GR LIFT GR ENERGY SERVICES OPERATING GP LLC AND GR ENERGY SERVICES MANAGEMENT LP v. ODESSA PUMPS AND EQUIPMENT INC (2026)

OPINION

In a lawsuit involving disputes regarding an asset purchase agreement, the defendants appeal the trial court's final judgment asserting that (1) the trial court erred in making a declaration that the plaintiff did not engage in the conduct that would have breached section 2.9 of the agreement and in awarding attorney's fees under the Texas Declaratory Judgments Act because the facts were disputed and no question was requested or submitted that would support the trial court's declaration; (2) the trial court erred as a matter of law in awarding the plaintiff a reasonable fee for the necessary legal services of the plaintiff's attorneys for representation in the trial court with respect to the plaintiff's request for declaratory relief because the award allowed the plaintiff to use the Texas Declaratory Judgments Act as a vehicle to obtain otherwise impermissible attorney's fees; and (3) the trial court erred as a matter of law in awarding prejudgment interest on the trial court's award of reasonable and necessary attorney's fees for representation in the trial court as to the plaintiff's claim for breach of section 2.8(d) of the agreement. Finding merit in the second and third points but not the first, we affirm the trial court's judgment as modified.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellants/defendants GR Lift, L.P., GR Energy Services Operating GP, LLC, and GR Energy Services Management, LP (collectively the “GR Parties”) and appellee/plaintiff Odessa Pumps and Equipment, Inc. were all parties to an Asset Purchase Agreement (“Agreement”). Under the Agreement Odessa bought substantially all of the assets of GR Lift, LP and Flex Flow Services, LLC used in connection with their Flex Flow business, which primarily consisted of renting, selling, and servicing surface-mounted horizontal pumping systems and horizontal jet pumping systems for use in the oil and gas industry. The parties agreed that Odessa would pay at closing $90 million less certain deductions and that Odessa might have to make an additional “Earnout Payment” under section 2.9 of the Agreement if the Flex Flow business achieved EBITDA ¹ of $15 million or more during the first year after the sale (the “Earnout Period”).² Under the Agreement, there was no guarantee that the GR Parties would receive any Earnout Payment, but Odessa agreed that it would not “intentionally take any action in bad faith to (A) cause the Holdback Condition to not be satisfied or (B) reduce the Earnout Payment” (“Bad Faith Conduct”). Section 2.8 of the Agreement provided for certain accounting adjustments to be made in the post-sale period, as well as a contractual process for disputes regarding those adjustments to be submitted to a neutral party for resolution. Section 12.1 of the Agreement also contained a three-year noncompete provision barring the GR Parties from engaging in activities that would compete with Odessa's Flex Flow business. The Agreement does not contain any provision providing that a prevailing party in a dispute regarding the Agreement would be entitled to recover attorney's fees.

The EBITDA of the Flex Flow business during the Earnout Period was below the level needed for the GR Parties to be entitled to any Earnout Payment. The parties disagreed regarding several post-closing accounting issues under section 2.8 of the Agreement and submitted the bulk of those disputes to a neutral expert for resolution, as called for by the Agreement. The expert ruled in the GR Parties' favor, and the GR Parties had a deadline to pay the remaining balance of approximately $1.67 million (the “Adjustment Amount”). However, the GR Parties did not make the Adjustment Amount payment by the deadline.

The day after the Adjustment Amount payment deadline expired Odessa sued the GR Parties in the trial court asserting the following claims: (1) breach of contract based on the GR Parties' alleged breach of the Agreement's noncompete provision, (2) breach of section 2.8(d) of the Agreement based on the GR Parties' failure to pay the Adjustment Amount, and (3) a declaratory-judgment action in which Odessa sought these four declarations:

(a) Odessa has not intentionally taken any action in bad faith with respect to any conduct under the terms of the Agreement;

(b) No Earnout Payment is owed to the GR Parties under the Agreement;

(c) No Holdback Payment is owed to the GR Parties under the Agreement; and

(d) Odessa is not in breach of the Agreement.

Odessa also requested reasonable and necessary attorney's fees under Chapters 37 and 38 of the Civil Practice and Remedies Code.

The GR Parties answered and asserted a counterclaim for breach of contract alleging that “Odessa's intentional effort in bad faith to cause the Holdback Condition to not be satisfied and/or to reduce the Earnout Payment is prohibited under Section 2.9(iii)(c) of the [Agreement] ․ and constitutes a breach of the [Agreement].” The GR Parties contended that but for Odessa's Bad Faith Conduct, the Holdback Condition would have been satisfied, entitling the GR Parties, at a minimum, to the Holdback Payment of $15 million and potentially even greater amounts under the Earnout Schedule (“Bad Faith Counterclaim”). The GR Parties requested reasonable and necessary attorney's fees under Chapter 38 of the Civil Practice and Remedies Code (“Chapter 38”). The GR Parties did not assert any claim under the Texas Declaratory Judgments Act (the “DJ Act”), nor did they request attorney's fees under that statute.

