Amended ARCAP 7(a)(2) Affords Civil Litigants Greater Access to the Arizona Court of Appeals

Robert Mandel

By Robert A. Mandel

Robert A. Mandel is co-founder of Mandel Young plc (www.mandelyoung.com), a Phoenix-based appellate law firm. Known for his potent advocacy, Rob routinely appears in business, constitutional and public law disputes pending in the federal and state appellate courts, where he handles appeals of final judgments, preliminary injunctions and other interlocutory decrees, petitions for writs of certiorari (review) and mandamus (special actions), certified questions, motion practice, and the representation of amici curiae. Rob also is retained as appellate counselor-in-residence, working collaboratively with litigators to optimize their cases for trial and appeal and undertaking primary responsibility for critical projects, including dispositive motions.

Deciding whether to appeal a money judgment—indeed any judgment—can be an intensive intellectual exercise, to be sure. But there are important pragmatic considerations as well. Among them is whether the appellant has the financial wherewithal to “bond the judgment” and thus stave off execution pending the outcome of the appeal. Until recently, the default rule in Arizona, as in most other jurisdictions, was that a judgment debtor must post a supersedeas bond in an amount commensurate with the entire damages award embodied in the judgment, together with interest and costs, before a court would stay execution. The rationale was that the trial court, in requiring a full supersedeas bond, was protecting the judgment debtor from loss if the judgment creditor’s economic circumstances were to deteriorate during the appeal process. One adverse effect of the default rule, however, was that it precluded some litigants from availing themselves of the appellate process at all, no matter how meritorious their arguments were, because they could not provide the collateral for the bond.

Last year, the Arizona Supreme Court amended the supersedeas bond rules in ways that might help keep the doors to the state’s appellate courts open for many who lack the economic means to procure a full supersedeas bond. Under Rule 7(a)(2) of the Arizona Rules of Civil Appellate Procedure (ARCAP), the default rule has been abandoned. Instead, “[t]he amount of the bond shall be set as the lesser of the following: (A) The total amount of damages awarded, excluding punitive damages; (B) Fifty per cent of the appellant’s net worth; (C) Twenty-five million dollars.” As pertinent to this discussion, the rule effectively requires the trial court to stay execution of the judgment pending appeal if the judgment debtor posts a supersedeas bond in the amount of 50% of his net worth, provided that (i) this sum is less than the total amount of damages, excluding punitive damages, and less than $25 million and (ii) the judgment creditor has not shown by clear and convincing evidence that the judgment debtor is intentionally dissipating assets outside the ordinary course of business to avoid payment of the judgment.

For example, under the amended rule, if a judgment has been entered against the appellant for $200,000, and the appellant demonstrates that his net worth is $200,000, the trial court must set the amount of the bond at $100,000—that is, 50% of his net worth—absent clear and convincing evidence of intentional dissipation of assets. Say, however, the appellant’s net worth is zero or less. In that instance, under the plain language of the new rule, the trial court would be required to set the supersedeas bond at zero. Thus, although amended Rule 7(a)(2) does not express the point explicitly, one implication of the new language is that no supersedeas bond can be required of an insolvent appellant who seeks a stay of execution pending appeal.

Even in circumstances where an appellant has positive net worth, however, Rule 7(a)(2) now directs the trial court to reduce the amount of the bond “if the appellant proves by clear and convincing evidence that the appellant is likely to suffer substantial economic harm if required to post a bond in the amount set pursuant to the provisions of (A), (B), or (C).” This is consistent with Division One’s decision Salt River Sand and Rock Co. v. Dunevant, wherein the panel held that a trial court may allow an appellant to post a supersedeas bond or alternative security in an amount less than the money judgment.2 Relying on federal precedent and the plain language of the former Rule 7(a)(2), the court of appeals ruled that the trial court has discretion to approve a reduced bond or alternate security where the “judgment debtor demonstrates a full supersedeas bond would subject it to an undue financial burden.”

The Dunevant court, in addressing the factors that a trial court should weigh in “determining alternative security,” instructed that the analysis must be guided by the underlying “purpose of a supersedeas bond”—that is “to preserve the status quo pending appeal.”4 The court of appeals held that the relevant factors include the “collectable value of the judgment debtor’s assets as of the date of the judgment,” which requires the trial court, in turn, to consider the “liquidity of the judgment debtor’s assets and the amount the judgment debtor could immediately pay without suffering undue harm.”

Appealing a money judgment can be a daunting and expensive undertaking. The amended Rule 7(a)(2) helps remove some of that burden for defendants whose financial circumstances might otherwise prevent them from exercising their appellate rights.