BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 1478 (Harman)
As Introduced
Hearing Date: May 8, 2012
Fiscal: No
Urgency: No
RD
SUBJECT
Appeals: Undertaking
DESCRIPTION
Existing law provides that perfecting an appeal does not stay
enforcement of the judgment or order, as specified, unless the
defendant posts an undertaking (appeals bond) for 200 percent of
the judgment or order, or 150 percent where the undertaking is
given by an admitted surety insurer. This bill would place a
cap on appeal bonds at $25 million. Where the party posting the
appeal bond is an individual or small business, as defined, on
the date of the judgment, the bill would set a cap of $1
million.
BACKGROUND
The Bond and Undertaking Law governs the undertaking procedures
for appeals, as well as for most other bonds and undertakings
required by law. (Code Civ. Proc. Sec. 995.010 et seq.)
Section 917.1 of the Code of Civil Procedure provides that
perfecting an appeal does not stay enforcement of a judgment or
order directing the payment of money. A defendant against whom
a money judgment is entered must provide an undertaking to
obtain a stay of enforcement pending appeal, and the amount of
an undertaking includes any award against the defendant under
Section 998 or under Section 1141.21 of the Code of Civil
Procedure. For purposes of the undertaking, costs are also
included, but judgments for costs alone do not require a bond be
given in order to stay enforcement pending appeal. (See 9
Witkin Cal. Proc. Appeals Secs. 231, 235.)
(more)
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The purpose of the undertaking is to secure the judgment and
appellate costs of the party that already prevailed at trial
against the appellant. (See Code Civ. Proc. Sec. 917.1(b) which
requires that the undertaking is on the condition that if the
judgment or order, or any part of it, is affirmed, or if the
appeal is dismissed, that the party ordered to pay must pay the
amount of the judgment or order, or the part remaining, together
with any interest that accrued pending the appeal and costs that
may have been awarded against the appellant on appeal.) As
such, Section 917.1(b) requires that the bond be for either
double the amount of the judgment or order, unless given by an
admitted surety insurer, in which case the bond must be for one
and one-half times the amount of the judgment or order. Under
Section 995.710 of the Code of Civil Procedure, appellants also
have the option of making a deposit of money or other negotiable
instruments with the trial court in lieu of a bond (on which the
appellant would have to pay a premium).
This bill would retain the existing law requirement that the
bond be for either 200 percent of the judgment or order, or 150
percent where given by an admitted surety insurer, but cap the
bond at $25 million, and would further limit the bond to a cap
of $1 million when posted by an individual or small business, as
defined.
CHANGES TO EXISTING LAW
Existing law provides that unless an undertaking 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:
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;
costs awarded pursuant to Section 998 of the Code of Civil
Procedure, that would not have been awarded as costs, as
specified; or
costs awarded pursuant to Section 1141.21 of the Code of Civil
Procedure, that would not have been awarded as costs, as
specified. (Code Civ. Proc. Sec. 917.1(a).)
Existing law provides that the undertaking must be on the
condition that if the judgment or order of 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
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entered after the receipt of the remittitur, together with any
interest that accrued pending the appeal and entry of the
remittitur, and costs which may have been awarded against the
appellant on appeal, except as specified. Existing law requires
that the undertaking be for double the amount of the judgment or
order unless given by an admitted surety insurer, in which event
it must be for one and half times the judgment or order. (Code
Civ. Proc. Sec. 917.1(b).)
Existing law permits any party to serve a written offer upon any
other party to a trial or arbitration to settle a claim and
provides for recovery of specified costs. (Code Civ. Proc. Sec.
998.)
Existing law provides for the recovery of costs, as specified,
when a judgment upon a trial de novo is not more favorable to
the requesting party. (Code Civ. Proc. Sec. 1141.21.)
Existing law , in relevant part, provides that, instead of giving
a bond, a principal may provide instead of giving a bond,
deposit with the officer, among other things:
lawful money of the United States, maintained by the officer
in an interest-bearing trust account;
bearer bonds or bearer notes of the United States or the State
of California; and
investment certificates or share accounts assigned to the
officer, not exceeding the federally insured amount, issued by
savings associations authorized to do business in this state
and insured by the Federal Deposit Insurance Corporation.
(Code Civ. Proc. Sec. 995.710 et seq.)
Existing law defines "small business" as an independently owned
and operated business that is not dominant in its field of
operation, the principal office of which is located in
California, the officers of which are domiciled in California,
and which, together with affiliates, has 100 or fewer employees,
and average annual gross receipts of $10 million or less over
the previous three years, or is a manufacturer, as defined, with
100 or fewer employees. (Gov. Code Sec. 14847.1(d)(1).)
Existing law defines "manufacturer" as a business that is:
primarily engaged in the chemical or mechanical transformation
of raw materials or processed substances into new products;
and
is classified between Codes 31-33, inclusive , of the North
American Industry Classification System.
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This bill would prohibit an undertaking from ever exceeding $25
million and in cases involving an individual or small business,
as defined under Government Code Section 14847, would place the
cap at $1 million instead.
This bill makes other non-substantive, technical changes.
