Never have appeal bonds been highlighted in the news as much as they were earlier this year when Donald Trump went through the process to obtain one in his New York civil fraud case. We were not involved in obtaining the $175 million bond on Mr. Trump’s behalf, but during the process we were contacted by countless news organizations to comment about it. We elected not to for two reasons. One reason is we didn’t want anything we said to be misconstrued as political, and the second is we were concerned that the information we conveyed wouldn’t be translated accurately.
While we have no regrets about our original decision even though we probably missed out on our “30 seconds of fame”, we read countless articles that inaccurately reported the realities of appeal bonds. Therefore, we decided to write our own article in our own words about the lessons that can be learned from Mr. Trump’s experience. We’ve spent our entire careers trying to educate attorneys and the public about the realities of appeal bonds, because we strongly believe that when armed with the facts, attorneys can better serve their clients in staying enforcement of judgements during the appeal process.
While we have no regrets about our original decision even though we probably missed out on our “30 seconds of fame”, we read countless articles that inaccurately reported the realities of appeal bonds. Therefore, we decided to write our own article in our own words about the lessons that can be learned from Mr. Trump’s experience. We’ve spent our entire careers trying to educate attorneys and the public about the realities of appeal bonds, because we strongly believe that when armed with the facts, attorneys can better serve their clients in staying enforcement of judgements during the appeal process.
Real Estate
One of the major sources of confusion coming from the Trump case is whether surety companies will accept real estate as collateral for appeal bonds. In an article published by S&P Global, they stated, “What insurers are looking for in terms of collateral for a bond are liquid assets.” While this is true of most surety companies, there are two surety companies that routinely accept real estate collateral. It is an option that we use often, and we’ve secured deeds of trust on single family residences, single tenant fast food restaurants, multifamily buildings, shopping centers, and even raw land.
The issue in the Trump case was the size of the bond and possibly the real estate being offered. The two sureties that accept real estate can generally only issue a bond up to $100 million based on real estate. There are ways to potentially go beyond that in the right circumstances, but it can be challenging.
The issue in the Trump case was the size of the bond and possibly the real estate being offered. The two sureties that accept real estate can generally only issue a bond up to $100 million based on real estate. There are ways to potentially go beyond that in the right circumstances, but it can be challenging.
Size of the Bond
Early on when Trump was having trouble obtaining a bond for the original roughly $450 million requirement, The Trump Company’s general counsel, Alan Garten, stated, “Critical among these challenges is not just the inability and reluctance of the vast majority of sureties to underwrite a bond for this unprecedented sum…”
To the uninformed reader, this can sound as if surety companies don’t have the ability or willingness to issue $450 million appeal bonds. However, there are at least 8 sureties that either have written bonds of this size or are capable of writing this size of a bond. Surety companies also have the ability to share risk on a single bond with other sureties, and it is common for large bonds to be issued by multiple surety companies.
To the uninformed reader, this can sound as if surety companies don’t have the ability or willingness to issue $450 million appeal bonds. However, there are at least 8 sureties that either have written bonds of this size or are capable of writing this size of a bond. Surety companies also have the ability to share risk on a single bond with other sureties, and it is common for large bonds to be issued by multiple surety companies.
Discretion of the Courts
The case demonstrated that some courts have great discretion with the amount of the bond required and timeframe in which it is posted. After Trump demonstrated difficulty in obtaining the full $450 million bond, the court reduced the bond requirement to $175 million and granted a stay of 10 additional days for Trump to post the bond.
We have seen the courts grant additional stays many times, and we have submitted affidavits similar to what was provided in the Trump case outlining the status of an appeal bond application and additional time required to get the bond in place.
We have seen the courts grant additional stays many times, and we have submitted affidavits similar to what was provided in the Trump case outlining the status of an appeal bond application and additional time required to get the bond in place.
License and Admitted Surety
When Trump finally posted the $175 million appeal bond, it was reported that New York Attorney General Letitia James took several issues with the bond. One issue was that the surety, Knight Specialty, did not appear to be licensed in New York to issue surety bonds. To avoid such a challenge, it’s important for the appellant’s attorney and the surety agent to confirm that any surety company being contemplated is licensed in the jurisdiction where the bond is being posted. In state court that can mean checking the state Department of Insurance and/or getting a Certificate of Authority from the surety company. In federal court that means looking up the Department of Treasury list of approved sureties, which you can find on our website here.
The sufficiency of the bond was also challenged, because it did not include a power of attorney. With rare exceptions, appeal bonds always include a power of attorney authorizing the individual that is signing on behalf of the surety company, and they include a notary acknowledgement for that signer.
Using Cash to Secure an Appeal Bond
To obtain the bond, it was reported that Trump ended up pledging an account with $175 million of cash. The benefit of this structure allows the appellant to earn interest on the cash during the appeal, which in today’s rate environment can be significant. Our understanding is courts generally pay little to no interest on cash they hold. Therefore, in recent years with elevated interest rates, it has generally been more favorable for appellants to post cash with a surety company to earn interest, because the interest typically exceeds the bond premium charged by the surety.
Conclusion
We hope that you walk away from this article feeling a little more informed on the intricacies of appeal bonds, and we are always available to address specific questions you may have.
