Take Home Lesson:  Trial court now has obligation and discretion under § 1-289 to set amount of undertaking to stay money judgment pending appeal.

Suppose you lose at trial and a hefty money judgment is levied against your client.  You are convinced, though, that the trial was riddled with error, and the case would make a great appeal.  The problem is that, appeal or no appeal, the victor need only execute on that judgment to get paid.  Even if you win your appeal, by the time the appeal is over the opposing party might have already spent all your client’s money.  

Yours is a common problem, and N.C. Gen. Stat. § 1-289 is there to help.  The statute has long provided options to allow a judgment debtor to keep the winning party from collecting on a money judgment while an appeal is pending.  The statute gives the judgment debtor three options:   (1) deposit a particular sum with the clerk of the trial court; (2) deposit a particular sum with “the officer”; or (3) execute an “undertaking” for a particular sum.  In my practice, I’ve only used the first and third options.  Under the first option, you historically would have submitted a “particular sum” to the trial court clerk and have the stay issue automatically as a matter of law under § 1-289.  Under the third option, you submit a promise from a bank or insurer to the effect that the promisor would make good on your client’s debts should the appeal be unsuccessful.

I’m purposely being cagey about the amount of the “particular sum” that must be deposited or promised in the undertaking.  This is because the statute has never defined what that sum is.  Typically, parties could deposit the full sum of the judgment (or an undertaking in the same amount) and have that sum suffice.  I’m also aware of colleagues who have been required to submit not only the amount of the judgment, but an amount sufficient to cover the judgment plus the anticipated and hefty 8% post-judgment statutory interest.  But how can interest be guessed in advance of an appeal of uncertain duration? And how much should be deposited to stay, for example, a judgment awarding installment payments?  And what happens if one or the other party has solvency issues?  Who decides how much is enough, and how is that decision made?

Tucked away in the headline-grabbing Senate Bill 33 in the summer of 2011, which limited certain medical malpractice noneconomic damages to $500,000, was an utterly unrelated change to § 1-289.  The bill amended § 1-289 to expressly vest the trial court with the obligation to “specify the amount of the undertaking required to stay execution of the judgment pending appeal.”  § 1-289(b); S.L. 2011-400 (§ 1).  The court is now required to hold a hearing to set the amount of the undertaking, “considering relevant factors, including the following:  (1) the amount of the judgment, (2) the amount of the limits of all applicable liability policies of the appellant judgment debtor, and  (3) the aggregate net worth of the appellant judgment debtor.”

Granted, these revisions provide some clarity, and some process where there was none specified before.  But consider these unanswered questions posed by the revisions:

  1. Do litigants really want to submit their insurance coverage information to the court?   Divulging those figures to your adversary might hamper ongoing settlement discussions or simply be unpalatable to your client.  A protective order could minimize this risk, but not eliminate it.
  2. Which side of the scale is “the aggregate net worth of the appellant judgment debtor” supposed to weigh on? A successful business client may have the resources to easily satisfy the judgment, so does that mean it shouldn’t have to post a large undertaking, or rather that it should, since it would be relatively easy for the client to do so? And what about a nearly insolvent client? The appellee would cite the appellant’s poverty as one of the reasons why the court should require a large undertaking to protect the Appellee’s rights on appeal.  However, the purportedly insolvent appellant could argue the contrary, that it simply can’t afford a large undertaking. 
  3. Do the parties have to secure an undertaking hearing before the same trial judge (as is the case in “judicial settlement of the record” hearings), or would any judge hearing the motions calendar suffice?
  4. What does the hearing requirement do to the would-be judgment executioner while the process is plodding along?   That is, if the appellant can’t get on the calendar for two months, is there a de facto stay in place while the parties are waiting to be heard?  Can the victor avoid these problems by noticing the undertaking hearing before the judgment is entered, and having the undertaking order and judgment issue at the same time?

I do not know of any definitive answers to these questions.  Instead, I think the meaning of these revisions will have to be borne out case-by-case.  Stay tuned here.  We’ll keep our eyes on it.