COMMENT
1. Stated need for the bill
According to the author:
SB 1478 would place a $25 million cap on the amount a
defendant must post as bond in order to stay a judgment and
pursue an appeal. It also limits the cap to $1 million for
small businesses, as defined.
In an era when multi-billion dollar judgments are no longer
uncommon, appealing a jury verdict can force an individual or
business into bankruptcy. California law requires defendant's
to post 150% (200% if they can't get a bond) of a verdict to
stay a judgment and pursue an appeal. Businesses are forced
many times to settle rather than pursue a rightful appeal.
When novel legal theories are being pursued against
defendants, even entire industries for enormous sums of money,
there needs to be a fair chance for the appellate courts to
ensure that the process is fair and the law is sound. Appeal
bond caps are necessary so that defendants don't have to go
bankrupt merely to pursue an appeal from an adverse trial
verdict.
This bill seeks to reduce the financial burden on appeals so
that they are available to all defendants-not just those that
have the resources to afford them. . . . Currently 38 states
have appeal bond reform laws on the books. A majority of
these statutes apply only to capping the very large appeal
bonds, usually at the $25 million level or higher up to $100
million. However, �Idaho, Kansas, North Carolina, Nebraska,
Oklahoma, Texas and Wyoming] have statutes that apply at much
lower amounts . . . . "
A coalition of supporters writes that, "�f]or many businesses,
the appeal bond requirement serves as a powerful deterrent
against appeals even when the court has made a blatant error.
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For some it can actually force a choice between justice and
bankruptcy. . . . Notably, 25 states have legislatively imposed
a cap on the size of appeal bonds, fifteen of them setting it at
$25 million. SB 1478 would add California to the growing list
of states that recognize that appeal bonds can serve as an
unreasonable barrier to justice."
The sponsors, the California Chamber of Commerce and Civil
Justice Association of California provide that "�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, can evade appellate
review. An appeal-bond cap that facilitates defendants' appeals
supports the legitimacy and accuracy of the litigation process.
. . . "
2. Underlying policy considerations behind appeals bonds would
arguably be undermined by the proposed caps of this bill
This bill would limit the amount of an undertaking at $25
million, and in some cases $1 million if involving an individual
or small business, as defined. The author points to the
decision faced by these defendants in deciding whether to appeal
a judgment or order, and points to a New York Times editorial
that described a $12 billion bond that Phillip Morris faced from
a judge in Illinois as "prohibitively costly." In that case,
the company apparently claimed that it would have to file for
bankruptcy if forced to pay the appeal bond.
To allow the stay of enforcement of judgments or orders for
money, including where the judgments or orders include costs
pursuant to Section 998 or 1141.21 (which exist in part to
encourage settlements before trial or to accept reasonable
judicial arbitration settlements, respectively) would arguably
remove the disincentive against turning down settlement offers
or reasonable judicial arbitration settlements to gamble at
trial or on appeal. Moreover, the purpose of appeals bonds is
not to keep the defendant in business while giving them one more
shot to change the court's mind about the case on appeal; it is
to ensure that where a trial has resulted in a judgment against
a defendant, the defendant does not avoid or have additional
reason to resist paying the judgment to the party who has
successfully proven their case against the defendant. As noted
by the Consumer Attorneys of California (CAOC), "�a]t a minimum,
the appeals process in California takes two years. If appeals
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bonds are capped at amounts that don't accurately reflect the
judgment, the defendant has the incentive to file an appeal
solely for the purpose of delaying payment of a judgment.
Additionally, many cases that had not previously settled will
settle on appeal. Without the appropriate bond requirement,
there is less incentive to settle �outright] and cases that
should settle will continue to languish in the system."
Committee staff also notes that the judgments that are awarded
in the billions of dollars, as referenced by proponents of the
bill, do not appear to be default judgments. They are judgments
or orders that have been fully tried. The defendant/appellant
arguably should not be encouraged to delay payment of the
judgment or order for money against them by way of lowering the
undertaking required for staying enforcements on appeals. It
would not be in the interest of public policy to allow appeals
to go forth for money judgments without assurance that there is
enough money to fulfill the judgment rightfully awarded to the
plaintiff/respondent if the judgment is upheld, either in whole
or in part. Nor, arguably, is it favorable public policy to
provide the defendant/appellant additional incentive to appeal
cases in hopes of causing the plaintiff to run out of money and
settle the matter for less than the judgment that was entered at
the end of trial.
As stated by numerous opponents to this bill, the function of an
undertaking is in part to encourage the payment of the judgment
or order after the issues have been tried and all post judgment
motions have been settled (including a motion for new trial; a
motion to vacate a judgment; a motion for judgment
notwithstanding the verdict; and a motion to reconsider an
appealable order). Where the prevailing party is still forced
into an appeal that stays the judgment while the case is
appealed, public policy supports ensuring that the party's
judgment can be fulfilled, including additional costs awarded on
appeal, if he or she prevails again. This Committee may wish to
consider whether it is beneficial to deviate from that
longstanding policy choice as provided for by this bill.
