Liability On A Supersedeas Bond – A Further Exploration
February 7, 2023
This Surety Today Blog post is the second post dealing with Supersedeas Bonds. In the first post, we discussed supersedeas bonds in general. In this post, we discuss the importance of the old adage – RTFB when it comes to Supersedeas Bonds. We will have one final blog post on Supersedeas Bonds in the future where we will go into more detail on the various scenarios that can play out on an appeal and what the scenarios may mean for the surety’s potential liability.
A. Determining Liability On A Supersedeas Bond
At what point in the appellate process may a surety’s liability on a supersedeas bond be enforced, or, conversely, at what point in the appellate process may a surety be discharged on a supersedeas bond? The concept of “scope of security” in this article does not relate to the penal sum of the bond or the monetary liability facing a surety upon issuing a supersedeas bond. Rather, the “scope of security” will refer to which appellate level in a particular jurisdiction the supersedeas bond secures the judgment. An analysis of the issue triggers a familiar refrain – RTFB, the terms of the supersedeas bond control. Accordingly, a ruling from a jurisdiction’s highest court may not be required for a determination and/or resolution of the surety’s liability on or discharge from a supersedeas bond.
- Federal Court
Fed. R. Civ. P 62(d) is largely silent as to the operation of supersedeas bonds in the federal courts. Accordingly, in federal court, a surety’s liability on the supersedeas bond is governed almost exclusively by the express terms of the supersedeas bond and the principles of contract interpretation. Generally, the supersedeas bond language creates three potential scenarios in federal court: (i) the supersedeas bond language expressly secures the monetary judgment appealed from only to a specified Circuit Court; (ii) the supersedeas bond language expressly secures the monetary judgment appealed from up to and through the United States Supreme Court; or (iii) the supersedeas bond language fails to identify either a Circuit Court or the U.S. Supreme Court. Obviously, best practices require that a surety should identify in the express terms of the supersedeas bond which appellate court can trigger the surety’s liability or discharge to avoid any uncertainty in the time and scope of its obligations to pay a judgment at some juncture in the appellate process.
(i) The express language of a supersedeas bond identifies a specific federal Circuit Court
The first of the three scenarios created by the supersedeas bond language was addressed in Hicks v. Cadle Co., Civ. No. A04CV02616ZLWKLM, 2010 WL 1351902 (D. Colo. Mar. 31, 2010), a case out of the District of Colorado. In Hicks, the monetary judgment appealed from was affirmed by the Tenth Circuit. The Judgment Debtor expressed its desire to seek certiorari to the Supreme Court. However, the judgment-creditor moved to collect on the supersedeas bond and the court granted the motion, noting that the supersedeas bond securing the stay was limited to the Judgment Debtor’s appeal to the Tenth Circuit. Because that appeal had been concluded in the Judgment Creditor’s favor, the mandate had issued, no further stay of execution was in place.
The Hicks approach is consistent with the universal recognition by courts that “the obligation of sureties upon supersedeas bonds is strictissimi juris, and not to be extended by implication or enlarged by construction of the terms of the contract entered into.” Crane v. Buckley, 203 U.S. 441, 447 (1906). Thus, even though the judgment-debtor in Hicks could have potentially prevailed in the U.S. Supreme Court, the mandate of the Tenth Circuit triggered the surety’s liability on the supersedeas bond because the express terms of the supersedeas bond only secured the monetary judgment appealed from to an appeal to the Tenth Circuit, not the U.S. Supreme Court. Thus, the exhaustion of the appellate process may not be a threshold requirement to triggering a surety’s liability on or discharge from a supersedeas bond.
In sum, a supersedeas bond that extends protection only through entry of a mandate by a federal Circuit Court prematurely exposes the judgment-debtor to the risks a supersedeas bond is designed to mitigate – the judgment-creditor’s inability to reimburse the judgment-debtor if the monetary judgment is modified downward or even reversed at some later point on appeal. The surety, therefore, potentially faces a greater chance of incurring liability on the supersedeas bond because its liability may be triggered prior to the final exhaustion of the appellate process. Conversely, if the judgment-debtor prevails in the Circuit Court (i.e., reversal of the judgment), then the judgment-creditor may also be stripped of the protections created by the supersedeas bond. For instance, if the supersedeas bond is discharged because the judgment-debtor prevailed on appeal at the Circuit Court level, yet the judgment-creditor could potentially prevail on appeal to U.S. Supreme Court and have the original judgment reinstated, the judgment-creditor may be unable to recover the monetary judgment at that juncture because the original monetary judgment was no longer secured by a supersedeas bond (which has been discharged) and the judgment-debtor is insolvent. The surety, however, would escape liability in this scenario and benefit from the limited security provided by the language of the supersedeas bond.
In determining whether to provide a supersedeas bond that limits the scope of security of the supersedeas bond to a specific federal Circuit Court mandate, a surety must weigh the risks and benefits of subjecting itself to only one bite of the appellate apple.
