AOR Direct L.L.C. v. Buteo – 8/4/2016

August 18, 2016

Arizona Court of Appeals Division One holds that a supersedeas bond pursuant to A.R.S. § 12-2108 cannot be reduced by the amount of a previously released prejudgment provisional remedy or by an attorneys’ fee award in a related but separate action.

A lender sued a borrower for breach of a promissory note and sought a prejudgment provisional remedy in the form of a writ of attachment on the borrower’s personal property (the “2013 case”).  In lieu of a writ of attachment, the borrower posted a $200,000 bond as security for any judgment the lender obtained.  The borrower also filed a counterclaim against the lender.

Before the court entered final judgment in the 2013 case, the lender filed another suit against the borrower (the “2014 case”).  The court subsequently entered a judgment in the 2013 case dismissing the borrower’s counterclaim and awarding the lender $614,687.07 in damages and $224,840 in attorneys’ fees.  The court ordered the release of the borrower’s $200,000 bond, which the lender applied towards its fees.  In the same judgment, the court also dismissed the 2014 case with prejudice.

The court later amended its final judgment to remove the dismissal of the 2014 case.  It instead entered a separate judgment in the borrower’s favor for the 2014 case and awarded $123,021.29 in attorneys’ fees, costs, and sanctions against the lender.

The borrower timely appealed the judgment in the 2013 case and moved to set the supersedeas bond at the amount of the damages awarded less the $200,000 provisional remedy bond previously released and the $123,021.29 in fees, costs, and sanctions awarded in the 2014 case.  The trial court accepted the proposal and set the supersedeas bond at the reduced amount. 

The lender filed a special action, arguing that the trial court erred by setting the supersedeas bond at less than the damages awarded in the 2013 case.  The Court of Appeals agreed, reasoning that A.R.S. § 12-2108(A) and Arizona Rule of Civil Procedure 7 did not allow the court to reduce the bond by the amount of the provisional remedy bond released following judgment.  The Court of Appeals observed that the record showed the borrower had not asked the trial court to consider the $200,000 as “other security” under Rule 7 when setting the supersedeas bond.  Further, the parties’ agreement had clearly contemplated that the $200,000 would be applied first to the lender’s fees and costs and had in fact been applied to those fees and costs, not the damage award.

The Court of Appeals also noted that neither § 12-2108 nor Rule 7 give a court discretion to offset a supersedeas bond with a judgment in another case.  The Court therefore remanded to the superior court to set the amount of the supersedeas bond at $614,687.07, the amount of the damages awarded in the 2013 case.

Judge Howe wrote for the Court; Judges Gould and Cattani joined.