SHOULD THERE BE A CAP PLACED ON THE APPEAL BOND REQUIRED OF A
DEFENDANT WHO WISHES TO STAY THE ENFORCEMENT OF A JUDGMENT OR
ORDER FOR MONEY ON APPEAL, AT RISK OF THE DEFENDANT NOT BEING
ABLE TO PAY THE PLANTIFF'S FULL JUDGMENT IF THE APPEAL IS
DENIED?
3. Opposition concerns
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In opposition to this bill, the California Employment Lawyers
Association writes:
This bill helps only one kind of party: defendants that have
been found by a trial court to be culpable of civil
wrongdoing. Whenever a defendant files an appeal of a
judgment, a court or jury has found that the defendant's
defenses were without merit. Further, the defendant has had
the opportunity-before even filing the appeal to attack the
judgment in the trial court. When a losing defendant wants to
prevent enforcement of the judgment pending a challenge to the
judgment in the trial court, that defendant can move under
�Code of Civil Procedure] Section 918 to stay the enforcement
of the judgment until ten days after the last day on which
notice of appeal can be filed. No undertaking, monetary or
otherwise, is required to obtain this state. Most judges, in
our experience, 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 existing procedure provides more than adequate
protection for defendants that have already been found liable
for harm that they have caused. . . .
If there is a so-called "runaway" jury or the factfinder
clearly erred, the defendant has had the opportunity to make
the appropriate motions in the trial court for a reduction of
the damages awarded, a judgment notwithstanding the verdict,
or a new trial. At that point, the trial judge deciding those
motions will have sat as the governor of the entire case and
will have had the opportunity to view the demeanor of the
witnesses and determine the truthfulness of their testimony.
Only after an adverse finding by the jury and a review by the
trial court does the need to appeal even arise.
The Legal Aid Society-Employment Law Center adds, "Some appeals
are successful. The huge majority are not. But any appeal,
even an unsuccessful one, can delay for years the payment of
sums to which prevailing party at trial almost certainly 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. The
undertaking, of course, must be substantially greater than the
underlying judgment. If it is not, there will be no way to
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ensure that the plaintiff will be paid all costs that have been
awarded and all interest that has accrued on the judgment. SB
1478, therefore, would turn frivolous appeal into a way for
unsuccessful defendants to subject prevailing plaintiffs to the
risk of losing property that almost certainly belongs to them.
In a time of large reductions in court finding and increased
stress on the functioning of the entire judicial system,
allowing SB 1478 to increase the burden on appellate courts and
on the public that supports them is bad public policy."
Also in opposition to this bill, CAOC writes:
An arbitrary cap on appeals bonds does not accomplish the
purpose of the bond: ensuring that successful litigants are
protected during the course of an appeal and that funds are
available to pay a judgment at the conclusion of an
unsuccessful appeal. . . .
The right to a trial by a jury is one of the most, if not the
most fundamental right, afforded by our civil justice system.
Appellate courts are guided by the presumption that a jury
verdict was correct. An appeal is not a new trial, and the
Court of Appeal does not have the power to reweigh the
evidence or reassess the credibility of witnesses. It is, in
fact, quite rare for a Court of Appeal to find that a jury
reached the wrong conclusion. This is because once a case
reaches the appeal phase, there has been ample opportunity for
judges to throw out meritless cases. . . .
Capping appeals bonds means that successful plaintiffs will be
potentially left unprotected during the appeals process and
may not recover all of the money to which they are entitled.
Support : California Association of Health Facilities;
California Citizens Against Lawsuit Abuse; California Chapter of
the American Fence Association; California Construction and
Industrial Materials Association; California Farm Bureau
Federation; California Fence Contractors Association; California
Grocers Association; California Independent Grocers Association;
California Manufacturers & Technology Association; Chambers of
Commerce Alliance of Ventura and Santa Barbara Counties;
Engineering Contractors Association; Flasher Barricade
Association; Marin Builders Association ; National Federation of
Independent Business; Palm Desert Area Chamber of Commerce;
Redondo Beach Chamber of Commerce; Santa Clara Chamber of
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Commerce and CVB; Simi Valley Chamber of Commerce; South Bay
Association of Chambers of Commerce
Opposition : California Employment Lawyers Association; Consumer
Attorneys of California; The Legal Aid Society - Employment Law
Center
HISTORY
Source : California Chamber of Commerce and Civil Justice
Association of California
Related Pending Legislation : AB 2377 (Huber) would, in
relevant part, amend subdivision (b) of Section 917.1 of the
Code of Civil Procedure to provide additional exception to the
requirement that the undertaking be double the amount of the
judgment or order. Namely, the exception would be for where 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. The bill would also
permit the enforcement of liability on the undertaking if the
party ordered to pay does not make the payment within 30 days
after the filing of the remittitur from the reviewing court.
This bill is in the Assembly Judiciary Committee.
Prior Legislation : AB 58 (Peace, Ch. 456, Stats. 1993) codified
case law to specify that the undertaking required to appeal from
a money judgment includes costs were awarded pursuant to
Sections 998 or 1141.21 of the Code of Civil Procedure.
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