BILL ANALYSIS Ó
AB 2377
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Date of Hearing: May 8, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2377 (Huber) - As Amended: March 29, 2012
SUBJECT : ENFORCEMENT OF JUDGMENTS: APPEALS
KEY ISSUE : SHOULD CALIFORNIA DEPART FROM THE LONGSTANDING RULE
SETTING A FIXED AMOUNT TO BE PUT DOWN IN THE FORM OF A BOND WHEN
A PARTY WHO FILES AN APPEAL FROM A MONEY JUDGMENT SEEKS TO HAVE
THE JUDGMENT STAYED DURING THE APPEAL?
FISCAL EFFECT : As currently in print this bill is currently
keyed non-fiscal.
SYNOPSIS
Under longstanding California law, when a losing party appeals
from a money judgment, the judgment is stayed during the
pendency of the appeal. If the judgment were not stayed, a
successful appellant would have to attempt to recover the money
after the appeal- a risky proposition because the judgment
winner may no longer have the money. In order to stay the
judgment, the appellant must deposit some security to guard
against the opposite problem - the losing party may not have
money when the appeal is concluded. In order to provide for the
recovery of costs, the amount of the surety bond is set at 150
percent of the judgment, except if the entity providing the bond
is a non-admitted company (not subject to state regulation) and
therefore presents less certainty of payment, in which case the
amount is 200 percent.
This bill would change the rule so that the security bond would
be only discretionary; a court could set the amount of the bond
at any level less than required under existing law, apparently
down to zero. Business interests argue that the amount of the
appeals bond is crippling and may effectively deprive defendants
of their right to appeal. Plaintiffs' lawyers however contend
that the existing rule is necessary to protect their right to
collect on a proper judgment after appeal and that departing
from the longstanding rule will promote frivolous appeals
designed to simply delay the defendant's obligation to satisfy
the judgment of the court against them.
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SUMMARY : Makes appeals bonds discretionary. Specifically, this
bill :
1)Provides that unless an undertaking (bond) is given, the
perfecting of an appeal shall not stay enforcement of the
judgment or order in the trial court if the judgment or order
is for any of the following:
a) Money or the payment of money, whether consisting of a
special fund or not, and whether payable by the appellant
or another party to the action.
b) Costs awarded pursuant to Code of Civil Procedure (CCP)
Section 998 that otherwise would not have been awarded as
costs pursuant to CCP Section 1033.5.
c) Costs awarded pursuant to CCP Section 1141.21 that
otherwise would not have been awarded as costs pursuant to
CCP Section 1033.5.
2)The undertaking shall be on condition that if the judgment or
order or any part of it is affirmed or the appeal is withdrawn
or dismissed, the party ordered to pay shall pay the amount of
the judgment or order, or the part of it as to which the
judgment or order is affirmed, as entered after the receipt of
the remittitur, together with any interest that may have
accrued pending the appeal and entry of the remittitur, and
costs that may be awarded against the appellant on appeal.
This section shall not apply in cases where the money to be
paid is in the actual or constructive custody of the court.
Those cases shall be governed, instead, by the provisions of
CCP Section 917.2.
3)The amount of the undertaking shall be for double the amount
of the judgment or order unless one of the following apply:
a) If given by an admitted surety insurer the undertaking
shall be for one and one-half times the amount of the
judgment or order.
b) If the court, after notice and hearing, and for good
cause shown, determines a different amount for the
undertaking is appropriate, then that amount shall apply.
EXISTING LAW :
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1)Provides that unless an undertaking Ŭi.e., a bond] is given,
the perfecting of an appeal shall not stay enforcement of the
judgment or order in the trial court if the judgment or order
is for any of the following:
a) Money or the payment of money, whether consisting of a
special fund or not, and whether payable by the appellant
or another party to the action.
b) Costs awarded pursuant to Section 998 which otherwise
would not have been awarded as costs pursuant to Section
1033.5.
c) Costs awarded pursuant to Section 1141.21 which
otherwise would not have been awarded as costs pursuant to
Section 1033.5. (CCP Section 917.1.)