Near the end of the discovery period the GR Parties paid the Adjustment Amount, without interest, leaving only Odessa's claims for breach of the noncompete provision and for interest on the Adjustment Amount, Odessa's requests for declaratory relief, and the Bad Faith Counterclaim. The GR Parties then filed a motion asking that the trial court realign them as plaintiffs for the trial on the merits. The GR Parties argued that they had the burden of proof on their Bad Faith Counterclaim, that Odessa's noncompete claim failed as a matter of law, and that Odessa's request for declaratory relief was just the “mirror image” of the Bad Faith Counterclaim. Odessa opposed the realignment, arguing that under Rule 266, Odessa, as plaintiff, had the right to open and close both in adducing evidence and in argument because the burden of proof on the whole case did not rest on the GR Parties and because the GR Parties had not admitted that Odessa was entitled to recover as set forth in its petition, except so far as Odessa might be defeated by a defense alleged in the GR Parties' answer. See Tex. R. Civ. P. 266. Odessa asserted in its response that it had the burden of proof on its breach-of-contract claims and on its requests for declaratory relief. The trial court denied the GR Parties' motion to realign the parties.³

The case was tried to a jury over sixteen trial days. The trial court ordered a bifurcated trial. After the close of evidence in the first phase of trial, the trial court submitted questions to the jury as to whether the GR Parties and Odessa failed to comply with the Agreement. The trial court instructed the jury that Odessa “failed to comply with the Agreement if it intentionally took any action in bad faith to (A) cause the Holdback Condition not to be satisfied or (B) reduce the Earnout Payment.” The jury answered “no” to each question. Odessa did not request or object to the omission of a jury question asking whether Odessa did not engage in Bad Faith Conduct or whether Odessa did not breach the Agreement.

In the second phase of the trial, evidence was submitted regarding Odessa's reasonable and necessary attorney's fees. In response to the first question, the jury found that $528,680.62 is a reasonable fee for the necessary services of Odessa's attorneys for representation in the trial court with respect to Odessa's claim for breach of section 2.8(d) of the Agreement by failure to timely pay the Adjustment Amount. In response to the second question, the jury found that $1,932,198.49 is a reasonable fee for the necessary services of Odessa's attorneys for representation in the trial court with respect to Odessa's request for declaratory relief. In each question the jury also made findings of a reasonable fee for the necessary services of Odessa's attorneys for representation at various points on appeal.

In response to a proposed final judgment submitted by Odessa, the GR Parties objected that (1) Odessa may not obtain declaratory relief because Odessa had the burden of proof and failed to obtain a jury finding that would support declaratory relief; (2) Odessa may not recover attorney's fees under the DJ Act because Odessa is using its claim under that statute as an improper vehicle in an attempt to obtain impermissible attorney's fees for successfully defending the GR Parties' breach-of-contract claims; and (3) as a matter of law Odessa may not recover prejudgment interest on an award of the attorney's fees at issue in this case. Odessa took the position that the GR Parties had the burden of proof as to Odessa's request for declaratory relief and that the jury's negative answer when asked whether Odessa failed to comply with the Agreement was sufficient to support declaratory relief in favor of Odessa.

The trial court rendered a final judgment on the jury's verdict in which the court (1) made one declaration: Odessa did not intentionally take any action in bad faith to (A) cause the Holdback Condition to not be satisfied or (B) reduce the Earnout Payment (“Declaration”); (2) ordered that Odessa recover interest on the Principal Payment made by the GR Parties in December 2022; (3) awarded Odessa $2,460,879.31 “as reasonable and necessary attorneys' fees for representation in the trial court”; (4) awarded Odessa more than $400,000 in prejudgment interest on the $2,326,672.65 in attorney's fees that Odessa had paid as of rendition of judgment, with the interest starting to accrue on the day Odessa filed suit and ending the day before judgment was rendered; and (5) made awards of reasonable and necessary appellate attorney's fees conditioned on Odessa's success on appeal. The GR Parties timely perfected this appeal from the trial court's final judgment.

II. ISSUES AND ANALYSIS

A. Did the trial court err as a matter of law by granting Odessa declaratory relief because Odessa did not obtain a jury finding that Odessa did not engage in Bad Faith Conduct, which was a contested fact issue?

In their first issue, the GR Parties assert that the trial court erred as a matter of law by issuing the Declaration and awarding Odessa attorney's fees under the DJ Act because Odessa did not seek or secure a jury finding in support of its requests for declaratory relief. The GR Parties assert that (1) to obtain declaratory relief Odessa had the burden of proving that it complied with the Agreement and did not engage in Bad Faith Conduct, which was a disputed fact question; (2) to obtain declaratory relief Odessa had to obtain a jury finding on this point; (3) Odessa did not obtain such a finding or complain in the trial court that the jury charge in the first phase did not submit a question on this point; (4) a finding in Odessa's favor on its requests for declaratory relief cannot be inferred from the jury's finding in response to the question of whether Odessa failed to comply with the Agreement by engaging in Bad Faith Conduct (“Question 2”); and (5) the jury's negative answer to Question 2 is not a finding that Odessa complied with the Agreement; rather it means that the jury determined that the GR Parties failed to prove by a preponderance of the evidence that Odessa engaged in Bad Faith Conduct and thus failed to comply with the Agreement.

We agree with the GR Parties that the trial evidence in the first phase did not conclusively prove that Odessa did not engage in Bad Faith Conduct or that Odessa was entitled to the Declaration. Therefore, for the trial court to have properly made the Declaration, there must be a jury finding that supports the Declaration. See Tex. R. Civ. P. 279 (stating that “[u]pon appeal all independent grounds of recovery or of defense not conclusively established under the evidence and no element of which is submitted or requested are waived”); Wilz v. Flournoy, 228 S.W.3d 674, 676–77 (Tex. 2007) (concluding that the Flournoys waived their claim because they did not conclusively prove the claim or obtain a jury finding to support it).

