Arete Partners, L.P. v. Gunnerman

Case: 10-50695 Document: 00511503995 Page: 1 Date Filed: 06/09/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 9, 2011
No. 10-50695 Lyle W. Cayce
Clerk
ARETE PARTNERS, L.P.,
Plaintiff - Appellee
v.
RUDOLF W. GUNNERMAN,
Defendant - Appellant
Appeal from the United States District Court
for the Western District of Texas
Before KING, WIENER, and CLEMENT, Circuit Judges.
PER CURIAM:
Rudolf W. Gunnerman appeals the district court’s award to Arete
Partners, L.P. of prejudgment interest at the statutory rate of five percent to the
date of its final judgment. Gunnerman argues that his deposit of Arete’s
damages into the registry of the district court should prevent the accrual of
prejudgment interest at the statutory rate after that date. Because such a result
would be inconsistent with the purpose of prejudgment interest and would
undermine the rule applied to awards of prejudgment interest by the Supreme
Court of Texas, we affirm the judgment of the district court.
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I. FACTUAL & PROCEDURAL BACKGROUND 1
Arete Partners, L.P. sued Rudolf Gunnerman for fraud and breach of
contract in connection with the sale of securities, and the parties reached a
settlement before trial. Gunnerman stopped making settlement payments to
Arete, and Arete filed the instant lawsuit against Gunnerman, alleging that
Gunnerman had violated the terms of the settlement agreement and asserting
causes of action for breach of contract and fraud. After a bench trial, the district
court found in favor of Arete on both its fraud claim and its breach of contract
claim. The district court concluded that, under either the fraud or breach of
contract theory, Arete’s actual damages were $1,060,649.27, which was the
difference between what Arete was entitled to receive under the settlement
agreement and what Gunnerman had already paid Arete. In addition to Arete’s
actual damages, the district court concluded that Arete was entitled to $500,000
in exemplary damages on its fraud claim. On its contract claim, Arete was
entitled to actual damages plus its attorney’s fees. The district court required
Arete to elect between the fraud and breach of contract theories of recovery
before entering a final judgment, and Arete elected to recover based on its fraud
claim.
Gunnerman appealed the final judgment granting recovery under the
fraud theory of liability. To stay the enforcement of the judgment pending his
appeal, Gunnerman asked for, and received, permission to deposit $1,113,469.61
into the registry of the court in lieu of a supersedeas bond. This amount
reflected Arete’s actual damages—to which it was entitled under either theory
of recovery—plus one year’s postjudgment interest of $52,820.34. The district
court deposited the funds in an interest-bearing account. Gunnerman’s appeal
was successful, and this court vacated the district court’s award of actual and
1
The facts of this case are set out in greater detail in Arete Partners, L.P. v.
Gunnerman, 594 F.3d 390, 392–94 (5th Cir. 2010).
2
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exemplary damages for Arete’s fraud claim. Gunnerman, 594 F.3d at 398. This
court remanded the case to the district court to allow Arete to elect recovery
under its breach of contract claim. Id. This court’s mandate in Gunnerman was
subsequently amended to allow the district court to award Arete “pre-judgment
and post-judgment interest according to law.”
On remand, Arete elected to recover on its breach of contract claim. It also
sought prejudgment interest at the statutory rate of five percent on its actual
damages from November 21, 2005, the date Gunnerman breached the settlement
agreement, through the entry of a final judgment awarding Arete damages on
its contract claim. Gunnerman conceded that Arete was entitled to its actual
damages under a contract theory of liability, but disputed whether Arete was
entitled to prejudgment interest at the statutory rate through the date of the
district court’s second final judgment. Gunnerman claimed Arete was entitled
to prejudgment interest at the statutory rate only from November 21, 2005 to
October 6, 2006, the date on which Gunnerman deposited the full amount of
Arete’s actual damages into the registry of the district court. For the remaining
time period, Gunnerman argued that Arete was only entitled to whatever
interest the amount deposited into the registry actually earned. The district
court rejected Gunnerman’s argument and entered a final judgment on June 23,
2010, awarding Arete its actual damages of $1,060,649.27 and prejudgment
interest at five percent accruing from November 21, 2005 to the date the
judgment was entered. Gunnerman appealed.
