Atchison, Topeka and Santa Fe Ry. Co. v. Sherwin-Williams Co. ( 1992 )

UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT
______________________________
No. 91-1088
______________________________
ATCHISON, TOPEKA AND SANTA
FE RAILWAY COMPANY,
Plaintiff-Appellee,
versus
SHERWIN-WILLIAMS COMPANY,
Defendant-Appellant.
___________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
___________________________________________________
( June 10, 1992)
Before JOLLY, JONES, and EMILIO M. GARZA, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
This is a diversity case, governed by Texas law,1 brought by
Atchison, Topeka and Santa Fe Railway Company ("Santa Fe")
against the Sherwin-Williams Company ("Sherwin") to enforce an
indemnification agreement ("the Agreement") entered into by the
parties. Santa Fe filed suit after one of its employees, John T.
Neal, injured his knee and Sherwin refused to assume any
1
See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct.
817, 822 (1938) (absent federal statutory or constitutional
directive to the contrary, federal court sitting in diversity
jurisdiction applies forum state's substantive law); see also
Salve Regina College v. Russell, __U. S. __, __, 111 S. Ct. 1217,
1221 (1991) ("[A] court of appeals should review de novo a
district court's determination of state law .").
liability for Neal's injury. The indemnification lawsuit was
tried to a jury, which found that: (i) the $380,000 Santa Fe paid
in settlement of Neal's claim was reasonable, prudent, and made
in good faith; (ii) the negligence of both Santa Fe and Sherwin
caused Neal's injury; and (iii) Santa Fe paid $8,000 for Neal's
necessary medical expenses resulting from his knee injury. The
district court awarded Santa Fe: $194,000--50 percent of the
liabilities incurred by Santa Fe, as prescribed by the shared-
liability terms of the Agreement; equitable pre-judgment interest
at a rate of 10 percent per annum; post-judgment interest at a
rate of 7.78 percent; and 100 percent of the $32,605 in attorney
fees. Sherwin asserts on appeal that: (i) the medical expenses
awarded are unsubstantiated; (ii) the district court's award of
attorney fees violates the agreement's "equal splitting of
liabilities" provision; and (iii) the district court's award of
pre-judgment interest at 10 percent violates the statutory law
and the Texas Constitution. We affirm the district court's award
of medical expenses and attorney fees. We also find that the
district court's award of pre-judgment interest at a rate of
10 percent is supported by existing Texas law, but we abstain
from deciding this issue pending entry of the Texas Supreme
Court's decision in Sage St. Assoc.'s v. Northdale Constr. Co.,
809 S.W.2d 775 (Tex. App.--Houston 1991), on reh'g, 1991 WL
106492 (unpublished but available on Westlaw). See Colorado
River Water Conserv. Dist. v. United States, 424 U.S. 812, 814
(1976) ("Abstention is . . . appropriate where there have been
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2
presented difficult questions of state law bearing on policy
problems of substantial public import whose importance transcends
the result in the case . . . at bar.").
I
A
On November 20, 1985, John T. Neal--a switchman/brakeman
employed by Santa Fe--injured his right knee while attempting to
throw a switch located on the "Yellow Tracks," a portion of the
railroad expressly covered by the terms of the Agreement.2 Neal
filed a claim for his injury against Santa Fe under the Federal
Employers Liability Act (FELA).3 In accordance with the
2
Specifically, Sherwin and Santa Fe had entered into an
Agreement in 1958 for Santa Fe to provide rail service into
Sherwin's White Rock, Texas facility. The Agreement stipulates:
In consideration of the covenants of Santa Fe,
[Sherwin] agrees as follows:
1. That [Sherwin] will arrange for maintenance at its
expense of the Yellow Tracks.
2. That Santa Fe is hereby given the right and
permission to operate over the Yellow Tracks.
3. That [Sherwin] will operate the Plant during the
term hereof.
4. [That Sherwin] agrees to indemnify and hold
harmless Santa Fe for loss, damage or injury from any act or
omission of [Sherwin], its employees or agents, to the
person or property of the parties hereto and their
employees, and to the person or property of any other person
or corporation, while on or about the Yellow Tracks; and if
any claim or liability shall arise from the joint or
concurring negligence of both parties hereto, it shall be
borne by them equally.