2)Provides that the undertaking shall be on condition that if
the judgment or order or any part of it is affirmed or the
appeal is withdrawn or dismissed, the party ordered to pay
shall pay the amount of the judgment or order, or the part of
it as to which the judgment or order is affirmed, as entered
after the receipt of the remittitur, together with any
interest which may have accrued pending the appeal and entry
of the remittitur, and costs which may be awarded against the
appellant on appeal. (CCP Section 917.1.)
3)Further provides that the undertaking shall be for double the
amount of the judgment or order unless given by an admitted
surety insurer in which event it shall be for one and one-half
times the amount of the judgment or order. The liability on
the undertaking may be enforced if the party ordered to pay
does not make the payment within 30 days after the filing of
the remittitur from the reviewing court. (CCP Section 917.1.)
COMMENTS : The author explains the bill as follows:
AB 2377 would increase the ability for person to stay a
judgment and pursue his or her rightful appeal of a trial
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court's judgment by providing a judge some discretion in
adjusting the amount of a bond required to be placed with
the court if there are just reasons to do so.
California law requiring defendants to post 150% of a
judgment to have an appeal is unfair and onerous. In an era
when billion-dollar verdicts are no longer uncommon,
appealing a jury verdict can force an individual, a
company, or an industry into bankruptcy. As a result,
businesses settle instead of pursuing an appeal
irrespective of merit. A litigant's right to appeal from
an adverse judgment is a bedrock principle in our system of
justice. The combination of a huge plaintiff's verdict and
the defendant's inability to post an appeal bond means that
the judgment, even if in error, may evade appellate review.
In order to stay a judgment and appeal a verdict a
defendant must provide 150-200% of the verdict (Code of
Civil Procedure sections 917.1). There is no clear
discretion for courts to waive the requirement of a bond or
to set an amount smaller than the prescribed 150% -- even
if it means a defendant loses his or her ability to appeal.
Especially during hard economic times, businesses can find
it difficult to tie up much needed assets or spend precious
capital on bonds in order to pursue their right to appeal.
However, federal law allows district courts discretion in
setting the amount of the bond. Fed. R. Civ. P. 62(d),
provides for a bond in order to stay lower court
proceedings pending appeal ("If an appeal is taken, the
appellant may obtain a stay by supersedeas bond?"). A bond
is usually for the full amount of the judgment. However,
federal courts have held consistently that a district court
has some discretion in setting the amount, for example if a
business would have to declare bankruptcy to pursue the
appeal.
AB 2377 would provide clear and similar treatment in
California and allow a judge some discretion when a party
must post as a bond in order to stay a judgment and pursue
an appeal if there is good cause to do so. AB 2377 will
ensure that appeals are not only limited to those who can
afford them.
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Many states have already instituted reforms of appeal bond
requirements. These states include: Arizona, Colorado,
Florida, Georgia, Hawaii, Idaho, Kansas, Kentucky,
Michigan, Mississippi, Missouri, Nebraska, Nevada, North
Dakota, North Carolina, Ohio, Oklahoma, Tennessee, Texas,
Virginia, West Virginia, Wisconsin and Wyoming.
The Civil Justice Association of California and the California
Chamber of Commerce argue:
Under current law, a party must post a 150% bond by an
admitted surety of a monetary judgment in order to stay its
immediate enforcement and appeal the ruling (Code of Civil
Procedure 917.1, see also Rossa v. D.L. Falk Const., Inc.
(2012) 53 Cal.4th 387). If a person cannot get a bond,
then the party must provide 200% of the judgment! In an
era where multi-million dollar or even billion-dollar
verdicts are no longer uncommon, appealing a jury verdict
can force an individual, a company, or an industry into
bankruptcy (Olympia Equipment Leasing Co. v. Western Union
Telegraph Co., (1986) 786 F.2d 794, Trans World Airlines,
Inc. v. Hughes (1975) 515 F.2d 173). As a result, some
businesses settle instead of pursuing an appeal,
irrespective of the merit of their appeal.