II. LEGAL STANDARDS
In this diversity case, Texas law governs the award of prejudgment
interest. Meaux Surface Protection, Inc. v. Fogleman, 607 F.3d 161, 172 (5th Cir.
2010). To determine Texas law on the accrual and rate of prejudgment interest,
this court first looks to the decisions of the Supreme Court of Texas. See
Transcontinental Gas Pipe Line Corp. v. Transp. Ins. Co., 953 F.2d 985, 988 (5th
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Cir. 1992) (“In order to determine state law, federal courts look to final decisions
of the highest court of the state.”).
We review the district court’s award of prejudgment interest for an abuse
of discretion. Int’l Turbine Servs., Inc. v. VASP Braz. Airlines, 278 F.3d 494, 499
(5th Cir. 2002). A district court abuses its discretion when “its ruling is based
on an erroneous view of the law or on a clearly erroneous assessment of the
evidence.” Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir. 1995)
(citation omitted).
III. ANALYSIS
The issue in this case is whether the district court committed legal error
when it awarded Arete interest at the statutory rate from the date of
Gunnerman’s breach of the settlement agreement to the date of its final
judgment awarding Arete actual damages based on a contract theory of recovery.
Gunnerman urges this court to conclude that his deposit of the full amount of
Arete’s actual damages into the court’s registry on October 6, 2006, stopped the
accrual of prejudgment interest at the statutory rate. Instead, according to
Gunnerman, Arete is only entitled to the interest that actually accrued on the
funds in the registry.2
To address Gunnerman’s arguments, we look to the decisions of the
Supreme Court of Texas on the purpose of prejudgment interest and the rate at
which it accrues. By way of background, the Texas Finance Code defines
interest as “compensation for the use, forbearance, or detention of money.” T EX.
F IN. C ODE A NN. § 301.002(a)(4) (West 2006). Recent Supreme Court of Texas
decisions place particular emphasis on the fact that prejudgment interest is
intended to compensate a plaintiff for the “ ‘lost use of the money due as
2
According to Gunnerman’s brief, prejudgment interest at the statutory rate would be
“greatly in excess of the interest actually earned on Gunnerman’s cash deposit” into the
registry of the court. Brief of Appellant at 4.
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damages during the lapse of time between the accrual of the claim and the date
of judgment.’ ” Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962
S.W.2d 507, 528 (Tex. 1998) (quoting Cavnar v. Quality Control Parking, Inc.,
696 S.W.2d 549, 552 (Tex. 1985)); see also Brainard v. Trinity Universal Ins. Co.,
216 S.W.3d 809, 816 (Tex. 2006) (same). The Supreme Court of Texas’s rationale
for this approach is that a plaintiff is not otherwise fully compensated by the
amount of damages sustained at the time of the wrong (the breach of a contract
or the infliction of a tortious injury) because he has “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.” Cavnar, 696 S.W.2d at 552. Earlier
decisions also focused on prejudgment interest as compensation for a defendant’s
unauthorized use of funds belonging to a plaintiff. See Republic Nat. Bank of
Dallas v. Northwest Nat. Bank of Fort Worth, 578 S.W.2d 109, 117 (Tex. 1978);
Philips Petroleum Co. v. Stahl Petroleum Co., 569 S.W.2d 480, 485–87 (Tex.
1978). The plaintiff’s lost use of money and the defendant’s unauthorized use of
the plaintiff’s money are, in many cases, flip sides of the same coin, see, e.g.,
Stahl Petroleum Co., 569 S.W.2d at 487 (involving a debtor who “was holding
and using money of the [creditor] without its consent”), such that the plaintiff
is entitled to compensation regardless of how the court expresses the purpose of
prejudgment interest.
In this case, Gunnerman claims that because he deposited funds in the
amount of Arete’s actual damages into the registry of the district court, there
would be no justification for awarding Arete prejudgment interest at the
statutory rate as compensation for Gunnerman’s use of those funds after that
date. This argument overlooks the fact that the interest on the funds in the
registry of the court will be used to satisfy Gunnerman’s obligation to pay
prejudgment interest. So, in a real sense, the money is still working for him.