3
See 45 U.S.C. §§ 51-60 (1988). We note that the
Agreement is consistent with Santa Fe's potential liability under
FELA, which establishes that a railway company has a nondelegable
duty to provide a reasonably safe place for its employees to work
and is, therefore, liable to its employees for injuries resulting
from unsafe conditions on the property of third parties. Id. at
§ 51.
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3
shared-liability provision of the Agreement, Santa Fe tendered
handling of the claim to Sherwin.4 Sherwin categorically denied
liability in a letter dated July 9, 1987.
Sherwin's refusal to assume responsibility for Neal's claim
compelled Santa Fe's claims department to investigate the
incident and evaluate medical information concerning Neal's
injury.5 Based upon this investigation, Santa Fe paid $8,222.26
in medical expenses on Neal's behalf and then entered into a
settlement agreement with him for the sum of $380,000.6 That
4
As to Santa Fe's first demand on Sherwin, the parties
stipulated as follows:
By letter dated September 17, 1986, and received by
[Sherwin] on September 22, 1986, plaintiff Santa Fe tendered
to defendant Sherwin-Williams the handling of a claim for
personal injury brought by Santa Fe employee John Neal for
injuries allegedly sustained on [Sherwin's] portion of the
tracks (the "Yellow Tracks").
Record on Appeal, vol. I, at 243 ¶ 7, Atchison, Topeka and Santa
Fe R.R. v. Sherwin-Williams Co., No. 91-1088 (5th Cir. filed Apr.
18, 1991) (Pre-Trial Order) ["Record on Appeal"].
5
During the time Neal's claim was pending, Santa Fe
learned: that Neal was unable to return to work as a switchman-
brakeman; that he limped, used a cane, had difficulty climbing
stairs, and complained of persistent pain and swelling; and that
he had received physical therapy for a year, was being seen by
two orthopedic specialists for his knee, and underwent two
surgeries on his right knee and one surgery on the left. Neal's
physicians recommended during this time that he not return to any
form of work requiring jumping on and off equipment, and they
assessed Neal's functional disability as a result of his knee
injury at 40%. See Record on Appeal, Exhibit 10 (Neal's medical
records).
6
Despite efforts made to reemploy Neal, Santa Fe was
unable to place Neal in another position providing the salary and
job security he required. Santa Fe entered into the settlement
agreement with the belief that a jury award would cost Santa Fe
significantly more. See generally Record on Appeal, vol. IV, at
72-85 (testimony of Mr. Robert N. Carper, claims agent for Santa
Fe). This belief was reasonable. See Record on Appeal, vol.
-4-
4
settlement was completed and funded in April 1988 and, after
being notified of this settlement, Sherwin again refused to
assume any liability.
B
Santa Fe filed suit in March 1989 to enforce the
shared-liability provision of the Agreement. Seeking contractual
indemnity, Santa Fe alleged that Neal's injury was solely the
result of Sherwin's negligence and that Sherwin was liable for
the entire settlement amount and $8,222.26 in medical expenses.
In the alternative, Santa Fe sought contribution for 50 percent
of these payments under the terms of the Agreement. Sherwin
responded by asserting that Neal's accident was due entirely to
the negligence of Santa Fe and Neal, and that Santa Fe properly
bore 100 percent of the settlement and medical costs.
The case was tried to a jury which found that: (i) the
$380,000 Santa Fe paid in settlement of Neal's claim was
reasonable, prudent, and made in good faith; (ii) the negligence
of both Santa Fe and Sherwin was a cause of Neal's injury; and
(iii) Santa Fe had paid $8,000 in medical bills solely as a
result of Neal's injury. With the consent of the parties, the
issue of attorney fees was submitted to the district court which
found that Santa Fe had reasonably and necessarily incurred
$32,605 in attorney fees in prosecuting its claim and awarded
that amount to Santa Fe.
III, at 117-29; 157-58 (testimony of Mr. Johnson--an attorney
experienced in FELA cases that the settlement was extremely
favorable to Santa Fe).
