Appeal Bonds, Sureties, and Stays

Transcription

1 Appeal Bonds, Sureties, and Stays Appellate Lawyers Association April 22, 2009 Brad Elward Peoria Office

2 The Effect of a Judgment A judgment is immediately subject to enforcement and collection. Illinois has no automatic stay provisions. This creates two windows of vulnerability for a party seeking to challenge a ruling: The time between the judgment and filing of the post-trial motion; The time between the denial of the post trial motion and the filing of the notice of appeal/motion for stay of enforcement. Filing a post trial motion temporarily stays enforcement.

3 Stays of Enforcement and Execution of Judgment Stays of execution and enforcement preserve the status quo. Stays of execution and enforcement protect both parties: Stays preserve the assets in dispute in the event of reversal. Stays prevent dissipation of assets by the debtor. Stays are generally conditioned on collateral, which may take the form of an appeal bond or other forms of security, or an insurance policy.

4 Types of Stays Stays of money judgments are governed by Rule 305(a) and are automatic upon presentation of a motion and bond within the 30 days following entry of judgment. Stays of non-money judgments, interlocutory orders, or other judicial or administrative orders are discretionary. Rule 305(b).

5 Motions for Stay Rule 305(a) states that a stay of enforcement of a money judgment, or any portion of a judgment which is for money, shall be automatic if the party seeking to appeal files a notice of appeal and an appeal bond or other form of security within the time for filing the notice of appeal or within any extension of time granted under Rule 305(c). The bond and motion for stay of enforcement must be presented to, approved by, and filed with the court. Notice of presentment of the bond or other form of securities must be given to all parties. If a form of security other than an appeal bond is presented, the appellant bears the burden of demonstrating the adequacy of such other security. If these conditions are met, approval of the bond is considered ministerial and the stay becomes automatic.

6 Extensions of Time An appellant may obtain an extension of time for the filing and approval of the bond or other form of security if the appellant, within the time for filing the notice of appeal or within any extension granted pursuant to Rule 305(c), files a motion for extension. Extensions of time are granted by either the circuit or appellate court, but extensions granted by the circuit court may not aggregate more than 45 days unless the parties stipulate otherwise. A motion for extension filed with the appellate court must be supported by affidavit of counsel and accompanied by a Rule 328 supporting record if the record on appeal has yet to be filed. Rule 305(c).

7 Appeal Bonds An appeal bond is a document signed by the judgment defendant and also executed by a surety, which provides the financial backing for the bond. It is typically a single page and often contains the caption of the case in which it is filed.

8 Bond Language A bond typically reads as follows: On May 1, 2008, judgment was entered in the amount of $750,000 against defendant ABC Corp. and in favor of plaintiff Johnnie Smith. Defendant ABC Corp. has appealed to the Appellate Court, First District, and seeks to have execution and enforcement of the judgment entered against it stayed during the pendency of its appeal. Defendant ABC Corp. hereby files its appeal bond in the amount of $1,125,000 in order to stay execution and enforcement of the judgment against it. This portion obligates the defendant to pay under the bond.

9 Surety Language This language, which binds the defendant, is accompanied by surety language, as follows: The undersigned surety, XYZ Surety, hereby agrees to pay the above judgment creditor, Johnnie Smith, only such portion of the judgment that is affirmed and not reversed against defendant ABC Corp. up to the amount of $1,125,000.00, including interest, following the exhaustion of all appellate remedies. Should the entire judgment against ABC Corp. be reversed on appeal, this bond is void. The obligation of this bond is limited to a maximum of $1,125,000. If an attorney-in-fact signs for the surety, an affidavit or power of attorney of the individual should be attached.

10 What Amount of Bond is Sufficient? Rule provides no guidance beyond an amount sufficient to cover the amount of the judgment and costs plus interest reasonably anticipated to accrue during the pendency of the appeal. Rule of Thumb: 150 percent of the judgment This secures the judgment, and provides sufficient reserves for interest (usually 9 percent) and costs. Anticipate most appeals will last about a year and a half from the filing of the notice of appeal. Rule 305(c) gives circuit court discretion to approve a bond in a lesser amount, but requires imposition of conditions to prevent dissipation or diversion of assets.