(ii) The express language of a supersedeas bond identifies the United States Supreme Court
The second of the three scenarios created by the supersedeas bond language is not routinely addressed by the case law. The general rule, however, is that the terms of the supersedeas bond will govern its application. Beatrice Foods Co. v. New England Printing & Lithographing Co., 930 F.2d 1572, 1574 (Fed. Cir. 1991); Tennessee Valley Auth. v. Atlas Mach. & Iron Works, Inc., 803 F.2d 794, 798 (4th Cir. 1986). Accordingly, if a supersedeas bond expressly states that the monetary judgment is secured through a ruling by the U.S. Supreme Court, regardless of the outcome at the Circuit Court level, the supersedeas bond should still secure the monetary judgment until the U.S. Supreme Court either issues a mandate or denies a petition for writ of certiorari, thus ending the appellate process.
(iii) The language of a supersedeas bond does not identify a specific federal court
The final scenario created by the supersedeas bond language, or more accurately, in the absence of express language identifying a specific federal appellate court, was addressed in Revlon, Inc. v. Carson Products Co., 647 F. Supp. 905, 906 (S.D.N.Y. 1986). In Revlon, the Federal Circuit, on the judgment-debtor’s appeal, reversed a judgment of attorneys’ fees awarded by the District Court to the judgment-creditor. The judgment-creditor, thereafter, petitioned the U.S. Supreme Court for a writ of certiorari. While the petition for the writ of certiorari was pending, the judgment-debtor moved for a release of the supersedeas bond in the District Court. The judgment-creditor opposed the motion arguing, “should the Supreme Court grant certiorari and reinstate our award of attorney’s fees, it will not be insured against the possibility of [judgment-debtor’s] financial inability to fulfill its obligation.” In granting the judgment-debtor’s motion to release the supersedeas bond, the court stated:
First, plaintiff assumes that we have the power to maintain the bond simply because the appellate decision may be reversed. A court of appeals judgment, it must not be forgotten, ‘is entitled to a presumption of validity.’ Graves v. Brown, 405 U.S. 1201, 1203, 92 S. Ct. 752, 753, 30 L. Ed.2d 769 (1971). Far be it for us to presume, as plaintiff would have us do, that the court of appeals erred; a district court must be ever vigilant of such hubris.
The court, therefore, held “a supersedeas bond securing the stay should be limited to the court of appeals. Consequently, the bond should be released once the appellate court has reversed the underlying judgment.” Id. Accordingly, the supersedeas bond was released. See also Am. Fed. Grp., Ltd. v. Rothenberg, 91CIV.7860(THK)(SWK), 1998 WL 273034 (S.D.N.Y. May 28, 1998) (supersedeas bond stating security extended only to ruling from “Appellate Court” was discharged after Second Circuit reversed appealed from judgment); Water Technologies Corp. v. Calco, Ltd., 694 F. Supp. 1328, 1331 (N.D. Ill. 1988) (“we hold that, absent unambiguous language in the supersedeas bond to the contrary, an appellant is liable under a bond only until the court of appeals has issued its mandate in a case”). A surety, therefore, should consider, if possible, expressly identifying the specific federal appellate court to which it agrees to secure the monetary judgment appealed from in the terms of the supersedeas bond to definitively ascertain its risks and avoid protracted litigation over the scope of security of the supersedeas bond.
- State Court
The scope of security provided by a supersedeas bond in a state court is also governed by the terms of the supersedeas bond and, therefore, interpretation of the supersedeas bond’s terms may result in similar scenarios discussed in the previous Federal Court section. Some jurisdictions, however, impose certain mandatory obligations on the surety that specifically address this issue. For example, Maryland Rule 8-422 states, in pertinent part:
(d) Continuation in Court of Appeals of Previously Filed Security. A bond or other security previously filed to stay enforcement of a judgment of the lower court shall continue in effect pending review of the case by the Court of Appeals [Maryland’s highest court]. On motion, the Court of Appeals, with or without a hearing, may take such action as may be appropriate, including increasing or decreasing the amount of the bond, any security on the bond, or any other security (clarification added).
Thus, a supersedeas bond provided and accepted in a Maryland state court, pursuant to the Maryland Rules, must secure a monetary judgment until the Maryland Court of Appeals issues a mandate or denies a petition for writ of certiorari.
A surety issuing supersedeas bonds to secure a monetary judgment entered in a state court proceeding must be familiar with the scope of security that the express terms of the supersedeas bond create and also any obligations imposed by a respective jurisdiction’s applicable law to avoid any uncertainty as to which appellate court in a particular state may trigger the surety’s liability on or discharge from the supersedeas bond.
If you have any questions regarding the issues addressed in this blog post please contact Marc A. Campsen, Esq. (firstname.lastname@example.org) or any member of the Surety and Fidelity Practice Group.
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