More important, Arete’s loss of use of the funds represented by the judgment has
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in no way been assuaged by Gunnerman’s decision to deposit those funds into
the registry of the district court. Arete is still unable to use the money, although
Arete has security for it. Arete is entitled to be compensated for this lost use,
irrespective of whether Gunnerman has the use of those funds.3
Having established that Gunnerman’s deposit of Arete’s actual damages
into the registry of the district court did not alter Arete’s entitlement to
prejudgment interest on those funds, we next turn to the question of the
applicable rate of prejudgment interest. Our decision regarding the proper rate
of interest is informed by several decisions by the Supreme Court of Texas, some
of which have been discussed above.
In Johnson & Higgins, the Supreme Court of Texas addressed whether the
calculation of prejudgment interest for a contract claim was governed by statute
or by general principles of equity developed at common law. 962 S.W.2d at 528.
Before the Supreme Court’s decision in Cavnar, prejudgment interest was
available at common law only when damages were certain. Cavnar, 696 S.W.2d
at 553. Cavnar adopted a rule that a plaintiff could recover prejudgment
interest in personal injury, wrongful death, and survival actions. Id. at 554.
Cavnar held that, for these claims, prejudgment interest would be calculated at
the statutory rate, compounded daily, and begin to accrue “six months after the
occurrence of the incident giving rise to the cause of action.” Id. at 554–55
Although Cavnar applied to personal injury and property damage claims,
subsequent courts expanded its holding to non-physical damage contexts. See,
e.g., Perry Roofing Co., 744 S.W.2d at 930 (awarding equitable prejudgment
3
In addition to compensating a plaintiff for the lost use of funds, a potential award of
postjudgment interest is intended to: (1) encourage settlement; and (2) expedite “both
settlements and trials by removing incentives for defendants to delay without creating such
incentives for plaintiffs.” Johnson & Higgins, 962 S.W.2d at 529 (citing Cavnar, 696 S.W.2d
at 554–55, and Perry Roofing Co. v. Olcott, 744 S.W.2d 929, 930 (Tex. 1988)). Concluding that
the deposit of funds into the registry of the court prevents the accrual of prejudgment interest
at the statutory rate would not advance either of these goals.
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interest in contract claim for unascertainable damages); City of Houston v. Wolfe,
712 S.W.2d 228, 229 (Tex. App.–Houston [14th Dist.] 1986, writ ref’d) (eminent
domain).
After Cavnar was decided, the Texas Legislature, as part of a larger tort
reform scheme, partially codified the Cavnar rule under Section 6 of the
prejudgment interest statute, which read: “Judgments in wrongful death,
personal injury, and property damage cases must include prejudgment interest.”
T EX. R EV. C IV. S TAT. A NN. art. 5069–1.05, § 6(a) (West 1996) (current version at
T EX. F IN. C ODE A NN. § 304.102 (West 2006)). Similar to Cavnar, Section 6
provided that the rate of prejudgment interest would be the same as
postjudgment interest. Id. § 6(g) (current version at T EX. F IN. C ODE. A NN.
§ 304.103). Unlike Cavnar, however, the accrual period under Section 6
provided that prejudgment interest would accrue on the earlier of “(1) 180 days
after the date the defendant receives written notice of the claim or (2) the day
the suit is filed,” and interest was to be calculated as “simple interest.” Id.
§ 6(a), (g) (current version at T EX. F IN. C ODE A NN. § 304.104).
In Johnson & Higgins, the court concluded that the plaintiff’s contract
claim did not fall under any of the categories of injury enumerated in Section 6,
so “any award of prejudgment interest [was] governed by the common law.” 962
S.W.2d at 530. Nevertheless, the Johnson & Higgins court decided to “adopt the
Legislature’s approach to prejudgment interest” and held that “prejudgment
interest [on the contract claim] begins to accrue on the earlier of (1) 180 days
after the date a defendant receives written notice of a claim or (2) the date the
suit is filed.” Id. at 531. Johnson & Higgins also adopted the language that the
Legislature used to calculate prejudgment interest, stating that “prejudgment
interest accrues at the rate for postjudgment interest and it shall be computed
as simple interest.” Id. at 532. The Johnson & Higgins court reasoned that
adoption of the Legislature’s approach for all common law claims would ensure
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symmetry in the accrual period for prejudgment interest and the calculation of
prejudgment interest. Id. at 533.
