Fructivore Investments

I know that normally I am known for my investing and economic insight here, but I am also a lawyer and this has just come up. The decision by the New York Appellate Division to reduce the bond required to stay enforcement of the judgment against Donald Trump is incomprehensible. I mean that literally. I cannot even say that it is based on faulty legal reasoning; it is, as far as I can tell, based on no reasoning at all.

The New York Appellate Division issued a ruling reducing the required bond to stay enforcement of the state of New York’s judgment against him (called a supersedeas bond) to $175 million from $454 billion as calculated by statute. Notable in this ruling is the lack of any justification or analysis. Perhaps the court will issue a memorandum later, but this order alone contains not one shred of legal reasoning to justify the appellate court’s order. I have not been able to determine whether Letitia James will request leave to appeal the Appellate Division’s order to the Court of Appeals, but if so I can surmise the lack of any reasoning by the Appellate Division may become an issue.

Frankly, if the court had examined Trump’s reply brief, they would have found that he has been playing fast and loose with the decisions cited. Trump’s lawyers did cite certain cases wherein the supersedeas bond was not enforced fully, but all of those cases involved differing factual circumstances that did not apply here.

The first case cited was Texaco Inc. v. Pennzoil, and in fairness the court did reduce a $12 billion bond to $1 billion, but the court’s reasons were that it had been persuaded by evidence that there were not more than $1.5 billion in surety bonds available in the entire world (in 1986), and that the immediate enforcement of a judgment that was likely to be reduced on appeal anyway would cause apocalyptic havoc on the fifth largest company in the nation, affecting tens of thousands of people. Donald Trump has not even represented that he or any of his companies would be forced into insolvency by the enforcement of this judgment.

Trump’s next case was In re Adelphia Communications, which allowed an appellate bond of $1.3 billion against 111 million shares of stock, 9.4 billion tradeable interests, and $7.136 billion in cash. However, the decision under appeal in Adelphia was the final distribution of a Chapter 11 bankruptcy case, under which the shares were to be distributed to 14000 potential shareholders and the other assets to 10,000 interested parties, making it essentially impossible to track them down again if the decision was reversed on appeal. In Trump’s case, however, there is only one recipient of the res of the lawsuit: the State of New York; a key distinction that Trump’s lawyers conveniently leave out.

Trump’s next case is Cayuga Indian Nation v. Pataki, which did waive the bond requirement entirely, but in that case it was the State of New York that requested a waiver of a bond, and the court was persuaded that New York’s taxing power would suffice to provide adequate assurance of the collection of damages, and also there were some constitutional difficulties in a federal court imposing a bond requirement on a sovereign state. Furthermore, the case also contains language to the effect that it is a “well-established principle that quantifiable money damages cannot be deemed irreparable harm [citations omitted] Because the judgment herein is only for ‘quantifiable money damages,’ the State is unable to establish this particular stay element.” Or at least, not without some additional facts adduced by the appellant.

The next case up is International Distribution Centers v. Walsh Trucking, which is again complicated by a bankruptcy. The corporate defendant in this case had declared bankruptcy but the five individual defendants had not, and the court here declined to impose a bond requirement on the non-corporate defendants. This case at least is on point, but the Trump case has not yet been complicated by the bankruptcy filing of any defendant.

The next case Trump cites is TWA v Hughes, which his lawyers characterize as “granting a substantial reduction of the bond amount where “[b]ecause of the unprecedented size of the judgment, the obtaining of a supersedeas bond was impracticable.” However, Trump’s lawyers conveniently leave out that the judgment in TWA was for $145 million and the appellant was allowed to make a $75 million bond and satisfied the balance by stipulating to the condition that his company would maintain a net worth of at least three times the $83 million remaining, as determined by an independent auditor. In other words, the company still provided the additional assurance required, just not in the form of the bond. There is no sign in the instant case that Trump is even offering to put any other assets on the table.

Finally, Trump cites C. Albert Sauter v. Richard S Sauter, which was a federal anti-trust case. The court in Sauter did not require a full undertaking to be posted because “execution is most likely to terminate Richard S. Sauter Co., Inc. as a going concern and eliminate it as a competitor in interstate commerce,” and further required the defendants to escrow what looks like a significant chunk of their financial assets to the court, including all of the shares of Richard S. Sauter, Inc. Donald Trump has faced no such escrow requirements and his appeal does not even represent to the court that the judgment would require the insolvency of the Trump Organization.

In short, then, the cases cited by Trump and his co-defendants in the reply brief simply do not take him where he needed to go in order to meet the legal requirements for a modification of the appellate bond requirement (and frankly, Letitia James should have pointed out Trump’s attorneys’ sloppy research in her surreply brief), and this being the case, the reasoning of the New York Appellate Division is incomprehensible. Which is presumably why the Appellate Division didn’t bother to provide it in the first place.

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law by grocca