Opinion
No. 2:96 cv 540
May 28, 2002
ORDER
The court assumes the reader's familiarity with the background of this action. See United States v. Rueth Development Co., 189 F. Supp.2d 874 (N.D.Ind. 2001), appeal docketed, No. 02-2045 (7th Cir. Apr. 26, 2002).
The following post-judgment motions are currently pending in this court:
Moving Party Title Filing Date Docket Entry
Dfts. Motion to Stay Apr. 26, 2002 87-1 Execution of Judgment
Dfts. Motion to Waive Apr. 26, 2002 87-2 Supersedeas Bond
Pl. Motion for May 7, 2002 96-1 Deposit of Money with Clerk Pending Appeal
Dfts. Motion for May 16, 2002 99-1 Hearing on Pending Motions
Dfts. Motion for May 16, 2002 99-2 Expedited Ruling on Pending Motions
FED.R.APP.P. 8(a)(1) informs a judgment debtor that it must ask the district court that issued the judgment to stay execution upon it pending the outcome of the appeal. Defendants adhered to the dictates of Rule 8(a)(1) via their April 26, 2002 filing. The balance of the remaining motions relate to the disposition of the motion to stay execution, so this whole batch is properly before the court.
FED.R.CIV.P. 62(d) provides the starting point for analysis. It states (as pertinent here) that "[w]hen an appeal is taken the appellant by giving a supersedeas bond may obtain a stay." The text of Rule 62(d) is abundantly clear. If an appellant/judgment debtor wants a stay of execution, procuring a supersedeas bond will do the trick. Since Defendants have not tendered a bond, Rule 62(d) does not seem to lend much help to them. If the language of Rule 62(d) supplied the only controlling rule of law, the matter would end here, but things are not so simple. The case law of this Circuit, developed over the course of four cases in the mid-1980s, see Dillon v. City of Chicago, 866 F.2d 902 (7th Cir. 1988); NIPSCO v. Carbon County Coal Co., 799 F.2d 265 (7th Cir. 1986); Lightfoot v. Walker, 797 F.2d 505 (7th Cir. 1986); Olympia Equipment v. Western Union Telegraph Co., 786 F.2d 794 (7th Cir. 1986), construes Rule 62(d) broadly. These cases allow district courts, in the exercise of discretion, to jettison the strict bonding requirement. See NIPSCO, 799 F.2d at 281 (permitting the judgment debtor "to throw himself on the district judge's discretion"). Defendants seek the benefit of this rule. Toward that end, they filed a "Motion to Waive Supersedeas Bond."
These four cases readily recognize the power of district courts to jettison the strict bonding requirement of Rule 62(d) (and that an abuse of discretion standard applies on appeal). Unfortunately, the cases do not neatly forge a path through which the district courts can adjudicate motions where, as here, the appellant/judgment debtor does not meet the narrow strictures of Rule 62(d). After studying these cases, it is clear that discarding the strict bonding requirement requires the appellant/judgment debtor to (1) demonstrate it is an appropriate candidate for relief from the strict bonding requirement; and (2) tender adequate alternative security. The burden of proof seemingly lies somewhere between the preponderance and clear-and-convincing standards. See In re Carlson, 224 F.3d 716, 719 (7th Cir. 2000) ("The district court has the discretion to waive this requirement only if 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." (emphasis added)).
With regard to the first element, candidates for relief from the strict bonding requirement come in two types.
[W]e add that an inflexible requirement of a bond would be inappropriate in two sorts of case[s]: 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. . . . [T]his case, as we shall see, is the latter sort. Either is a candidate for alternative security, as recognized in Poplar Grove Planting Refining Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1191 (5th Cir. 1979).
Olympia Equipment v. Western Union Telegraph Co., 786 F.2d 794, 796 (7th Cir. 1986) (Posner, J.). In Olympia, the appellant/judgment debtor indicated to the district court that no underwriter was willing to issue a supersedeas bond, an effect of its dire financial straits. Id. Similar to the appellant/judgment debtor in Olympia, Defendants maintain their financial predicaments make them worthy candidates for relief from the strict Rule 62(d) bonding requirement.