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II
This is a limited appeal in which Sherwin essentially seeks
only to modify the district court's judgment to reduce its award
to Santa Fe. With the exception of the jury's findings regarding
Neal's medical expenses, Sherwin accepts the jury's findings and
the district court's application of those findings to award
judgment to Santa Fe for half of its payments to Neal. However,
Sherwin does challenge: (a) the district court's submission of a
question regarding the amount of Neal's medical expenses to the
jury and the jury's answer to it; (b) the district court's award
of attorney fees; and (c) the district court's award of 10
percent pre-judgment interest.
A
The district court submitted the following question to the
jury:
QUESTION NO. 6
Find from a preponderance of the evidence the amount of
medical bills paid by plaintiff to Mr. Neal solely as a
result of his injury of November 20, 1985.
Answer in Dollars and Cents, or "none."
ANSWER: $ _____________________
The jury responded by filling in "8,000.00." The district court
applied the shared-liability provision of the parties' Agreement
and awarded Santa Fe $4,000 as indemnity for these medical
expenses. Asserting that there is no evidence to substantiate
the reasonableness, necessity, or connection between the medical
expenses paid on Neal's behalf and the injuries which gave rise
to Neal's settlement with Santa Fe, Sherwin now challenges both
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6
the court's submission of this question and its acceptance of the
jury's answer.
Even in a diversity case, a federal court "applies a federal
rather than a state standard for determining whether there is
sufficient evidence to create a jury question." McHann v.
Firestone Tire & Rubber Co., 713 F.2d 161, 164 (5th Cir. 1983)
(citations omitted). The federal standard is well-established:
The judge must determine whether the evidence is
sufficiently in conflict to permit differing views
concerning disputed issues of fact and, whether, even if the
evidence is not contradicted, conflicting inferences can be
drawn from it. An issue cannot be taken from the jury if
there are facts on which reasonable and fair minded men and
women in the exercise of impartial judgment might reach
different conclusions . . . . It is also clear that the
fact-finding power that belongs to the jury includes the
drawing and rejecting of inferences from the facts.
Johnson v. William C. Ellis & Sons Iron Works, 604 F.2d 950, 958
(5th Cir. 1979) (citations omitted). Where a question has been
submitted to a jury, the evidence is sufficient to support the
jury's finding if--taking all evidence and all reasonable
inferences that can be drawn from that evidence in favor of the
finding--a reasonable person could have made such a finding.7
In their joint pre-trial order, Sherwin and Santa Fe
stipulated that Santa Fe paid $8,222.26 on Neal's behalf to cover
his medical expenses.8 This stipulation; the abundant medical
7
See McHann, 713 F.2d at 165 (holding that district
court erred in instructing jury that party was negligent as a
matter of law where "a jury composed of reasonable and fair-
minded persons could have concluded that [the party] was not
negligent on these facts").
8
The parties filed a joint pre-trial order on August 27,
1990, which reads:
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7
evidence of Neal's knee injury and its seriousness;9 evidence
that Neal sought and received medical treatment--specifically,
Neal received physical therapy for a year, was seen by two
orthopedic specialists for his knee, and had undergone two
surgeries on his right knee10 and one on the left11--we find that
Established Facts
The following facts are established by the pleadings,
answers to interrogatories or responses to requests for
production:
* * *
10. From November 20, 1985, until settlement of Mr. Neal's
claim, plaintiff Santa Fe paid $8,222.26 in medical
expenses on Mr. Neal's behalf.
Record on Appeal, vol. I, at 242-43. Although Sherwin did attach
a "Summary of Defendant's Claims" to the joint pre-trial order
which asserts that "a portion of the alleged medical expenses
Plaintiff paid on behalf of Mr. Neal were unrelated to Mr. Neal's
injury on November 20, 1985," Sherwin did not directly contest
the reasonableness of these expenses during trial, nor did it
explicitly challenge the understanding that these medical
expenses resulted from Neal's November 20, 1985 injury--the
injury and resulting liability that was the entire premise for
trial. Accordingly, Santa Fe had no opportunity to respond to
Sherwin's assertions that the evidence is insufficient to support
Neal's medical expenses. We consider them now, but only to the
extent that we look for plain error. Cf. United States v. Lopez,
923 F.2d 47, 50 (5th Cir.) (this court applies plain error
standard of review when considering such delayed assertions,
meaning that we only consider such a question where failure to do
so would result in "manifest injustice") (citation omitted),
cert. denied, __ U.S. __, 111 S. Ct. 2031 (1991).