Odessa asserts that by answering “No” to Question 2 “the jury unanimously found that Odessa did not breach the [Agreement's] bad faith prohibition by [engaging in Bad Faith Conduct].” We disagree. By answering “No” to Question 2, the jury found that the GR Parties did not prove by a preponderance of the evidence that Odessa failed to comply with the Agreement by engaging in Bad Faith Conduct. See Grenwelge v. Shamrock Reconstructors, Inc., 705 S.W.2d 693, 694 (Tex. 1986); Tousant v. Buchanan, No. 14-18-00574-CV, 2020 WL 6326176, at *2 (Tex. App.—Houston [14th Dist.] Oct. 29, 2020, pet. denied) (mem. op.). The jury did not find that Odessa complied with the Agreement or that Odessa did not engage in Bad Faith Conduct. See Grenwelge, 705 S.W.2d at 694; Tousant, 2020 WL 6326176, at *2. Nonetheless, the issue still remains as to whether this finding is sufficient to support the Declaration.

Odessa relies on the Supreme Court of Texas's opinion in Pace Corporation v. Jackson for the proposition that the GR Parties had the burden of proof on Odessa's requests for declaratory relief and that the jury's answer to Question 2 provides sufficient support for the trial court's issuance of the Declaration. See 284 S.W.2d 340 (Tex. 1955). In that case Pace filed suit against Allan Jackson under the DJ Act, seeking a declaration that Pace was not obligated by paragraph E of the contract between the parties to supply Jackson with cigarettes for his wholesale business. See id. at 343. Jackson counterclaimed against Pace asserting that Pace breached its obligation under paragraph E of the contract to supply Jackson with cigarettes for his wholesale business. See id. Jackson did not seek any declaratory relief. See id. The case went to trial and in response to various special issues the jury found in pertinent part that (1) the parties mutually intended that Pace would supply Jackson with cigarettes for a wholesale cigarette business to be carried on in Kerr and Bandera Counties; (2) Jackson lost profits in his wholesale business because of Pace's failure to supply cigarettes at the contract price; and (3) the amount of profits lost by Jackson in the wholesale business was $16,000. See id. at 344.

Pace argued that the trial court erred in ruling that Jackson would open and close the evidence and have the opening and closing argument to the jury. See id. at 350. Pace asserted that these rights belonged to Pace because, as plaintiff in the declaratory-judgment action, Pace had the burden of proving that paragraph E of the contract did not obligate Pace to supply Jackson with cigarettes for his wholesale business. See id. The Supreme Court of Texas stated that under Texas Rule of Civil Procedure 269 the party having the burden of proof on the whole case was the party who had the right to open and close the evidence and the closing argument. See id. The Pace court determined that Jackson had the burden of proof on the whole case, and that the trial court did not err in allowing Jackson to open and close the evidence and the closing argument. See id. Although Pace as plaintiff sought a declaration that it was not obligated by the contract to supply Jackson with cigarettes for his wholesale business, the high court also determined that the trial court did not err in instructing the jury that Jackson had the burden of proving that Pace was obligated by the contract to supply Jackson with cigarettes for his wholesale business. See id. at 350–51.

Texas courts of appeals and federal courts applying Texas law have followed Pace and concluded that if a plaintiff seeks a declaration that it is not liable on a claim by the defendant and the defendant counterclaims asserting that the plaintiff is liable on the claim, the defendant has the burden of proof in the declaratory-judgment action as well as in its claim against the plaintiff. See Singh v. Bajwa, No. 3:08-CV-0383-D, 2008 WL 3850545, at *1 (N.D. Tex. Aug. 19, 2008) (applying Texas law); Federal Ins. Co. v. Mariner Energy, Inc., No. G-06-228, 2006 WL 3447750, at *1, 5 (S.D. Tex. Nov. 27, 2006) (applying Texas law); Ross v. American Radiator & Standard Sanitary Corp., 507 S.W.2d 806, 810 (Tex. Civ. App.—Dallas 1974, writ ref'd n.r.e.); McCart v. Cain, 416 S.W.2d 463, 465–66 (Tex. Civ. App.—Fort Worth 1967, writ ref'd n.r.e.).

In today's case Odessa filed suit against the GR Parties seeking a declaratory judgment that it did not engage in Bad Faith Conduct and that it is not liable to pay the GR Parties any “Earnout Payment” under section 2.9 of the Agreement. By the time the trial court signed its final judgment, Odessa was only seeking a declaration that it did not engage in Bad Faith Conduct.⁴ The GR Parties did not assert any claim for declaratory relief. Instead the GR Parties counterclaimed alleging that Odessa engaged in Bad Faith Conduct and seeking damages resulting from Odessa's alleged breach of section 2.9 of the Agreement. Under Pace and its progeny, we conclude that the GR Parties had the burden of proving that Odessa breached section 2.9 by engaging in Bad Faith Conduct both as to the Bad Faith Counterclaim and as to Odessa's request for a declaration that it did not engage in Bad Faith Conduct. See Pace, 284 S.W.2d at 350–51; Singh, 2008 WL 3850545, at *1; Federal Ins. Co., 2006 WL 3447750, at *1, 5; Ross, 507 S.W.2d at 810; McCart, 416 S.W.2d at 465–66. Therefore, the jury's finding in response to Question 2 that the GR Parties did not prove by a preponderance of evidence that Odessa failed to comply with the Agreement by engaging in Bad Faith Conduct entitles Odessa to the Declaration as well as a take-nothing judgment on the Bad Faith Counterclaim. See Pace, 284 S.W.2d at 350–51; Singh, 2008 WL 3850545, at *1; Federal Ins. Co., 2006 WL 3447750, at *1, 5; Ross, 507 S.W.2d at 810; McCart, 416 S.W.2d at 465–66. Thus while a jury finding must support the trial court's issuance of the Declaration, under Pace and its progeny the jury's finding in response to Question 2 supports the issuance of the Declaration.

