Staying a Money Judgment in Federal Court Without Posting a Supersedeas Bond
Notwithstanding the language of Fed. R. Civ. P. 62(d), which appears to require a bond in order to stay lower court proceedings pending appeal, federal courts have held consistently that a trial court has authority under the rule to stay a money judgment without compelling the posting of a supersedeas bond. The underlying rationale for this interpretation is that justice and the public interest favor reliance on judicial discretion, rather than a fixed mandate, in this context. This article explores how federal courts attempt to strike a balance between protecting the judgment creditor and ensuring that the status of the judgment debtor is not endangered to the detriment of its other creditors and the public.
Discretionary Nature of Rule 62(d) Supersedeas Bond Requirement
Fed. R. Civ. P. 62(d) governs whether an appellant is able to obtain a stay of judgment in federal court pending an appeal. Rule 62(d) states:
Stay upon Appeal. When an appeal is taken the appellant by giving a supersedeas bond may obtain a stay subject to the exceptions contained in subdivision (a) of this rule. The bond may be given at or after the time of the filing the notice of appeal or of procuring the order allowing the appeal, as the case may be. The stay is effective when the supersedeas bond is approved by the court.
The language of Rule 62(d) appears to require that a supersedeas bond be posted before a stay is granted. However, despite this plain reading of the rule, federal courts have opted to interpret Rule 62(d) broadly, giving district courts the discretion to stay execution of money judgments pending appeal without a full supersedeas bond.
Interpretation and Application of Rule 62(d)
Whether Rule 62(d) sets forth a mandatory or discretionary requirement for a supersedeas bond to stay the enforcement of a money judgment pending appeal has been the subject of debate in federal courts for over 20 years. Historically, some courts interpreted the text of Rule 62 narrowly to require the posting of a bond in order to obtain a stay of execution pending appeal, while others permitted the district court, in the exercise of its discretion, to waive or reduce the bond requirement. The modern view, however, follows the latter discretionary approach. Thus, the general consensus is that, although the posting of a supersedeas bond guarantees the appellant a stay “as a matter of right,” the discretion to grant or deny a stay in the absence of a bond always belongs to the trial court.1While this is the predominant view, some circuits have yet to declare an official position.
The seminal case on the issue is Federal Prescription Servs., Inc. v. Am. Pharm. Ass’n.,636 F.2d at 757. There, the judgment creditor argued that the language of Rule 62(d) explicitly requires that a supersedeas bond be posted in order to obtain a stay.2 The court rejected this position, concluding instead that, while the posting of a supersedeas bond creates an absolute right to a stay, the district court always has the discretion to grant a stay even without a bond.3
The court in Federal Prescription acknowledged that there was a split of authority on this issue. Some courts had held that Rule 62(d) required that a supersedeas bond be posted as a condition to the granting of a stay.4 Conversely, other courts had held that whether or not to require a bond was within the court’s discretion. Considering both lines of cases, the Federal Prescription court concluded that the better view was that espoused by the second group of courts.5 Thus, the court held that, while Rule 62(d) provides that an appellant always may obtain a stay “as a matter of right by filing a supersedeas bond,” Rule 62(d) does not prohibit the district court from entering an unsecured stay based on the court’s exercise of its sound discretion.6
The court reached this conclusion by analyzing Rule 62, the interplay of that rule with other procedural rules, and the persuasiveness of other courts that had come to the conclusion that a district court has discretion to waive the bond requirement.7 The court further explained that the only guidance available on the mandatory or discretionary nature of supersedeas bonds was the language of former Fed. R. Civ. P. 73(d), which provided that “when an appellant entitled thereto desired a stay on appeal he could present to the court for its approval a supersedeas bond.. . . The district court could, however, fix( ) a different amount or order( ) security other than the bond after notice and hearing and for good cause shown.”8
In addition, the court stated that, even though the enactment of the Federal Rules of Appellate Procedure abrogated this rule, and the new rule did not repeat the language of the old rule, “the substance of Rule 73(d) retains vitality inasmuch as it had simply codified judicial practice.”9 Consequently, the court noted that the explicit language contained in former Rule 73(d) was implicit in its successor, i.e., Rule 62(d), which recognizes “the district court’s discretionary power to stay execution of a money judgment without requiring bond.”10
