First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.

We have previously discussed in these updates the 2018 amendments to the Federal Rules of Civil Procedure that extended the automatic stay of judgment creditors from executing judgment to 30 days from the original 14 days. Additionally, we discussed how the amended rule provides more flexibility in the type of security that can be approved and the US Supreme Court's power to terminate the stay. But none of the amendments affected a court's power to issue a stay of enforcement of a money judgment without posting a bond or other security.  

A judgment debtor is entitled to a stay of enforcement pending appeal upon posting a sufficient supersedeas bond or other security. See Fed.R.Civ.P. 62(b). A district court may, however, in its discretion, grant a stay without requiring the posting of a bond or other security. See In re Nassau County Strip Search Cases, 783 F.3d 414 (2d Cir. 2015) (per curiam); Dillon v. City of Chicago, 866 F.2d 902, 904-05 (7th Cir. 1988); Fed. Prescription Serv. Inc. v. Am. Pharm. Ass'n, 636 F.2d 755, 757-58 (D.C. Cir. 1980); Poplar Grove Planting & Refining Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189, 1191 (5th Cir. 1979); Trans World Airlines, Inc., v. Hughes, 515 F.2d 173, 176 (2d Cir. 1975). Although nothing in the 2018 amendments changed how courts analyze this issue, there have been some recent case law developments which give additional guidance to an area that has historically been without much clarity. See Xerox Corp. v. JCTB Inc., No. 6:18-CV-06154-MAT, 2019 WL 6000997, at *3 (W.D.N.Y. Nov. 14, 2019) (applying In re Nassau County Strip Search Cases to deny an unbonded stay). 

Courts that interpret Rule 62 to allow for judicial discretion read the rule as providing a judgment debtor—in all cases—a right to a stay by filing a supersedeas bond or other security, but also conclude that the rule does not preclude the exercise of judicial discretion to authorize unsecured stays. See Fed. Prescription Serv., Inc. v. Am. Pharm. Ass'n, 636 F.2d 755, 757–58 (D.C. Cir. 1980). The DC Circuit explained that to conclude that a district court could not issue an unbonded stay would create a conflict between Rule 8 of the Federal Rules of Appellate Procedure and Rule 62 of the Federal Rules of Civil Procedure. Id. The clear text of FRAP 8 provides the circuit courts with discretion to enter an unbonded stay. 

Rule 8(a) provides that a party ordinarily must first move in the district court for "(A) a stay of the judgment or order of a district court pending appeal; (B) approval of a bond or other security provided to obtain a stay of judgment; or (C) an order suspending, modifying, restoring, or granting an injunction while an appeal is pending." FRAP 8(a). As the DC Circuit explained, 

Reading Rule 62([b]) to make filing a supersedeas bond an indispensable prerequisite to a stay on appeal creates a potential conflict with the language of Rule 8(b), which implicitly recognizes the discretion of the appellate courts to issue stays not conditioned on bond. It would make little sense to require an appellant who could qualify for an unsecured stay from the appellate court to apply for it first in the district court, as Rule 8(a) requires, if Rule 62([b]) made such an application an exercise in futility in every case by denying the district court the power to approve such a stay. That is, if the appellate court has power to issue an unsecured stay, as Rule 8(b) clearly implies, then the district court must have that power also, if Rule 8(a) is to make sense. Fed.R.Civ.P. 62(g) removes any doubt on this matter in favor of an interpretation that confines Rule 62([b])'s bond requirement to stays obtained as a matter of right. Rule 62(g) provides: Power of Appellate Court Not Limited. The provisions in (Rule 62) do not limit any power of an appellate court or of a judge or justice thereof to stay proceedings ... [while an appeal is pending.].

Fed. Prescription Serv., Inc. 636 F.2d at 760. 

An unbonded stay does not necessarily mean that the judgment creditor is left without any protection (although that is possible). Courts exercising their discretion consider the policy objective of Rule 62 to be providing a judgment creditor with security during the pendency of an appeal. See Hebert v. Exxon Corp., 953 F.2d 936, 938 (5th Cir.1993); NLRB v. Westphal, 859 F.2d 818, 819 (9th Cir. 1988); Miami Int'l Realty Co. v. Paynter, 807 F.2d 871, 873 (10th Cir. 1986). 

Following this policy objective, in 2015, the Second Circuit adopted the Seventh Circuit's (see Dillon, 866 F.2d at 904-05) non-exclusive, multi-factor analysis to determine whether to issue an unbonded stay. In re Nassau County Strip Search Cases, 783 F.3d at 417-18. When determining whether to waive the posting of a bond, the court may consider: 

(1) the complexity of the collection process; (2) the amount of time required to obtain a judgment after it is affirmed on appeal; (3) the degree of confidence that the district court has in the availability of funds to pay the judgment ...; (4) whether the defendant's ability to pay the judgment is so plain that the cost of a bond would be a waste of money ...; and (5) whether the defendant is in such a precarious financial situation that the requirement to post a bond would place other creditors of the defendant in an insecure position ....

Dillon, 866 F.2d at 904–05 (internal quotation marks omitted).  

Applying this framework, the Second Circuit stayed the judgment against Nassau County without a bond or other security. In re Nassau County Strip Search Cases, 783 F.3d at 418. Nassau County had appropriated the funds to pay the judgment, and the Nassau County Legislature had adopted an ordinance (final approval of which would be "a 'formality'") "to provide for immediate payment." Id. Accordingly, the Court of Appeals found "no practical reason to require Nassau County to post a bond or deposit funds in order to secure a Rule 62(d) stay pending appeal." Id. 

Similarly, last month, the Western District of New York applied these factors to deny an unbonded stay because the judgment debtor could not establish its financial wherewithal to satisfy the judgment. Xerox Corp., 2019 WL 6000997, at *3. The Nassau factors contemplate waiving the requirement of a supersedeas bond when a "court is satisfied that the debtor would be able to pay the judgment with ease." Id (citation omitted). In Xerox Corp., the judgment debtors tried to rely on their inability to pay the judgment as the basis for a stay. "Courts in this Circuit have held that judgment-debtors' assertions of impecuniousness weigh heavily against granting a stay without bond. Id. (citing Frye v. Lagerstrom, No. 15 CIV. 5348 (NRB), 2018 WL 4935805, at *3 (S.D.N.Y. Oct. 10, 2018) ("Unlike in Nassau County, here the defendant avers that he is unable to pay the $33,371.98 judgment in support of his motion for a stay. The defendant's concession is determinative of the second, third, and fourth factors of the Nassau County framework, and assures the court that a 'bond is necessary to safeguard [the plaintiff's] recovery.'"). Even though courts have discretion to enter an unbonded stay, the courts still consider whether a stay will secure a judgment creditor pending appeal.  

These are issues with which we are well-familiar as well as issues concerning judgment enforcement. Feel free to reach out to us with any questions or issues.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.