There are not many cases in which (1) the plaintiff filed a declaratory-judgment action seeking a declaration that the plaintiff is not liable on a claim, (2) the defendant counterclaimed seeking to hold the plaintiff liable on that claim, without seeking declaratory relief; and (3) the court addressed which party had the burden of proof in the declaratory-judgment action (the “Nonliability Scenario”). The GR Parties cite many cases in support of their first issue but only one—Double Diamond—is such a case. See Double Diamond, Inc. v. Saturn, 339 S.W.3d 337, 345–47 (Tex. App.—Dallas 2011, pet. denied). Although that case supports the GR Parties' position, Pace, not Double Diamond, is binding on this court, and the Double Diamond court does not address Pace or its progeny. See id. Odessa cites other cases for the proposition that a party seeking a declaration has the burden of proving its entitlement to the declaration, but none of these cases involve the Nonliability Scenario, so they are not on point.

Based on Pace, we conclude that the trial court did not err as a matter of law by issuing the Declaration and that Odessa did not waive its right to seek attorney's fees under the DJ Act by not seeking or securing a jury finding in addition to the finding in response to Question 2. See Pace, 284 S.W.2d at 350–51; Singh, 2008 WL 3850545, at *1; Federal Ins. Co., 2006 WL 3447750, at *1, 5; Ross, 507 S.W.2d at 810; McCart, 416 S.W.2d at 465–66. Therefore, we overrule the first issue.

B. Did the trial court err as a matter of law by awarding Odessa attorney's fees under the DJ Act because the award allowed Odessa to use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees?

Under their second issue the GR Parties note that the Agreement does not contain any provision providing that a prevailing party in a dispute regarding the Agreement may or must be allowed to recover attorney's fees. Odessa also points out that no applicable statute allows Odessa to recover its attorney's fees for successfully defending against a claim for breach of the Agreement. See Gonzalez Fin. Holdings, Inc. v. Moore, No. 14-09-00503-CV, 2010 WL 4514402, at *4 (Tex. App.—Houston [14th Dist.] Nov. 9, 2010, no pet.). Odessa was not successful on its claim for breach of section 12.1 of the Agreement, so Odessa may not recover reasonable and necessary attorney's fees for prosecuting that claim under Chapter 38. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001(b) (West, Westlaw through 2025 2d C.S.). Under its claim for breach of section 2.8(d) of the Agreement, the trial court awarded Odessa interest on the Adjustment Amount that the GR Parties paid late. The trial court also awarded Odessa reasonable and necessary attorney's fees with respect to this claim, and except for challenging the award of prejudgment interest on these fees, the GR Parties have not challenged the trial court's award of reasonable and necessary attorney's fees with respect to Odessa's claim for breach of section 2.8(d). Instead, the GR Parties argue that the trial court erred as a matter of law in awarding Odessa $1,932,198.49 as a reasonable fee for the necessary legal services of Odessa's attorneys for representation in the trial court with respect to Odessa's request for declaratory relief (the “Fee Award”).⁵ Under the second issue the GR Parties argue that the trial court erred in allowing Odessa to use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees.⁶ The GR Parties assert that Odessa may not use the DJ Act to circumvent fee-shifting rules that the Texas Legislature has enacted in other statutes by nakedly leveraging its request for declaratory relief as a mechanism to obtain an award of attorney's fees that would ordinarily be unavailable.

Even though this court has overruled the first issue, without challenging the Declaration, the GR Parties may challenge the Fee Award based on the trial court's alleged error in allowing Odessa to use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees. See MBM Fin. Corp. v. Woodlands Operating Co., L.P., 292 S.W.3d 660, 669 (Tex. 2009). Texas has long followed the “American Rule” prohibiting fee awards unless specifically provided by contract or statute. Id. By contrast, the DJ Act allows fee awards to either party in all cases. See id.; Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West, Westlaw through 2025 2d C.S.) (providing that in a proceeding under the DJ Act, the trial court may award reasonable and necessary attorney's fees as are equitable and just). If repleading a claim as a declaratory judgment could justify a fee award, attorney's fees would be available for all parties in all cases. MBM Fin. Corp., 292 S.W.3d at 669. That would repeal not only the American Rule but also the limits imposed on fee awards in other statutes. Id. Accordingly, the rule is that a party cannot use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees. Id.

The DJ Act was originally “intended as a speedy and effective remedy” for settling disputes before substantial damages were incurred. Id. at 670 (quoting Cobb v. Harrington, 190 S.W.2d 709, 713 (1945)). It is “intended to provide a remedy that is simpler and less harsh than coercive relief, if it appears that a declaration might terminate the potential controversy.” MBM Fin. Corp., 292 S.W.3d at 670 (quoting Restatement (Second) of Judgments § 33 cmt. c (1982)). But when a request for declaratory relief is merely tacked onto a standard suit based on a matured breach of contract, allowing fees under Chapter 37 would frustrate the limits Chapter 38 imposes on such fee recoveries. MBM Fin. Corp., 292 S.W.3d at 670. And granting fees under Chapter 37 when they are not permitted under the specific common-law or statutory claims involved would violate the rule that specific provisions should prevail over general ones. Id. While the Legislature intended the DJ Act to be remedial, it did not intend to supplant all other statutes and remedies. Id.

In MBM Financial, Woodlands Operating, the plaintiff, asserted breach-of-contract and fraud claims and sought declaratory relief. Id. at 663. The trial court made five declarations relevant to these claims and awarded the plaintiff $1,000 in actual damages and $145,000 in attorney's fees. Id. On appeal, the Supreme Court of Texas concluded that Woodlands was not entitled to recover any damages, and the court addressed the issue of whether Woodlands could recover attorney's fees under the DJ Act. Id. at 666, 669. Woodlands had added a request for declaratory relief to its claim for breach of contract and recovered no damages on its breach-of-contract claim, so Woodlands could not recover attorney's fees under Chapter 38. Id. at 670. The MBM Financial court held that although the trial court did not err in making the five declarations, Woodlands could not recover attorney's fees under the DJ Act because allowing it to do so would frustrate the provisions and limitations of Chapter 38. Id.

