Monday, September 16, 2019

Reducing Supersedeas Bonds

By Sim Israeloff

Back in 1985, a Texas jury awarded Pennzoil a record $10.53 billion against Texaco in a dispute over their battle to buy Getty Oil Co.  Texaco appealed, but in order to suspend the judgment during appeal it would have had to file a bond, deposit, or other security equal to the sum of compensatory damages, interest for the estimated duration of the appeal, and costs awarded in the judgment.  Posting such a bond would have put Texaco out of business and it was forced to file for bankruptcy protection. 

In response to the Texaco/Pennzoil experience, Texas has adopted two rules allowing a judgment debtor the ability to file a lesser bond to suspend a judgment during an appeal:

Net Worth Affidavit
A supersedeas bond may not exceed the lesser of

(A) 50 percent of the judgment debtor's current net worth; or
(B) 25 million dollars.  TEX. R. APP. P. Rule 24.2(a)(1). 

In order to take advantage of the first option, a debtor needs to file an affidavit that states the debtor's net worth with “complete, detailed information concerning the debtor's assets and liabilities from which net worth can be ascertained,” and post a bond or deposit in the amount of 50% of the stated net worth.  Rule 24.2(c)(1).  Such an affidavit is prima facie evidence of the debtor's net worth for the purpose of establishing the amount of the bond.  However, the judgment creditor may file a contest, and may conduct reasonable discovery as to the judgment debtor’s net worth.  Rule 24.2(c)(2).  The Court must hear the contest promptly after any discovery has been completed, issue an order stating the debtor's net worth, and state with particularity the factual basis for that determination.  If the court finds the net worth to be that shown in the debtor’s affidavit, no further security will be required.  If the court orders additional security to supersede the judgment, enforcement of the judgment will be suspended for twenty days. If the judgment debtor does not post additional security within that period, the judgment may be enforced.

Substantial Economic Harm
Alternatively, a judgment debtor may ask the court to reduce the amount of security to “an amount that will not cause the judgment debtor substantial economic harm.”  TEX. R. APP. P. Rule 24.2(b); see also Tex. Civ. Prac. & Rem. Code §52.006(c).   The court must lower the amount of security required to suspend the judgment if, after notice to all parties and a hearing, the court finds that posting a bond in the ordinary amount is likely to cause the judgment debtor substantial economic harm.  Unlike the net worth affidavit rule, the provision regarding lesser security is accompanied by no specific provision for a contest or discovery as to the judgment debtor’s net worth. 
 

Return to list.