The two recent verdicts against former President Donald Trump — one in federal court and the other in New York state court — have thrust an esoteric area of law into the spotlight: appellate bonds. There are two main questions: Can Trump raise the cash necessary to allow him time to appeal the verdicts while staving off enforcement? And how can the winning plaintiffs collect on their judgments?
Trump has secured a bond in the federal case won by journalist E. Jean Carroll and is appealing the $78 million defamation judgment. The $455 million won by New York Attorney General Letitia James is proving far tougher.
Trump has spent the last few weeks scrambling to put together an appellate bond, which would allow him to appeal the verdict without judgment enforcement proceeding in the meantime. An appellate bond secures the full amount of the judgment and is paid over to the creditor if the debtor-appellant loses the appeal.
In fact, Trump needs to put an even larger bond in place than the $455 million, because the judgment accrues interest at a 9 percent annual rate, and the appellate process can easily take a year or more. Thus the total bond Trump has to post could be in excess of $520 million. And then there is the fee that the surety bond company gets, which amounts to between 1 and 3 percent — another $5 million to $15 million in hard cash.
Should Trump lose his appeal, the full amount of the judgment, interest and fees would have to be paid within 10 days of the appellate decision. And to be able to do that, the surety company must have collateral that is reasonably liquid.
Appellate bonds are typically collateralized with cash or liquid securities, not real estate assets. That is because once an appeal is decided, the surety company has a short window to pay the judgment. And, of course, real estate is not easy to liquidate quickly, at least not without a very substantial “haircut.”
Could an appellant secure a bond without collateral? Maybe, if the reputable company had liquid assets of seven times the bond amount and fixed assets between 15 and 20 times the bond amount. Trump is having trouble securing a bond because he doesn’t have $500 million in cash for collateral, let alone seven times that to bond the appeal without collateral.
Stepping back, surety companies tend to stay away from individuals or entities that could have headline or reputational risk. Insurers are very cautious. Even if the appellate bond broker — effectively, the insurance agent — were a political friend of the former president, the insurance companies backing the agents have no interest in anything but protecting their bottom line. They are not interested in publicity for polarizing companies or individuals, nor doing any favors — let alone for someone like Trump, who is notoriously bad at making good on his financial obligations.
Unless a bond is secured — and thereby enforcement is stayed — the attorney general has many tools at her disposal to collect on the judgment. For example, James could deliver an execution for Trump’s assets — whether a gold toilet or an iPhone or a work of art — and the sheriff would show up and demand that it be given over for auction. When the debtor (Trump) inevitably fails to politely comply, the AG could obtain a turnover order. And Judge Arthur Engoron would likely swiftly sign such an order.
Enforcement begins by the attorney delivering an “execution” (plus a $50 fee) to a New York City sheriff or marshal. Execution in hand, the sheriff or marshal can then walk into a financial institution and seize the debtor’s assets. For example, if the debtor banks at Deutsche Bank, the sheriff can walk into a branch, serve the execution, and the bank will drain the debtor’s account, handing over a cashier’s check.
In many cases, the sheriff (a New York City employee) or the marshal (a private agent awarded a commission from the city) would first have to locate the funds. But that is, conveniently, not an issue here, as Attorney General James already has a detailed roadmap to Trump’s assets.
And there are more costs that Trump must deal with: The sheriff or marshal empowered to collect the judgement on behalf of the attorney general is entitled to a 5 percent commission (known as “poundage”) — which could amount to a hefty $22 million.
Here, the judgment debtor is the owner of real estate, such as the 40 Wall Street office tower, the Mar-a-Lago Club, hotels and golf courses. If these properties have another level of limited liability corporation abstraction between them and the real properties (as is often the case), the New York attorney general could become the owner of these assets within days by seizing the membership interests in the LLCs.
James could also sign a “restraining notice,” which prohibits the debtor “to make or suffer any sale, assignment, transfer or interference” with his property. Were Trump to go to LaGuardia and fill his jet with fuel, that would violate the restraining order and he could quickly be held in contempt of court. And for good reason: A debtor shouldn’t be able to spend $25,000 for private jet fuel when he owes $455 million to the people of the state of New York.
In short, Trump can neither run nor hide. It is highly probable that he will have to liquidate substantial assets — just to buy space to press his appeal.
Neil P. Pedersen is a second-generation owner of Pedersen & Sons Surety Bond Agency, Inc. Adam Pollock is the managing partner of Pollock Cohen LLP, a boutique firm focusing on plaintiff-side litigation. He was previously an assistant attorney general for the New York State attorney general.