If you’re like most attorneys, you’ve only delt with appeal bonds a couple of times in your career. While it usually doesn't make sense to spend much time learning about things you don't encounter often, appeal bonds may be an exception. Like the emergency kit you have at home, the small cost and effort involved with appeal bonds can be extremely valuable if and when they’re required, and this article was served as your “Appeal Bond Emergency Kit.”
When a client is facing an adverse judgment, it's important to determine the time frame of when it can be enforced against them. In many jurisdictions such as California, the filing of an appeal bond does not stay enforcement (California CCP 917.1), and the client may be immediately vulnerable. On the other hand, states like Michigan have an automatic stay whereby the judgment is not enforceable “until expiration of the time for taking an appeal of right.” (Michigan Court Rule 7.108 - Stay of Proceedings; Bond; Review). Federal cases have a 30-day automatic stay after entry of a judgment provided under Rule 62 (a).
Post-trial motions, stipulations, or orders from the court can impact the timing of a judgment enforcement, and thus, the first step in protecting your client's assets is knowing the local rules.
To stay enforcement during the time of the appeal, most jurisdictions require some form of security to be posted with the court. The types of security allowed vary by jurisdiction, but the most common form of security used is an appeal bond (also referred to as supersedeas bonds).
The appeal bond is generally required to be in an amount in excess of the judgment to cover costs and interest during the appeal. This again varies by jurisdiction. New Mexico Appeals Section 39-3-22 - Supersedeas and Stay in Civil Actions requires one of the highest requirements at two times the judgment amount while most other jurisdictions range between 110 to 125 percent of the judgment amount.
While appeal bonds are technically underwritten by insurance companies (called surety companies), the obligation is really an extension of credit whereby the surety company is guaranteeing to the judgment creditor to pay the judgment if the appellant (judgment debtor) does not satisfy it on their own. As a result, surety companies underwrite them more like bank loans than an insurance product.
Surety companies will consider providing an appeal bond on an uncollateralized basis based on the indemnification of the applicant if the applicant can demonstrate that they have the financial strength to easily satisfy the judgment on their own. This is generally a high bar to clear with surety companies and often is limited to large, financially strong public and private companies, municipalities, and very high net worth individuals.
In all other cases, surety companies will generally require collateral in the full bond amount. There are four main types of collateral that surety companies will accept: cash, letters of credit from an approved bank, real estate, or a portfolio of publicly traded stock and bonds held in a non-retirement account.
The details of each form of collateral are too extensive to elaborate on in this article, but the main thing to be aware of is that collateral can be required.
How long it takes to get an appeal bond in place can range anywhere from a couple of days to a couple of months depending on the particular circumstances of the case and the client’s financial situation. Given the limited automatic stay in most jurisdictions, it is critical for attorneys to start advising their clients about the process as early on as possible. Ideally, this may take place prior to the judgment being entered.
For most clients, it is the first and only time they will need an appeal bond. Trial and appellate counsel are usually the first with the opportunity to educate the client about appeal bonds, and we find that when an attorney has laid the groundwork, the client has the greatest likelihood of obtaining the bond on the best terms possible and filing it within the time frame required to stay enforcement of the judgment.
