Tricks & Traps: Practical Tips for Your Appellate Practice

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Tricks & Traps: Practical Tips for Your Appellate Practice

  1. 1. and Practical Tips for Your Appellate Practice by Mary H. Smith ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ attention over the past couple of years than supersedeas practice. Because supersedeas issues arise in almost every civil appeal, it is important to stay abreast of these legal developments. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ judgment-debtor may supersede enforcement of a judgment by: (1) filing with the trial court clerk a written agreement with the judgment creditor for suspending enforcement of the judgment; (2) filing with the trial court clerk a good and sufficient bond; (3) making a deposit with the trial court clerk in lieu of a bond; or (4) providing alternate security ordered by the trial court. When the judgment is for money, the amount of the ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ satory damages awarded in the judgment, interest for the estimated duration of the appeal, and costs awarded in the judgment.1฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ of fifty percent of the judgment-debtor’s current net worth or twenty-five million dollars.2 ฀ ฀ ฀ ฀ ฀ ฀ ฀ tions have arisen. N ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ cases, attorney’s fees are neither compensatory damages nor costs for purposes of suspending enforcement of a judgment pending appeal.3฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ peals were split on the issue.4 A. Generally, Attorney’s Fees Are Not Compensatory Damages. To determine whether attorney’s fees are included in the 1 ฀ 2 3 4 ฀ ฀ ฀ ฀ Id. In re Nalle Plastics Family, Ltd. P’ship,฀ ฀ ฀ ฀ ฀ ฀ See, e.g., Fairways Offshore Exploration, Inc. v. Patterson Servs., Inc. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ pet.) (attorney’s fees are compensatory damages that must be superseded); Corral-Lerma v. Border Demolition & Envtl., Inc., No. 08฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ [mand. pending]) (same); Clearview Props., L.P. v. Prop. Tex. SC One Corp. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ pet.) (per curiam) (attorney’s fees are costs that must be superseded); Shook v. Walden, www.tarrantbar.org ■ February 2014 5 7 8 ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ Court used basic principles of statutory construction. The Court first looked to the statute itself to see if it defined the term “compensatory damages.”5 Because it did not, the ฀ ฀ ฀ ฀ Ultimately, the Court relied upon its precedent and the ordinary meaning of the phrase “compensatory damages.”7 ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ between attorney’s fees and damages by emphasizing the difference between compensation owed for an underlying harm and fees that may be awarded for counsel’s services.8 The Legislature also has made such a distinction. Indeed, the primary statute that designates when attorney’s fees may be recovered provides that “[a] person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs” when certain claims are at issue.9 Courts interpreting that statutory language have held “that the phrase ‘in addition to’ suggests that the Legislature intended to differentiate between attorney’s fees, damages awarded for a valid claim, and costs.”10฀฀ ฀ ฀ ฀ Court confirmed this construction in 2009, noting that “suits cannot be maintained solely for the attorney’s fees; a client must gain something before attorney’s fees can be awarded.”11 Therefore, as a general rule, attorney’s fees are not compensatory damages for purposes of suspending enforcement of a judgment pending appeal. There is one notable exception to this general rule that practitioners should be aware of. If the underlying suit concerns a claim for attorney’s fees as an element of damage—a ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ may properly be included in the definition of “compensatory damages” for purposes of superseding the judgment.12 ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ tions of compensatory damages and costs and need not be superseded); PopCap Games, Inc. v. MumboJumbo, LLC, 317 S.W.3d 913, 914 ฀ ฀ ฀ ฀ ฀ In re Nalle Plastics Family, Ltd. P’ship,฀ ฀ S.W.3d at 171. Id. at 171-72. Id. 172-74. Id. at 172 (citing Landa v. Obert,฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ weight of authority is against the proposition that the plaintiff has the right to claim his counsel fees . . . as a part of his damages”) & Wm. Cameron & Co. v. Am. Surety Co. of N.Y.,฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ 9 10 11 12 13 14 15 1932) (noting that “[c]ounsel fees incurred in prosecuting a suit for or defending against a wrong are not ordinarily recoverable as actual damages”)). Id.฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ (emphasis added). Id. at 173 (citing Shook v. Walden, 304 S.W.3d ฀ ฀ ฀ ฀ ฀ ฀ MBM Fin. Corp. v. Woodlands Operating Co., L.P.,฀ ฀ ฀ ฀ ฀ ฀ ฀ sis added). In re Nalle Plastics Family, Ltd. P’ship,฀ ฀ S.W.3d at 174-75. Id. at 175. Id.฀ ฀BLACK’S LAW DICTIONARY 398 (9th ed. 2008)). Id. (citing McClelland v. McClelland, 37 S.W.
