If your business has been sued, no matter how strong your defense, there is always a chance that a jury will rule against you. And you have to be prepared for that possibility.
If you plan to appeal a judgment against you, the time to begin to position yourself for appeal is before the trial even begins, says Chris Kratovil, member, Dykema Gossett PLLC.
“The reality is, once you’ve lost a jury verdict, if it’s not too late to start the process, then it is certainly very late in the game and not the optimal position to be in,” says Kratovil. “Securing a bond to postpone execution of the judgment is something to be addressed at the outset, rather than at the back end of the trial.”
Smart Business spoke with Kratovil, an experienced appellate attorney, about how to prepare up front to put yourself in the best position for an appeal.
Shouldn’t a company that’s been sued be thinking about winning, not losing?
When a company goes into high-stakes litigation, when trial is at hand, there is a reasonable possibility that it is going to lose. Everyone hopes for victory in the trial court, but if you get through the motion to dismiss stage, the summary judgment stage and all the way to trial, by definition, it is a close case. If you had an ironclad defense, the case would not make it all the way to trial. And if you get the wrong jury on the wrong day, you may lose.
What happens when a judgment is entered against a company?
When you lose and a judgment is entered against you, you are suddenly facing a very substantial liability, often up to seven or eight figures. And that judgment generally becomes executable and enforceable just 30 days after it is signed.
So after just 30 days, there is the possibility that constables will show up at your business with a writ of execution to seize property, or the plaintiff may obtain a writ of garnishment and come after your back account. And there is nothing more disruptive to a business than enduring these sort of judgment enforcement procedures. For example, if a company gets hit with a writ of garnishment on its primary operating bank account, it can’t conduct normal business transactions.
The key point is that once a judgment is entered by a trial court against your company, it becomes enforceable very quickly. A prudent company should start thinking about how to prevent that enforcement before the judgment even exists, and the best was to do so is with a supersedeas bond.
How does a supersedeas bond work?
Many people think that the mere fact that you filed an appeal suspends enforcement of the judgment, but that is not the case in either federal or state court. Merely filing an appeal doesn’t mean you get to delay paying the judgment until after the appeal is over. You need to post a bond to prevent the judgment from being enforced while the appeal is pending. The bond supersedes, or suspends, the judgment against your company during the appeal.
Instead of a bond, a cash deposit can also suspend the judgment during the appeal. But, in my experience, most companies lack the liquid assets to simply write a check for the full amount of the judgment against them.
A company facing a substantial judgment can always resort to bankruptcy, but that is the nuclear option and carries with it a broad array of negative consequences. If you want to avoid bankruptcy while pressing forward with your appeal, the best option is a supersedeas bond.
When should that bond be posted?
It has to be done at the outset of the appeal. But in the current economy, it is a difficult and slow process to get a bond. You have to reveal an awful lot of financial information, because you are coming from a position of weakness, and you are at the mercy of the surety company. If the surety is going to write a bond for you, you have to provide whatever information they want and you have to provide it promptly.
The surety is looking for the ability to repay that bond because, should you lose the appeal, the plaintiff will go after the bond, and the surety wants to make sure you can repay that.
How can a company make that process a little easier?
If you are on the cusp of a trial in a significant case, do not assume you are going to win. Game out the worst-case scenario and be prepared for it. It is truly an existential crisis for many businesses when they get hit with a big judgment because, more often than not, they haven’t done a good job planning for it. They haven’t put the wheels in motion to get a bond, so it’s a mad scramble to get it posted within that short 30-day ‘grace period’ before the constables show up and execute.
What is the role of the attorney in securing a bond?
The attorney can flag the issue for you and make you aware of it well before trial. He or she can put you in touch with sureties and can help explain the case to the bond writers. But, ultimately, the due diligence is between your company and the surety; trial counsel and appellate counsel play, at best, a supporting role.
Don’t whistle past the graveyard and pretend that there is no chance you are going to lose at trial. If you lose at trial and you want to appeal, you are going to need a bond. Always be thinking two, three, four moves in advance. The trial process is a grueling ordeal, but you need to keep your eye on what comes after it. Getting a handle on this supersedeas bond process prior to trial is a classic example of hoping for the best and preparing for the worst.
Chris Kratovil is a member at Dykema Gossett PLLC. Reach him at (214) 462-6458 or CKratovil@dykema.com.