Court Affirmed Award of Prejudgment Interest On Fee Forfeiture Award

Originally published by David Fowler Johnson.

In Holliday v. Weaver, clients obtained a fee forfeiture award against an attorney for breach of fiduciary duty related to the improper use of settlement proceeds. No. 05-15-00490-CV, 2016 Tex. App. LEXIS 7264 (Tex. App.—Dallas July 7, 2016, no pet. history). After a bench trial, the trial court found for the clients and further found that the appropriate remedy for the attorney’s breach of fiduciary duty was “complete disgorgement of Holliday’s fee including certain expenses” which totaled $10,786.84. The trial court also awarded almost $3,000 in prejudgment interest on the fee forfeiture award, and the attorney appealed.

The court of appeals affirmed the prejudgment interest award. The court held that “[i]nterest is awarded as compensation for the loss of use of money” and that “[i]t is intended to fully compensate the injured party, not to punish the defendant.”  “An award of prejudgment interest may be based on either an enabling statute or general principles of equity.” Further, the court held that there is no statute authorizing an award of prejudgment interest on amounts recovered for breach of fiduciary duty. Therefore, the court held that “[w]here no statute controls, the decision to award prejudgment interest is left to the sound discretion of the trial court.”

The attorney argued that prejudgment interest may not be awarded on fee forfeiture awards because those are allegedly not compensatory damages. The court disagreed and held that “[w]here there has been a clear and serious violation of a fiduciary duty, equity dictates not only that the fiduciary disgorge his fees, but also all benefit obtained from use of those fees,” which included prejudgment interest. The court concluded: “Because the award of prejudgment interest in this case fits the purpose of such interest, which is to fully compensate the Weavers, we conclude the trial court did not abuse its discretion in granting the award.” The cited the following cases for further support: Dernick Res., Inc. v. Wilstein, 471 S.W.3d 468, 487 (Tex. App.—Houston [1st Dist.] 2015, pet. filed) (allowing prejudgment interest on fee forfeiture award in a trustee’s breach of fiduciary duty case); Lee v. Lee, 47 S.W.3d 767, 800 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (same).

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