According to the court in Federal Prescription, this interpretation was necessary if the Federal Rules of Civil Procedure and the Federal Rules of Appellate Procedure were to be interpreted consistently. In the court’s view, “Reading Rule 62(d) to make filing a supersedeas bond an indispensable prerequisite to a stay on appeal creates a potential conflict” with the language of Rule 8 of the Federal Rules of Appellate Procedure,11 which states that the court may condition relief on a party’s posting of a bond or “other appropriate security in the district court.”12 The court reasoned that it would be illogical for an appellant to be required to seek an unsecured stay before the district court first, as required by Fed. R. App. P. 8(a), if Fed. R. Civ. P. 62(d) made such a request futile based on Rule 62(d)’s purported mandatory supersedeas bond requirement.13 In other words, “if the appellate court has power to issue an unsecured stay, as Rule 8(b) clearly implies, then the district court must have that power” to utilize its discretion to set aside the need for the stay as well, if both rules are to have any vitality.14
Federal Prescription effectively resolved the competing interpretations given to Rule 62(d). In fact, since the Federal Prescription decision, every federal court that has addressed the issue has found that Rule 62(d) does not preclude the issuance of a stay of a money judgment without the posting of a full bond, thereby adopting or otherwise utilizing the Federal Prescription interpretation of Rule 62(d). Thus, at present, the predominant view in federal court is that an appellant’s failure or inability to post a bond does not eliminate the appellant’s ability to obtain a stay, but instead places the risk on the appellant that the district court will not grant a stay of execution.
Federal Prescription repeatedly has come under attack by parties seeking to have it overturned or to have other courts deviate from its standard. All such attacks have failed.
For example, in Olympia Equip. Leasing Co. v. Western Union Tel. Co., 786 F.2d 794, 796 (7th Cir. 1986), defendants filed a motion for a stay pending appeal, urging “the district court to allow alternative security, on the ground that it could not post a $36 million bond” to supersede the judgment. The district court granted the stay conditioned on the appellants’ posting of “a pledge of $10 million in cash, $10 million in accounts receivables, and a security interest, which [appellants] represented to be worth about $70 million, in some of the company’s physical assets.”15
On appeal, the Seventh Circuit examined whether the trial court’s waiver of the bond requirement constituted an abuse of discretion. Initially, the Seventh Circuit reasoned that, “[a]lthough a textual argument can be made that Rule 62(d) makes the posting of a supersedeas bond mandatory,” the better view was that set forth in Federal Prescription.16
The Olympia court presented numerous policy arguments in support of its holding. One important factor was the potential effect of requiring a bond in every case.17 The court explained that, since the plaintiff was not the defendant’s only creditor and the plaintiff’s right to recover from the defendant was conditioned “on its prevailing in the appeal from the. . . judgment,” the court could not “criticize the district judge for his unwillingness to risk throwing [the defendant] into bankruptcy merely to increase (maybe) the probability that [the plaintiff] can collect all of its judgment if the judgment is affirmed.”18 The court in Olympia specified two classes of cases in which requiring a bond would be particularly inappropriate: “where the defendant’s ability to pay the judgment is so plain that the cost of the bond would be a waste of money; and—the opposite case, one of increasing importance in an age of titanic damage judgments—where the requirement would put the defendant’s other creditors in undue jeopardy.”19
Similarly, in Alexander v. Chesapeake Potomac and Tidewater Books, Inc., 190 F.R.D. 190 (E.D. Va. 1999), the court explained that, when the judgment debtor cannot obtain a full supersedeas bond, “a stay may issue if the judgment debtors. . . provide security such that plaintiffs will be in nearly the same position at the conclusion of the appeal”20 as they were before the appeal was filed. Stated otherwise, the form of security or amount of the bond offered by the defendant “should simply reflect and preserve the defendants’ ability to satisfy the judgment”21 as of the date the appeal was commenced. Implicitly, the court held that what is appropriate in any particular case must be determined on an individual basis, depending on the facts and circumstances of each case and the consequences that the parties will suffer if a bond is required or excused. As was held in Federal Prescription, the court in Alexander ruled that Rule 62(d) “does not address, and hence does not preclude, issuance of a stay on the basis of some lesser bond, or indeed, no bond” at all.22
This is not to say that in federal court motions to stay execution of a money judgment without a bond pending appeal are granted as a matter of course. Rather, since the district court’s objective in ruling on a motion to stay “is to preserve the status quo” pending appeal, courts agree that, under normal circumstances, a bond is a condition precedent to a stay pending appeal.23 Thus, the party seeking a stay without a bond must set forth explicit reasons why departure from the usual requirement is warranted.