The facts of MBM Financial are different from the facts in today's case. In MBM Financial the plaintiff filed a breach-of-contract claim and a request for declaratory relief, and though the defendant initially filed a breach-of-contract counterclaim, it later dropped that claim. Id. at 663. Even presuming that today's case does not fall within the holding of MBM Financial, under the doctrine of judicial dictum, this court still is bound by statements made by the MBM Financial court deliberately and for future guidance in the conduct of litigation, for example the statement that a party cannot use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees. See MBM Fin. Corp., 292 S.W.3d at 671; BFS Grp. LLC v. De Leon, —S.W.3d.—,—, 2025 WL 2394091, at *13 (Tex. App. —Houston [14th Dist.] Aug. 19, 2025, pet. filed); Allstate County Mutual Ins. Co. v. Wootton, 494 S.W.3d 825, 834 (Tex. App.—Houston [14th Dist.] 2016, pet. denied). In a subsequent case, the Supreme Court of Texas also stated that a request for declaratory relief “must do more ‘than merely duplicate the issues litigated’ via the contract or tort claims.” Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 624 (Tex. 2011) (quoting MBM Fin. Corp., 292 S.W.3d at 670).

In another scenario some courts have determined that if a plaintiff requests declaratory relief against a defendant and the defendant counterclaims for declaratory relief in its favor, the trial court may award reasonable and necessary attorney's fees to either the plaintiff or the defendant under the DJ Act. See Winner v. Jarrah, No. 01-19-00115-CV, 2020 WL 477222, at *7 (Tex. App.—Houston [1st Dist.] Jan. 30, 2020, no pet.) (mem. op.). Today's case does not present that scenario because the GR Parties did not request any declaratory relief.

Another scenario is when a plaintiff asserts a breach-of-contract claim against the defendant, without any request for declaratory relief, and the defendant responds by seeking declaratory relief in the form of declarations that the defendant fully performed under the contract and did not breach the contract. See Gonzalez Fin. Holdings, 2010 WL 4514402, at *2, 4 (describing this scenario between two third-party plaintiffs and the third-party defendant). We have applied the MBM Financial opinion and concluded that in this scenario the DJ Act may not be used as a basis for the defendant to recover attorney's fees. See id.

We must now apply the teachings of MBM Financial to the facts of today's case. Odessa alleged that the GR Parties breached two other provisions of the Agreement, but Odessa did not allege that the GR Parties had breached section 2.9 of the Agreement. Instead Odessa requested declarations under the DJ Act that (1) it had not engaged in Bad Faith Conduct, which would be a breach of section 2.9 of the Agreement; (2) no Earnout Payment was owed to the GR Parties; and (3) Odessa did not breach the Agreement. Odessa later reduced this request to a request for a single declaration that it had not engaged in Bad Faith Conduct. In response to Odessa's claims, the GR Parties asserted a single counterclaim for breach of section 2.9 by Odessa engaging in Bad Faith Conduct. The GR Parties did not request any declaratory relief. The GR Parties did not succeed on their breach-of-contract counterclaim, and Odessa sought and obtained reasonable and necessary attorney's fees under the DJ Act. The parties have not cited and research has not revealed any case from the Supreme Court of Texas or this court addressing whether a party seeking declaratory relief may recover attorney's fees under the DJ Act in this scenario, which appears to be a scenario not found in many appellate decisions. An opinion from the Tenth Court of Appeals supports the conclusion that in today's case Odessa cannot use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees. See Fleet Oil & Gas, Ltd. v. EOG Resources, No. 10-11-00289-CV, 2014 WL 2159537, at *7–8 (Tex. App.—Waco May 22, 2014, pet. denied). An opinion from the Third Court of Appeals supports the opposite conclusion. See Handwerker Hren Legal Search, Inc. v. Recruiting Partners GP, Inc., No. 03-13-00239-CV, 2015 WL 4999054, at *5–6 (Tex. App.—Austin Aug. 19, 2015, pet. denied).

In today's case Odessa obtained a single declaration that overlapped with the issue that determines whether Odessa breached section 2.9 of the Agreement—whether Odessa engaged in Bad Faith Conduct. In addition, as described in the previous section of this opinion, under the Pace precedent, the only jury finding needed to support the trial court's issuance of the Declaration was the jury's negative answer to the liability question on the GR Parties' breach-of-contract counterclaim against Odessa. See section II.A. above. Thus Odessa's entitlement to the Declaration was determined by the same jury question that was the basis for the trial court's judgment that the GR Parties take nothing on their counterclaim. No applicable statute allows Odessa to recover its attorney's fees for successfully defending against this counterclaim. See Gonzalez Fin. Holdings, 2010 WL 4514402, at *4. Odessa would be barred from recovering attorney's fees under the DJ Act if Odessa requested the same declaratory relief in a counterclaim in response to a claim by the GR Parties for breach of section 2.9 of the Agreement. See Gonzalez Fin. Holdings, 2010 WL 4514402, at *2, 4. It would be inconsistent to allow Odessa to recover attorney's fees under the DJ Act just because Odessa filed its claim first. In the context of the trial court's single, retrospective declaration that overlaps both procedurally and substantively with Odessa's defense of the Bad Faith Counterclaim, we conclude that Odessa may not use the DJ Act as a vehicle to obtain the Fee Award, which is an award of otherwise impermissible attorney's fees. See MBM Fin. Corp., 292 S.W.3d at 669–71; Gonzalez Fin. Holdings, 2010 WL 4514402, at *4; Fleet Oil & Gas, Ltd., 2014 WL 2159537, at *7–8; but see Handwerker Hren Legal Search, Inc., 2015 WL 4999054, at *5–6. To the extent the GR Parties assert that the trial court erred in making the Fee Award because Odessa may not use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees, we sustain the second issue. We modify the trial court's judgment to delete the Fee Award, so that Odessa is awarded $528,680.62 as reasonable and necessary attorney's fees for representation in the trial court with respect to Odessa's claim for breach of section 2.8(d) of the Agreement (“Modified Fee Award”). We need not and do not address the remainder of the second issue, including the GR Parties' argument that the trial court erred in making the Fee Award because Odessa's request for declaratory relief was a “mirror image” of the Bad Faith Counterclaim.