9
See supra note 5.
10
According to Neal's medical expenses which were
introduced into evidence as Plaintiff's Exhibit No. 10, the
expense for only one of those surgeries was $3,799.
11
Consider the testimony of Mr. Robert N. Carper, the
Santa Fe claims agent with thirty-seven years experience who
investigated Neal's claim:
Q. When you first received the claim, did you
understand that the injury was a serious one?
A. No. As time progressed and as the medical
[record] developed, that determined the seriousness of
-8-
8
Santa Fe provided evidence sufficient for the district court to
submit Question No. 6 to the jury and to establish that Santa Fe
paid $8,000 to cover Neal's medical expenses for his November 20,
1985 injury.
B
Quoting the shared-liability provision of the Agreement,
Sherwin also asserts that, because it was held liable for only 50
percent of Neal's claim, Santa Fe is entitled to only 50 percent
of the attorney fees it incurred in pursuing indemnification for
that claim--not the entire $32,605 awarded by the district
court.12 We disagree.
The Agreement does not govern the award of attorney fees
inflicted upon Santa Fe by Sherwin's failure to comply with that
the incident.
* * *
Q. In the long run, what did the medical records
indicate to you about the seriousness of Mr. Neal's
injury?
A. I think that Mr. Neal ultimately resulted in
having a significant disability in the right knee. I
think it was rated, percentile, maybe 40-percent
percentile disability that rendered him incapable of
performing.
Record on Appeal at 76-77.
12
Specifically, in its Reply Brief, Sherwin argues that:
[t]he agreement states that the parties will share `the
loss' equally, if they have any joint negligence. The jury
found that both parties were negligent, and therefore all of
`the loss' should be shared equally. This `loss' should
include the attorney's fees, and the trial court erred in
awarding [Santa Fe] complete indemnity for 100 percent of
its attorney's fees, when it was only entitled to
contribution for one-half of those fees.
Reply Brief of Appellant at 8, The Sherwin-Williams Co. v.
Atchison, Topeka and Santa Fe Ry. Co, No. 91-1088 (5th Cir. filed
July 31, 1991).
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same Agreement.13 As we have stated before, "[a]n award of
attorney's fees is entrusted to the sound discretion of the trial
court . . . . In diversity cases state law governs the award of
attorney's fees." Texas Commerce Bank Nat'l Ass'n v. Capital
Bancshares, 907 F.2d 1571, 1575 (5th Cir. 1990) (citations
omitted). Accordingly, we look to Texas state law, which
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, if the claim is for . . . an oral or
written contract." Tex. Civ. Prac. & Rem. Code Ann. § 38.001
(West 1986).
By its plain language, section 38.001 entitles Santa Fe to
recover 100 percent of the attorney fees it reasonably incurred
in pursuing the claims upon which it prevailed at trial. Id.
The fact that Santa Fe is entitled to recover only 50 percent of
Neal's claim does not preclude the award of all fees reasonably
and necessarily incurred in pursuing indemnification for Neal's
entire claim. See Rocha v. Ahmad, 676 S.W.2d 149, 157 (Tex.
App.--San Antonio 1984, writ dismissed) ("While Rocha recovered
far less than he set out to, we cannot say that his diminished
13
The Agreement establishes that the parties were to
share liability for their joint negligence. Were we to include
legal costs incurred in enforcing the terms of the Agreement
(costs inflicted upon Santa Fe and incurred entirely as a result
of Sherwin's failure to comply with the shared-liability
provision of the Agreement) in the parties' "shared loss", we
would be ruling against the shared-liability purpose of the
Agreement. We would also be reducing the incentive to comply
with such agreements, as well as the incentive to enter into them
in the first place.
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recovery in any way precluded a recovery of fees . . . for the
prosecution of his claim.").
The district court was familiar with the factual and legal
issues involved in Santa Fe's suit, and the extent to which those
issues are intertwined. That court's finding that the entire
$32,605.00 incurred by Santa Fe was reasonable for presenting the
contribution claims and defending against Sherwin's allegations
that Neal's accident was solely caused by Santa Fe's negligence
is supported by the record. Accordingly, we find that the
district court did not abuse its discretion and we affirm the
district court's attorney fees award to Santa Fe. See Perales v.
