FIDELITY AND SURETY Alternatives to Supersedeas Bonds Protecting Your Assets During By Timothy S. Bishop, an Appeal Joshua D. Yount, and J. Bishop Grewell Until bond requirements The jury has just returned a substantial verdict against are reformed, the legal your client. The amount is excessive. The plaintiff’s legal system should not force theory was weak. And you think that you can win a rever- parties hit with immense sal. But if you want to keep a victor from claiming the spoils before you can remedy the jury’s debtor has appealed the judgment. To stay judgments to forgo their error, time and knowledge are of the an adverse judgment and protect its assets essence—especially in the present eco- during appeal, a losing defendant ordinar- rights to appeals. nomic climate. ily must post security to cover the entire Any party subject to a monetary judg- judgment amount, plus interest and costs. ment—a judgment debtor—may pur- Unless a defendant is willing and able to sue appellate review. To keep a judgment escrow cash or other assets, providing the creditor —any party entitled to a money required security usually involves obtain- judgment—away from your client’s assets ing a third-party guarantee in the form of while your appeal unfolds, however, a supersedeas bond, sometimes called an requires you to take that action immedi- “appeal bond.” In cases with eight-, nine-, ately. If a judgment debtor fails to satisfy or even 10-digit awards, this requirement the judgment in a timely manner, the judg- can become crippling. In 1987, Texaco was ment creditor may seek to collect the judg- actually forced to file for bankruptcy to ment from the debtor’s assets even if the avoid the bonding requirement for a $10.5 billion verdict. Texaco, Inc. v. Pennzoil Co., ■ Timothy S. Bishop and Joshua D. Yount 729 S.W.2d 768 (Tex. App. 1987), cert. dis- are partners in Mayer Brown LLP’s Supreme missed, 485 U.S. 994 (1987). More recently, Court and Appellate Practice. From the firm’s Philip Morris narrowly avoided having to Chicago office, they focus their practices post a $12 billion bond to stay the execution on appeals and critical motions in state and of a $10 billion judgment. Price v. Philip federal courts. A former associate at Mayer Morris, Inc., 848 N.E.2d 1 (Ill. 2005), reh’g Brown, J. Bishop Grewell is the Appellate denied, 846 N.E.2d 597 (Ill. 2006), cert. Chief for the U.S. Attorney’s Office for denied, 549 U.S. 1054 (2006). the District of Montana. Mr. Grewell Some states have reformed onerous ap- contributed to this article in his per- peal bond requirements. But the lack of fed- sonal capacity. The views in this arti- eral reform in the face of continued growth cle are his own and should not be in the size of damages awards—both puni- taken as representative of Depart- tive and compensatory—can create great ment of Justice positions or policy. difficulties for judgment debtors and their sureties. More than one out of every seven 28 ■ For The Defense ■ January 2012 © 2012 DRI. All rights reserved. jury awards now exceeds $1 million, and postpone paying a damages award until of approved corporate sureties: http://www. in the five years before the 2008 economic after an appeal, the supersedeas bond pre- fms.treas.gov/c570/c570-certified-reinsur-comp. crisis, one in 18 U.S. companies suffered a vents a judgment creditor from enforcing html (last visited Nov. 15, 2011). Depending liability loss of $5 million. Nineteen of the the judgment then dissipating the award, on the local rules, however, a surety does top 20 awards in 2009 exceeded $100 mil- transferring it to another person or entity, not necessarily have to come from this lion. Blockbuster damages awards can lead or placing it in a foreign jurisdiction where list. See, e.g., S.D.N.Y. & E.D.N.Y. Civ. Rule large companies to bankruptcy while even recovery may prove impossible. 65.1.1. In practice, navigating this proce- smaller verdicts may prove catastrophic for At the same time, a supersedeas bond dure in a case with a very large judgment a midsized or small company. The ability to assures that assets are available to pay a can become difficult and time- consuming stay enforcement of such awards pending judgment if an appeals court upholds it, so appeals is critical. a judgment creditor does not have to worry Challenging economic conditions dur- about the judgment debtor declaring bank- ing the global recession have made it more ruptcy or dissipating or hiding assets dur- Challenging economic and more difficult and costly to obtain a -su ing the year or more that it will take to persedeas