C. Does Supreme Court of Texas precedent preclude Odessa from recovering prejudgment interest on the award for reasonable and necessary attorney's fees for representation in the trial court?

The trial court awarded Odessa more than $400,000 in prejudgment interest on the trial court's award of reasonable and necessary attorney's fees for representation in the trial court. The trial court calculated this interest by applying the then-current legal rate of 8.5% to the $2,326,672.65 in attorney's fees that Odessa had paid as of rendition of judgment, starting on the day Odessa filed suit and ending the day before judgment was rendered. In the previous section, we reduced the principal amount of this attorney's fees award to $528,680.62. In their third issue the GR Parties assert that the trial court erred in awarding Odessa prejudgment interest on any part of the award of reasonable and necessary attorney's fees for representation in the trial court.⁷ The GR Parties argue that although cases from this court have concluded that equitable prejudgment interest may be recovered on awards of attorney's fees, this precedent must yield to authority from the Supreme Court of Texas that precludes Odessa from recovering prejudgment interest on this attorney's fee award. Odessa argues that the Supreme Court cases relied on by the GR Parties do not prevent Odessa from recovering prejudgment interest on this attorney's fee award and that this court must follow its own precedent.

Several courts of appeals have concluded that equitable prejudgment interest may be recovered on awards of attorney's fees, and these courts generally rely on the Supreme Court of Texas's Cavnar opinion. See, e.g., A.V.I., Inc. v. Heathington, 842 S.W.2d 712, 717 (Tex. App.—Amarillo 1992, writ denied) (concluding that equitable prejudgment interest may be recovered on awards of attorney's fees and relying upon Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549, 552–55 (Tex. 1985), superseded by statute as stated in C & H Nationwide, Inc. v. Thompson, 903 S.W.2d 315, 324–25 (Tex. 1994) (three-justice opinion) and overruled in part on other grounds by Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528–33 (Tex. 1998)). In Cavnar the Supreme Court of Texas overruled eighty-eight years of judicial precedent and adopted a rule under principles of equity allowing recovery of prejudgment interest in personal injury, wrongful death, and survival actions. See Johnson & Higgins of Texas, Inc., 962 S.W.2d at 528. Cavnar involved claims for personal injury, but its application has been expanded to non-personal injury scenarios, including breach-of-contract claims for damages unascertainable from the contract. See id. at 529. The Cavnar court stated that prejudgment interest is “compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.” Cavnar, 696 S.W.2d at 552 (emphasis added); accord Ventling v. Johnson, 466 S.W.3d 143, 153 (Tex. 2015). The Cavnar court held that “as a matter of law, a prevailing plaintiff may recover prejudgment interest ․ on damages that have accrued by the time of judgment.” Cavnar, 696 S.W.2d at 554 (emphasis in the original). Thus, Cavnar only provides for an award of equitable prejudgment interest on an item if that item is part of the plaintiff's damages and if that part of the damages has accrued by the time of judgment. See id. The Cavnar opinion says nothing about whether an award of attorney's fees may be part of the plaintiff's damages or whether equitable prejudgment interest may be recovered on an award of attorney's fees. See id. at 551–56. But courts allowing recovery of equitable prejudgment interest on awards of attorney's fees have concluded that such fee awards are “damages” that are subject to the Cavnar rule and that “accrued by the time of judgment” means that prejudgment interest may only be recovered as to attorney's fees that the plaintiff has paid by the time of judgment. See A.V.I., Inc., 842 S.W.2d at 717.

In Life Insurance Company of North America v. Kilhafner, an opinion of this court that is not designated for publication and has no precedential value, this court stated in obiter dicta that it agreed with the Seventh Court of Appeals's opinion in A.V.I., Inc. that under Cavnar a plaintiff may recover equitable prejudgment interest as to attorney's fees that the plaintiff has paid by the time of judgment. See Life Ins. Co. of N. Am. v. Kilhafner, No. 14-96-00850-CV, 1998 WL 340288, at *5 (Tex. App.—Houston [14th Dist.] June 18, 1998, no pet.) (not designated for publication); A.V.I., Inc., 842 S.W.2d at 717. This court's statements were obiter dicta because the trial court in that case did not award any prejudgment interest on attorney's fees, and the only complaint in this regard was the appellant's complaint that the trial court erred in awarding prejudgment interest on attorney's fees. See Kilhafner, 1998 WL 340288, at *4–5.

In Kurtz v. Kurtz, a plaintiff argued that the trial court had erred in denying her request for equitable prejudgment interest on attorney's fees that she had paid by the time of judgment. See No. 14-08-00351-CV, 2010 WL 1293769, at *11 (Tex. App.—Houston [14th Dist.] Apr. 6, 2010, no pet.). This court noted that the plaintiff argued that equitable prejudgment interest on attorney's fees was recoverable based on Cavnar, and then concluded that the trial court did not abuse its discretion in denying prejudgment interest because the parties strenuously disputed whether, and to what extent, the defendant was required to pay plaintiff's attorney's fees, and the amount was not determined until the trial court ruled on remand following the first appeal in the case. See Kurtz, 2010 WL 1293769, at *11–12. Though not entirely clear, it appears that the Kurtz court concluded that even if the plaintiff was not barred as a matter of law from recovering equitable prejudgment interest on attorney's fees that she had paid by the time of judgment, the trial court did not abuse its discretion in deciding not to award such prejudgment interest based on the facts of that case. See id.