11 Sureties A surety is a person or corporation that undertakes to financially back the obligation of another. A personal surety must be a resident of the State and must generally meet certain conditions, as set forth in local rules. A personal surety may have to undergo an approval hearing before the court in order to be properly designated as a personal surety. A corporate surety is typically a financial company or insurance company and must be licensed to do business and specifically to write surety policies within the State. 215 ILCS 5/390. To determine whether your proposed surety is in fact licensed to do business in Illinois, you should consult the Illinois Department of Financial and Professional Regulation, Division of Insurance.

12 Other Forms of Security Rule 305(a) authorizes other forms of security in lieu of an appeal bond. These include: Letters of credit issued by banks. Escrow agreements. Certificate of deposits. Cash deposits. You may need these securities in any event to act as collateral for your bond!

13 Modification of the Bond If the notice of appeal is amended such that additional relief is requested beyond that requested in the original notice of appeal, a supplemental bond must be obtained and presented and a supplementary stay requested. Rule 305(f). Moreover, if the term of the bond, amount of the bond, or form of security needs to be modified, Rule 305(h) confers to the appellate court the power to change the amount, terms, or security of the bond or other form of security. This scenario arises when the appeal takes longer than anticipated and the accumulating interest threatens to surpass the amount of the original bond. Likewise, in some cases, surety bonds expire and must be renewed annually.

14 Posting An Insurance Policy An insurance policy may also be filed in lieu of an appeal bond. Rule 305(j) permits the filing of an insurance policy pursuant to section of the Illinois Insurance Code (215 ILCS 5/392.1). The movant must obtain a certified copy of the policy and provide an affidavit of a company official indicating: That the policy tendered is the actual policy, That it was in effect and that there are no policy defenses being raised, and That the insurance company will place the policy with the court in lieu of the standard bond.

15 Issues When Posting The Insurance Policy Coverage disputes. Policy is insufficient to cover entire judgment. Presence of an excess carrier whose responsibility for appeal bond? Depending on the circumstance, you may need to combine posting an insurance policy with posting additional security. However, Rule 305(a) now provides a means by which the court may approve a bond in an amount less than the judgment, interest, and costs. In these scenarios, the court will generally impose other conditions on the appellant to ensure the assets to cover the bond are not sold or otherwise dissipated.

16 Steps to Obtain An Appeal Bond Due to the time-consuming steps associated with demonstrating an ability to pay, obtaining the appeal bond should be explored long before entry of judgment. If the defendant s financial condition allows, consider posting other form of security such as CDs, cash in escrow, or a letter of credit. If option (1) is not available or desirable, determine whether an insurance policy is available for tender and whether the policy limits are sufficient to cover the bond. If the policy cannot be tendered in lieu of a bond or if the policy does not have large enough limits, consider an appeal bond backed by a surety or a supplemental bond. If a surety cannot be obtained, consider posting other form of security such as CDs, escrow, or a letter of credit.

17 Steps Continued In order to protect themselves from having to pay, a surety will require submission of financial documents showing that the defendant has the ability to pay. In some cases, this might require a defendant to post collateral or to provide a guaranteed/irrevocable letter of credit from a bank. A surety bond typically costs a minimum of $20 per $1,000 of bond, and this amount will increase in conjunction with the risk assumed. Thus, a $125,000 bond would cost the defendant a minimum of $2,500 annually. In Illinois, the cost of the bond is not considered an expense of the appeal recoverable in the event that the appellant prevails.

18 Objections? The judgment creditor may object to a bond it deems insufficient or to a request for stay based on a bond insufficient in amount to cover the judgment, interest, and costs. An appellee may waive its right to object to a defective appeal bond. However, if an objection to the bond is raised, the party proffering the bond must be given a reasonable opportunity to file a new bond or otherwise cure the defect. An objection to a defect in an appeal bond or an objection to the granting of a stay without an appeal bond is waived if not raised when the bond is presented for approval.

19 Refusal to Set a Bond Whether to set a bond and issue a stay under Rule 305(a) is not discretionary. Thus, once the appellant presents a proper bond and complies with Rule 305(a), the bond must be approved and the stay is automatically issued. If the circuit court refuses to set a bond or refuses to accept an otherwise proper bond, the party seeking stay should immediately petition the appellate court under Rule 305(d), and if no relief is afforded, file a Rule 381 action for mandamus with the Illinois Supreme Court.

