In the past two years, there have been a couple of amendments to the Texas Rules of Appellate Procedure which directly relate to the filing and requirements for supersedeas bonds, and we thought it would be useful for practitioners to have our view of the impact of these rules.
Rule 24.1(b)(2)
The amended rule effective January 1, 2024, now states that “A bond is effective upon filing”, and it no longer needs to be approved by the trial court clerk. In talking with appellate attorneys we work with, this change solves the problem of the trial court clerk being in the perhaps unreasonable, and maybe even undesirable, position of verifying the supersedeas bond is properly drafted to comply with TRAP 24 and that the surety company providing the bond is licensed and authorized to write surety bonds in Texas.
The rule retains the option for the supersedeas bond to be reviewed by the trial court on motion by any party, which in a way, indirectly shifts the onus for ensuring the bond is valid and enforceable to the attorneys for each party. While this may be routine for some attorneys already, it represents a small but important change that should be considered.
In our view, attorneys for both the appellant and appellee have an interest on behalf of their clients to ensure a proper bond is filed. Counsel for appellants will want to ensure the bond can’t be contested, and the appellee’s counsel will want to make sure they have a bond that is valid and enforceable. If neither party pays attention and puts the responsibility squarely on the surety agent issuing the bond, what’s to prevent an improperly completed bond, or even a fraudulent bond, from being filed that can’t ultimately be enforced. We’ve seen improperly completed and unenforceable bonds filed, and if they’re not discovered until the end of an appeal, it could potentially result in a stay being granted without the intended financial security for the appellee.
To mitigate these potential issues, attorneys could default to having the trial court review every bond, but it may be useful for attorneys to familiarize themselves with what to look for in bonds to have a way of discerning whether a bond should be reviewed by the trail court.
To that end, we have put together the following checklist that attorneys can use as a guide when reviewing bonds:
- Bond form must meet requirements in TRAP 24.1(d) Conditions of Liability
- Bond amount must conform to TRAP 24.2. Amount of Bond, Deposit, or Security
- The bond must be signed by the principal
- The bond must be signed by the attorney in fact for the surety company
- The bond must include a notary for the attorney in fact and power of attorney showing the authority of that individual to sign on behalf of the surety
- If there is a dollar limitation on the power of attorney, it must be greater than the amount of the supersedeas bond
- The bond and power of attorney must be dated and include the surety company’s seal
- The surety company must be licensed and authorized to do business in the state of Texas, which can be found by visiting the Texas Department of Insurance website and selecting:
- Go to Look up a company and click “View list of authorized insurance companies”
- Company type: All Company Types
- Line type: Fidelity & Surety
- Click “Run Report” and use the search feature to enter the surety company’s name (not the agent or broker).
Rule 24.2. (e)
This rule, effective September 1, 2023, only applies to a “…judgment debtor with a net worth of less than $10 million.”, and our focus in this article will be on the practical application of section (2) Alternative Security of this rule. This section states the following:
On a showing by the judgment debtor that posting security in the amount required under (a)(1) would require the judgment debtor to substantially liquidate the judgment debtor’s interests in real or personal property necessary to the normal course of the judgment debtor’s business, the trial court must allow the judgment debtor to post alternative security with a value sufficient to secure the judgment.
We see the applicability of this rule being very limited, because one of the main functions of surety companies and supersedeas bonds is providing appellants ways of collateralizing a supersedeas bond without having to liquidate their assets. Surety companies can consider accepting a wide variety of collateral including cash, bank letters of credit, real estate, publicly traded stocks and bonds held in non-retirement accounts, and the cash value of life insurance.
In rare instances, where a surety company cannot directly accept assets like real estate or stocks and bonds, the appellant still has the option of working with their bank to see if they can obtain a loan or letter of credit by pledging these assets. The cash or letter of credit can then be provided to the surety as collateral for the supersedeas bond.
This updated rule may prove very valuable in situations where there are closely held businesses with meaningful value but that don’t have the liquid cash or ability to obtain a bank loan sufficient to collateralize a bond. We encountered such a case with an oil and gas company that had mineral rights with tangible value, but the surety would not accept those assets as collateral and the company was not able to obtain additional financing beyond the loans they already had in place.
Conclusion
In light of the amendments to the Texas Rules of Appellate Procedures touched on here, counsel for both appellants and appellees must exercise increased diligence in evaluating the sufficiency and enforceability of bonds. Engaging a qualified surety agent with expertise in Texas appellate practice and the resources to provide creative options for securing supersedeas bonds is essential to ensure compliance with all applicable requirements and to safeguard the financial interests at stake during the pendency of an appeal.