bond. One report has noted an resolve an appeal. Appeals of large puni- conditions during the “increasing scarcity” of companies will- tive damages awards will often take sig- ing to consider, let alone issue, superse- nificantly longer. See, e.g., Exxon Valdez v. global recession have deas bonds, calling it the “legal equivalent Exxon Mobil Corp., 568 F.3d 1077 (9th Cir. of a snipe hunt.” The Myth of the Super- 2009) (ending litigation of a $5 billion puni- made it more and more sedeas Bond, The Daily Record, Jul. 16, tive damages jury verdict for an accident 2007. And the Surety & Fidelity Associ- that occurred 20 years earlier). difficult and costly to obtain ation of America warned of the impact A supersedeas bond thus provides secu- of the credit crunch on the surety mar- rity to both parties to litigation. It repre- a supersedeas bond. ket. Aon Surety Marketplace Update 1, 2, sents a procedural middle ground between Spring 2009. Credit- rating downgrades a judgment debtor’s right to appeal and a and bankruptcies have led to increased judgment creditor’s right to recover. and requires the immediate attention of a bonding costs and more demanding col- The mechanics of obtaining a stay of counsel and the client as soon as a judg- lateral requirements, drastically reduc- enforcement by posting a supersedeas bond ment becomes a possibility. ing or eliminating surety credit for some are not complex. As a matter of right, a industries. Id. Insurer Willis reported an judgment debtor may obtain a stay pend- Staying the Judgment and average premium increase of 15 percent ing an appeal in a federal court by posting Securing the Bond in 2009. Willis Finds Credit Crunch Fall- a supersedeas bond. Under Federal Rule of Although small surety bonds were once out Raises Financial Premiums by 15 per- Civil Procedure 62(d), a judgment debtor available on short notice, modern bonds, cent, Insurance Journal, Apr. 17, 2009. Now simply must file the notice of appeal before particularly for large judgments, may take more than ever, courts need to have sensi- or at the same time as it posts the bond, several weeks or even months to secure. Yet tivity to the burdens of supersedeas bonds and the court must approve the form and in the federal courts a bond seeker only has on would-be appellants, and companies amount of the bond. Local rules often set a two-week window between a judgment’s and their counsel need to understand their the requisite bond amount. Some courts set entry and the time that the bond must be in bonding options and how to manage them the amount as a fixed multiple of a judg- place to stay the judgment. Upon expiration effectively in a tight credit market. ment, while others require a bond to cover of the automatic, 14-day stay that begins the judgment, some amount of interest, and when a monetary judgment is entered un- What Are Supersedeas Bonds? an added amount for costs. See, e.g., E.G. der Federal Rules of Civil Procedure 62(a), Supersedeas, meaning “you must desist,” is Cal. R. 151(d) (setting the bond amount a judgment creditor may execute the judg- a writ, secured by posting a bond, staying at 125 percent of the judgment amount); ment immediately—obtaining orders freez- execution of a trial court judgment pend- N.D. Ill. L.R. 62.1 (setting the judgment, ing a judgment debtor’s assets or taking any ing an appeal. A judgment debtor doesn’t plus one year’s interest at the statutory other action to collect the judgment. While need to post a supersedeas bond to begin interest rate provided in 28 U.S.C. §1961, a debtor may still seek a stay after the au- an appeal. But if a judgment debtor appeals plus $500 for costs as the bond amount). tomatic stay has ended, any actions taken without posting a supersedeas bond or oth- A judgment debtor may itself finance a su- by a judgment creditor to enforce the judg- erwise obtaining a stay of execution, a judg- persedeas bond, but if the debtor lacks the ment before a court has approved the addi- ment creditor can enforce the judgment liquidity to do so, or if a court refuses to tional stay may remain effective even after a immediately. Should the debtor later win its approve a self- financed bond, the debtor court enters that stay. Because an appellant appeal, it may file a lawsuit to collect its lost will need a third-party surety. And the must file a notice of appeal before a court resources—though a right to recover does choice of a third-party surety is subject to would enter a stay pending an appeal, the not necessarily translate into the ability to court review and local requirements.