In the Nova case the defendant argued on appeal that the trial court erroneously awarded the plaintiff prejudgment interest on attorney's fees that she had paid by the time of judgment. See Nova Cas. Co. v. Turner Const. Co., 335 S.W.3d 698, 705–06 (Tex. App.—Houston [14th Dist.] 2011, no pet.). This court did not state why the defendant argued that this ruling was erroneous. See id. The Nova court noted that sister courts of appeals were split as to whether a plaintiff may recover prejudgment interest on attorney's fees the plaintiff paid by the time of judgment. See id. at 706. The Nova court then described this court's opinions in Kilhafner and Kurtz, and stated that “[i]n light of this authority, we cannot say the trial court abused its discretion in awarding pre-judgment interest on attorney's fees that [the plaintiff] had already paid prior to the trial court's entry of judgment.” Id.

In Apache Corporation v. Castex Offshore, the appellant argued that a panel of this court should follow precedent from the First Court of Appeals holding that equitable prejudgment interest may not be awarded on attorney's fees. See 626 S.W.3d 371, 384 (Tex. App.—Houston [14th Dist.] 2021, pet. denied). The Apache panel rejected this argument, stating that it was bound to follow the Nova precedent from this court rather than First Court precedent. See id.; Nova Cas. Co., 335 S.W.3d at 705–06.

The GR Parties contend that the foregoing cases from this court conflict with and are superseded by four opinions from the Supreme Court of Texas. See Ventling v. Johnson, 466 S.W.3d 143 (Tex. 2015), In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d 168 (Tex. 2013); Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998); C&H Nationwide, Inc. v. Thompson, 903 S.W.2d 315, 325 (Tex. 1994) (citing part IV of opinion, with which only three justices agreed), abrogated on other grounds by Carl J. Battaglia, M.D., P.A. v. Alexander, 177 S.W.3d 893 (Tex. 2005) (collectively, the “Four Cases”). According to the GR Parties, under this high court precedent the attorney's fees in the Modified Fee Award were not part of Odessa's damages for any of its claims; and therefore, Odessa may not recover equitable prejudgment interest on the Modified Fee Award.

This court's statements in prior cases that a plaintiff may recover equitable prejudgment interest on attorney's fees the plaintiff paid by the time of judgment were based on the attorney's fees being “damages” recovered by the plaintiff on which equitable prejudgment interest may be awarded under Cavnar and its progeny. See Cavnar, 696 S.W.2d at 554; Nova Cas. Co., 335 S.W.3d at 706; Kurtz, 2010 WL 1293769, at *11–12; A.V.I., Inc., 842 S.W.2d at 717. In 2013 the Supreme Court of Texas concluded that “[w]hile attorney's fees for the prosecution or defense of a claim may be compensatory in that they help make a claimant whole, they are not, and have never been, damages.” In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d at 173. The Supreme Court emphasized that the Legislature agrees that awards of attorney's fees are not damages. See id. at 172–73. The Nalle court stated that “[Chapter 38], the primary statute governing such fees, allows a prevailing party to ‘recover reasonable attorney's fees ․ in addition to the amount of a valid claim and costs, if the claim is for ․ an oral or written contract.’ ” Id. at 172 (quoting Tex. Civ. Prac. & Rem. Code § 38.001 (emphasis added)). The Nalle court noted that to recover attorney's fees under Chapter 38, a party must first prevail on the underlying claim and recover damages, thus showing that attorney's fees under Chapter 38 are not damages. See id. at 172–73. Significantly, the Modified Fee Award is based on Chapter 38 and Odessa's claim for breach of section 2.8(d) of the Agreement.

Though Odessa claims that these statements of the Nalle court are limited to the context of calculating the amount needed to supersede a judgment, the Nalle court's statements were not so limited on their face, and courts have not interpreted these statements as being so limited. See Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 134–35 (Tex. 2019) (stating that “Texas law is clear that attorney's fees and costs incurred in the prosecution or defense of a claim ․ are not damages” and relying on these statement from Nalle to construe the meaning of “actual damages” in section 541.152(a)(1) of the Texas Insurance Code); KBG Investments, LLC v. Greenspoint Prop. Owners' Ass'n, Inc., 478 S.W.3d 111, 122–23 & n.9 (Tex. App.—Houston [14th Dist.] 2015, no pet.) (relying on these statements from Nalle to construe the meaning of “damages” in section 41.004 of the Civil Practice and Remedies Code and stating that “[the plaintiff's] attorney's fees are not ‘damages’ ”). Because the Nalle court made these statements deliberately and for future guidance in the conduct of litigation, this court is bound by them. See id. at 172–73; BFS Grp. LLC, 2025 WL 2394091, at *13; Allstate County Mutual Ins. Co., 494 S.W.3d at 834. No panel of this court is bound by a prior holding of another panel if the prior holding conflicts with an on-point precedent from the Supreme Court of Texas. Abdullatif v. Choudhri, 561 S.W.3d 590, 623 (Tex. App.—Houston [14th Dist.] 2018, pet. denied). Because the Nalle court's binding statements conflict with any cases from this court holding that a plaintiff may recover equitable prejudgment interest on attorney's fees the plaintiff paid by the time of judgment, this court must follow the Nalle court rather than the prior panels of this court. See id.