Assembly Bill 2377 would align California with federal law
by allowing a trial court discretion to reduce the amount
required (the undertaking) if there is good cause to do so.
Federal courts have noted that while a bond ensures a
plaintiff will get paid, there are some cases where the
plaintiff's judgment is not at risk and has reduced the
amount in order to allow the appeal (Northern Indiana
Public Service Co. v. Carbon County Coal Co. (1986) 799
F.2d 265). A litigant's right to appeal from an adverse
judgment is a bedrock principle in our system of justice.
The combination of a large plaintiff's verdict and the
defendant's inability to post an appeal bond can result in
the judgment, even if in error, evading appellate review.
Allowing some discretion in setting the appeal-bond that
may facilitate defendants' appeals supports the legitimacy
and accuracy of the litigation process (see Doug Rendleman,
A Cap on the Defendant's Appeal Bond?: Punitive Damages
Tort Reform, 39 Akron L. Rev. 1089, 1090 (2006)). Many
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other states have already enacted statutory reforms to
avoid situations where a defendant's inability to post a
bond would mean giving up the appeal.
A 2010 Harris poll ranks California as 46th out of the 50
states in terms of having a fair and reasonable litigation
environment. Another national report ranked states based on
tort litigation risks (measuring a number of variables) has
California as 41st out of 50, and near the bottom for
having fair appeal bonds (see U.S. Tort Liability Index:
2010 Report, June 2010 Pacific Research Institute). When
employers consider where to locate and expand their
businesses, they take many factors into consideration,
including the business tax climate, quality of the local
education system, labor costs, environmental and regulatory
burdens, availability/affordability of resources like land
and electricity, and the legal climate. This bill presents
a reasonable, fair proposal that would improve the
litigation environment of California
A coalition of trade associations adds, "California currently
requires a defendant who wishes to appeal a monetary judgment to
post a bond of one and a half the amount of the judgment or put
up twice the amount of the judgment. Over time, as the average
dollar amount involved in a civil judgment has grown, appeals
have become prohibitively expensive for many defendants. For
many businesses, the appeal bond requirement serves as a
powerful deterrent against appeals even when the trial court
made a blatant error. For some it can actually force a choice
between justice and bankruptcy.
"AB 2377 aligns California law with federal law and allows a
trial court some discretion to either reduce or waive the amount
a defendant can be forced to post in an appeal bond for good
cause. Over 30 states have enacted various reforms on appeal
bonds, recognizing that appeal bonds can serve as an
unreasonable barrier to justice.
"This bill will help California's economic recovery by setting a
reasonable cap of the cost of appeals for employers and
individuals."
Have The Supporters of This Bill Demonstrated The Need To Depart
From Long Established Law? The premise of this bill appears to
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be that impecunious defendants are denied their right to appeal
from large and erroneous judgments because the amount of the
appeal bond is unaffordable. In light of the longstanding
duration of the statute (it appears to reach back to 1872), the
Committee may wish to see some further support for this
proposition. However, no evidence has been adduced by the
bill's supporters suggesting that losing parties file fewer
appeals because of the existing bond requirement.
Supporters argue that billion-dollar verdicts are no longer
uncommon. No data has been provided to the Committee indicating
the frequency of such huge verdicts. Supporters also argue that
the cost of an appeals bond "can force an individual, a company,
or an industry into bankruptcy." The Committee has not been
provided with any information regarding bankruptcies occasioned
by the cost of appeals bonds. The bill's sponsors cite to only
one news article from 2003 in which an Illinois court
purportedly required the Phillip Morris tobacco company to post
a $12-billion bond, which the company claimed would force it to
file for bankruptcy. The outcome of that dispute is not known,
but it appears that Phillip Morris was not made bankrupt by an
Illinois court 9 years ago. According to recent news reports,
the company is one of the major funders of the campaign against
the pending Proposition 29 tobacco tax initiative.
