The hero in old TV Westerns was often the sheriff or the marshal — the man with the badge entrusted with maintaining law and order in the territory. New York still has both sheriffs and marshals, and they may be on television once again — this time ensuring that Donald Trump actually pays the $465 million judgment he owes the people of New York, and the $88 million he owes for defaming writer E. Jean Carroll.
Trump says he is appealing both verdicts. And while he has succeeded in posting a bond in the federal defamation case — allowing him to protect his assets while he proceeds with his appeal — he is having trouble securing a bond for the state case brought by the New York Attorney General Letitia James. It is useful to understand why.
In order to stay collection of the judgment while he’s appealing the New York case, Trump has to put some $500 million in hard cash in escrow — which is not likely. (The amount of the bond is more than the $465 million judgment because it accrues interest at 9% per year.)
Failing that, Trump has to find a surety bond company willing to issue an insurance policy.
Surety companies tend to stay away from individuals that could have headline or reputational risk. They have no interest in anything but their bottom line. They are not interested in publicity for polarizing individuals, nor doing any favors for people notoriously bad at making good on their financial obligations.
Further, 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, a surety company must have collateral that is reasonably liquid.
As a result, appellate bonds are typically collateralized with cash or liquid securities — not real estate assets — because real estate is not easily liquidated quickly, at least not without risking substantial losses.
Could an appellant secure a bond without collateral? Maybe, if the reputable appellant had liquid assets of seven times the bond amount; and fixed assets between 15 and 20 times the bond amount. But Trump doesn’t have $500 million in cash for collateral, let alone seven times that. The heart of the AG’s case against Trump was his inflation of his assets. Why should an appellate bond underwriter believe his financial representations now?
Enforcement begins by the AG 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 Trump’s assets. For example, if Trump 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. (Trump would get to keep $3,000 in his bank account, which is the floor protected from execution.)
Plus, the sheriff or marshal who actually collects on the judgment is entitled to a 5% commission (known as “poundage”) on the amounts collected. Here, that could be a hefty $22 million. NYC marshals keep pocket the fees. NYC sheriffs are city employees and the fees go to the city.
If there’s not enough cash in the bank to cover the judgment, the next step is to go after Trump’s other assets.
In this case, the Trump judgment debtors own real estate, such as the 40 Wall St. office tower, the Mar-a-Lago Club, hotels, golf courses and other holdings. If these properties are owned by LLCs — as is often the case — the New York AG could become the owner of these assets within days by seizing the membership interests in the LLCs.
The AG 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 $465 million to New York State.
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. And if he doesn’t, we’ll see the sheriff or marshal ride into town ready once again, to preserve order. Andy Griffith may have given Trump some breathing room; “Gunsmoke’s” Matt Dillon wouldn’t.
Pedersen is a second-generation owner of Pedersen & Sons Surety Bond Agency, Inc. Pollock, a former New York assistant attorney general, is the managing partner of Pollock Cohen LLP, a boutique firm focusing on plaintiff-side litigation.
