Opinion ID: 170933
Heading Depth: 2
Heading Rank: 1

Heading: Effect of Morrison Knudsen I on Supersedeas Bond

Text: The question we must answer is whether Morrison Knudsen I, affirming MK's liability, but vacating the judgment and remanding for a new damages trial, resulted in MK prosecuting the appeal to effect. If so, Federal cannot be held liable for the judgment against MK and its obligations are void. The proper standard of review of the district court's interpretation of a bond depends on whether the bond is unambiguous. Where, as here, the contract is unambiguous, a trial court's interpretation of a contract presents an issue of law which is reviewed de novo on appeal. Milk `N' More, Inc. v. Beavert, 963 F.2d 1342, 1345 (10th Cir.1992) (quotation and alteration omitted); see also Grubb v. Fed. Deposit Ins. Corp., 833 F.2d 222, 224 (10th Cir.1987) (explaining question of whether supersedeas bond should be exonerated is a question of law). [3] This court has not had occasion to interpret the prosecute this appeal to effect language contained in the Supersedeas Bond. The Supreme Court, interpreting similar language in 1879, explained [i]f, on the final disposition of a writ of error on appeal, the judgment or decree . . . is not substantially reversed . . . [the] appeal has not been prosecuted with effect. Gay v. Parpart, 101 U.S. 391, 392, 25 L.Ed. 841 (1879); see also Crane v. Buckley, 203 U.S. 441, 447, 27 S.Ct. 56, 51 L.Ed. 260 (1906) (explaining prosecuting to effect means prosecuting his appeal with success; to make substantial and prevailing his attempt to reverse the decree or judgment awarded against him). Thus, our task is to determine if MK substantially prevailed in Morrison Knudsen I. In Beatrice Foods v. New England Printing, the Federal Circuit explained: when an appellee has proven that damages are due, and the remand is merely to determine the proper quantum of injury, then it is not unreasonable that the bond remain effective during this recalculation period. Put another way, when an appellant has merely succeeded in having the case remanded for recomputation of damages, it would be a stretch to say that the appeal was `substantially' successful, or that the judgment was `substantially' reversed. 930 F.2d 1572, 1576 (Fed.Cir.1991); see also Franklinville Realty Co. v. Arnold Constr. Co., 132 F.2d 828, 829 (5th Cir. 1943) (surety remained liable where remand was to determine whether the judgment should be for the same or a less sum). Where, however, the damage award is reversed and the plaintiff must prove damages, courts have held the surety's obligations are discharged. Neeley v. Bankers Trust Co. of Texas, 848 F.2d 658, 659-60 (5th Cir.1988) (holding appellant prosecuted appeal to effect where court of appeals ordered retrial because plaintiff failed to prove damages). Summarizing the approach taken by the regional circuits, the Beatrice Foods court explained: [T]he surety remains liable when the question on remand is not whether a party will receive damages, but merely how the damages will be calculated. . . . If, after an appeal, there remains a question of whether any compensable harm was done, then the bond may be allowed to lapse. When the plaintiff has yet to prove any damages, it is unnecessary and unfair to ask the defendant to continue to provide a bond to ensure that money will be available should damages be proven. An appeal has been prosecuted to effect, then, when appellee must still prove on remand that he suffered a compensable harm. 930 F.2d at 1576. The parties, not surprisingly, interpret differently the effect of Morrison Knudsen I. MK and Federal argue this court's decision substantially reversed the district court because the judgment was entirely vacated. They contend that on remand, this court required damages to be proven, not just recalculated. GIT, on the other hand, submits MK lost the major battle on appeal when this court affirmed liability. Although the judgment was vacated, MK remained liable for undisputed obligations covered by the Supersedeas Bond. Had the jury used a special verdict form in the first trial, this court would have upheld any jury award for contract sums never paid. MK and Federal rely heavily on Neeley and its progeny. In that case, the Fifth Circuit affirmed liability but reversed on the issue of damages. 848 F.2d at 659. The case was remanded for a new trial on damages. Id. The court explained because the entire award of damages had been vacated by the appellate court, no liability remained on the supersedeas bond. Id. at 660. The retrial on damages results in an entirely new judgment. The bond is limited to any decree of the court of appeals; it does not include an entirely new judgment of the district court. Id. Neeley explained the language of the bond at issue in that case limited liability to amounts affirmed in an appellate decree. [4] Id.; see also Aetna Cas. & Sur. Co. v. LaSalle Pump & Supply Co., 804 F.2d 315, 317-18 (5th Cir.1986) (holding surety's liability discharged when original judgment reversed). As there was no decree to enforce, the surety could not remain liable. Id. We do not read the language of the Supersedeas Bond to limit liability to amounts explicitly affirmed on appeal. The purpose of a supersedeas bond is to secure the judgment throughout the appeal process against the possibility of the judgment debtor's insolvency. Grubb, 833 F.2d at 226. Although this court remanded for a retrial on the issue of damages, we affirmed the judgment finding MK's termination of GIT was wrongful. Morrison Knudsen I, 175 F.3d at 1261. We held, however, that GIT failed to prove entitlement to specific categories of damages. GIT claimed roughly $11.35 million in damages at the first trial. Id. at 1242. The categories of damages included equitable adjustments ($3 million), lower-tier subcontractor claims ($3.7 million), attorney's fees ($1.35 million), unpaid contract work and post-termination equipment expenses and work ($1.9 million), and other ($1.4 million). Id. This court held GIT failed to offer sufficient evidence to support its claims for the equitable adjustments, attorney's fees, and most of the damages claimed on behalf of the sub-contractors. Id. at 1242-54. We explained that because the district court failed to use a special verdict form, it was impossible to untangle the categories of damages for which there was sufficient evidence as compared to those which needed a retrial. Id. at 1254. Had a special verdict form been used, [w]e could then vacate any award of damages on the attorney's-fees, equitable-adjustment, and subcontractor claims, while letting stand any amounts the jury had awarded on GIT's other claims. Id. Unlike Neeley, this court recognized GIT was entitled to some form of damages. It was prevented, however, from affirming those portions of the judgment based solely on the district court's failure to use a special-verdict form. [5] In the first trial, GIT successfully proved certain damages were due. Morrison Knudsen I, 175 F.3d at 1243 n. 28 (The parties do not seem to dispute GIT's right to damages for work that the contract required, and that GIT performed, but for which MK did not pay.); Id. at 1242 n. 25 (MK does not specifically challenge the sufficiency of the evidence supporting GIT's claimed damages, totaling roughly $1.9 million, for work performed under the contract for which MK withheld payment; for work MK required it to perform after the termination; and for equipment MK required it to leave on site after the termination.). Thus, we cannot say that MK substantially prevailed on its first appeal. This case's unique procedural history reflects that MK's liability was affirmed and several categories of damages, although not affirmed, were vacated merely because of a procedural error. This case lies somewhere between a remand for mere recalculation of damages, i.e., Beatrice Foods, 930 F.2d at 1576, and one in which no sum of damages was properly proved and the entire judgment was vacated, i.e., Neeley, 848 F.2d at 660. Because GIT proved entitlement to some damages in the first trial, this case is more like Beatrice Foods and less like Neeley. See, e.g., Beatrice Foods, 930 F.2d at 1576 (explaining surety is released only when there remains a question of whether any compensable harm was done). We hold, therefore, that the Supersedeas Bond is still enforceable because MK failed to prosecute its appeal to effect.