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So, Attorneys' Fees Are Not Compensatory Damages or Costs?

As an attorney, you might be wondering whether that question is posed in jest. I assure you it is not based on a recent Texas Supreme Court decision. In re Nalle Plastics Family L.P., 2013 Tex. App. LEXIS 396 (Tex. May 17, 2013).

Honestly, I am not sure how to respond to this decision. On one hand, this is just an extension of what the Texas Legislature started with House Bill 4 in 2003 when it narrowed supersedeas bond coverage down to "compensatory damages" from "the amount of the judgment" in order to provide greater appellate court access. I get that. I am all for that. On the other hand, as a lawyer, I feel (please pardon the pun) short-changed by the Texas Supreme Court's reasoning.

The Texas Supreme Court, though, believes that attorneys' fees are not compensatory damages or costs. Here is how it got there.

First, the court pointed to precedent from the late 1800's and early 1900's, as well as the Texas Legislature's endorsement of the American Rule, that separate damages from attorneys' fees. Landa v. Obert, 45 Tex. 539, 544-45 (Tex. 1876); Wm. Cameron & Co. v. Am. Surety Co. of N.Y., 55 S.W.2d 1032, 1035 (Tex. Comm'n App. 1932); Tex. Civ. Prac. & Rem. Code Ann. ยง 38.001. It did this to simply point out that you have to recover damages before you get to recover attorneys' fees. Okay, I get it. You can't build a house without a foundation.

Here is the part I'm struggling with though. The Texas Supreme Court next reasoned that Chapter 41 of the Texas Civil Practice and Remedies Code, not Chapter 52 that deals directly with superseding judgments, influenced the definition of compensatory damages. It then stopped short of holding that Chapter 41 controlled, pivoted, and pointed to the ordinary meaning of "damages" as concerning compensation for a proven underlying injury and the previously noted precedent above separating damages from attorneys' fees as controlling.

That may not sound significant, but here is what the court said before doing that: "The phrase's [compensatory damages] ordinary meaning, our precedent, and the relevant statutes, however, confirm that [attorneys' fees are not included in compensatory damages]." In re Nalle Plastics Family, L.P., 2013 Tex. App. LEXIS at * 10 (emphasis added). So which one is it? Does Chapter 41 control or not? My reading is that it does to the extent it is helpful in excluding attorneys' fees from the definition of compensatory damages.

So what about costs? Well, you probably already guessed it, the Texas Supreme Court referred to the ordinary meaning of costs and obliquely to other portions of the Texas Civil Practice and Remedies Code to make that determination as well. The court determined that costs ordinarily means "those paid to courts or their officers-and costs generally do not include attorney's fees." Id. at *21. The court then referred to various Chapters of the Texas Civil Practice and Remedies Code, such as Chapters 31, 38, and 12, as separating attorneys' fees from costs (or not) in concluding that costs do not include attorneys' fees.

In the end, what to take away from this decision is that the Texas Supreme Court will read not only the ordinary meaning of a word into a definition, but also any complimentary statutory definitions, whether directly related or not. Caution should be taken when approaching any undefined statutory term and that caution should include not only understanding the ordinary meaning of the term, but also all potentially/remotely applicable statutory definitions.

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