Appeal Bond Caps Protect Defendants' Due Process

January 20, 2011

Glenn Hamer

Recovering the nearly 300,000 jobs the state has lost in this Great Recession is at the top of the Arizona Chamber of Commerce and Industry's legislative agenda in 2011.We're working with legislative leaders and the governor to help craft a package that will create an environment that helps attract and retain jobs. 

We all know that a jobs-friendly tax code is critical to improving Arizona's competitiveness in the region, the country and around the globe.We're advocating for a reduction in the corporate income tax and a cut in the business property tax as ways to raise the state's profile as a great place to do business.

But also important to a state's ability to attract and retain jobs, but not discussed as much as the tax picture, is its legal environment.If a state has gained a reputation for being a home to frivolous lawsuits and billion dollar judgments, then that's a red alert to companies to stay away.

In 2011, we're working to advance legislation that would place a monetary cap on appeal bonds.

As discussed in the recent Arizona Chamber Foundation Policy Brief, Bonds. Appeal Bonds: Protecting the Right to Appeal in the Era of Multimillion Dollar Verdicts, defendants in the Arizona legal system may not have adequate access to a full and fair appeals process.

At the conclusion of a trial, the plaintiff or defendant has the right to appeal the judgment. But to stay the execution of the judgment and protect assets from collection, a defendant must post an appeal bond. Those bonds are usually set at a level equal to the full amount of the judgment, so in cases with large judgments, a defendant could be forced to cease operations or liquidate assets in order to post the bond. To stave off bankruptcy, defendants often seek a settlement, effectively cutting them off from the appeals process and their full due process. 

Thirty eight states have made moves to restore defendants' access to a fair appeals process by placing monetary caps on appeal bonds, and five others do not require any appeal bond, automatically staying the execution of the judgment when an appeal is filed. Arizona is one of seven states that offer no such protection to defendants, creating an environment for plaintiffs' lawyers to pursue cases that are intended only to force a settlement. 

State Sen. Al Melvin (R-26) is preparing to introduce legislation to implement caps on appeal bonds and, as a result, make Arizona a better place to do business.

Sen. Melvin hit the nail on the head when he said, "A state's legal environment is just as important as its tax and regulatory environment.Job growth is hamstrung when businesses spend more time shielding themselves against frivolous lawsuits than they do hiring or engaging in other beneficial economic activity.A cap on appeal bonds is a commonsense reform that is not only good for business, but it will help restore defendants' full due process rights."

This type of legislation won't earn Sen. Melvin any valentines from the trial lawyer lobby, which is loathe to support any reforms that could lessen their chances at extracting big settlements from defendants who would rather settle than risk financial collapse.But Sen. Melvin deserves applause from those of us in the business community for reminding his colleagues that Arizona can't claim to be friendly to job creators if we're not willing to make needed reforms in our legal environment.