Casillas, 950 F.2d 1066, 1071 (5th Cir. 1992) (applying abuse of
discretion standard for review of award of attorney fees); Cates
v. Sears Roebuck & Co., 928 F.2d 679, 689 (5th Cir. 1991) ("The
standard for reviewing an attorney's fees award is abuse of
discretion.").
C
The parties do not dispute that Sherwin must pay Santa Fe
pre-judgment interest. Our only task is to determine the
appropriate rate of that interest. Sherwin challenges the
district court's award of pre-judgment interest at a rate of
10 percent, asserting that pre-judgment interest cannot rise
above the 6 percent ceiling constructed by Article 5069-1.03 and
section 11 of Article XVI of the Texas Constitution.
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1
Sherwin asserts that pre-judgment interest should have been
awarded under Article 5069-1.03 of the Texas Revised Civil
Statutes which limits pre-judgment interest in certain contract
cases to 6 percent. Article 5069-1.03 reads:
When no specific rate of interest is agreed upon by the
parties, interest at the rate of six percent per annum shall
be allowed on all accounts and contracts ascertaining the
sum payable, commencing on the thirtieth (30th) day from and
after the time when the sum is due and payable.
Tex. Rev. Civ. Stat. art. 5069-1.03 (West 1987) (emphasis added).
"Thus, if the contract adequately shows the measure of liability,
article 5069-1.03 seems to govern." Lubrizol Corp. v. Cardinal
Const. Co., 868 F.2d 767, 772 (5th Cir. 1989).14 Therefore, the
issue before this court is whether the Agreement ascertains a sum
payable.
14
Texas case law applying Article 5069-1.03 suggests that
a sum ascertainable must be determinable from the face of the
underlying contract. See infra note 17. Such was the case in
Lubrizol where liability was limited to the overall contract sum:
The contract does clearly set forth an ascertainable
measure, stating that upon failure to perform, `the cost of
such performance and completion shall be deducted from the
portion of the Contract Sum not paid to Contractor prior to
the time that the Work is taken over from the Contractor.'
This contract language governing default should satisfy the
liberal construction of the Texas article 5069-1.03 and the
Texas Supreme Court's interpretation of the statute in the
line of cases from Federal Life to Perry. It sets out in as
reasonably ascertainable a fashion as is practical what the
measure of default damages will be. See, e.g., Stahl
Petroleum Co. v. Phillips Petroleum Co., 550 S.W.2d 360
(Tex. Civ. App. 1977)[, aff'd, 569 S.W.2d 480 (Tex. 1978)].
868 F.2d at 772 (emphasis added). Accordingly, liquidation of
damages covered by a non sum-certain contract--a contract lacking
such an ascertainable limitation on damages--does not transform
that underlying contract into one specifying a sum certain for
Article 5069-1.03 purposes. See infra note 17.
-12-
12
The Agreement entered into by Santa Fe and Sherwin expressly
provides that "if any claim or liability shall arise from the
joint or concurring negligence of both parties hereto, it shall
be borne by them equally."15 Although Sherwin or Santa Fe could
be responsible for all, none, or half the liability arising from
any given occurrence on the Yellow Tracks, the Agreement is clear
as to what occurrences trigger liability--occurrences arising
from "the joint or concurring negligence of both parties." And,
once triggered, the Agreement is unambiguous as to the parties'
percentage of liability--50 percent of the liability arising from
the underlying occurrence. The Agreement places no further
limitation or conditions on the parties' liability.
Texas case law suggests that this is not enough to activate
Article 5069-1.03. Precisely, anything could have happened on
the Yellow Tracks and, so long as it arose out of the "joint or
concurring negligence of both parties[,]" Sherwin is responsible
for 50 percent of "the resulting liability"--that is, liability
with endless potential. For article 5069-1.03 to apply, the case
law suggests that we must look to the surface of the contract and
see a visible perimeter encircling the prescribed contractual
15
See supra note 2.
