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Cap on appeal bonds could help firms stay afloat during appeals

Marcus Rayner, president of the New Jersey Civil Justic Institute.

What sounds like a quibble in the legal world actually makes a huge difference for businesses.

At least that’s the argument from the New Jersey Civil Justice Institute in its push to put a cap on appeal bonds. These bonds are verdict awards posted by a defendant upon proceedings concluding in favor of plaintiffs, prior to a defendant fighting for a judgment reversal.

Marcus Rayner, president of the lawsuit reform organization, said that, as jury verdicts increase, putting a cap on these appeals bonds makes it so a company’s available finances wouldn’t become the key factor in whether a defendant sees a case through by appealing a verdict to higher courts.

New Jersey is among a minority of states that requires defendants to post a bond, or capital, equal to the jury’s verdict, on top of attorney’s fees, before an appeal can proceed. About 40 states have reformed their appeal bond rules.

The state actually does have an appeal bond cap, but it only applies in the limited scope of tobacco-related cases, which came about as part of a settlement agreement with tobacco companies New Jersey reached several decades ago.

“We think the cap that industry enjoys should be extended to all businesses,” Rayner said. “Companies should be able to appeal up to the Supreme Court and their bank account shouldn’t be a limiting factor.”

An example Rayner believes demonstrates its potential impact is a 2007 case involving BDO International, an accounting firm that has a United States arm with an office in Woodbridge. The firm was held liable for $522 million in a Florida court ruling that was later overturned at the state’s Supreme Court level.

The firm, which had around 2,700 employees, was able to appeal with a bond capped at $50 million instead of the full $522 million due to legislation that had been enacted in Florida only the previous year.

Shirt-ripped from the headlines
One sensational case that put a national spotlight on the appeal bond issue came out of Hulk Hogan’s lawsuit against the Gawker media company, according to Marcus Rayner of the New Jersey Civil Justice Institute.
A jury in Florida in that case decided on a $115 million verdict in Hogan’s favor, compensating the former wrestling superstar for the internet media company posting a scandalous video of him.
Although it did spark discussion about the role of appeal bonds, Gawker ended up filing for bankruptcy, despite having access to the $50 million cap on appeal bonds in Florida courts, and settling out of court during a battle to overturn the verdict.

Ralph Thomas, CEO and executive director at New Jersey Society of CPAs, said firms in similar situations in New Jersey would likely have been closing the doors instead of getting their day in court.

This is particularly true for accounting firms or other industries that hold value in the form of personnel, not material assets that can be borrowed against or large cash reserves, Thomas said. Any professional services firm, or even technology companies, could be just as vulnerable — especially if it’s a small or midsized business with limited collateral.

Rayner’s New Jersey Civil Justice Institute formed a coalition with trade groups that support amending the rules in the Garden State, but legislation has yet to see its way through the Senate Judiciary Committee.

“We’ve been mystified by this,” said Thomas, one of the allies of Rayner’s organization in this effort.

Rayner said harming the plaintiff side on these cases is not the objective.

“If, on appeal, the original verdict is held up, the defendant will still have to pay that full amount,” he said. “This just makes it so the defendant could remain solvent pending appeal.”

Thomas makes an appeal for a change in terms of the state’s overall competitiveness.

“When you think of companies wanting to set up shop in a particular state, besides looking at talent base and infrastructure, they look at the litigious environment,” Thomas said. “Upward of 40 states do have the cap. I’m confident that there are companies that look at that when they say, ‘Do we want to be based in New Jersey?’ From that standpoint, we don’t have a good reputation.”

E-mail to: brettj@njbiz.com
On Twitter: @reporterbrett

Brett Johnson