In the case of a supersedeas bond, the appellee/judgment creditor is the bondholder and the beneficiary of the security the bond provides. That piece of mind comes at a price, borne by the appellant/judgment debtor. Supersedeas bonds cost about one percent of the face amount; that observation was made in 1986. See Olympia, 786 F.2d at 797 ("[I]t would not have to pay more than the standard fee, which (we surmise) is 1 percent of the face amount."); NIPSCO, 799 F.2d at 281 ("An appeal bond usually costs one percent of the amount secured."). Underwriters are more risk averse these days, in the aftermath of Nine-Eleven, Argentina's economic meltdown, and the Enron and Global Crossings collapses. See generally Roberto Ceniceros, Surety Bond Market Reels, BUS. INSURANCE, Feb. 4, 2002, at 1. This translates into higher prices for those seeking to procure bonds. See id. In the other scenario mentioned in Olympia (and advanced in Dillon) a judgment debtor in robust financial health need not commit to the expense necessary to secure a bond. In these situations, the debtor's cost of securing the supersedeas bond would far outweigh the marginal benefit (in the form of increased security) to the creditor. Olympia implicates different interests but employs the same logic. The debtor is already in a precarious financial situation; the issuing entity needs compensation for the increased risk. That makes an already expensive undertaking even moreso. The cash outlay to secure the bond would, however, be an economically fruitless exercise. The appellee/judgment creditor's interest would wind up secured, but as the Olympia rationale suggests, the increased risk that existing creditors will be left high and dry could outweigh the value of the security that a supersedeas bond provides. When faced with such a situation, Olympia indicates the district court may jettison the strict bonding requirement for appellants who are both appropriate candidates, and present the court with a bond for part of the judgment, plus other security, the sum of which strikes a meaningful balance between cost effectiveness to the judgment debtor and piece of mind to the creditor. See Olympia, 786 F.2d at 800 (Easterbrook, J., concurring) ("[T]he district judge has a very difficult task-to make the judgment creditor as well off during the appeal as it would be if it could execute at once, but no better off. When the judgment debtor lacks the assets or credit necessary to pay at once and in full, this means that the judge should give the creditor less than complete security.").
In this case, with regard to the first element, Defendants maintain they are worthy candidates for Olympia treatment because of their precarious financial predicament. In particular, they maintain "the amount of the judgment exceeds the combined net worth of both Rueth Defendants." (Mot. at 7.) Even assuming this is true, to determine whether an appellant/judgment debtor is an appropriate candidate, Olympia does not prescribe a comparison between the amount of the judgment and the net worth of the judgment debtor. Rather, Olympia requires a comparison between the cost of a supersedeas bond, and the interests of creditors other than the judgment creditor. For example, Captain Yahoo, with a total net worth of $2 million, gets into a bar-room brawl at the local tavern, and gets sued for battery and assault. The jury returns a verdict against Yahoo for $10,000 worth of compensatory damages, and punitive damages in the amount of $3 million. Yahoo is confident the appellate court will slice the punitive award, so he files a notice of appeal. A supersedeas bond will cost about $30,000, so Yahoo tries to argue that since the judgment is greater than his net worth, the court ought to jettison the bonding requirement altogether. Under the law of this Circuit, see Olympia, this is not enough. Yahoo must point to the creditors existing at the time of the judgment, and demonstrate how the $30,000 payment to procure the bond adversely affects the interests of those creditors. Similarly, Defendants must demonstrate to this court how the cash outlays necessary to secure a bond would make the interests of existing creditors substantially more uncertain.
Defendants, somewhat side-step this issue by contending that "[o]btaining a supersedeas bond in the amount of the entire judgment has proven, thus far, to be impossible." (Mot. at 11.) According to Defendants, this court should jettison the bonding requirement altogether because they are unable to procure one for the entire amount of the judgment. The law of this Circuit gives district courts the power to do so, but the debtor first needs to exhaust the possibilities of securing a bond for a portion of the judgment. See Olympia, 786 F.2d at 797 ("[W]e note first that the parties and the district judge made little effort to explore the possibility of a bond that would secure a part of Olympia's judgment."). Then, alternative forms of security can fill the difference. Cf. id. at 796 ("The district judge allowed alternative security to be posted, consisting of a pledge of $10 million in cash, $10 million in accounts receivables, and a security interest, which Western Union Telegraph represented to be worth about $70 million."). It is unclear whether Defendants have pursued this necessary course of action. The court is therefore currently unable to grant the stay.
Since the law of this Circuit is nebulous, and the court has attempted to clarify it to the extent necessary to adjudicate the pending motion, Defendants are free to re-submit their motions in light of this opinion.
A few words on Plaintiff's "Motion for Deposit of Money with Clerk Pending Appeal." First, this law suit is against Defendants in personam, so this court has no basis in the Federal Rules of Civil Procedure or otherwise to unilaterally force Defendants to deliver money to the Clerk. Compare FED.R.CIV.P. 67 (governing actions in rem and quasi in rem). Second, Plaintiff's motion may be construed as an attempt to extend an olive branch to Defendants. In its motion, Plaintiff urges the court to order Defendants to deposit a portion of the judgment in cash with the Clerk, and secure a supresedeas bond for the balance of the judgment. (See Mot. at 1, 4.) Plaintiff is free to advance their vision of adequate security, but lobbing motions with various proposed settlement arrangements is not the way to do it. If the parties wish to resolve this dispute, they are free to do so, using their own resources.
Accordingly, IT IS ORDERED that (1) Defendants' Motion to Stay Execution of Judgment, and (2) Defendants' Motion to Waive Supersedeas Bond, are DENIED WITHOUT PREJUDICE. The court DENIES (3) Plaintiff's Motion for Deposit of Money with Clerk Pending Appeal, and (4) Defendants' Motion for Hearing on Pending Motions. (5) Defendants' Motion for Expedited Ruling on Pending Motions is DENIED AS MOOT.
SO ORDERED.