20 Stays in Other Areas How do we handle stays during the following: Permissive interlocutory appeals? During the pendency of a Rule 315(a) petition? Pending a petition for writ of certiorari? Orders terminating parental rights?

21 Workers Compensation Appeals Section 19(f)(2) requires that the party against whom an award has been rendered must file an appeal bond to contest the Commission s decision on review. The petitioner need not file an appeal bond, even when there has been an overpayment. Municipal employers are exempt. Section 19(f)(2). Unlike civil bonds, the failure to file an appeal bond in a workers compensation case is jurisdictional. Bond must be filed within 20 days of receipt of Commission decision. The amount of the bond is set by the Commission in its decision and is typically $100 over the unpaid award, with a maximum of $75,000.

22 Issues with Workers Compensation Appeal Bonds Who can sign the bond for the employer? The attorney? An Officer? A Director? Claims Manager? What if the person who must sign cannot sign the bond? What if the employer is no longer in business? What if the employer cannot be found? What if the employer is self-insured?

23 Sureties for the Bond As with bonds in civil cases, the surety must be licensed or authorized to do business as a surety in Illinois. But You must check further. Make sure surety is listed as approved by the particular county and that the agent-in-fact is an authorized agent. Cook County, DuPage County, Lake County.

24 Other Bond Issues The bond and surety must be on file within the 20 days allotted by section 19(f) within which to file the administrative review. Bond is just part of the process. Other documents are required. If no bond amount is stated in the Commission s decision, ask yourself why, and if you cannot explain the discrepancy, move for clarification under section 19(f). Bond is good through disposition of case on appeal; a civil bond is not needed to appeal from the circuit court. Following the appeal, or if the appeal is to be dismissed due to settlement, move to release bond and obtain a refund on the balance of premium owed.

25 Federal Stays and Bonds Federal Rule 62 and Federal Rule of Appellate Procedure 8 govern stays and bonds. There are some notable differences between Illinois and federal procedures.

26 Local Rules are Important It is important to note that each district court has different requirements for what should be included in the calculation of the bond. Most often, district courts require that the bond be for the full amount of the judgment, plus any prejudgment interest, attorneys fees, and costs.

27 Amount of the Bond or Security The Northern District of Illinois requires a supersedeas bond to include the full amount of the judgment with costs, interests and damages for delay. When the bond is for money only, the bond must cover the full amount of the judgment plus one year s interest at the rate identified in 28 U.S.C. 1961, plus $500 to cover costs. The Northern District requires every bond or form of security to be secured by one of the following: Cash in the amount of the bond, or The guarantee of a corporate surety holding a Certificate of Authority from the Treasury Secretary, or The guarantee of two individual residents from the District, provided that each individual also file an affidavit of justification listing specific information; or An unconditional letter of credit. N.D. Ill. R. 65.1

28 Other Thoughts on Bonds In the Northern District, the clerk may approve bonds without order of the court if the bond amount was fixed by the judge, court rule, statute, or if it complies with rule N.D. Ill. R The Central District and Southern District of Illinois do not have local rules addressing bonding requirements.

29 Sureties in Federal Cases Sections 31 U.S.C address the federal standards governing sureties. To become a surety, a surety corporation must file with the Secretary of the Treasury a copy of the corporation s article of incorporation and a statement of the assets and liabilities signed and sworn to by the president and secretary of the corporation. The application will be approved if the Secretary determines that the company s articles guarantee the fidelity of persons holding positions of trust and allow the company to issue bonds and undertakings in judicial proceedings. The Secretary must determine if the corporation has paid-up capital of at least $250,000 in cash and the corporation must be able to carry out its contracts.

30 Sureties Continued A surety corporation may provide a bond in a judicial district outside the state where it is incorporated, but only if the corporation has a registered agent for service in that district. For additional requirements of sureties, it is important to review these statutes to ensure that your surety is qualified. A list of approved sureties that can be accessed at: Even if the surety appears on the approved list, if the court doubts the surety s ability or willingness to pay, the bond can be denied.