Although, as the foregoing demonstrates, Johnson & Higgins was not
primarily occupied with the rate of prejudgment interest—which was
traditionally calculated at the statutory or “legal rate,” see Miner-Dedrick
Constr. Corp. v. Mid-County Rental Servs., Inc., 603 S.W.2d 193, 200 (Tex. 1980)
(awarding interest at statutory rate on a contract claim with specified damages);
Close v. Fields, 13 Tex. 623, 623 (Tex. 1855) (“[T]he legal rate of interest is the
safest criterion or standard of damages . . . .”)—Johnson & Higgins created a
unified system for the calculation of both statutory prejudgment interest and
common law prejudgment interest, a necessary component of which was the
reaffirmation that prejudgment interest accrued at the statutory rate for
common law claims. Indeed, shortly after Johnson & Higgins was decided, the
Supreme Court of Texas reemphasized that Johnson & Higgins has “aligned the
rate of prejudgment interest and the date on which it commences to accrue
under the common law” with the statutory provisions regarding the calculation
of interest. Concord Oil Co. v. Pennzoil Exploration & Prod. Co., 966 S.W.2d
451, 462 (Tex. 1998); see also 5 R OY W. M CD ONALD & E LAINE A. C ARLSON, T EXAS
C IVIL P RACTICE § 27:31[d] at 44 (2d ed. Supp. 2010) (noting that “statutory
provisions pertaining to the accrual timeframe, the rate of interest, and whether
interest should be calibrated as simple interest” control the calculation of
prejudgment interest awarded as an equitable remedy).
Thus, under Texas law, whether entitlement to prejudgment interest is
derived from statute or, as in this case, equity, “prejudgment interest accrues at
the rate for postjudgment interest and [is] computed as simple interest.”
Johnson & Higgins, 962 S.W.2d at 532. In relevant part, the applicable statute
sets postjudgment interest at either “the prime rate as published by the Board
of Governors of the Federal Reserve System on the date of computation” or “five
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percent a year if the prime rate as published by the Board of Governors . . . is
less than five percent.” T EX. F IN. C ODE A NN. § 304.003(c)(1)–(2).4 This provision
sets a “floor interest rate” of five percent on postjudgment interest, Columbia
Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 255 (Tex. 2008), which
correspondingly sets a five percent floor on prejudgment interest, see Johnson
& Higgins, 962 S.W.2d at 532; Harris v. Mickel, 15 F.3d 428, 431–32 (5th Cir.
1994) (regarding a prior version of the statute that applied a higher interest
rate).
If this court were to accept Gunnerman’s position that the rate earned by
the funds in the registry of the district court should control, it would have the
effect of undercutting the floor rate of interest established by statute. There is
no dispute that if Gunnerman had posted a supersedeas bond rather than
depositing the amount of Arete’s actual damages into the registry of the district
court, Gunnerman would have been liable for prejudgment interest at the
statutory rate through the date of the second judgment. Gunnerman was
entitled to elect this means of suspending the judgment to pursue his first
appeal, and those funds have accrued some interest. But his election does not
affect the rules settled on by the Supreme Court of Texas and the Texas
Legislature governing the rate at which Arete is compensated for its continued
inability to use those funds.
We note that, in certain contexts not applicable to the facts of this case, the
Supreme Court of Texas has recognized that depositing funds into the registry
of the district court may prevent the accrual of prejudgment interest. For
instance, the Supreme Court of Texas has consistently held that prejudgment
interest does not accrue on funds to which the plaintiff has access prior to the
4
There is no dispute that, in this case, the prime rate was below five percent when the
district court awarded Arete prejudgment interest.
