The El Paso Court of Appeals has become the most recent appellate court to weigh in on the issue of whether the judgment that is being appealed should be included on a balance sheet insofar as determining an appellant’s net worth for supersedeas bond purposes.
In Business Staffing Inc. v. Jackson Hot Oil Service, Jackson obtained a joint and several judgment against four defendants. Each of the four defendants filed affidavits of net worth showing a negative balance and each affidavit included the amount of the judgment as a liability on the balance sheets. Jackson filed a contest to the affidavits, which the trial court sustained. The trial court then set bond amounts as 50% of the net worth of each defendant as calculated after elimination of the judgment as a liability. The four defendants/appellants sought review of the trial court’s order from the court of appeals.
The court of appeals first observed that "net worth" is calculated as assets minus liabilities, as determined by generally accepted accounting principles. In spite of this observation, the court pointed out that the appellants had not cited any legal authority for inclusion of the judgment in the net worth calculation. The court then cited two other opinions for the proposition that the judgment–a contingent liability–should not be included in the net worth calculation. Although the appellants presented an expert CPA, the court of appeals observed that the expert testified only that the judgment should be included on the balance sheet and not that the judgment was part of the net worth calculation. Applying an abuse of discretion standard, the court holds that the trial court did not abuse its discretion because the court did not act without reference to guiding rules and principles. The court’s opinion may be found here.
Issues practitioners may want to watch for: (1) Is the issue of whether the judgment is a liability one that requires expert testimony, as some courts have held, or is it a question of law for the court, as other courts have held? (2) This is one of only two opinions of which I am aware where the appellants presented unrebutted expert testimony supporting inclusion of the judgment as a liability under GAAP principles, but the trial court and appellate court rejected the testimony. (3) Is GAAP the only means by which an appellant may establish net worth (particularly if the appellant uses another accepted method of accounting)?