Racing The Clock: Appeal Bonds to Stay Judgment
When a civil trial concludes with an order for the losing party (the judgment debtor) to pay a significant sum to the winner (the judgment creditor), the clock begins to tick on both the appeal and the collection process. It is a common legal misconception that simply filing a notice of appeal halts the collection of funds; in reality, the judgment remains enforceable unless a stay is granted. To prevent the immediate seizure of assets, a debtor generally must post an appeal bond—often called a supersedeas bond. Because the “automatic stay” provided by the court is temporary, understanding the tricky timing of securing appeal or supersedeas bonds is essential to preventing a premature seizure of assets while the higher court reviews the case.
Postponing Payment Pending Appeal: Bond Required
Stays are often granted pending an appeal, enabling the judgment debtor to halt payment to the judgment creditor until a higher court reviews the case. However, as the Legal Information Institute at Cornell Law School explains: “In a civil case, the party receiving the stay usually must obtain a bond as security for reimbursing the opposing party if the grounds for the stay turn out to be baseless or the party causes unnecessary delays.”
Securing an appeal bond can turn out to be quite tricky, because it must be done within a narrow timing window as the trial judgment transitions to the appeal. Typically, the “automatic stay period” in which the winning party is temporarily prevented from collecting on a money judgment is brief. In many jurisdictions, 21-days is standard, and in Federal Court the automatic stay is 30 days. Critically, an appeal bond that accurately addresses court requirements must be procured before this temporary stay period expires. Bonding delays can result in a “coverage gap” during which the assets of the judgment debtor are left unprotected. If an appeal bond is not in place before the temporary stay ends, the creditor can begin collection efforts immediately, potentially destabilizing a judgment debtor’s finances while the appeal is still pending.
At the Michigan Bar Journal Timothy A. Diemer underscores the intricacies of navigating between trial and appellate court proceedings, observing:
- Without fail, the most complicated phase of any appeal from an adverse money judgment is procuring the bond necessary to halt enforcement of the judgment pending appeal. The filing of a claim of appeal, in and of itself, does not stay enforcement proceedings which, if not stayed, can wreak havoc on a judgment debtor and jeopardize the success of even the strongest appellate arguments.
- With no stay in place, a judgment creditor has a wide range of enforcement options under the Court Rules and statutory authorities. Enforcement efforts can range from the nuisance and embarrassment of a creditor’s examination to the collection of funds through garnishment. For business entities, an unbonded money judgment can lead to the appointment of a receiver and unforeseen consequences such as a declaration of default under a loan agreement.
To ensure the assets at stake are safeguarded during an appeal, Diemer advises paying close attention to the timing, and even taking a proactive approach to securing an appeal bond:
Although an appeal bond is not needed until 21 days after exhaustion of all post-trial remedies in the trial court, procurement of the bond cannot be an afterthought and waiting until the clock starts ticking on the 21-day window can have disastrous consequences….Even under a tight timeline, a claim of appeal can be cobbled together on a moment’s notice to vest the Court of Appeals with jurisdiction. The same cannot be said of procuring an appeal bond which cannot be accomplished on a moment’s notice. Rather, the best course of action if a litigant knows a case is going to trial with the potential of appellate proceedings is to begin the appeal bond process before trial even begins.
For help with the navigation of challenging timelines associated with appeal bonds, attorneys around the country rely on Colonial Surety Company, a national and direct bond writer. At Colonial Surety Company, appeal and supersedeas bonds can be quoted online, and flexible collateral options make it easy and speedy to complete the process. Once the bond is issued, it can be instantly printed or downloaded and filed with the court.
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Good To Know: What Exactly Is an Appeal Bond?
Investopedia explains that an appeal bond “is a financial guarantee required from appellants in civil cases involving monetary judgments. It is an amount of money held while a legal appeal is decided by a higher court and is supplied by the party who loses a case but has grounds for appeal.” Essentially, if an appeal fails, the bond ensures that the initial judgment amount, plus interest, is covered. In addition to safeguarding funds during the appeal process, appeal bonds also help to prevent frivolous appeal attempts from clogging up the courts.
Like other types of judicial bonds, an appeal bond is basically a “promise backed by assets.” When a judge orders a bond, they are stating: “I will grant your request to freeze this asset or appeal this verdict, but you must prove you can pay for any resulting damages if you lose.” Typically, courts set the bond amount at 100% to 125% of the judgment so as to account for interest and other costs, including legal and court fees. There are three parties involved in an appeal or supersedeas bond:
- The Principal: This is the litigant (either the person or the business) who is required by the court to provide the bond. The Principal is the party making the promise to fulfill a court-ordered obligation.
- The Obligee: This is the court itself, acting on behalf of the opposing party. The Obligee is the beneficiary of the bond; they are the ones being “guaranteed” that funds will be available if the Principal fails to meet their legal requirements.
- The Surety: This is a trusted, neutral third party, such as Colonial Surety Company. The Surety’s role is to provide the financial backing for the Principal’s promise. If the litigant ultimately fails to pay a judgment or fulfill their duty, the Surety steps in to compensate the Obligee, and subsequently seeks reimbursement from the Principal.
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