  2. 2. B. Attorney’s Fees Are Not Costs. To determine whether attorney’s fees are “costs” for purposes of superseding a judgment—a term undefined by ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀ 13 ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ filing fees, jury fees, courthouse fees, and reporter fees . . . .”14 The Court also noted that both courts and the Legislature have recognized that the term “costs” generally does not include attorney’s fees.15 Even though attorney’s fees are like costs in that both ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ curity only for costs themselves—not everything similar to them. Attorney’s fees are not costs for purposes of superseding the judgment. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ held in 2012 that “the plain language of [TRAP 24.1] does not include a contingent money judgment in calculating net worth.”17 Indeed, TRAP 24.2 speaks in terms of the judgment-debtor’s “current net worth.”18 Until the liability set forth in the judgment is certain (after the appellate process ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ contingent on future฀ ฀฀ ฀ ฀ ฀ ฀ ฀ of a liability depends on future events, it cannot be deducted when calculating a judgment-debtor’s current net worth.19 ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ when a creditor contests a judgment-debtor’s net worth affidavit, the court “must issue an order that states the debtor’s net worth and states with particularity the factual basis for that determination.” Courts have construed this to mean that, “[i]n setting the amount of supersedeas security pend฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ financial condition of each judgment-debtor.”20 However, oftentimes in business litigation, the parties are not individuals or even individual companies, but rather conglomerate businesses that include subsidiaries and affiliates. Under Generally Accepted Accounting Principles (“GAAP”), accountants must create consolidated financial 17 ฀ ฀ ฀ ฀ ฀ ฀ ฀ (“[A]ttorney’s fees, in this state, in view of ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ cannot be classed as costs, and that the court would have no power to so declare such fees as ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ Civ. Prac. & Rem. Code § 38.001 (providing that “[a] person may recover reasonable attorney’s fees . . . in addition to the amount of a valid claim and costs”) (emphasis added)). Id.฀ ฀ Bus. Staffing, Inc. v. Jackson Hot Oil Serv., 392 ฀ ฀ ฀ ฀ ฀ ฀ ฀ (op. on motion) (emphasis added) (citing McCullough v. Scarbrough, Medlin & Assocs., Inc., ฀ ฀ ฀ ฀ ฀ ฀ 2012) (op. on motion) & Anderton v. Cawley, statements for affiliated companies rather than individual financial statements for each company.21 The rationale is that consolidated financial statements are necessary for a fair presentation of these companies’ true financial situations. So what happens when a party obtains a joint-and-several judgment against several affiliated companies and those companies seek to supersede the judgment pending appeal? In setting the bond amount, must the trial court consider the net worth of each individual entity, or should it consider only the consolidated financial statement of the controlling entity? Houston’s Fourteenth Court of Appeals answered 22 ฀ ฀ ฀ Even though courts generally calculate net worth according to GAAP principles, Houston’s Fourteenth Court held that the GAAP consolidation rule does not displace the ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ment-debtor must be determined separately, unless there is a finding of alter ego.23 Without a finding of alter ego, the court held that using the GAAP consolidation rule would impermissibly comingle the companies’ assets.24 This hold฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ Court that consolidated financial statements constitute no evidence of an entity’s ability to satisfy a judgment.25 Houston’s Fourteenth Court also held that a judgmentdebtor does not have to present audited net worth evidence ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ have been met. Instead, a judgment-debtor can meet its burden of proof by (1) preparing its own balance sheet and swearing to its own net worth or (2) presenting evidence from a bookkeeper with knowledge of the debtor’s records and a balance sheet of the debtor using GAAP principles to show net worth.27 The trick under TRAP 24.2 is knowing what is included in the bond calculation and how to establish net worth. When faced with a supersedeas issue, just remember these four facts: (1) attorney’s fees are neither compensatory damages nor costs; (2) the trial court’s judgment is just a contingent liability; (3) consolidated financial statements cannot ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ mony is unnecessary. ■ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀see also Montelongo v. Exit Stage Left, Inc., 293 ฀ ฀ ฀ ฀ ฀ ฀ ฀ 18 ฀ ฀ ฀ ฀ ฀ ฀ ฀ 19 Bus. Staffing, Inc. ฀ ฀ ฀ ฀ ฀ 20 G.M. Houser, Inc. v. Rodgers ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ 21 FASB Accounting Standards Codification (“ASC”) Topic 810, available at http://www. fasb.org. 22 Hunter Bldgs. & Mfg., L.P. v. MBI Global, L.L.C., ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ available at http://www.14thcoa.courts.state. 24 25 27 23 Id.฀ ฀ Id. at 7 (citing In re Smith ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ in a post-judgment net worth proceeding is relevant to the determination of a judgment-debtor’s net worth for purposes of Rule 24 but may not be used to enforce the judgment against the unnamed alter ego or any other non-judgment debtor)). Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. & Research Corp. ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ statements . . . are not evidence that a judgment would have been collectible from Panda International as of or after February 2000.”). MBI Global, L.L.C. ฀ ฀ ฀ ฀ Id. February 2014 ■ TCBA BULLETIN

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