Everything a Lawyer Needs to Know about Supersedeas Bonds

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Ezra Clarke
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1 Everything a Lawyer Needs to Know about Supersedeas Bonds Presented by: Daniel Huckabay Phone: (877) Program Outline Basic introduction to surety bonds Alternatives to posting a surety bond Typical underwriting requirements Cost for obtaining surety bonds Things that you can do to help ensure you meet your filing deadline and stay enforcement of an adverse judgment What s s the difference between a Surety Bond, Appeal Bond, Undertaking, Supersedeas Bond? They are one and the same when referring to the filing of an appeal. The State of Washington Courts, and Federal Courts typically refer to them as Supersedeas Bonds. Washington Rules of Appellate Procedure (RAP), Rule 8.1 Federal Federal Rules of Civil Procedures, Rule 62(d) 1

you can do to help ensure you meet your filing deadline and stay enforcement of an adverse judgment What s s the difference between a Surety Bond, Appeal Bond, Undertaking, Supersedeas Bond?

2 What are the main differences in Bond procedures/requirements between Washington and Federal Courts? Washington: Rule CR 62(a) Automatic Stays[ ] no execution shall issue upon a judgment nor shall proceedings be taken for its enforcement until the expiration of 10 days after its entry. Upon the filing of a notice of appeal, enforcement of judgment is stayed until the expiration of 14 days after entry of judgment RAP Rule 8.1, subsection (c) (1) - Money Judgment. The supersedeas amount shall be the amount of the judgment, plus interest likely to accrue during the pendency of the appeal and attorney fees, costs, and expenses likely to be awarded on appeal What are the main differences in Bond procedures/requirements between Washington and Federal Courts? Federal A judgment is generally not enforceable for 14 days following its entry as stated in Federal Rules of Civil Procedure 62. Federal District Courts have the discretion to determine the amount of the supersedeas bond that the appellant is required to file. The amount is generally less than one and one-half times the amount of the judgment Alternatives to Bonds Washington RAP Rule 8.1, Subsection (b)(4) Alternate Security. Upon motion of a party, or stipulation, the trial court or appellate court may authorize a party to post security other than a bond or cash, may authorize the establishment of an account consisting of cash or other assets held by a party, its counsel, or a non-party, or may authorize any other reasonable means of securing enforcement of a judgment. The effect of doing so is equivalent to the filing of a supersedeas bond or cash with the Superior Court. Federal Courts Some district courts have the ability to accept a variety of alternatives (ex. Irrevocable Letters of Credit) 2

Upon the filing of a notice of appeal, enforcement of judgment is stayed until the expiration of 14 days after entry of judgment RAP Rule 8.1, subsection (c) (1) - Money Judgment.

3 What are the typical underwriting requirements of a Surety Company? 100% Collateral 1-2 page application (signed by principal/client) Copy of Judgment/Order Copy of Filed Notice of Appeal Indemnity of principal and individual/company posting collateral The principal and individual/company posting the collateral are usually the same, but in some instances they can be different. Examples: The bond/undertaking is required by a corporation or nonprofit, but the collateral is posted by an individual, stockholder, or board member. Unrelated third party posts the collateral What form of collateral is accepted? Cash (cashier s check, wire transfer) Irrevocable Letter of Credit Real Estate What form of collateral is accepted? Cash (cashier s check, wire transfer) If there is a Tax Lien on the applicant s personal credit report or the case involves Foreclosures and/or Family Matters, Surety companies will not accept cash as collateral. All Sureties will require financial statements from the applicant to ensure they are not near bankruptcy due to the bankruptcy preference law. Why would someone post cash collateral with a Surety and pay a premium for the bond instead of posting it directly with the court? The Surety can act as a buffer if an adverse decision is reached by the Court of Appeals. A Surety may require less than 100% collateral. Whereas the court always requires 100%. Some Sureties pay interest or have investment options. RAP Rule 14.3 Expenses Allowed as Costs Federal Rules of Appellate Procedures, Rule 39(e)(3) 3

and individual/company posting the collateral are usually the same, but in some instances they can be different.