Odessa asserts that because this court decided Apache after each of the Four Cases were decided, this court may presume that the Apache court considered each of the Four Cases and determined that none of them conflicted with or superseded this court's cases regarding the award of equitable prejudgment on attorney's fees (“Fourteenth Court Precedent”). In Apache, the appellant argued that a panel of this court should follow precedent from the First Court of Appeals holding that equitable prejudgment interest may not be awarded on attorney's fees. See Apache, 626 S.W.3d at 384. The Apache court stated that it was bound to follow Fourteenth Court precedent rather than First Court precedent. See id. In Apache the appellant did not argue that Nalle or any other high court case superseded the Fourteenth Court Precedent, and the Apache court did not mention any high court case or determine whether it superseded the Fourteenth Court Precedent. See In re Nalle Plastics Family Ltd. P'ship, 406 S.W.3d at 173; Apache Corp., 626 S.W.3d at 384. In addition, the First Court precedent that the Apache court declined to follow also did not address whether Nalle precluded the award of equitable prejudgment interest on attorney's fees. See Apache Corp., 626 S.W.3d at 384; Power Reps, Inc. v. Cates, No. 01-13-00856-CV, 2015 WL 4747215, at *22 (Tex. App.—Houston [1st Dist.] Aug. 11, 2015, no pet.) (mem. op.). We do not presume or conclude that the Apache court considered or addressed the argument that Nalle conflicts with and supersedes the Fourteenth Court Precedent. See In re Athans, 458 S.W.3d 675, 677 n.1 (Tex. App.—Houston [14th Dist.] 2015, orig. proceeding).

Under Nalle reasonable and necessary attorney's fees awarded to Odessa under Chapter 38 as a matter of law are not damages, and therefore the trial court did not have discretion to award equitable prejudgment interest on these fees under Cavnar and its progeny.⁸ See In re Nalle, 406 S.W.3d at 172–73; Cavnar, 696 S.W.2d at 554.⁹ To the extent that the GR Parties challenge in the third issue the trial court's award of prejudgment interest on the reasonable and necessary attorney's fees for representation in the trial court with respect to Odessa's claim for breach of section 2.8(d) of the Agreement, we sustain the third issue and modify the trial court's judgment to delete this award.¹⁰

III. CONCLUSION

Based on the Pace precedent from the Supreme Court of Texas, we conclude that the trial court did not err as a matter of law by issuing the Declaration and that Odessa did not waive its right to seek attorney's fees under the DJ Act by not seeking or securing a jury finding in addition to the finding in response to Question 2. The trial court erred in making the Fee Award because Odessa may not use the DJ Act as a vehicle to obtain otherwise impermissible attorney's fees. Under the Nalle precedent from the Supreme Court of Texas, the reasonable and necessary attorney's fees awarded to Odessa under Chapter 38 as a matter of law are not damages and therefore the trial court did not have discretion to award equitable prejudgment interest on these fees. Accordingly, we modify the trial court's judgment to delete the Fee Award, to delete the award of prejudgment interest on attorney's fees, and to award Odessa $528,680.62 as reasonable and necessary attorney's fees for representation in the trial court with respect to Odessa's claim for breach of section 2.8(d) of the Agreement. We affirm the judgment as modified.

FOOTNOTES

1.   “EBITDA” is an acronym that stands for “earnings before interest, taxes, depreciation, and amortization.”

2.   Under the Agreement there was both an Earnout Payment and a Holdback Payment that would be triggered if the business achieved $15 million in EBITDA. For simplicity, we generally refer to both the Earnout Payment and the Holdback Payment as the “Earnout Payment.”

3.   The GR Parties have not challenged this ruling on appeal. In their reply brief the GR Parties assert that under the doctrine of judicial estoppel, Odessa is estopped from arguing that it does not have the burden of proof as to its request for declaratory relief because Odessa took the position that it had this burden when it opposed the GR Parties' motion to realign. We overrule this argument because it was raised for the first time in the reply brief. See Williams v. Jimglo Yellowstone, LLC, No. 14-21-00375-CV, 2022 WL 4354114, at *3 (Tex. App.—Houston [14th Dist.] Sept. 20, 2022, no pet.) (mem. op.).

4.   The GR Parties argue that the Declaration is not a declaration of nonliability because it does not say that Odessa did not breach the Agreement. But the breach of the Agreement alleged by the GR Parties was that Odessa engaged in Bad Faith Conduct in breach of section 2.9 of the Agreement. In this context the Declaration is a declaration of Odessa's nonliability for breach of the Agreement.

5.   The GR Parties have not challenged the trial court's conditional awards of reasonable and necessary appellate attorney's fees.

6.   The GR Parties preserved error in the trial court as to their second issue, and Odessa does not argue otherwise.

7.   The GR Parties preserved error in the trial court as to their third issue, and Odessa does not argue otherwise.

8.   As the Nalle court stated, attorney's fees may sometimes form part of a compensatory damages award, for example when a party breaches a contractual promise to pay attorneys' fees. See Nalle, 406 S.W.3d at 174–75. No such attorney's fees were alleged or awarded here.

9.   We do not rely on the statement in C&H Nationwide opinion that “we disagree that our approach would allow prejudgment interest on costs and attorney's fees.” 903 S.W.2d at 325. The GR Parties cite this statement, but it is in Part IV, which is a part of the opinion with which only three justices agreed. See id. at 316. We also do not rely on the argument that the Ventling and Johnson & Higgins cases conflict with and supersede the Fourteenth Court Precedent. See Ventling, 466 S.W.3d 143 at 153; Johnson & Higgins of Tex., Inc., 962 S.W.2d at 528.

10.   We need not and do not address the remainder of the third issue.

Randy Wilson Justice