Judgments On Appeal

Judgments_Appeal Judgments CdEnforceabilityOfJudgmentOnAppeal

What if a judgment is entered against a debtor, but the debtor initiates an appeal of that judgment: Is the judgment still enforceable despite the appeal? In most circumstances, it is -- the judgment is in fact fully enforceable although the debtor has taken an appeal.

To prevent the creditor from enforcing the judgment during the pendency of the appeal, the debtor will usually have to post an appellate bond, sometimes known as a supersedeas bond, for the amount of the judgment plus some amount to cover the creditor's attorneys fees and costs on appeal (for fraudulent transfer cases, the bond is sometimes double the amount of the value of the property transferred). In obtaining the appellate bond, the debtor will usually have to pledge sufficient assets to the issuing bonding company (read: insurance company) so that the bonding company is not exposed to losses in case the bond has to be paid. If the creditor wins the appeal, the creditor can simply collect against the bond, and then the bonding company will collect against the debtor.

If the debtor doesn't post a bond, then the creditor is usually free to collect on the judgment even though the appeal is simultaneously going on. If the debtor loses the appeal, then the creditor is of course free to keep whatever has been collected in the interim. But if the debtor wins the appeal, then the debtor can obtain a judgment against the creditor for the amounts that the creditor collected. Thus, most of the time (but not always), the creditor will set aside whatever is collected during the appeal into a special accounting pending the outcome of the case -- certainly this is the "best practice".

What if, as so often happens, the judgment exceeds the net worth of the debtor such that it is impossible for the debtor to obtain such a bond? In some states, the debtor can apply for what amounts to a hardship relief from the court staying enforcement of the judgment until the appeal is heard. In other states, well, too bad so sad. If the debtor cannot obtain such relief, it is a common practice for the debtor to file for Chapter 11 bankruptcy relief, which can buy some time for the debtor to pursue its appeal; however, this can be a bad gamble in particular circumstances, as no state court has anywhere near the immense powers of the federal bankruptcy courts to separate a debtor from its wallet.

The Fugitive Disentitlement Doctrine

Debtors who are appealing a judgment must be especially cautious not to do anything that would cause them to be held in contempt, for the creditor may use the contempt to have the debtor's appeal thrown out under the so-called "fugitive disentitlement doctrine", which basically posits something to the effect that one in contempt of court cannot simultaneously seek to obtain aid from the court. Thus, when a debtor is appealing the underlying judgment and has not posted a bond to stay the appeal, a creditor will often try to mousetrap the debtor into a contempt situation so as to get the debtor's appeal thrown out, or at least paint the debtor as an unworthy appellant before the eyes of the court.

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