The Supreme Court of Texas has clarified the phrase “compensatory damages” as used in the supsersedeas statute (Civil Practice and Remedies Code Section 52.006) and Appellate Rule 24.  In In re Longview Energy Company, the court held that disgorgement damages are not compensatory damages and therefore need not be superseded to stay enforcement of the judgment during an appeal.

The plaintiff in this case recovered a judgment against multiple defendant for $95.5 million dollars, for breach of fiduciary duty.  The damages apparently consisted of disgorgement of past production revenue derived from shale assets.  The defendants appealed and collectively posted a $25 million bond.  Plaintiff contended that the defendants each were required to separately post the lesser of $25 million or 50% of their net worth.  It appears that the supreme court originally took this case to address whether the caps on the amount of supersedeas are to be applied per defendant or per judgment.   Instead, the court analyzed a different question that was raised on appeal–whether disgorgement damages are “compensatory damages.”

The supreme court first questioned whether the damages might be punitive because the trial court had initially signed a judgment that characterized them as such, but subsequently issued a second judgment that awarded the same damages but without the explanation as to how they were derived.  The plaintiff argued that the award was remedial, but the supreme court rejected that argument stating, “We cannot conclude that the award is compensatory when it cannot be explained.”  The court reasoned that disgorgement is an equitable forfeiture of benefits wrongfully obtained.  The court found that disgorgement is compensatory in the same sense that attorney’s fees, interest, and costs might be compensatory, but disgorgement is not damages.  Thus, the court held that the defendants were not required to post security in an amount to cover disgorgement damages.

The court went on to discuss the question of whether the the plaintiff was entitled to discovery relating to defendant Huff Energy’s operations.  The Supreme Court held that Appellate Rule 24 entitled the plaintiff to such discovery without the requirement of showing a threat of dissipation of assets.

The court’s opinion may be found here.