Factors Guiding Court’s Discretion As to Whether to Require Bond
Rule 62(d) does not specify the criteria a district court should evaluate in determining whether to stay a judgment without a full bond. Courts have identified a number of factors, however, that should be considered. First, courts look to “general equitable principles.”24 Central among these is the principle that the district court may grant a stay pending appeal without a supersedeas bond “if doing so does not unduly endanger the judgment creditor’s interest in ultimate recovery.”25 Thus, when setting supersedeas bonds, courts seek to protect judgment creditors while simultaneously avoiding irreparable injury to judgment debtors.26
Courts have developed a four-factor analysis in deciding whether to order a stay pending appeal without a bond. In Morgan Guar. Trust Co. v. Republic of Palau, 702 F. Supp. 60 (S.D.N.Y. 1988), the court explained that “[i]n deciding whether to order a stay of judgment pending appeal, a court must consider”:
1) Whether the stay applicant has demonstrated a substantial possibility of success on appeal;
2) Whether the stay applicant will suffer irreparable injury absent a stay;
3) Whether other parties will suffer substantial injury if a stay is issued; and
4) When the public interest supports a stay.27
These factors are weighed on a case-by-case basis to ensure a just result.28 They are not subject to a mechanical application because “there are degrees of irreparable injury and probability of a successful appeal.”29 Rather, the duty of a federal district court exercising its discretionary powers is to “weigh the strength of these showings against each other and balance them against the potential harm to the interests of the plaintiffs and the public.”30 Further, the failure to establish one of the factors may be excused in light of a particularly strong showing with respect to another factor.31 In Morgan Guar. Trust Co., for example, the court explained that “these requirements must, of course, be applied flexibly according to the unique circumstances of each case,” and that when, for example, “the latter three factors strongly favor interim relief, the court has required only that the petitioner demonstrate a ‘substantial case on the merits,’” as opposed to a substantial possibility of success on appeal.32 In fact, as one court has noted, “[b]y definition, discretion is synergistic, and the criteria” for the exercise of judicial discretion in determining whether to require a party to post a bond “do not constitute a mechanistic formula.”33
The court of appeals in Dillon v. City of Chicago, 866 F.2d 902 (7th Cir. 1988), articulated additional factors that courts should consider in determining whether to require or excuse the posting of a supersedeas bond. The district court had granted a stay conditioned on the city’s depositing the amount of the award into “an account controlled by the clerk of the district court.”34 The city appealed and asked the Seventh Circuit to stay the judgment unconditionally. The Seventh Circuit found that an unconditional stay was warranted, in part, based on a balancing of the following criteria: “(1) the complexity of the collection process; (2) the amount of time required to obtain a judgment after it is affirmed on appeal; and (3) the degree of confidence that the district court has in the availability of funds to pay the judgment.”35
• Judgment Debtor’s Current Status
In practice, the most significant factor considered by the courts in deciding whether to grant or deny a stay absent a supersedeas bond is the harm that may result from such decision. An important facet of this concern, which perhaps is accorded predominant consideration, is the effect on the judgment debtor’s financial status if execution of the judgment is not stayed pending appeal. In Olympia, for example, the district court weighed the judgment debtor’s risk of becoming insolvent against the risk of damage to the judgment creditor in the event of waiver of the bond requirement.36 The Olympia court concluded that, because bankruptcy creates considerable losses to numerous parties, the district judge did not abuse its discretion “by refusing to allow a plaintiff to execute a judgment in circumstances where the execution may cause a billion-dollar bankruptcy, merely because the alternative security to a supersedeas bond that the defendant apparently [could] not post [in any event,] provides a slightly inferior protection of the plaintiff’s interest.”37 Thus, the court may in its discretion waive or lower the bond in order to prevent the insolvency of a debtor and the risk of bankruptcy.