4 What form of collateral is accepted? Irrevocable Letter of Credit Is preferred by most Surety companies. The Surety company needs to approve bank that will issue ILOC. Most Sureties have a specific ILOC format. What form of collateral is accepted? Real Estate Is not accepted by all Surety companies. Cannot be part of the court case. Must have substantial equity relative to bond amount. How is real estate equity determined when posting collateral? Most Surety companies will require an appraisal be done on the property (paid for by the applicant). They prefer residential over commercial property due to the cost and time it takes for appraisal. If property is free and clear, and estimated value is relatively higher than bond amount, they may waive appraisal requirement. Formula generally used by Surety companies when property is not free and clear: 70 to 80% of appraised value minus 110% of mortgage amount equals analyzed equity/collateral amount. 4

Must have substantial equity relative to bond amount. How is real estate equity determined when posting collateral?

5 Is it possible to get a bond/undertaking without posting 100% collateral? 100% collateral is generally required; however, it is possible to obtain a bond with less or no collateral. Publicly Traded Company The Surety company will review 10K report. Large Corporation Excellent credit risk and adequate liquidity relative to bond amount, as determined by the Surety company. The Surety company will review company financial statements, and personal/company credit reports. Public Entity The Surety company will review audited financial statements High Net Worth Individual What other information does my client need to know about collateral? An ILOC can take anywhere from a day to weeks to get depending on your client s banking relationship. If using Real Estate, bond amount must be over $100K. If the appellant is successful in the appeal, their collateral will generally be returned within 2-4 weeks after we receive a conformed copy of the Order to Exonerate the Surety Bond. Court order needs to specifically exonerate the Surety and it is best that it states the bond number. How much does the bond cost? It depends on the type of collateral being posted, and the bond amount. Cash or ILOC Premium rates are higher for smaller bonds: Typically 2% for bonds under $50K Bonds over $100K can be in the 1 to 1.5% range Most Surety companies have a sliding scale that can go down to 0.2% for multimillion dollar obligations. Typical minimum annual premium is $ Real Estate Premium rate is 4% flat ($250 minimum annual premium) 5

The Surety company will review company financial statements, and personal/company credit reports.

6 What is the overall process and how long does it take to get the bond/undertaking? Submit completed application, judgment, Notice of Appeal, and proposed Collateral to the Surety company. The time frame for approval and bond issuance depends on: The type of collateral being used Whether you believe your client will qualify for less than 100% collateral or no collateral Posting of the collateral, receiving the original signed General Indemnity Agreement In the most straight forward applications, a bond can be approved and issued the same day. What can our client do to ensure they meet our filing deadline? Have your agent get a pre-approval for the bond. Submit an application, any applicable financial statements and proposed collateral to be used. Start the process as early as possible when an ILOC or Real Estate is planned on being used as collateral. ILOC Surety company needs to approve bank. Most banks alter the Surety companies standard ILOC format, which then needs to be re-approved by the Surety company. Real Estate Surety company needs to preliminary approve subject property. Property appraisals typically take up to one week. Also, if you have a client that you think may qualify for less than 100% collateral, it is important to get an early start to give your agent a chance to get proposals from various Surety companies. Contact Information Daniel Huckabay, President Arturo Ayala, VP Court Bond Division Phone: (877) Dan@commercialsurety.com Arturo@commercialsurety.com 6

collateral, receiving the original signed General Indemnity Agreement In the most straight forward applications, a bond can be approved and issued the same day.

Appeal Bonds, Sureties, and Stays

Appeal Bonds, Sureties, and Stays Appellate Lawyers Association April 22, 2009 Brad Elward Peoria Office The Effect of a Judgment A judgment is immediately subject to enforcement and collection. Illinois