By Marcy Hogan Greer

Supersedeas is a topic that most lawyers are content to know nothing about — until they face a judgment.

Money judgments can generally be superseded by posting sufficient security to guarantee the judgment creditor that it will recover the full amount of the judgment, together with post-judgment interest, if affirmed on appeal. But supersedeas bond premiums can be costly, and the surety may require collateral that ties up assets.

Alternatives take time to negotiate with the judgment creditor and/or to obtain court approval.

Meanwhile, the clock is probably ticking down. The window of opportunity to suspend a judgment from execution efforts, in order to preserve the status quo on appeal, is usually only 10 workdays.

Although the posting of security is not necessary to preserve the right to appeal, failing to secure the judgment is a risky practice. The appellant gambles losing the amount of the judgment, even if ultimately successful on appeal. In some cases, collection of the judgment may imperil the very viability of the losing party and may well render moot any relief the appellate court might subsequently grant.

Many clients, including sophisticated companies, are even less familiar than lawyers with supersedeas practice, especially when it comes to large judgments and judgments with injunctive relief. The sooner you can raise the issues and get clients to focus on the various options for suspending the judgment, the better off you and your client will be. This article is designed to give a brief overview of the process and the options.

10-Day Delay

Most federal judgments are automatically stayed for 10 workdays after their entry and automatically become enforceable after expiration of that period. Fed. R. Civ. P. 62(a); Fed. R. Civ. P. 6(a).

Notably, the 10-day stay is not extended by the filing of post-trial or post-judgment motions. Rather, a district court has discretion to extend the stay during this time period, but it must be requested to exercise that discretion and must decide to do so “on such conditions for the security of the adverse party as are proper,” or the stay will expire. Fed. R. Civ. P. 62(b).

Money Judgments

The most familiar form of supersedeas for money judgments is a supersedeas bond. The federal district courts routinely suspend judgments upon the posting of a supersedeas bond in a sufficient amount. Fed. R. Civ. P. 62(d) (providing that a party filing a bond in accordance with rules requirements is entitled to a stay of execution as a matter of right). The stay is effective once the bond is approved by the court. Id.

Although each district court has its own requirements, most require that the bond be in the full amount of the judgment, including any prejudgment interest, attorneys’ fees, and costs, plus one to two years of post-judgment interest. The rate for post-judgment interest is set by statute (28 U.S.C. § 1961(a)) and is “calculated from the date of the entry of judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the entry of judgment.” These rates can be found at http://www.federalreserve.gov/releases/h15/Current.

The best practice is to contact the district clerk’s office to confirm in advance the precise amount of the supersedeas bond the court will approve in a given case, and it is highly recommended that you prepare a breakdown of the components of the judgment and the post-judgment rate in advance of that call.

The surety on the bond must generally appear on the Treasury Department’s list of acceptable sureties. See http://www.fms.treas.gov/c570/c570.html for the list. Bond applications take time because there are typically a number of financial requirements, including financial statements and collateral, that must be fulfilled before the bond is ready to file with the district court. Unless and until the bond is approved by the court, the judgment creditor can begin to execute upon the judgment once the automatic stay expires.

Because the premiums for supersedeas bonds are usually quite high, and many sureties requirethat the judgment debtor pledge 100 percent of the bond’s face amount as collateral, you may want to discuss other alternatives with your client. One is to deposit the cash equivalent of the judgment into a court-controlled, interest-bearing account. The benefits of posting cash are that your client avoids the cost of the premium and (as we have successfully argued) post-judgment interest need not be deposited so long as the account bears comparable interest.

Another benefit is that most judgment creditors are comfortable with this procedure, so it is often accomplished on an agreed or unopposed basis.

Although not as common, federal courts have approved letters of credit, certificates of deposits, and other pledges of negotiable instruments as security. Stocks and other securities with value equivalent to the judgment can be escrowed to secure the judgment during appeal. Security interests in accounts receivables and other forms of property have also been used to secure judgments.

Some courts have additionally or alternatively approved standstill arrangements based on the debtor’s promise that it will not transfer assets outside of the ordinary course of its business. These arrangements allow the judgment debtor to continue business as usual during the appeal, while protecting the judgment creditor from unusual transfers of assets. See, e.g., Fed. Prescription Serv., Inc. v. Am. Pharm. Ass’n, 636 F.2d 755, 761 (D.C. Cir. 1980); Miami Int’l Realty Co. v. Paynter, 807 F.2d 871, 874 (10th Cir. 1986). These arrangements are generally negotiated by the parties, and the complexity of the transaction takes time.

