Can an Appeal Bond be Reclaimed via Bankruptcy? - Morris Law Center

Can an Appeal Bond be Reclaimed via Bankruptcy?

If a supersedeas bond is posted and the appellant files bankruptcy while the appeal is pending it
is most likely that either the (Nevada Supreme Court) NVSC will leave the bond in place or the
bond will be properly claimed by the appellee.

There is authority that a supsedeas bond is generally not an asset of the bankruptcy estate and
thus cannot be protected in bankruptcy. In re Berlyn Corp., 133 B.R. 170 (Bankr. D. Mass.
1991) (finding that the bond was not an asset of the estate); see also In re Pettit, 217 F.3d 1072
(9th Cir. 2000). Under that authority, if the NVSC simply stays the case temporarily, the bond
will remain as-is pending an actual resolution. If the appeal is withdrawn as part of the
bankruptcy, or if a remittitur is filed because of the bankruptcy, then the district court’s judgment
will become final and the appellee will be entitled to collect the entirety of the bond.

One could try to argue a distinction under Berlyn in that the District Court’s judgment was made
final, so it won’t apply if the bankruptcy is filed and the debtor tries to reclaim the bond before it
is made final.  While one can still make that argument non-frivolously, it is not a strong position.
As a practical matter, the NVSC will react to the matter in one of three ways. It can stay the
case pending resolution of the bankruptcy. In this case, a bond deposited with the court would
be trapped there while the status quo was maintained during the stay. The NVSC could move
forward, if it is one of the situations where the automatic stay may not apply (such as if the
bankrupt party was the plaintiff and no counterclaims were pending) or if the bankruptcy court
grants an exception to the stay. In that case, the bond will remain in place pending the
resolution of the case. Or it can issue a remittitur, in which case it is, at least arguably, proper
for the appellee/creditor to claim the bond, perhaps after going through the motions of filing a
request with the bankruptcy court.

As a more theoretical matter, it would go against the purpose of a bond to allow a bankruptcy
after the bond was posted to allow the appellant to reclaim the money the bond represents. See
McCulloch v. Jeakins, 99 Nev. 122 (1983) (discussing purpose of bond). The bond exists to
protect the appellee/creditor from the possibility that the appellant might either hide resources or
go insolvent during the pendency of the appeal.

When going through a bond company, the arguments for nullifying the bond or releasing it to the
appellant would be fairly weak. The bond would be posted by a bond company. It is hard to
argue that it belonged to the debtor or the estate since the bond came from a third-party
company. The third-party company’s ability to collect that bond does need to go through the
bankruptcy process, but that is precisely why most bond companies require collateral or a LOC.
They may need to go through the motions in bankruptcy, but they do so as a secured creditor
which places them in a good position as long as the collateral continues to hold sufficient value.

In sum, as a practical matter, if one intends to file bankruptcy, they should probably do so
instead of filing a supersedeas bond.

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