Supersedeas Bonds In General
November 22, 2022
In this Surety Today Blog post we will discuss the Supersedeas Bond. The word “supersedeas” is Latin for “you shall desist,” and it refers to a stay of the enforcement of a judgment pending appeal. The supersedeas bond suspends a judgment creditor’s power to levy or execute on its judgment. In this post we will discuss the basics of a supersedeas bond and in a subsequent post we will get into more detailed issues and case law regarding such bonds.
Introduction
When a judgment-creditor obtains a monetary judgment against a judgment-debtor, most jurisdictions permit the judgment-creditor to immediately upon, or shortly after obtaining the monetary judgment, to commence enforcement proceedings to collect on the judgment, regardless of whether the judgment-debtor intends to appeal the judgment. The judgment-debtor, however, may attempt to stay the enforcement proceedings pending an appeal of the monetary judgment through the use of a supersedeas bond.
Most jurisdictions authorize the judgment-debtor to obtain a supersedeas bond. Some jurisdictions refer to the supersedeas bond as an appeal bond, while other jurisdictions distinguish between the two types of bonds. When a jurisdiction recognizes the two different types of bonds, the appeal bond normally ensures the payment of court costs only, while the supersedeas bond guarantees that the judgment-creditor, if successful on the judgment-debtor’s appeal of the monetary judgment, will have a source of recovery and collection after the appeal is concluded in favor of the judgment-creditor. The distinction between the appeal bond and the supersedeas bond, however, is often obscured in some jurisdictions and in case law, which potentially creates confusion. To avoid confusion I will simply discuss “supersedeas bonds”.
As noted, the purpose of a supersedeas bond is to stay the judgment-creditor’s execution of a final monetary judgment pending appeal by the judgment-debtor. The need for the supersedeas bond is twofold and applies to both the judgment-creditor and the judgment-debtor. First, the supersedeas bond is necessary to protect the non-appealing party, the judgment-creditor, from the risk that the monetary judgment may be unrecoverable from the judgment-debtor and/or its assets and property upon conclusion of the appellate process. Second, the supersedeas bond is necessary to protect the appealing party, the judgment-debtor, from execution on a monetary judgment by the judgment-creditor prior to the resolution of the appellate process. This protection is obviously important for two reasons: (i) the monetary portion of the judgment may ultimately be reversed in its entirety or, at least, reduced on appeal; and/or (ii) to safe guard the judgment debtor’s funds in the event of a reversal or reduction. Essentially, to avoid a scenario where the judgment debtor pays the judgment creditor, then wins on appeal and the judgment creditor can no longer reimburse the money paid by the judgment debtor. In other words, the purpose and effect of posting a supersedeas bond “is to preserve the status quo while protecting the non-appealing party’s rights pending appeal.”
From the surety’s perspective, however, a supersedeas bond is simply “a contract by which a surety obligates itself to pay a final judgment rendered against its principal under the conditions stated in the bond.” Rand-Whitney Containerboard Ltd. P’ship v. Town of Montville, 245 F.R.D. 65, 67 (D. Conn. 2007). Accordingly, as always, a surety must understand the nature and scope of the supersedeas bond that it executes with its principal, i.e.: RTFB.
The Nature And Scope Of Supersedeas Bonds
In federal court, Fed. R. Civ. P 62(d) governs supersedeas bonds in conjunction with applicable local district court rules. It is well-recognized, however, that no federal statue, federal rule of civil procedure or federal rule of appellate procedure defines the conditions that trigger a surety’s obligation under a supersedeas bond. Rather, the express terms of a supersedeas bond govern the extent to which a surety may be liable under or discharged from the supersedeas bond. Indeed, the Supreme Court has recognized that the obligation of sureties upon such bonds is strictissimi juris, and not to be extended by implication or enlarged construction of the terms of the contract entered into. Crane v. Buckley, 203 U.S. 441, 447 (1906).
In the realm of state law, supersedeas bonds are governed by each state’s applicable law and the terms of the bond itself. State courts are often empowered to set specific terms of the supersedeas bond, as well. Indeed, unlike the federal rules, many states impose some minimal operational guidelines for supersedeas bonds that must be incorporated into every bond. For example, in Maryland, Md. Rules 2-632(e) and 8-422 through 8-424 govern supersedeas bonds. Md. Rule 8-423 states “a supersedeas bond shall be conditioned upon the satisfaction in full of (1) the judgment from which the appeal is taken, together with costs, interest, and damages for delay, if for any reason the appeal is dismissed or if the judgment is affirmed, or (2) any modified judgment and costs, interest, and damages entered or awarded on appeal.” In many jurisdictions, the courts have drafted their own form Supersedeas Bond which can have their own unique conditions.
Accordingly, a surety issuing a supersedeas bond securing a monetary judgment entered by a state court must familiarize itself with the jurisdiction’s rules and bond forms governing supersedeas bonds. It is important to note that in some jurisdictions, like Maryland, both the trial court and appellate court rules of procedure govern supersedeas bonds. Thus, to fully understand the scope of a particular jurisdiction’s supersedeas bond law, all relevant rules and/or statutes must be read together in conjunction with one another.
Jurisdiction
Regardless of whether a surety is operating in federal or state court, the surety must understand that by providing a supersedeas bond: (i) the surety is bound to pay up to the penal sum of the supersedeas bond depending upon the result of the appeal of the monetary judgment; and (ii) the surety becomes subject to the jurisdiction of the court in which the supersedeas bond is provided for purposes of the judgment-creditor’s enforcement of the monetary judgment against the supersedeas bond.