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final judgment.5 See Brainard, 216 S.W.3d at 816 (prejudgment settlement
payments); Shambry v. Housing Auth. of City of Dallas, 255 S.W.2d 184, 185
(Tex. 1953) (per curiam) (affirming Housing Auth. of City of Dallas v. Shambry,
252 S.W.2d 965, 966 (Tex. Ct. App.–Austin 1952, writ ref’d), in which
prejudgment interest did not accrue on money in the registry of the court
because “such amount could have been withdrawn by [the prevailing parties]”);
Olivares v. Garcia, 91 S.W.2d 1059, 1062 (Tex. 1936) (tender of debt); see also
Garrett v. Midwest Constr. Co., 619 F.2d 349, 353–54 (5th Cir. 1980) (“In order
to stop the accrual of interest [defendant] had to make the money available to
[plaintiff] without attempting to impose conditions on its acceptance.”). These
decisions are consistent with the proposition that prejudgment interest should
be awarded to compensate a plaintiff for his lost use of the funds represented by
the judgment; if the plaintiff can access those funds without condition, then
there is no need to compensate him in the event he does not. That said, these
holdings are inapposite here because Gunnerman’s deposit of the funds into the
registry of the district court, like a supersedeas bond, prevented Arete from
receiving its damages by suspending the enforcement of the judgment.
Nor are we persuaded to adopt Gunnerman’s position by the general rule
in the Texas courts that a stakeholder who interpleads contested funds into the
registry of the court is not liable for prejudgment interest after the date of the
interpleader. See State Farm Ins. Co. v. Martinez, 216 S.W.3d 799, 808 (Tex.
5
This approach is consistent with that taken in many other jurisdictions. See Blasini-
Stern v. Beech-Nut Life Savers Corp., 429 F. Supp. 533, 535 (D. P.R. 1975) (Puerto Rican law);
Family Fed. Sav. Bank v. Hughes, 877 S.W.2d 609, 611 (Ky. 1994); Dollar Inv. Corp. v. Modern
Market, Inc., 365 P.2d 1117, 1117 (Nev. 1961); Forbes v. Am. Bldg. Maint. Co. W., 240 P.3d
790, 794–95 (Wash. 2010); De Toro v. DI-LA-CH, Inc., 142 N.W.2d 192, 196 (Wis. 1966); but
see Ziaee v. Vest, 916 F.2d 1204, 1210 (7th Cir. 1990) (stating, in an ERISA case, that the
“appropriate rate of prejudgment interest for funds on deposit in the registry is the rate those
funds earn in the registry” (emphasis in original)).
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2007) (stating rule);6 Phillips Petroleum Co. v. Adams, 513 F.2d 355, 369–70 (5th
Cir. 1975) (same). The rule regarding liability for prejudgment interest in
interpleader cases is best understood as serving the distinct purpose of an
interpleader action, which encourages the stakeholder to look to the courts to
resolve competing claims over funds. State Farm, 216 S.W.3d at 806. In that
context, it would be counterproductive to require the stakeholder to compensate
the eventual recipient of the funds with additional prejudgment interest after
it has relinquished the disputed funds. Cf. id. (“Assessing penalty interest and
attorney’s fees after an interpleader is filed would punish insurers for doing
exactly what Texas law encourages.”).
Finally, we acknowledge that some intermediate courts of appeals in Texas
have stated that the deposit of funds into the registry of the trial court prevents
the accrual of prejudgment interest on those funds. Because these cases could
be read as support for the proposition that common law prejudgment interest
does not accrue on funds deposited into the registry of the court in a contract
case, which is an issue the Supreme Court of Texas has not squarely addressed,
we must make an “Erie guess” as to whether the Supreme Court would apply
Johnson & Higgins or these intermediate appellate decisions to this case. See,
e.g., Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000).
These intermediate appellate court decisions fall into two categories: (1)
those decided before Johnson & Higgins; and (2) those decided after Johnson &
Higgins but which have dubious applicability to the facts of this case. With
respect to the first category of cases, we are not persuaded that the Supreme
6
The Supreme Court of Texas’s holding in State Farm is doubly inapplicable here. The
State Farm court reasoned that requiring the insurer who had interpleaded the funds to pay
prejudgment interest at the statutory rate and allowing the plaintiff to recover interest that
accrued on the interpleaded funds would amount to double recovery. 216 S.W.3d at 808.
There is no risk of double recovery in this case: Arete seeks only interest at the statutory rate
on the amount of the judgment, not prejudgment interest at the statutory rate plus the
amount of interest that has accrued on the funds into the court registry.