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13
liability.16 We find no such perimeter in the Agreement and,
16
For example, in National Fire Ins. Co. v. Valero Energy
Corp., 777 S.W.2d 501, 511-13 (Tex. App.--Corpus Christi 1989,
error denied), the court applied Article 5069-1.03 because the
underlying contract was an insurance policy covering property
which had a set value. The National Fire court held:
An insurance policy is sufficient to constitute a contract
ascertaining a sum payable within the meaning of Article
5069-1.03 if the policy provides the conditions upon which
liability depends and fixes a measure by which the sum
payable can be ascertained with reasonable certainty, in
light of the attending circumstances. Where the actual
value of damaged property is ascertainable with reasonable
certainty, an insurance contract covering that property and
specifying the conditions upon which liability depends comes
within the interest provisions of Article 5069-1.03.
Id. at 512 (emphasis added) (citations omitted). The same was
true in Thompson v. Trinity Universal Ins., 708 S.W.2d 45 (Tex.
App.--Tyler 1986, writ ref'd), where, in considering an action
brought against a builder's risk insurer for the loss incurred
when a building being remodeled was destroyed by fire, the court
held:
The policy provided for payment of an amount not to exceed
"this Company's percentage of liability" of "the actual
values which have been placed into or made a part of each or
any of such building or structures." The actual value of
the property lost was ascertainable with reasonable
certainty. Therefore, we hold that appellant is entitled to
collect pre-judgment interest of six per cent (6%) on the
amounts awarded by the court.
Id. at 48 (emphasis added). This court has also liberally
construed Article 5069-1.03 and applied it to a contract case,
but that contract also had an outside cap--an overall "Contract
Sum"--on potential liability. See Lubrizol Corp. v. Cardinal
Const. Co., 868 F.2d 767, 772 (5th Cir. 1989); see supra note 15.
In contrast with these cases, consider General Life &
Accident Co. v. Handy, 766 S.W.2d 370 (Tex. App.--El Paso 1989,
no writ). In that case, the court held that a major medical
policy is not a contract ascertaining a sum payable merely
because it specifies the percentage of expenses that it covers.
Id. at 374:
Appellant says that although the amount owed under the
health policy could vary according to the medical illness,
once the illness or medical expenses have been sustained,
the insurance policy provides with certainty the amount
Appellee is entitled to. In this respect, the insurance
policy becomes a contract that ascertains the sum payable,
allowing interest at six percent to be calculated according
to Article 5069-1.03. However, the contract must provide
guidance in ascertaining the measure of damages suffered by
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14
accordingly, we find that Article 5069-1.03 does not apply.
2
Sherwin also argues that, should this court find Article
5069-1.03 inapplicable to the Agreement, pre-judgment interest in
this case is still limited to 6 percent by section 11 of Article
XVI of the Texas Constitution.17 Section 11 reads:
§ 11. Usury; rate of interest in absence of legislation
Sec. 11. The Legislature shall have authority to classify
loans and lenders, license and regulate lenders, define
interest and fix maximum rates of interest; provided,
however, in the absence of legislation fixing maximum rates
of interest all contracts for a greater rate of interest
than ten per centum (10 percent) per annum shall be deemed
usurious; provided, further, that in contracts where no rate
of interest is agreed upon, the rate shall not exceed six
per centum (6 percent) per annum. Should any regulatory
agency, acting under the provisions of this Section, cancel
or refuse to grant any permit under any law passed by the
Legislature; then such applicant or holder shall have the
right of appeal to the courts and granted a trial de novo as
that term is used in appealing from the justice of peace
court to the county court.
a party to the contract before Article 5069-1.03 becomes
applicable. Rio Grande Land & Cattle Company v. Light, 758
S.W.2d 747, 748 (Tex. 1988). It appears that the insurance
contract in our present case does not contain a provision
ascertaining the sum payable as to damages, and like the
contract in Rio Grande Land & Cattle Company, damages that
were suffered could not be determined solely by reference to
the contract.
17
Specifically, Sherwin argues that we should find
Article 5069-1.03 applicable but, in the event that we do not, we
should then find Article 5069-1.03 to be unconstitutional.
According to Sherwin, section 11 limits pre-judgment interest to
6% for all contracts where no rate of interest is agreed upon and
Article 5069-1.03 is unconstitutional because it burdens the
standard established by section 11 of Article XVI of the Texas
Constitution by adding an "ascertaining the sum payable"
provision.
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15
Tex. Const. art. XVI, § 11 (1891, amended 1960) (emphasis added).