Most courts, in our experience, have been flexible about supersedeas arrangements that are agreed by the parties, and many will afford the parties additional time to work out agreements by temporarily suspending execution to facilitate such an agreement.

But if securing the judgment is impossible or will substantially impair the defendant’s financial condition and supersedeas relief is not available, a defendant may need to consider bankruptcy options.

Departures From Full Security

In Poplar Grove Planting & Refining Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1191 (5th Cir. 1979), the Fifth Circuit described two circumstances that have been widely recognized as justifying a departure from the requirement of posting full security to supersede a judgment:

In these circumstances, the federal courts have discretion to approve alternative forms of security, including unsecured stays in certain cases. E.g., Fed. Prescription, 636 F.2d at 757-58. Since the purpose of supersedeas is to preserve the status quo, then so long as the judgment creditor’s ability to satisfy the judgment during the appeal remains relatively constant, the district court has a fair amount of latitude to approve alternative forms of security.

As Judge Easterbrook observed, a judgment creditor should not be permitted to improve its collection potential by the threat of execution during appeal. Olympia Equip. Leasing Co. v. Western Union Tel. Co., 786 F.2d 794, 800 (7th Cir. 1986) (Easterbrook, J., concurring) (observing that supersedeas should “make [the judgment creditor] as well off during the appeal as it would be if it could execute at once, but no better off” (emphasis added)).

Suspending Other Forms of Judgment

Judgments for other than money can be superseded only pursuant to court order. For example, when a judgment includes both monetary and injunctive relief, the money judgment can be suspended upon the district court’s approval of a supersedeas bond, but suspension of the injunctive portion requires an order pursuant to Federal Rule of Appellate Procedure 8(a)(1)(c) and Federal Rule of Civil Procedure 62(c).

The request for stay must be filed first with the district court, whose decision on stay is reviewed by the appellate courts for abuse of discretion. The requester must show the likelihood of prevailing on the merits on the issue that is the subject of the relief requested, that it is likely to suffer irreparable injury from the denial of the stay, that the other parties will not be substantially harmed by the grant of stay, and that granting the stay will serve the public interest. E.g., Hilton v. Braunskill, 481 U.S. 770, 776 (1987); Arnold v. Garlock, Inc., 278 F.3d 426, 439 (5th Cir. 2001).

Abstracting the Judgment/Judgment Liens

Although a district court’s supersedeas order generally prevents execution of the judgment, it does not necessarily preclude the judgment creditor from recording a judgment lien on the defendant’s property under local law. Some states provide procedures for relief from such liens upon a showing, for example, that the defendant has posted security (or is excused from doing so) and that the creation of the lien would not “substantially increase the degree to which a judgment creditor’s recovery under the judgment would be secured when balanced against the costs to the defendant after the exhaustion of all appellate remedies.” Tex. Prop. Code Ann. 52.011.

State Supersedeas Protections in Federal Court

Federal Rule of Civil Procedure 62(f) provides that, if a federal judgment operates as a lien on the property of the judgment debtor under the laws of the forum state, then the judgment debtor is entitled to invoke the local supersedeas protections of the forum state. Texas, for example, affords significant protection to judgment debtors as a result of recent tort reform, including a ceiling on supersedeas bonds equal to the lesser of 50 percent of the debtor’s net worth or $25 million. See Tex. Civ. Prac. & Rem. Code Ann. § 52.006(b).

However, the protections of the forum state’s laws are not automatic; you must file a motion for stay and obtain a ruling.

Taxable Supersedeas Costs

Supersedeas costs, including bond premiums, are recoverable costs in a successful appeal. See Fed. R. App. P. 39(e)(3). This is a very important feature of federal law because it provides an incentive to the appellee to consider the cost of supersedeas to the appellant, especially if the case is a close one with a significant possibility of reversal on appeal. The appellee who refuses to agree to an alternative to an expensive supersedeas bond may find itself paying that cost in the end.

Marcy Hogan Greer, a partner in the Appellate Section at Fulbright & Jaworski, has been board certified since 1997 in Civil Appellate Law and practices frequently in the Fifth Circuit and other federal and state appellate courts.