In this era of increased governmental regulations, lawyers are flush with potential causes for action. Even the most diligent businesses can find themselves on the wrong side of civil litigation. A key protection against an unfair civil verdict is the ability to seek recourse through an appeal.
In order to access an appeal, however, most defendants in New Jersey are required by law to post the entire amount awarded as a bond before they may appeal the decision against them. The lack of a cap on appeal bonds in New Jersey presents a formidable barrier to justice.
New Jersey’s current law regarding appeal bonds does not reflect the consequences of contemporary litigation. When a business is sued in New Jersey, chances are high that a jury will return a hefty award to the plaintiff, oftentimes erroneously. New Jersey is among a minority of states that requires defendants to post a bond, or capital, equal to the jury’s entire verdict, plus attorney’s fees, before an appeal can proceed.
It can be difficult for many small and mid-sized businesses to obtain the financing they need in order to secure large appeal bond requirements. Many larger businesses settle in the hopes of minimizing a suit’s financial impact, regardless of its merit. This deprives the courts of the opportunity to review the claim, and may cause solid New Jersey businesses irreparable harm to their reputation and economic viability.
For businesses that are unwilling or unable to settle, the path toward justice and solvency following a large jury verdict can be nonexistent. In these cases, final judgment rests more on economic factors rather than it does on both parties trusting that their case has been fairly decided.
CPA firms are uniquely vulnerable to this public policy oversight. Unlike other business professionals with machinery and material assets, an accounting firm’s greatest asset is often its human capital, which cannot be bonded.
At a legislative hearing in 2010, Barbara Taylor, General Counsel of BDO Seidman, LLP, a Florida accounting firm with an office in Woodbridge, pleaded with New Jersey lawmakers to adopt a $50 million bond cap. Her firm was almost wiped out by a $522 million judgment in Florida in 2006 that was eventually dismissed on appeal. Had Florida not enacted appeal bond cap legislation shortly before the judgment was made, BDO would probably not have been able to post a bond of $522 million and would have gone out of business. That would have put the 2,700 people who work at BDO out of work. “Posting a full bond, without the benefit of a bond cap, would have been catastrophic to the firm and to our employees and their families,” said Taylor.
Several years ago, New Jersey acknowledged that the lack of a cap on appeal bonds could serve as a de-facto blockade to economic growth. Removing millions of dollars from the economy, only to confine it to an escrow account, prevents firms from expanding and creating much-needed jobs. A $50 million ceiling on the amount of bond a business was required to put up following an appeal was imposed – but only for the tobacco industry.
What New Jersey’s greater business community seeks, through the New Jersey Civil Justice Institute, is the same opportunity at justice that the tobacco industry enjoys: a $50 million cap on the amount a business needs to post as a bond in order to appeal a judgment.
The cap would bring New Jersey into line with the vast majority of states. Thirty-two states have enacted legislation to reform their appeal bond rules, while five do not even require defendants to post an appeal bond.
Recently, Maryland Governor Larry Hogan signed House Bill 164 into law, imposing a cap of $100 million on the amount of “supersedeas” bonds filed in conjunction with appeals. Maryland thus follows other eastern 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.
While other states continue to see the value in making sure final verdicts reflect the facts in the case rather than financing options, a New Jersey Senate bill (S2052) that would fix this problem has been blocked in the Senate Judiciary Committee. Despite support from a broad coalition of business groups, legislation to extend the $50 million cap on appeal bonds to all companies has stalled in New Jersey for seven years.
New Jersey should take a close look at the impact Maryland’s legislation has on the state’s legal system and business climate if it doesn’t want to fall even further behind.
This guest post was authored by Ralph Albert Thomas, CEO of the NJ Society of CPAs.