In re Carlotz, Inc. Securities Litigation

Background

The court had approved a settlement in this class action and entered final judgment despite objections from Xinbao Wang and Fen Wang. The objectors are proceeding without lawyers and notified the court that they intended to appeal the denial of their objections to the U.S. Court of Appeals for the Second Circuit. Plaintiffs then moved under Federal Rule of Appellate Procedure 7 for a $22,500 appeal bond.

An appeal bond is money a district court may require an appellant to post to help ensure payment of appellate costs if the appeal is unsuccessful. The court explained that it had discretion to require such a bond.

Factors Considered

The court considered four factors that courts have used in deciding whether to require an appeal bond:

- Ability to pay: This factor favored plaintiffs. The objectors had combined monthly income exceeding $24,000, a six-figure checking-account balance, and more than $100,000 in assets excluding their primary residence. The court acknowledged that the bond would be a significant expense but found that it appeared within their ability to pay. - Risk of nonpayment: This factor favored the objectors. Plaintiffs did not show that the objectors would fail to pay any costs ordered by the Second Circuit. The court also rejected the argument that collection would be difficult because the objectors lived in Washington while plaintiffs’ lead counsel was based in New York. The objectors were married, lived at the same address, and appeared to have substantial liquid domestic assets. - Likelihood of success on appeal: This factor favored plaintiffs. The court said it had rejected the objectors’ arguments on the merits several times and did not consider those arguments close questions. It therefore found that the objectors were unlikely to succeed on appeal. - Bad faith or vexatious conduct: This factor favored the objectors. Although they had repeated their arguments, the court found no bad faith or vexatious conduct. The court noted that they were representing themselves and that plaintiffs had not shown similar filings by them in another case.

Court’s Reasoning About the Purpose of the Bond

The court also considered whether the motion was actually aimed at protecting plaintiffs from nonpayment. It observed that the settlement was $13 million and that plaintiffs had submitted multiple filings concerning the $22,500 bond. Based on those circumstances, the court said the motion appeared intended to pressure the objectors to abandon their appeal and expedite payment to plaintiffs and their attorneys. The court stated that an appeal bond is meant to ensure payment of costs, not to coerce a party to drop an appeal.

Disposition

Judge Arun Subramanian concluded that the relevant factors were, at most, mixed, with the factor concerning risk of nonpayment—described as perhaps the most important factor—favoring the objectors. The court declined to require an appeal bond and denied plaintiffs’ motion. The clerk was directed to terminate docket entry 227.