In River Oaks Marine, Inc. v. Town of Grand Island,1992 WL 406813, at * 1 (W.D.N.Y. Dec. 10, 1992), the court found that a full bond was not necessary, since “[m]any innocent third parties may suffer if execution is allowed to proceed.”38 As to the remaining factors, the court further reasoned, among other things, that the immediate hardships to which execution would give rise were contrary to the public interest and that, because the defendant was a municipality, security was unnecessary since municipalities account for contingent debts in their budgets.39
• Effect on Other Creditors
A related consideration is the effect of requiring a bond on the judgment debtor’s other creditors. To assess this effect, courts engage in a balancing of the judgment creditor’s interests against the interests of the judgment debtor’s remaining creditors.40
In Hurley v. Atlantic City Police Dep’t, 944 F. Supp. 371 (D. N.J. 1996), for example, one of the defendants claimed that “requiring him to obtain a supersedeas bond would force him into bankruptcy,” thereby prejudicing his other creditors.41 The district court found that a supersedeas bond was not required based, in part, on the consideration that insolvency “would place other secured creditors in jeopardy.”42
• Preventing Undue Costs
Yet another related consideration is the prevention of needless and undue expenditures and costs. In fact, this is one of the reasons underlying the propriety of not requiring a bond when it is evident that a party clearly can satisfy the judgment. Under those circumstances, posting a bond “would be a waste of money.”43 For example, in Federal Prescription, the court explained that the purpose of a supersedeas bond is to ensure that a stay of execution pending appeal does not damage the appellee.44 Consistent with that objective, the court went on to hold that, when the judgment debtor’s net worth “was 47 times the amount of the damage award,” and the judgment debtor was a long-time resident of the district, it was not an abuse of discretion to find that a bond was unnecessary.45
Nevertheless, courts will not excuse a party from the requirement of posting a bond whenever such party’s net worth shows that the judgment debtor has sufficient funds to satisfy the full amount of the judgment.46 This point was squarely addressed in Hamlin v. Charter Township of Flint,181 F.R.D. 348, 353 (E.D. Mich. 1998), when the court explained that, “even if Defendants demonstrated the existence of funds in excess of the judgment, waiving the bond on this factor alone ignores the dual protections Rule 62(d) is designed to provide the appellee.”47 The court emphasized that while, “[i]deally, losing parties will always have sufficient funds to pay the award,. . . if this fact alone were enough to waive the bond requirement, the bond requirement would essentially be a nullity.”48 Thus, because waiving the bond requirement deprives the judgment creditor of the “right to execute the judgment immediately” without providing the supersedeas bond protection, the appellants “have the burden of proving not merely that they are capable of satisfying the judgment, but rather that their ability to do so is so plain that requiring a bond would simply be a waste of money.”49 Notwithstanding that limitation, the court also may waive the bond if the protection that the bond would provide clearly would not outweigh the cost of posting it.50
Alternatives to Requiring Supersedeas Bond
