Opinion ID: 672322
Heading Depth: 3
Heading Rank: 1

Heading: Prejudgment Interest and Costs

Text: 82 First, the former shareholders of Isoetec argue that the district court erred in denying them recovery of costs and prejudgment interest on the amount awarded to them by the arbitrator. According to the former shareholders, Texas law has long recognized that prevailing parties are entitled to recover prejudgment interest as a matter of law. In their view, they received a net judgment for some $1,925,000 despite Executone's contention that it owed nothing to the former shareholders. They seek interest at the Texas prejudgment interest rate of 10%, accruing from January 1, 1990, the date Executone was to have purchased Isoetec. In response, Executone relies on the arbitrator's conclusion that Executone was the prevailing party and claims that the district court enjoys broad discretion in deciding whether prejudgment interest is appropriate. 83 Texas law governs the award of prejudgment interest on the arbitrator's award. See Schlobohm v. Pepperidge Farm, Inc., 806 F.2d 578, 583-84 (5th Cir.1986) (applying Texas law in reviewing a district court's award of prejudgment interest on an arbitration award); see also Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 941-42 n. 32, 74 L.Ed.2d 765 (1983) (noting that the Arbitration Act creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction); Northrop Corp. v. Triad Int'l Marketing S.A., 842 F.2d 1154, 1155 (9th Cir.1988) (applying state law to the determination of prejudgment interest in a diversity suit under the Federal Arbitration Act). Under Texas law, prevailing parties receive prejudgment interest as a matter of course. Richter, S.A. v. Bank of Am. Nat'l Trust and Sav. Ass'n, 939 F.2d 1176, 1197 (5th Cir.1991). An arbitration award bears interest in the same manner as a judgment of a court of last resort in Texas. Kermacy v. First Unitarian Church, 361 S.W.2d 734, 735-36 (Tex.Civ.App.--Austin 1962, writ ref'd n.r.e.). 84 We find nothing in the cases to suggest that prejudgment interest is appropriately awarded only to parties who prevail to the full extent of the relief they have sought. The award of prejudgment interest is based on the equitable grounds that an injured party should be made whole. Matthews v. DeSoto, 721 S.W.2d 286, 287 (Tex.1986). This policy is advanced by awarding prejudgment interest to a party who has received part of the relief he has sought no less than by making the award in cases in which the party prevails completely. Thus, the arbitrator's statement that Executone was the prevailing party should have no bearing on the prejudgment interest question. This is the approach we implicitly took in Schlobohm, in which we affirmed an award of prejudgment interest to a party who received an arbitration award of roughly half the amount he requested. Schlobohm, 806 F.2d at 579, 583-84. 85 Executone argues that it was within the district court's discretion to refuse to award prejudgment interest to the former Isoetec shareholders. The Texas Supreme Court has made clear that the award of prejudgment interest, although equitable in nature, is not generally a matter for the trial court's discretion. Matthews, 721 S.W.2d at 287; see also Concorde Limousines, Inc. v. Moloney Coachbuilders, Inc., 835 F.2d 541, 549 (5th Cir.1987) (We read Cavnar [v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex.1985),] and Matthews as creating a regime in which equitable prejudgment interest is awarded as a matter of course when the trier of fact finds that damages accrued before the time of judgment.). We have recognized, however, that the district courts can make an exception to this general rule if they cannot address through other means any equitable concerns that favor the defendant, even to the point of eliminating the award of interest entirely. Concorde Limousines, 835 F.2d at 549. If the district court denies prejudgment interest without explanation, our appropriate course is to remand the issue so that the court may either explain the exceptional circumstances warranting the denial of interest or award interest at the appropriate rate. Id. at 549-50; American Int'l Trading Corp. v. Petroleos Mexicanos, 835 F.2d 536, 540-41 (5th Cir.1987); see also Richter, 939 F.2d at 1197-98 (affirming the denial of prejudgment interest for the reasons given by the district court). 86 We conclude that remand is necessary in the instant case. It is tempting to conclude simply that the former shareholders of Isoetec are foreclosed from receiving prejudgment interest because it was denied them by the arbitrator. See Schlobohm, 806 F.2d at 584 (This is not a case in which the parties have submitted their entire dispute to arbitration, thus arguably preventing the district court from modifying the award by adding pre-award interest.). It does not appear to us, however, that the issue of prejudgment interest was presented to the arbitrator; indeed, the arbitrator was not even requested to perform the final calculation of the Isoetec purchase price, but rather only to rule on various claims with respect to Isoetec's 1989 profits. It was left to the district court to perform the final calculation. The court, we note, concluded that the final purchase price under the arbitrator's decision was $1,351,208, and that Executone was entitled to a credit of $48,579 for overpayment plus interest from April 1, 1990. Interest on the former Isoetec shareholders' $1,187,000 damages award was denied as not appropriate without further explanation. 87 Discerning no reason for the dissimilar treatment of the parties, we must VACATE the district court's denial of prejudgment interest to the former shareholders of Isoetec and REMAND for further proceedings on the matter. We intimate no views on the merits of whether the former Isoetec shareholders are entitled to prejudgment interest. 88 As for the district court's decision to tax all costs of court to the parties incurring the same, we have recognized that the lower courts have wide discretion in this determination and that reversal is warranted only upon a clear showing of abuse of discretion. Sidag Aktiengesellschaft v. Smoked Foods Prods. Co., 854 F.2d 799, 801-02 (5th Cir.1988). The former Isoetec shareholders have not made the requisite showing, so we AFFIRM the award of costs.