Gawker Lesson: How to Stay Enforcement of a Judgment During AppealAugust 2, 2016 – Articles The Legal Intelligencer
Benjamin H. McCoy authored The Legal Intelligencer article, "Gawker Lesson: How to Stay Enforcement of a Judgment During Appeal."
In March, the legal world was jolted by news that Terry Bollea, better known as Hulk Hogan, was awarded a $140 million judgment against Gawker Media, the owner of an entertainment gossip blog. The underlying facts were sensational. The lawsuit was grounded in Gawker's decision to post a sex tape of Hogan on its website. The woman in the tape was the wife of Hogan's best friend, radio personality "Bubba the Love Sponge." If that weren't enough, Hogan's suit was secretly funded by Peter Thiel, a Silicon Valley billionaire who wanted revenge against Gawker for publishing a story about Thiel years earlier.
The legal issues were also covered extensively. The trial stood at the interplay of the right to privacy and the First Amendment's freedoms of speech and the press. Did the video depict "news" of a celebrity (Hogan)? Or did it depict an individual (Bollea), whose right to privacy in his home had been violated? In the end, the jury sided with Hogan; or, more accurately, Bollea—the individual.
Shortly after news of the astounding verdict broke, the position from Gawker was surprising: utter confidence. After all, Gawker explained, the judge had made numerous legal missteps that would certainly result in a reversal on appeal. But just under a month later, Gawker filed for Chapter 11 bankruptcy. How could Gawker declare for bankruptcy despite such confidence in its ability to succeed on appeal? The answer lies in a legal ruling that received little attention: the Florida trial court's denial of Gawker's motion to stay execution of the judgment pending appeal.
This does not mean to suggest that Gawker did anything wrong in arguing for a stay; to the contrary, its motion was well written and rather persuasive. But Gawker's situation exemplifies the devastating consequences that can arise when a victorious party exercises its right to execute before meaningful appellate review.
In-house counsel who find themselves engaged in similar high-stakes litigation will want to familiarize themselves with the various avenues available for obtaining an appellate stay. This two-part series will provide a brief overview of the options for obtaining a stay under the Federal Rules of Civil Procedure. This week's article examines the mechanics of execution and the normal method for obtaining a stay. Next week, in part two, we will examine the options available to in-house counsel when posting a sizeable bond is simply not possible.
In both parts, it is important to emphasize that state and local laws are highly varied. To be fully prepared to ward off a judgment during appellate proceedings, in-house counsel should understand the mechanics for obtaining a stay under the relevant jurisdiction's rules and precedent.
The Contours of Execution
Execution refers to the enforcement of a monetary judgment. While there are numerous execution-related rules, they are only implicated when the losing party (the judgment debtor) fails to satisfy the judgment in a timely matter. Common types of execution mechanisms include the garnishment of wages and seizures of bank accounts and property. Usually, a victorious party (the judgment creditor) files a request for the issuance of a writ of execution with the court or clerk. Fed. R. Civ. P. 69 (Rule 69). If issued, the writ directs the U.S. Marshals or local sheriff to take possession of the property requested.
Rule 69 further provides that "the procedure on execution ... must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies." Thus, there is a heavy overlay of state law in execution proceedings. It follows that what actually constitutes execution varies based on the jurisdiction. For example, some jurisdictions consider the filing of a lien as an execution remedy, while others require foreclosure on the lien. This distinction can prove critical in determining what actions a judgment creditor can take if a stay is issued, as in All Seasons Services v. Guildner, 89 Conn. App. 781, 785-86, 878 A.2d 370, 372-73 (2005) ("the proceeding that is clearly barred is an action to foreclose the lien ... as opposed to the filing of the lien").
When Can Execution Start?
Rule 62(a) provides for an automatic 14-day stay of execution after the entry of a final judgment. A final judgment also triggers a 30-day period for the losing party to file a notice of appeal. Many litigants are lulled into a false sense of security by the 30-day timeframe for filing a notice of appeal. The thinking is that one should not be able to execute if the time for filing an appeal remains open. While this may be logical, it is not the law. As soon as the 14-day period ends, the victorious party can begin execution proceedings.