The courts have devised various forms of alternate security to protect judgment creditors when the bond requirement is waived. For example, some courts have required a partial bond or limited the manner in which the appellant may conduct business.51 Again, when attempting to devise what is appropriate alternative security in any particular case, where there exists “some reasonable likelihood of the judgment debtor’s inability or unwillingness to satisfy the judgment in full upon ultimate disposition of the case,” and where “posting adequate security is practicable,” “no bond or a reduced bond would suffice when the creditor’s interest. . . would not be unduly endangered.”52
A core concern is that adequate provisions should be made for the security of the adverse party if a stay is granted. When this is not possible, the court may insist that security be posted in order to obtain a stay pending appeal. In Roulo v. Russ Berrie & Co., Inc., No. 82 C 2688, 1988 WL 72306 (N.D. Ill. July 5, 1988), for example, the court held that “the requirement of a supersedeas bond should not be waived.”53 The rationale utilized by the court was that, while the defendant corporation was solvent, it had not suggested or provided any alternative to posting a full supersedeas bond or taken any action to protect the plaintiff’s rights pending appeal.54
Thus, in general, an overriding principle is that courts will eliminate or reduce the bond requirement only when doing so does “not unduly endanger the judgment creditor’s interest in ultimate recovery.”55
Conclusion
Federal appellants who cannot post a supersedeas bond may nonetheless obtain a stay pending appeal if the district court, in its discretion, considers that it is warranted. The courts, in previous cases, have acknowledged that justice and the public interest favor the use of judicial discretion, rather than application of an unvarying rule, in requiring or excusing a supersedeas bond in order to grant stays pending appeal. In exercising its discretion, a court will consider the individual circumstances of the case, making certain to balance a concern for protecting the judgment creditor with the need to ensure that the status of the judgment debtor is not endangered to the detriment of its other creditors and the public. The court will also will take into account the likelihood of success on appeal in order to decide if the judgment creditor should bear the risk of a stay without a full supersedeas bond.
1 See, e.g., Poplar Grove Planting and Refining Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189 (5th Cir. 1979); Federal Prescription Servs. Inc. v. Am. Pharm. Ass’n, 636 F.2d 755 (D.C. Cir. 1980); Olympia Equip. Leasing Co. v. Western Union Tel. Co., 786 F.2d 794 (7th Cir. 1986); Palazzetti Imp./Exp., Inc. v. Morson, No. 98 Civ. 722 (FM), 2002 WL 562654 (S.D.N.Y. Apr. 16, 2001).
2 Federal Prescription, 636 F.2d at 757.
3 Id. at 757–58 (citing numerous cases).
4 Id. at 758 n.3 (citing Fidelity & Deposit Co. v. Davis, 127 F.2d 780, 782 (4th Cir. 1942); Markowitz & Co. v. Toledo Metro. Hous. Auth., 74 F.R.D. 550, 551 (N.D. Ohio 1977)).
5 Federal Prescription, 636 F.2d at 760.
6 Id. at 758.
7 Id. (citing Poplar Grove, 600 F.2d at 1191; C. Albert Sauter Co. v. Richard S. Sauter Co., 368 F. Supp. 501, 520–21 (E.D. Pa. 1973); TWA v. Hughes, 314 F. Supp. 94 (S.D.N.Y. 1970)).
8 Id. (citations and internal quotations omitted) (emphasis added).
9 Id.
10 Id. at 759.
11 Id. at 760.
12 Fed. R. App. P. 8(a)(1) provides:
“(a) Motion for Stay:
“(1) Initial Motion in the District Court. A party must ordinarily move first in the district court for the following relief:
“(A) a stay of the judgment or order of a district court pending appeal;
“(B) approval of a supersedeas bond; or
“(C) an order suspending, modifying, restoring, or granting an injunction
while an appeal is pending.”
Fed. R. App. P. 8(a)(2)(E) states as follows:
“(2) Motion in the Court of Appeals; Conditions on Relief.
“(E) The court may condition relief on a party’s filing of a bond or other appropriate security in the district court.”
