Former President Donald Trump recently secured an appeal bond in relation to the $83 million defamation judgement he owes E. Jean Carroll. The details of this move may be confusing to some, with many wondering what appeal bonds and their implications are. Neil Pedersen, shareholder at Pedersen & Sons Surety Bond Agency, provides valuable insight to decipher this legal move for us.
Appeal bonds, or supersedeas bonds, are commonly used in both state and federal courts throughout the United States. Mainly used to stay the execution of a judgement pending appeal, these bonds are not always required for an appeal but are necessary to halt the enforcement of the judgement during an appeal process. Therefore, once a notice of appeal has been filed with an accompanying bond, the stay of execution can come into effect.
As a result, in New York, where there is no grace period before judgement creditors can begin to execute assets, an automatic stay of execution is granted by the Civil Practice Law & Rule 5519 (CPLR 5519) if a bond and Notice of Appeal have both been filed. Once a judgement creditor has a judgement, they can commence execution on assets, which often includes freezing bank accounts and other assets ready for liquidation. If a Sheriff or City Marshal is involved, they can charge their fees – usually around 5% of the amount collected or held.
Different jurisdictions have their unique requirements for the bond amount – sometimes based on post-judgement interest that will accrue, at other times, it is dictated by statute. In New York State Court, there is no set bond amount; however, the judgement with costs on appeal should be included in the bond according to CPLR 5519. It is not uncommon for clients to bond either 110% or 120% of the final entered judgement, considering the length of the appeal, in addition to statutory interest of 9% per year.
The appeal bond does not represent a risk transfer but rather an extension of credit. To obtain a bond, entities might disclose financial statements or deposit collateral with the surety. Surety companies, which usually issue the bond, have often shown reluctance in dealing with entities that carry reputational risks. In the case of the recent appeal bond involving former President Donald Trump, there are notably several considerations that surface – the asset base, headline/reputational risk, the ability to enforce the indemnity agreement, and the involvement of an individual in the transaction.
Furthermore, as explained by Pedersen, he reveals a previous standard requirement within the surety industry requiring an applicant to possess liquid assets of seven times the bond amount and fixed assets between 15-20 times the bond amount. This guideline may not be universally followed, but it serves as a frame of reference.
Bearing in mind that many people have a strong opinion about the former president, this alone may discourage some companies from issuing bonds for him. The dilemma, then, of being able to enforce an indemnification agreement against a potential future President of the United States of America is a key consideration. Given these factors, sureties will certainly require liquid collateral for this obligation.
For more detailed insights into this matter, one might reach out to Neil P. Pedersen, ARM, AFSB, who is a shareholder at Pedersen & Sons Surety Bond Agency.