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Paul A. Tiburzi: A sensible cap on appeal bonds

Bill signed into law this week makes justice more accessible

At the legislative session just ended, the Maryland General Assembly passed a significant tort reform bill that will assure access to justice by limiting the amount of appeal bonds defendants must post in order to prevent collection of an adverse verdict while a case is on appeal. Sponsored by House Judiciary Committee Vice Chair Kathleen Dumais (with a Senate companion bill sponsored by Sen. Brian Feldman), House Bill 164 imposes a cap of $100 million on the amount of “supersedeas” bonds filed in connection with appeals. Governor Larry Hogan signed House Bill 164 into law on Tuesday.

Unlike the substantial majority of states, Maryland did not prior to the enactment of House Bill 164 cap the size of appeal bonds. The Maryland Rules require a bond for the full size of the judgment, plus costs and interests. While trial judges have the power to adjust the amount of the appeal bond, they do not deviate from this formula very often. As a leading treatise states, “It is expected that a court will permit a bond for less than the judgment amount only in extraordinary circumstances … . [T]he court should resist yielding to every hardship.” — The Honorable Paul V. Niemeyer et al., Maryland Rules Commentary (3d ed. 2003).

The old rules presented a financial burden that could have prevented defendants from vindicating their legal rights in the appellate courts, thus denying access to justice. This problem became more acute because of more frequent multimillion-dollar verdicts awarded in Maryland. A defendant who loses at trial can obtain an automatic stay preventing enforcement of a monetary judgment until after resolution of the appeal only if the defendant posts a bond in the amount of the judgment plus projected interest and costs. When the judgment is very large, posting a bond in the required amount is at best extremely expensive and difficult, and frequently may be impossible. A losing defendant that cannot post a sufficient bond may be forced to declare bankruptcy or settle the case, forgoing an appeal. The mere prospect of a very large, unbondable judgment may cause a defendant to accept a coercive settlement before the case even goes to trial.

House Bill 164 addresses these concerns. The bill places a reasonable limit on the maximum size of appeal bonds, a fair and reasonable solution consistent with the law in the majority of other states. The new bond cap would achieve the goal of the current rule — maintaining the status quo during the appeal — while establishing a predictable, certain standard for obtaining an automatic stay in circumstances in which posting a full bond is not practicable. The $100 million cap is what several other states have adopted, and it approximates the dividing line between a judgment that can be bonded and one for which bonds are rare or too expensive to obtain.

The bill also authorizes the courts to reduce the amount of the bond, set other conditions on it, or order discovery to determine whether the appellant has dissipated or diverted assets. If the court determines that an appellant dissipated or diverted assets outside the course of its ordinary business, the court may order the appellant to post a higher bond up to the amount of the judgment appealed from, plus interest and costs. This would protect plaintiffs.

House Bill 164 is effective on Oct. 1, 2015 and will apply to any civil action filed after that date.

House Bill 164 was supported by a broad coalition including the Maryland Association of CPAs, the Maryland Chamber of Commerce, the Maryland Hospital Association, the National Federation of Independent Business, and the Maryland Tort Reform Coalition, among many others.

The bill brings Maryland into line with the vast majority of states. Thirty-two other states have enacted legislation to reform their appeal bond rules, while five do not even require defendants to post an appeal bond. Maryland thus followed its neighboring states, Virginia, Pennsylvania and West Virginia, and the majority of states that have passed appeal bond cap bills. Some of the states also have a separate and lower cap for small companies.

As originally filed, House Bill 164 would have established a lower cap of $1 million for entities defined as “small businesses” under federal law. Hawaii and Wyoming have exactly such a cap for small businesses that qualify under the federal definition. In Maryland, such a provision was passed by the House Judiciary Committee and the full House of Delegates in unanimous votes but was deleted in the Senate Judicial Proceedings Committee after several debates about its application in the waning days of the Session. While there was significant support among Senators for a separate small business cap, time ran out for the resolution of all the questions raised by the federal definition of what is or is not a “small business.”

Paul A. Tiburzi chairs the Public Law Practice Group of DLA Piper LLP (US). Carville B. Collins, a firm partner, also contributed to this article. Messrs. Tiburzi and Collins represent the Maryland Tort Reform Coalition, which led the efforts to enact House Bill 164.