Sherwin asserts that, according to the plain wording of section
11, pre-judgment interest is limited to 6 percent for all
contracts where no rate of interest is agreed upon, and that
courts have overlooked this provision and mistakenly relied upon
Perry Roofing Co. v. Olcott, 744 S.W.2d 929 (Tex. 1988).18 Perry
holds that, although pre-judgment interest rates are limited to 6
percent under Article 5069-1.03 where damages are reasonably
ascertainable, courts may apply an equitable rate of interest to
breach of contract actions for unascertainable damages.19
The Texas Supreme Court has granted writ on this very
issue--that is, the court will determine whether the Texas court
18
According to Sherwin, the Texas Supreme Court
overlooked section 11 in deciding Perry because neither party
brought the applicability of this provision to the Supreme
Court's attention. The issue whether section 11 has been
overlooked for pre-judgment interest purposes is explored in
Stephen J. Smith, Pre-Judgment Interest on Contracts, Hous. Law.
May-June 1989, at 20.
19
Id. at 930. Specifically, the Perry court held that:
Article 5069-1.03 is not, however, the only possible
basis for an award of prejudgment interest. This court has
also awarded prejudgment interest based on equity. This
court held in Cavnar v. Quality Control Parking, Inc., 696
S.W.2d 549 (Tex. 1985) that equitable prejudgment interest
would be awarded in personal injury and wrongful death cases
and that the rate for equitable prejudgment interest would
be the same as the rate of interest on judgment as set out
in Tex.Rev.Civ.Stat.Ann. art. 5069-1.05
* * *
Cases decided prior to Cavnar may indicate that the six
percent rate available under article 5069-1.03 is the
maximum legal rate of prejudgment interest. However, Cavnar
provides, "[t]o the extent that other cases conflict with
this holding, they are overruled." 696 S.W.2d at 554.
Id. at 930-31.
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of appeals erred in awarding pre-judgment interest at a rate of
ten percent because section 11 of Article XVI of the Texas
Constitution provides that the rate of pre-judgment interest
shall not exceed 6 percent in contracts where no rate of interest
is agreed upon. See Sage St. Assoc.'s v. Northdale Constr. Co.,
809 S.W.2d 775 (Tex. App.--Houston 1991), on reh'g, 1991 WL
106492 (unpublished but available on Westlaw) (specifying that
pre-judgment interest of 10 percent is to be compounded daily
because amendment to statute, requiring pre-judgment interest to
be compounded annually, become effective subsequent to cause of
action).20 Although we find that Article 5069-1.03 does not
apply to the Agreement and that the district court's award of 10
percent pre-judgment interest is supported by Perry, 744 S.W.2d
at 929, we abstain from deciding this issue and order the parties
in this case to petition this court within thirty days from the
date the Texas Supreme Court enters its Sage decision.21 See
20
In Sage St., an owner and construction contractor
brought separate actions against each other in Texas state court
which were consolidated. A jury found that the owner had
wrongfully terminated the contractor, and the district court
awarded the contractor $2,491,110 and pre-judgment interest at a
rate of 10%. The court of appeals affirmed this judgment,
holding that: "When no rate of interest is agreed upon by the
parties, interest at the rate of six percent per annum shall be
allowed on all accounts and contracts where the exact sum payable
can be determined by the contract itself." 809 S.W.2d at 778
(citation omitted) (emphasis added).
21
The parties' petitions should be accompanied by short
memoranda of law--prepared in accordance with this court's rules
regarding the submission of briefs and not to exceed ten pages--
summarizing the impact of the Sage St. holding on this case. We
also instruct the parties to abstain from filing petitions for
rehearing until we have ruled on this pre-judgment interest
issue.
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17
Colorado River Water Conserv. Dist. v. United States, 424 U.S.
812, 814 (1976) (discussing appropriateness of abstention).
III
For the foregoing reasons, we AFFIRM the district court as
to its award of medical expenses and attorney fees. However we
ABSTAIN from deciding the issue of pre-judgment interest pending
entry of the Texas Supreme Court's decision in Sage St., 809
S.W.2d at 775. We also ORDER the parties to petition this court
within thirty days from the date the Texas Supreme Court enters
its Sage St. decision.
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18