Practically speaking, a judgment creditor will not be able to actually take possession or garnish bank accounts on Day 15. As noted above, the court first needs to issue a writ of execution. The judgment debtor can usually file challenges to the issuance of a writ, such as a motion to quash. Nevertheless, the fact remains that the judgment creditor will be able to begin the execution process just two weeks after judgment is entered. Even if a stay is eventually obtained, there is no guarantee that it will reverse the execution maneuvers that already took place. Therefore, it is imperative for in-house counsel to seek a stay well before the 14-day automatic stay expires.
Staying Execution by Posting an Appeal Bond
Pursuant to Rule 62(d), a judgment debtor has the right to obtain an automatic stay upon court approval of an adequate supersedeas bond, also referred to as an "appeal bond." An appeal bond is beneficial to both sides; it provides the judgment creditor with assurances that its judgment is secure while also giving the judgment debtor a ready means to recover its money if successful on appeal.
The amount of the bond is set by local rules. Some courts require the bond to be a multiple of the judgment, while others require it to cover the entire judgment plus any interest and/ costs that accrue during the appeal. Although the amount can vary, it is often around 120 percent of the judgment.
While a debtor is free to post an appeal bond itself, it is far more common to obtain a third-party surety to post the bond. By using a surety, the debtor initially only has to pay a small percentage of the judgment as a fee, and the surety will promise to pay the full amount. Court approval of the surety is necessary. A list of approved sureties is available at goo.gl/IFOy7H.
Because a surety needs to conduct a risk assessment and other due diligence, the process for posting a surety bond can take months, especially for large judgments. Given that there is only a 14-day window for posting a bond, in-house counsel should begin to search for a surety as soon as an adverse judgment becomes a legitimate possibility. An optimal starting place is with insurers with which in-house counsel have pre-existing relationships. Such familiarity can greatly reduce the time needed for due diligence and initial processing.
Court approval should be sought on an expedited basis immediately after a surety agreement is reached. If up against the 14-day deadline, consider filing an emergency motion to extend the stay pending the court's review of the bond.
In Gawker's case, the sheer size of the judgment made posting an appeal bond untenable. Next week, in part two, we will discuss the available alternatives to posting a bond pending appeal.
In June, Gawker was forced to declare bankruptcy before it could obtain appellate review of the $140 million judgment obtained by Hulk Hogan. Bankruptcy was not Gawker's first option; it unsuccessfully tried to stay execution of the judgment pending appeal. If confronted with similar circumstances, in-house counsel will quickly realize just how crucial this issue can be. In part one of this two-part series, we discussed the general contours of execution and the most common way for staying execution: posting a supersedeas bond.
This week, in part two, we discuss the available alternatives to posting a bond when, as in Gawker's case, the sheer size of the judgment renders it either impossible or extremely harmful to post a bond. This situation is becoming all too common. As in-house counsel are no doubt aware, the number of extreme damage awards continues to mount in both federal and state courts. Faced with break-the-bank judgments, there are several alternative routes by which to waive or diminish the bond requirement.
Obtaining a Stay Without Posting a Bond Under Rule 62
Rule 62(b) allows a district court to issue a stay while it resolves certain post-trial motions, such as a Rule 50 motion for judgment as a matter of law or a Rule 59 motion for a new trial. In-house counsel authorizing these motions should ensure that they explicitly request a Rule 62(b) stay.
Rule 62(f) provides a mechanism for a judgment debtor to obtain a stay pursuant to the laws of the state where the judgment is entered. Of course, this assumes that the applicable state has protections beyond the 14-day automatic stay. In order to obtain a Rule 62(f) stay, the judgment must automatically operate as a lien on property under state law. The salient inquiry asks: what actions, if any, does a victorious party have to take in order to turn its judgment into a lien on property? If the answer is none or simple ministerial actions, then a Rule 62(f) stay most likely will issue. But if the judgment creditor has to do anything beyond "ministerial acts" to obtain a lien, then a Rule 62(f) stay will not issue. Unfortunately, few states' laws meet the prerequisites for a Rule 62(f) stay.