13 Id.
14 Id.
15 Olympia, 786 F.2d 794.
16 Id.
17 Id.
18 Id. at 799.
19 Id. at 796.
20 Alexander, 190 F.R.D. at 193.
21 Id.
22 Id. at 191. The Alexander court analyzed various sources in making this determination. Initially, the court reasoned that Rule 62(d) does not address, and therefore “leaves unimpaired [,] a district court’s inherent, discretionary power to stay judgments pending appeal on terms other than a full supersedeas bond.” Id. Furthermore, the Alexander court noted that “every circuit that has addressed the issue has reached precisely this result,” and “although the Fourth Circuit had not yet squarely decided the issue, the only reported Fourth Circuit district court decision reaches the same result.” Id. Finally, the Alexander court concluded that Rule 62(d), which “establishes only the narrow proposition that a full supersedeas bond entitles an applicant to the issuance of a stay pending disposition of the appeal” does not curtail the district court’s discretion to stay judgments pending appeal on the basis of a partial bond or no bond at all. Id. (emphasis in original). Rather, it leaves the question of “what principle guides a district court’s exercise of discretion to issue a stay of judgment” open to further judicial interpretation. Id.
23 See Poplar Grove, 600 F.2d at 1190–91.
24 Texaco Inc. v. Pennzoil Co. , 784 F.2d 1133, 1154 (2d Cir. 1986), rev’d in part on other grounds, Pennzoil Co. v. Texaco, Inc., 481 U.S. 1 (1987).
25 River Oaks Marine, Inc. v. Town of Grand Island, No. 89-CV-10165, 1992 WL 406813, at * 2 (W.D.N.Y. Dec. 10, 1992) (quoting Texaco, 784 F.2d at 1155).
26 Id.
27 Id. at 65; see also McSurely v. McClellan, 697 F.2d 309, 317 (D.C. Cir. 1982).
28 Palazzetti Imp./Exp., Inc., 2002 WL 562654, at * 2 (S.D.N.Y. Apr. 16, 2001).
29 Evans v. Buchanan, 435 F. Supp. 832, 842 (D. Del. 1977).
30 Id.
31 Morgan, 702 F. Supp. at 65.
32 Id. at 65 (citing Washington Metro. Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977)).
33 Armstrong v. O’Connnell, 416 F. Supp. 1325, 1330 (E.D. Wis. 1976).
34 Id. at 904.
35 Id.; see also In re Carlson, 224 F.3d 716, 719 (7th Cir. 2000) (waiver is appropriate where “the appellant has a clearly demonstrated ability to satisfy the judgment in the event the appeal is unsuccessful and there is no other concern that the appellee’s rights will be compromised by a failure adequately to secure the judgment”).
36 Olympia, 786 F.2d at 797–98.
37 Id. at 799.
38 Id.
39 Id.; see also Miami Int’l Realty Co. v. Paynter, 807 F.2d 871 (10th Cir. 1986) (affirming district court’s order entering stay with less than the full amount of the bond when defendant could not post the bond).
40 Olympia, 786 F.2d at 799–800.
41 Id. at 377.
42 Id. at n.6.
43 Olympia, 786 F.2d at 796.
44 Federal Prescription, 636 F.2d at 760.
45 Id. at 761.
46 Hamlin v. Charter Township of Flint, 181 F.R.D. 348, 353–54 (E.D. Mich. 1998).
47 Id.
48 Id.
49 Id.
50 Id. at 353-54.
51 See, e.g., Teachers Ins. and Annuity Ass’n of Am. v. Ormesa Geothermal, No. 87 Civ. 1259 (KMW), 1991 WL 254573, at *4-6 (S.D.N.Y. Nov. 21, 1999).
52 See Texaco, 784 F.2d at 1155 (citations and quotations omitted).
53 Id. at *1.
54 Id.
55 Federal Prescription, 636 F.2d at 760–61; see also Olympia, 786 F.2d at 797–98.
Edward M. Mullins and Annette C. Escobar practice in the law firm of Astigarraga Davis Mullins & Grossman, P.A., an international litigation and arbitration boutique in Miami. A different version of this article was prepared as part of a project for the Appellate Rules Committee of The Florida Bar.
This column is submitted on behalf of the Appellate Practice Section, Jack J. Aiello, chair, and Jacqueline E. Shapiro, editor.