A surety must also understand that federal and state trial courts retain continuing jurisdiction to review the sufficiency of the supersedeas bond throughout the appellate process. Although a surety is not liable on a supersedeas bond in an amount greater than the penal sum, a surety should anticipate a judgment-debtor’s request to increase a supersedeas bond amount if the penal sum of the supersedeas bond becomes insufficient, at some juncture in the appellate process. At that time, the surety may re-evaluate its underwriting considerations to determine whether it is willing to increase the amount of the supersedeas bond penal sum or face the prospect of paying on the supersedeas bond if the judgment-debtor is otherwise unable to obtain additional security to continue the stay or fails to pay the monetary judgment.
Timing
Fed. R. Civ. P. 62(a) automatically stays execution of a final judgment entered by the District Court for 30 days after entry of the monetary judgment. A supersedeas bond, therefore, is not required during this period. Once the supersedeas bond is provided in compliance with the Federal Rules, the appellant/judgment-debtor, is entitled to a stay of execution as a matter of right. The stay becomes effective upon the Court’s approval of the supersedeas bond (i.e., amount and conditions).
The time for a judgment-debtor to provide a supersedeas bond in state court varies by jurisdiction. In several states, there is no automatic stay of a judgment-creditor’s enforcement of a judgment, meaning that a judgment-debtor will need supersedeas relief immediately to avoid enforcement proceedings. Other jurisdictions stay a judgment-creditor’s enforcement of a judgment for specific periods of time. Still other states stay a judgment-creditor’s enforcement of a judgment automatically upon noting an appeal and throughout the appellate process, negating the need for the judgment-debtor to provide a supersedeas bond.
Calculating The Penal Sum Of The Supersedeas Bond
A surety’s liability on a supersedeas bond is limited to the penal sum on the face of the bond in both federal and state court. Federal and state courts, however, differ in their approach to calculating a sufficient penal sum of a supersedeas bond.
Generally, federal courts require the penal sum of the supersedeas bond to total the entire amount of the monetary judgment, including any pre-judgment interest, attorneys’ fees, costs, and one to two years of post-judgment interest at a rate set by statute. Superseding and Staying Judgments: A National Compendium 6-7 (Roger D. Townsend et al. eds., 2007). However, Fed. R. Civ. P. 62 is silent as to the specific amount of the penal sum of a supersedeas bond. Interestingly, the local rules of certain federal district courts may set forth the method for calculating the penal sum of a supersedeas bond. See e.g., Brookridge Funding Corp. v. Northwestern Human Services, Inc., 2008 WL 2229852 n. 4 (2008).
The penal sum of a supersedeas bond in state court varies by jurisdiction. Many courts take a simple approach and require a fixed percentage above the monetary judgment. Other jurisdictions evaluate the appropriate amount of the penal sum of the supersedeas bond on a case-by-case basis, but impose a ceiling on the maximum amount. In Maryland, the penal sum of a supersedeas bond must be “the sum that will cover the whole amount of the judgment remaining unsatisfied plus interest and costs, except that the court, after taking into consideration all relevant factors, may reduce the amount of the bond upon making specific findings justifying the amount.” See also O’Donnell v. McGann, 529 A.2d 372 (Md. 1987).
Procedural Matters
Procedures For The Judgment-Creditor To Enforce A Supersedeas Bond After The Conditions Of A Supersedeas Bond Have Been Met
If a judgment-creditor prevails on appeal and the judgment-debtor fails to satisfy the monetary judgment in full, the surety’s liability under the supersedeas bond is triggered. In this circumstance, there are multiple methods for a judgment-creditor to enforce its rights against the supersedeas bond. In federal court, Fed. R. Civ. P. 65.1 (“Proceedings Against a Surety”), allows a judgment-creditor to enforce a surety’s liability “on motion without an independent action.” Thus, the judgment-creditor may simply move the district court in which the original action was pending to order the surety to release the appropriate amount of the penal sum to the judgment-creditor.
In state court, the relevant local rules and statutes may determine how the enforcement of the supersedeas bond against the surety is undertaken. Regardless, a review of the case law reveals that, generally, some form of affirmative action is required in the trial court where the supersedeas bond was provided. In both state and federal court, it appears the enforcement of the surety’s liability on the supersedeas bond may begin immediately after the surety’s liability is triggered – namely, upon the entry of an appellate order or trial court order pursuant to an appellate court order. Accordingly, the enforcement of the supersedeas bond against the surety may begin once the supersedeas bond conditions are triggered, even if the judgment-debtor can satisfy the judgment in full.
Procedures For A Surety To Obtain Discharge On A Supersedeas Bond After The Conditions Of A Supersedeas Bond Have Been Met
If the judgment-debtor prevails on appeal or satisfies in full a monetary judgment affirmed on appeal, the surety should take affirmative action with the relevant court to obtain a discharge from the supersedeas bond. Generally, this requires the surety or the judgment-debtor to move the trial court in which the supersedeas bond is filed to discharge the supersedeas bond. Since the original supersedeas bond is generally required to be filed with the clerk of the court, a surety may also consider requesting that the supersedeas bond be returned or destroyed by the clerk of the court to prevent any future actions on the supersedeas bond.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Marc Campsen, Esq. (410-659-1343/mcampsen@wcslaw.com) or any member of the Surety and Fidelity Practice Group.