Faced with a large judgment, the more common method of obtaining a stay is to simply file a motion asking the district court to waive or reduce the bond requirement, as in Dillon v. City of Chicago, 866 F.2d 902, 904 (7th Cir. 1988), ("the appellant may move that the district court employ its discretion to waive the bond requirement"). There is a difference of opinion among the circuits as to what factors to evaluate in granting a discretionary stay.
Some circuit courts apply the test promulgated for staying injunctive orders under Rule 62(c)—a topic that is not addressed in this article. This test stems from the Supreme Court's decision in Hilton v. Baunskill, 481 U.S. 770, 776 (1987), and balances: the likelihood of success on appeal; whether the judgment debtor will suffer irreparable injury absent a stay; whether the judgment creditor will be substantially harmed by a stay; and whether the stay serves the public interest.
Others circuits, such as the U.S. Court of Appeals for the Second and Seventh circuits, apply a separate balancing test that evaluates: the complexity of the collection process; the amount of time required to obtain a judgment after an appeal; the defendant's ability to pay the judgment; whether the defendant's ability to pay makes the cost of a bond wasteful; and whether the defendant is in such a precarious financial condition that a bond would harm its other creditors, as in In re Nassau County Strip Search Cases, 783 F.3d 414, 417-18 (2d Cir. 2015).
If possible, in-house counsel should creatively think of alternatives to a bond that could assist in providing security for the judgment creditor. Courts will be much more likely to waive or reduce the bond requirement if at least some security is offered. Examples of alternatives include property, stocks or cash in an interest-bearing account, and lines of credit, as in Triboro Entertainment Group v. Filmcat, No. 93-6798, (S.D.N.Y. July 12, 1996) (security interest in the defendant's assets); Foster v. Hallco Manufacturing, 835 F. Supp. 1235 (D. Or. 1993) (royalties placed in escrow account); and C. lbter Sauter v. Richard S. Sauter, 368 F. Supp. 501, 520-21 (E.D. Pa. 1973) (placement of stocks and cash in an interest-bearing escrow account).
Appellate Court Authority To Issue a Stay
The issuance of a discretionary stay is just that: discretionary. Thus, the most important factor in obtaining a stay may be the sitting district court judge. In Hilton jurisdictions, in-house counsel will be forced to get the district judge to admit that they have a likelihood of success on appeal. Depending on the argument presented, this may require the district court to find that it erred—a daunting endeavor. While some courts find this factor can be established by simply showing complex issues that warrant further review, this view is in the minority. Compare Cottillion v. United Refining, No. 09-140, (W.D. Pa. Dec. 23, 2014), (party seeking a stay "is deemed to bear a very heavy burden of persuasion") with United States v. American Society of Composers, Authors & Publishers, No. 13-95, (S.D.N.Y. Oct. 3, 1991), (finding that first factor was met because the appeal raised complex issues). Either way, in-house counsel should be cognizant of the tendencies of the district court. Catering to reason and fairness considerations will often be preferable to high-rhetoric attacks against the court.
Fortunately, Federal Rule of Appellate Procedure 8(a) permits a party to seek a stay directly from the appellate court upon a showing that "the district court denied the motion or failed to afford the relief requested." The ability to seek a stay from an appellate court provides a means to get fresh eyes on the case that are untouched by the atmosphere developed at the lower court level. In-house counsel will want to prepare to file the motion in the appellate court upon either the denial of a motion to stay or the district court's failure to rule on the motion in a timely matter.
Takeaway: Preparedness and Planning are Paramount
In sum, the mechanics for obtaining an appellate stay are complex and varied. However, there are few issues that are as time sensitive. The onus is on in-house counsel to coordinate early on with their trial team and make the necessary preparations for either posting a bond or filing a motion for a stay. Planning for the worst is never ideal, but it just may allow your company to avoid the catastrophic consequences of a judgment before full appellate review is realized. •
Reprinted with permission from the August 2 issue of The Legal Intelligencer. (c) 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.