined that Chapter

41’s “text and relationship to section 52.006 reflect legislative intent to

incorporate chapter 41’s definition of ‘compensatory damages’ into section

52.006.” Id.

However, the plain language of

Chapter 41 reveals that the legislature enacted its provisions to create

standards and procedures for the recovery of exemplary damages and define certain

damages in order to limit exemplary damage awards. See id. §§ 41.001,

41.003, 41.008, 41.009 (Vernon Supp. 2010). There is no suggestion in Chapter

41 that any provision within it has any applicability to setting a good and

sufficient supersedeas bond to suspend enforcement of a money judgment during

the pendency of an appeal. Although the court in Shook saw evidence of

a “relationship” between Chapter 41 and section 52.006, we, respectfully, see none.

We conclude that the application of the definition of the term “compensatory

damages” as used in Chapter 41 to the term as used in section 52.006 has

created confusion in what should be a fairly straightforward matter. See Shook ,

304 S.W.3d at 920 . In short, the definitions employed in Chapter 41 are

expressly prescribed to apply to that chapter only, not to section 52.006. See

Tex. Civ. Prac. & Rem. Code Ann.

§ 41.001 (stating that definitions provided by section 41.001 apply “[i]n this

chapter”); see also Clearview Properties, L.P. v. Property Tex. SC

One Corp. , 228 S.W.3d 262, 263 (Tex. App.—Houston [14th Dist.] 2007, orig.

proceeding [mand. denied]) (recognizing that definitions in Chapter 41 “do not

expressly exclude attorney’s fees” in calculating good and sufficient

supersedeas bond).

Without stretching Chapter 41 beyond

its prescribed application, there is no basis on which to interpret section

52.006’s reference to “compensatory damages” as excluding the amount of

recoverable attorney’s fees awarded by the trial court to Patterson and Cudd from

the amount of the security necessary to suspend enforcement of the trial

court’s money judgment. See Clearview Properties, L.P. , 228 S.W.3d at

263 (indicating that attorney’s fees awarded in judgment could be “in the

nature of costs or damages” and affirming trial court’s order setting bond in

amount sufficient to secure attorney’s fees award). [5]

Had the legislature intended to so alter the law, it could have expressly

referred to “actual damages” in section 52.006, rather than the broader and

more encompassing term “compensatory damages,” which is more in accord with the

basic purposes of securing a money judgment. See Muniz , 797

S.W.2d at 150 . In light of section 52.006’s reference to “compensatory

damages,” we conclude that a supersedeas bond that does not include in its sum the

amount of recoverable attorney’s fees is “patently ineffective” to secure a

money judgment awarding such fees. See Martinez , 763 S.W.2d at 960 . Accordingly,

we hold that the trial court erred in denying Patterson and Cudd’s motion to

increase the amount of the supersedeas bond to include the trial court’s award

of recoverable attorney’s fees in its money judgment.

Prejudgment Interest

As with the attorney’s fees

issue, the parties appear to agree that prior to the enactment of section

52.006, the former version of rule 24 required security for the amount of prejudgment

interest awarded in a money judgment. See Former Tex. R. App. P. 24.2(a)(1); Martinez ,

763 S.W.2d at 960 (indicating that bond covered prejudgment interest); see

also Gullo-Haas Toyota, Inc. v. Davidson, Eagleson & Co. , 832 S.W.2d

418, 418 (Tex. App.—Houston [1st Dist.] 1992, no writ) (implying that

sufficient bond included prejudgment interest). The question, then, is whether

section 52.006 changed the law. In interpreting section 52.006 to determine if

prejudgment interest can be considered “compensatory damages awarded in the

judgment,” the court in Shook again considered the definitions of Chapter

41. After undertaking a lengthy analysis, the court concluded that “prejudgment

interest awarded under common-law or equitable principles comes within [C]hapter

41’s ‘economic damages’ definition because it is a form of damages intended to

compensate for a form of economic or pecuniary loss recognized in Texas law.” Shook ,

304 S.W.3d at 927 . Thus, the court held that the prejudgment interest awarded in

that case constituted “compensatory damages awarded in the judgment” and such

interest was required to be secured under section 52.006, although the court

also appeared to recognize a distinction between certain types of prejudgment

interest. Id. at 929 .

Fairways argues that we should follow

the distinction suggested in Shook between prejudgment interest awarded

on breach of contract damages under common-law or equitable principles and

prejudgment interest awarded on negligence damages under statutory authority.

Fairways posits that prejudgment interest on a “negligence award for property

damage” does not constitute “economic damages,” and thus, cannot be

characterized as compensatory damages under section 52.006. We find Fairways’

arguments on the prejudgment interest issue unpersuasive.