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Court of Texas would undermine the general rule that common law prejudgment
interest on a contract claim accrues at the statutory rate for postjudgment
interest, see Johnson & Higgins, 962 S.W.2d at 532, by applying a rule
announced in older intermediate appellate court decisions.7
Nor do we believe that the Supreme Court of Texas would follow post-
Johnson & Higgins decisions by two intermediate appellate courts, which hold
that prejudgment interest did not accrue on funds placed in the registry of the
district court. In Pegasus Energy Group, Inc. v. Cheyenne Petroleum Co., 3
S.W.3d 112 (Tex. App.–Corpus Christi 1999, pet. denied), the court made the flat
statement that the plaintiff “should not be entitled to prejudgment interest on
money that [the defendant] had already paid into the registry of the court.” Id.
at 125. But, in its next breath, the Pegasus court affirmed the trial court’s
application of the funds in the registry in a seemingly contrary manner: the
plaintiff was “entitled to all monies held in the Registry of the Court to satisfy
7
Gunnerman cites several pre-Johnson & Higgins decisions by intermediate Texas
appellate courts for the proposition that prejudgment interest does not accrue on funds
deposited into the registry of the district court. See MCZ, Inc. v. Smith, 707 S.W.2d 672, 677
(Tex. App.–Houston 1986, writ ref’d n.r.e.); Veale v. Rose, 657 S.W.2d 834, 840 (Tex.
App.–Corpus Christi 1983, writ ref’d n.r.e.); Anderson v. Havins, 595 S.W.2d 147, 158 (Tex.
App.–Amarillo 1980, writ dism’d); see also Kishi v. Humble Oil & Ref. Co., 10 F.2d 356, 357
(5th Cir. 1925). In addition to pre-dating Johnson & Higgins, these cases are inapplicable to
this case because the sole consideration for awarding or denying prejudgment interest was
whether the plaintiff should be compensated for defendant’s wrongful use of the plaintiff’s
funds. These courts did not consider, as the court highlighted in Johnson & Higgins, and is
relevant in this case, whether the plaintiff was entitled to prejudgment interest as
compensation for the plaintiff’s lost use of those funds. See MCZ, 707 S.W.2d at 677 (“A court
can award prejudgment interest upon equitable principles to compensate one for another’s
possession and use of his funds.”); Veale, 657 S.W.2d at 840 (“The recovery of interest damages
under the equitable doctrine has consistently rested squarely and solely on the idea of
compensation for the unauthorized use of another’s money.”); Anderson, 595 S.W.2d at 158
(declining to award prejudgment interest because the “money was never in the hands, or under
the control of the sellers”); see also Kishi, 10 F.2d at 357 (stating that defendants “had the use
of [plaintiff’s] money . . . and therefore ought to pay interest as an incident to the principal
debt”). Additionally, some of the cases cited by Gunnerman are inapposite because they
involve either interpleader, see MCZ, 707 S.W.2d at 677; Kishi, 10 F.2d at 357, or an
unconditional tender of funds into the registry of the court, see Veale, 657 S.W.2d at 840.
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the judgment with any interest earned on such monies in the registry credited
against the interest awarded” and the “total amount” in the court’s registry was
“credited against any judgment amount owed by [the defendant].” 8 Id. (quoting
trial court order). The only error the Pegasus court found in the trial court’s
calculation of prejudgment interest was that it should have been calculated as
simple, rather than compound interest, an issue which is not in dispute in this
case. Id. Therefore, the Pegasus court’s announcement that prejudgment
interest does not accrue on funds in the registry of the trial court may not have
been given any operative effect in its actual holding (we confess to being
uncertain on that point), and we do not believe the Supreme Court of Texas
would rely on Pegasus as authority for Gunnerman’s position.
Following Pegasus, the Corpus Christi court and one other Texas
intermediate appellate court applied the Pegasus court’s statement that
prejudgment interest does not accrue on funds deposited in the registry of the
court. But those decisions are better understood as interpleader-type cases
where the funds in the registry of the court could have been subject to multiple
claims. See Hoeffner, Bilek & Eidman, L.L.P. v. Guerra, 2004 WL 1171044, at
*10–11 (Tex. App.–Corpus Christi, May 27, 2004, pet. denied) (mem. op.)
