The Importance of Verifying Appeal Bonds

by Neil Pedersen

The Importance of Verifying Appeal Bonds by Neil Pedersen

In New York State, an automatic stay of execution of a judgment (CPLR 5519) is granted upon the filing of an Undertaking on Appeal and a Notice of Appeal. CPLR 5519 requires that appeal bonds (Undertaking on Appeal) include a provision to bond post-judgment interest and costs pending appeal.

Post-judgment interest in New York is 9%—and appeals generally last a little over two years. Given this, after two years there should be approximately 20% worth of interest and costs. Certain bonding agencies provide a provision on the first page of the bond that states “provided, however, the maximum liability of this undertaking is fixed at $xxx,xxx.xx.” They usually put the judgment amount there, which is incorrect and does not adequately protect your client. Careful attention to this potential scenario is advised.

If the required post-judgment interest and costs are not included in the bond, the prevailing party would have to seek payment from the entity appealing the judgment, rather than from the bonding company. However, when the bond is formatted properly, the prevailing party can collect the entire bond from the surety without the risk of losing the approximate 20% of additional, legitimately owned money. If the required post-judgment interest and costs are not provided for, the client can potentially lose out on those funds. In certain instances, a third party obtains the bond for the appellant—and in situations where the appellant does not have any assets, there would be no ability to recover the Interest and Costs from that entity, nor the surety who issued the bond.

There are also situations in which a party opens a default judgment and requires a bond to appeal the denial of the vacatur of the default judgment. If the default judgment is several years old, the bond should include the appropriate amount of interest (all current interest plus two years of future interest) because that is what the current amount owed on the judgment includes. Many attorneys, however, will seek to solely obtain the judgment exclusive of the interest hoping that the Judgement creditor will not challenge the amount of the Undertaking.

Bond Legitimacy

In general, it is important to verify the legitimacy of the bond. The court’s acceptance of a bond does not mean that it is legitimate. There is little recourse to obtain funds with a fraudulent bond; in fact, if it’s illegitimate, you have no area to collect if you were to prevail on appeal if the decision of the lower court was affirmed. In New York State, an Undertaking on Appeal is filed in the lower court and not the Appellate Division. Most cases are electronically filed. The court clerks no longer review the bonds before they are filed. Even when they were reviewing the bonds, they did not retain liability for unreviewed matters. It is the duty of the obligees attorney to verify the Undertaking on Appeal.

Some other considerations on how to verify that an undertaking is legitimate.

•Verify the surety is solvent;

•Verify the surety is licensed to do business in New York State;

•The bond amount should be equal to or less than the amount listed on the Power of Attorney, which is generally the second page of the bond;

•Verify the bond has a one-page financial of the surety; and

•Verify the above by contacting the surety directly or the department of financial services—NOT the bonding agency.

An experienced bonding agent can provide the guidance you need. Contact us today!

neil pederson

Neil Pedersen
PEDERSEN & SONS SURETY BOND AGENCY, INC.
15 Maiden Lane Suite #800
New York, NY 10038
212-227-7277
800-720-7277

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