In the course of providing appeal bonds, we occasionally encounter situations where appellants only provide a bond to cover part of the judgment amount. Most state and federal statutes require at a minimum the full judgment plus costs and interest to be bonded, but there are exceptions, and we will outline those that we’ve dealt with in this article.
Cap on the Bond Amount
- Cap on the Bond Amount
Many states have placed limits on the amount of the appeal bond required by an appellant. Some simply cap the dollar amount required such as $25 million in Texas, Georgia, Hawaii, and Virginia. Most state caps range between $25 million to $150 million.
Several states have carve outs for small businesses such as the $1 million limit in Nevada or limitations or exemptions for Master Settlement Agreements.
Beyond explicit caps, several states do not require defendants to bond punitive damages to stay enforcement during the appeal.
- Limitations Based on Net Worth
Limitations Based on Net Worth
A few states have statutes that limit the amount of the appeal bond to the appellant’s net worth. For example, in Mississippi the bond cannot exceed 50% of appellant’s net worth not to exceed $35 million. Texas has a similar cap of 50% of the appellant’s net worth or $25 million, whichever is less.
- Policy Limits
Policy Limits
Insurers can find themselves in a difficult situation when a judgment exceeds their policy limits and their insured does not have the means to bond the excess portion. There is case law in states such as California where insurers can post a bond for their policy limits and obtain a stay for their portion even if their insured does not provide a bond for the judgment in excess of the policy limits.
- Stipulation
Stipulation
In certain situations, parties have agreed to an amount for less than the fully statutorily required amount. This has most often come up when the appellant does not have the collateral to post the full bond and demonstrates that to the other party. From the judgment creditor’s perspective, this usually comes down to “Something is better than nothing”.
- Court Order
Court Order
When parties cannot agree on a lowered bond amount, we have seen the courts order a lower amount. This occurred in President Donald Trump’s case in wherein the judgment amount was for approximately $450 million and the court allowed President Trump to file a bond for $175 million.
- Partial Satisfaction
Partial Satisfaction
Generally, if part of a judgment is satisfied, courts only require a bond for the unsatisfied portion. In jurisdictions that require high bond multiples as California with 1.5 times or New Mexico with 2 times the judgment amount, we’ve seen appellants pay off undisputed portions with available cash they have to stop accruing interest or lower the bond amount required to levels where they have the collateral in the form of other assets.
To give a specific example of when this can be helpful, let’s say an appellant has a $3 million judgment and $1 million of that is undisputed. The appellant has $1 million of cash and a residence worth $4.5 million with no debt against it.
In a state such as California, a bond would be required for 1.5 times the $3 million judgment or $4.5 million. On the surface it would seem the appellant has enough assets to collateralize the judgment. However, surety companies discount the appraised value of real estate by 30% to 50%. If we assume a surety would discount the residence by 30%, that means the collateral value would be $3.15 million plus the $1 million in cash equals $4.15 million. This is $350K short of the required bond amount.
If instead of collateralizing the entire judgment, the appellant satisfied $1 million using their cash, the remaining judgment would be $2 million and the bond requirement would be $3 million. In this case, the appellant’s residence valued by the surety at $3.15 million would be sufficient to collateralize the lower bond amount.
Conclusion
Every situation is going to be different depending on the rules of the particular jurisdiction, case law, the financial circumstances of the appellant, and the dynamics with the other party. Knowing how other cases have unfolded provide an important perspective, and a surety agent well versed in appeal bonds, can help you navigate how best to put the bond in place based on the factors presented.