(applying Pegasus in a case involving dispute between several attorneys to
contingency fees earned in a mass tort litigation where attorney seeking funds
had requested funds be deposited in registry); Browning Oil Co. v. Luecke, 38
S.W.3d 625, 646, 648 (Tex. App–Austin 2000, pet. denied) (applying Pegasus in
a case involving dispute over amount of royalties owed under pooling agreement
for “horizontal wells that contain multiple drillsites on tracts owned by multiple
8
Our reading of the Pegasus court’s actual holding is confirmed (to an extent) by the
fact that both parties operate under the assumption that Pegasus supports the district court’s
calculation of prejudgment interest in this case. Brief of Appellant at 13 n.3; Brief of Appellee
at 10.
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landowners”). As discussed above, the rule that prejudgment interest does not
accrue on interpleaded funds is inapplicable in this case
In this case, there has already been a judicial determination that
Gunnerman owed Arete its actual damages on two distinct theories of recovery.
Arete’s theory of recovery for its actual damages was relevant only to whether
it received exemplary damages (fraud) or attorney’s fees (breach of contract).
Gunnerman’s deposit of funds into the registry of the court allowed Gunnerman
to suspend enforcement of the judgment during its challenge to one of the two
independent bases for Arete’s actual damages. We are not persuaded that,
under these particular circumstances, the Supreme Court of Texas would rely
on a rule discussed in factually distinguishable intermediate appellate court
decisions and conclude that prejudgment interest does not accrue at the
statutory rate on the funds Gunnerman placed into the registry of the court in
lieu of a supersedeas bond. See Howe, 204 F.3d at 627 (stating that, when
making an Erie guess, this court is not bound by decisions of intermediate
appellate courts if “convinced by other persuasive data that the highest court of
the state would decide otherwise”). Instead, it is our Erie guess that the
Supreme Court of Texas would hew to the general rule announced in Johnson
& Higgins and award Arete prejudgment interest at the statutory rate from the
date of the breach of the settlement agreement to the date of the second
judgment. See Johnson & Higgins, 962 S.W.2d at 532.
Our conclusion is buttressed by Texas courts’ treatment of similar deposits
on the rate of postjudgment interest.9 Several intermediate appellate courts
have held that depositing funds into the registry of the court does not suspend
9
We are aware, of course, that federal law governs the award of postjudgment interest
in a diversity suit. See, e.g., Meaux, 607 F.3d at 173. However, we believe that the manner
in which Texas courts calculate postjudgment interest when funds have been deposited into
the registry of the court sheds further light on how the Supreme Court of Texas would
calculate prejudgment interest this case.
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No. 10-50695
the statutory rate of postjudgment interest. See Hoeffner, 2004 WL 1171044 at
*11 (awarding postjudgment interest at the statutory rate despite deposit of
funds in the registry of the court because there is “no authority allowing the
imposition of postjudgment interest at the rate earned by funds in the registry
of the court”); Lowe v. Monsanto, 965 S.W.2d 741, 742 (Tex. App.—El Paso 1998,
pet. denied) (per curiam) (concluding that deposit in registry of the district court
must include the amount of “interest for the estimated duration of the appeal”
and remanding to trial court for evidence on the “proper amount of post-
judgment interest”); First State Bank of Rogers v. Wallace, 788 S.W.2d 41, 43
(Tex. App.—Houston [1st Dist.] 1990, no writ) (awarding postjudgment interest
at the statutory rate on funds deposited in the registry of the court because
appeal “delayed [judgment creditor’s] rightful receipt of the funds” but crediting
interest accrued on funds in the registry of the court against that amount).
These decisions are consistent with the statutory scheme governing
postjudgment interest, under which postjudgment interest accrues at the
statutory rate until the judgment is paid, see T EX. F IN. C ODE. A NN. § 304.005(a),
and the party seeking to suspend enforcement of the judgment must provide
security for interest that will accrue, see T EX. C IV. P RAC. & R EM. C ODE A NN.
§ 52.006(a) (West 2008) (stating that the amount of security on a judgment for
money must include “interest for the estimated duration of the appeal”). As the
Johnson & Higgins court held, common law prejudgment interest accrues on a
contract claim at the statutory rate for postjudgment interest. 962 S.W.2d at
532. We think it unlikely, therefore, that the Supreme Court of Texas would
permit prejudgment interest to accrue below the statutory rate simply because
the judgment debtor deposited funds into the registry of the district court in lieu
of a supersedeas bond.
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IV. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
16