As noted above, section 52.006 does

not define the term “compensatory damages” in regard to calculating a good and

sufficient supersedeas bond, and we find no support in the Texas Civil Practice

and Remedies Code or the legislative history of Chapter 52 indicating that we

should, in interpreting section 52.006, consult the definitions employed in

Chapter 41 regarding exemplary damages. Although the legislature did not

define “compensatory damages” in section 52.006, the compensatory nature of

prejudgment interest is commonly understood and has been historically

recognized by Texas courts. In Cavnar v. Quality Control Parking, Inc. ,

the Texas Supreme Court explained the need to award prejudgment interest to

compensate a plaintiff:

If a judgment provides plaintiffs only the amount of

damages sustained at the time of the incident, plaintiffs are not fully compensated .

They have been denied the opportunity to invest and earn interest on the

amount of damages between the time of the occurrence and the time of judgment.

696 S.W.2d 549, 552 (Tex. 1985)

(emphasis added). The supreme court has further acknowledged that “awarding

prejudgment interest [is] necessary to fully compensate injured plaintiffs.” Johnson

& Higgins of Tex., Inc. v. Kenneco Energy, Inc. , 962 S.W.2d 507, 529 (Tex.

1998). We see no reason to depart from these generally accepted principles

recognizing that prejudgment interest is awarded to compensate an injured

plaintiff. We also see no principled reason to follow Shook and distinguish

between prejudgment interest awarded on contract damages but not negligence

damages. We conclude that a supersedeas bond that does not include in its sum

the amount of prejudgment interest is “patently ineffective” to secure a money

judgment awarding such interest. [6]

See Martinez , 763 S.W.2d at 960 . Accordingly, we hold that the trial

court erred in denying Patterson and Cudd’s motion to increase the amount of

the supersedeas bond to include the trial court’s award of prejudgment interest

to Patterson on its negligence damages.

Conclusion

We grant Patterson and Cudd’s

motion for enlargement of the supersedeas bond, and we order that the amount of

the bond be increased to secure the amount of attorney’s fees awarded to

Patterson and Cudd as well as the amount of prejudgment interest awarded to

Patterson on its negligence damages. [7]

Accordingly, we direct Fairways to file an amended supersedeas bond, with the

amount of the total bond to be $1,984,718.86, plus post-judgment interest as

described in the supplemental supersedeas bond. Should Fairways fail to post

the amended supersedeas bond 20 days after the date of this order, the judgment

may be enforced. See Tex. R.

App. P. 24.4(e).

Terry Jennings

Justice

Panel consists of Justices Jennings, Higley,

and Brown.

Publish.

[1]

See Tex. R. App. P.

24.4(a).

[2]

In its judgment, the trial court also awarded Patterson and Cudd

appellate attorney’s fees, but Patterson and Cudd do not seek to secure the

amounts of those fees with an increased supersedeas bond.

[3]

Moreover, a trial court “must lower” the amount of a security “to an

amount that will not cause the judgment debtor substantial economic harm if,

after notice to all parties and a hearing, the court finds that posting a bond”

in the required amount “is likely to cause the judgment debtor substantial

economic harm.” Tex. R. App. P.

24.2(b); see also Tex. Civ. Prac.

& Rem. Code Ann. § 52.006(c). Here, there is nothing in the record

to suggest that the amount of the bond set by the trial court was affected by

sections 52.006(b) and 56.006(c) of the Texas Civil Practice and Remedies Code

or rules 24.2(a)(1) and 24.2(b).

[4]

By way of example, we note that in litigation involving breach of

contract claims, an award of attorney’s fees may sometimes equal or exceed the

amount of actual damages awarded to a prevailing party. In such a case, the

prevailing party’s success in prosecuting their claim could easily be rendered

pyrrhic if the judgment debtor could suspend enforcement of the judgment

without having to post a bond sufficient to cover the awarded attorney’s fees.

[5]

Fairways argues that Clearview Properties is distinguishable

because, in that case, “the contract between the parties provided for

attorney’s fees to constitute compensation.” Clearview Properties, L.P. v.

Property Tex. SC One Corp. , 228 S.W.3d 262, 264 (Tex. App.—Houston [14th

Dist.] 2007, orig. proceeding [mand. denied]). The parties agreed at oral

argument that there is no similar contractual provision here. Although we

recognize this factual distinction, the court in Clearview cited this

contractual provision as one of several reasons why the trial court properly

set a supersedeas bond that included in its sum the award of attorney’s fees.

[6]

We recognize that to the extent that any provision in Chapter 52

conflicts with the Texas Rules of Appellate Procedure, Chapter 52 would

control. Tex. Civ. Prac. & Rem.

Code Ann. § 52.006(a). However, we see no conflict between rule 24’s

requirement that a judgment debtor post a “good and sufficient bond” and the

provisions of Chapter 52. Rather, the terms used in rule 24 and those used in

Chapter 52 consistently reflect that the purpose of securing a money judgment

is to protect a prevailing party’s right to ultimately recover its compensatory

damages pending an appeal.

[7]

As noted above, Fairways has not argued that increasing the bond as

requested by Patterson and Cudd would either exceed the caps provided in

section 52.006(b) or cause it “substantial economic harm.” Tex. R. App. P. 24.2(a)(1), (b); see

also Tex. Civ. Prac. & Rem. Code

Ann. § 52.006(b), (c).