Nor has any data been submitted showing that defendants against
whom large judgments are obtained cannot afford the appeals
bond. Supporters note that the amount of the bond is 150
percent of the money judgment from which the defendant is
protected while the appeal goes forward. But the defendant is
not required to deposit this sum with the court. Surety bond
companies require only a small fraction of the indebtedness
(typically 10 percent). The cost of an appeal bond may in many
cases therefore be lower than the cost of the defendant's legal
fees for the appeal in light of the rates charged by many big
law firms.
Are There Potential Risks To The Approach Required By This Bill?
Supporters correctly note that the bill "would increase the
ability for person to stay a judgment and pursue his or her
rightful appeal." However, this increased ability to stay the
judgment would come at some risk to the prevailing party.
As the author notes, "The appeal bond from the plaintiff's
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perspective ensures that, if the trial judgment is affirmed on
appeal, money will be available to him/her at the conclusion of
the appellate process, which could be years down the road.
Similarly, although a prevailing defendant can theoretically get
the money back Ŭif the judgment were not stayed pending appeal],
the company would have to file a lawsuit, win, and then seek to
collect - all of which costs time and money. A plaintiff may
have taken steps to make him/herself 'judgment-proof' during the
pendency of the appeal. Additionally, if a defendant cannot
afford to put enough money up to stay the judgment in order to
appeal, then his or her ability to have a meaningful appeal is
removed."
The observation works both ways. Just as a defendant would be
at risk if it paid the judgment before the appeal and then was
required to recoup the money if the appeal were successful, so
too a plaintiff is at risk if the full amount of the judgment
and any recoverable costs were not available if it prevailed in
the appeal. Both defendants and plaintiffs can become judgment
proof during the pendency of an appeal. "The purpose of the
undertaking requirement is to protect the judgment won in the
trial court from becoming uncollectible while the judgment is
subjected to appellate review. A successful litigant will have
an assured source of funds to meet the amount of the money
judgment, costs and postjudgment interest after postponing
enjoyment of a trial court victory." (Leung v. Verdugo Hills
Hospital, 168 Cal. App. 4th 205, 211-212 (Cal. App. 2d Dist.
2008.)
ARGUMENTS IN OPPOSITION : The Consumer Attorneys of California,
the California Employment Lawyers Association, and the
Employment Law Center of the San Francisco Legal Aid Society
oppose the bill, arguing that a losing defendant that wishes to
prevent enforcement of the judgment pending a challenge to the
judgment in the trial court has a number of procedural devices
by which it can attack a jury award. CELA argues that
defendants can move under CCP § 918 to stay the enforcement of
the judgment until ten days after the last day on which a notice
of appeal can be filed. No undertaking, monetary or otherwise,
is required to obtain this stay. Most judges, CELA argues,
automatically grant this stay so that a successful plaintiff
cannot enforce a judgment until after the trial court has
decided all post-trial motions in the trial court. This
procedure, opponents contend, provides more than adequate
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protection for defendants that already have been found liable
for harm that they have caused.
If the fact-finder erred, opponents argue, the defendant has an
opportunity to make appropriate motions in the trial court for a
reduction of the damages awarded, a judgment notwithstanding the
verdict, or a new trial. Only after an adverse finding by the
jury and a review by the trial court does the need to appeal
even arise. While some appeals are successful, opponents note,
the large majority are not. Nevertheless, even an unsuccessful
appeal can delay for years the payment of sums to which the
prevailing party at trial is entitled. The undertaking is what
guarantees that the successful plaintiff, who typically will
have waited years for trial and now will be waiting years more
for the appeal to be decided, will eventually be paid. It also
deters defendants from filing frivolous appeals of meritorious
judgments, opponents contend.
REGISTERED SUPPORT / OPPOSITION :
Support
CA Chamber of Commerce (co-sponsor)
CA Civil Justice Association (co-sponsor)
CA Assn of Health Facilities
CA Construction and Industrial Materials Association
CA Farm Bureau Federation
CA Grocers Association
CA Independent Grocers Association
CA Manufacturers & Technology Association
National Federation of Independent Business
Opposition
California Employment Lawyers Association
Consumer Attorneys of California
Employment Law Center - Legal Aid Society of San Francisco
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
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