803 F.

2d 794
55 USLW 2238, 33 Cont.Cas.Fed. (CCH) 74,664

TENNESSEE VALLEY AUTHORITY, Appellant,

v.
ATLAS MACHINE & IRON WORKS, INC. and Williams
Enterprises,
Inc., Defendants.
In re FIREMAN'S FUND INSURANCE COMPANY, Appellee.
No. 85-2405.

United States Court of Appeals,

Fourth Circuit.
Argued June 4, 1986.
Decided Oct. 21, 1986.

Robert E. Washburn (Herbert S. Sanger, Jr., Gen. Counsel, Tennessee

Valley Authority, Justin M. Schwamm, Sr., Asst. Gen. Counsel,
Knoxville, Tenn., on brief), for appellant.
Thomas H. McGrail (Thompson, Larson, McGrail, O'Donnell & Harding,
Washington, D.C., on brief), for appellee.
Before HALL, MURNAGHAN and SPROUSE, Circuit Judges.
MURNAGHAN, Circuit Judge:

The Tennessee Valley Authority's appeal presents the question whether an

appellant's obligation under a supersedeas bond, given to stay execution of a
judgment pending appeal, is either (1) excused when the opposing party crossappeals or (2) discharged when the court of appeals affirms as to liability but
remands for a new trial as to damages.

I.
2

In a prior opinion, we dealt with a dispute over two construction contracts

awarded in 1978 by the Tennessee Valley Authority (TVA) to Atlas Machine &

Iron Works, Inc. Tennessee Valley Authority v. Atlas Machine & Iron Works,
Inc., 734 F.2d 12 (4th Cir., 1984). Under the terms of the two contracts, Atlas
agreed to construct and deliver steel embedments to be used in steam tunnels
and drywells at nuclear power reactors in Tennessee. Deliveries of the
components were initially scheduled to begin on March 1, 1979 and end on
March 17, 1981. Problems during construction arose from two sources. On the
one hand, the fabrication sequence recommended by TVA for the steam tunnel
components was new and previously untested. After initial failures in
construction, the parties had to revise the specifications, because the initial
specifications rendered the tunnel unbuildable. On the other hand, Atlas
repeatedly failed to meet its delivery schedules, and much of its work was of
poor quality. Despite Atlas' repeated assurances that both the timeliness and the
quality of its work would improve, Atlas apparently ceased work on the steel
components in June 1980. By December 1980, TVA inspectors reported that
Atlas had in effect abandoned the contracts, and in February 1981 TVA
terminated the contracts.
3

TVA then filed the present action, seeking equitable replevin of materials in
Atlas' possession, and damages for breach of contract. On March 2, 1981, the
district court upheld TVA's equitable claim and issued an injunction. Atlas then
counterclaimed, alleging that TVA's termination of the contracts was
unjustified and therefore amounted to a breach, and that, in any event, TVA had
given a warranty that its steam tunnel specifications would be adequate, and
that the defective specifications therefore constituted a breach of warranty
which rendered TVA liable for restitution of Atlas' costs. Trial of the liability
and damages issues was bifurcated. The liability phase of the trial was held in
August 1981, and the district court issued a memorandum and order resolving
the liability issues on January 22, 1982. The district court concluded that Atlas
had breached the contracts by its late deliveries and unacceptable workmanship.
TVA's termination of the contracts was therefore justified, and TVA was
entitled to damages. At the same time, the district court concluded that TVA's
defective specifications breached its implied warranty of the sufficiency and
efficacy of those specifications. The district court therefore held that Atlas was
entitled to recover unspecified costs related to the steam tunnel components.

The damages trial was held in August 1982 and the district court issued a
Memorandum and Order as to damages on April 14, 1983. The court found that
TVA's damages due to Atlas' breach amounted to $1,956,834.18. On the other
hand, the court found that Atlas was entitled to costs due to the defective
specifications in the amount of $1,097,567.20. The court also found that Atlas
was entitled to an unpaid balance due on the contract of $658,966.76.
Subtracting these amounts from the damages owed to TVA, the court awarded

TVA a net judgment of $200,300.22. On May 24, 1983, the district court issued
an amended order correcting its earlier mathematical calculations and deducting
the amount of a salvage credit due Atlas, which resulted in the reduction of
TVA's net recovery to $182,500.22.
5

On May 12, 1983, before the district court issued its amended order, Atlas filed
a notice of appeal. On June 8, 1983, Atlas obtained a stay of execution of the
district court's judgment pending appeal, pursuant to Fed.R.Civ.P. 62(d), by
giving a supersedeas bond in the amount of $200,300.20.1 The terms of the
bond were negotiated and agreed to by Atlas and TVA. Fireman's Fund
Insurance Company agreed to serve as surety on the bond after Atlas furnished
it with full collateral in the form of certificates of deposit totalling $200,300.20.
Subsequently, on June 20, 1983, TVA filed a notice of its cross-appeal of the
district court's judgment.

On appeal, this court affirmed the district court's conclusions as to the liability
of both parties. Tennessee Valley Authority v. Atlas Machine & Iron Works,
Inc., 734 F.2d 12 (4th Cir., 1984). However, we completely vacated the district
court's findings and conclusions as to damages. We held that the district court
erred in allowing Atlas to recover, as damages for the defective steam tunnel
specifications, its total costs from the project, rather than only the costs actually
caused by the defective specifications. We also held that the district court had
erroneously allowed Atlas a double recovery for the unbilled work in progress.
As to the rest of the vacated damages findings, we simply stated that "a second
consideration at the district court level would be advisable." Id. at 10.

On remand before a new judge, 2 the district court conducted a second damages
trial. On January 11, 1985, the district court issued a Memorandum and Order
awarding $3,330,258.41 in damages to TVA and $1,437,600.04 in damages to
Atlas, for a net award to TVA of $1,892,658.37.

Prior to the issuance of the district court's order on remand, Atlas took two
steps which significantly affected its ability to pay any judgment ultimately
rendered in favor of TVA. First, on April 18, 1984, Atlas entered into an
agreement with Bethlehem Steel, one of its secured creditors, for the orderly
liquidation of all of Atlas' assets. Apparently, Atlas' assets were in fact
liquidated according to that agreement. However, Atlas did not notify either
TVA or the district court of this liquidation until after the issuance of the
district court's order in January 1985. Second, on June 7, 1984, Atlas' counsel
wrote to Fireman's Fund, suggesting that the supersedeas bond had been either
voided or discharged due to the court of appeals' vacation of the initial damages
judgment, and asking for the return of the $200,300.20 deposited as collateral

for the bond. Fireman's Fund subsequently returned the collateral to Atlas.
9

Upon learning of Atlas' inability to pay any part of the new judgment, TVA
wrote to Fireman's Fund demanding payment of the amount of the supersedeas
bond. Fireman's Fund refused to pay in a letter dated June 19, 1985.

10

TVA then moved in the district court, pursuant to Fed.R.Civ.P. 65.1, for
enforcement of the bond. The district court denied the motion, and TVA now
appeals from that denial. Fireman's Fund responds that it is not liable for two
reasons: (1) because TVA, by taking its own appeal, lost its right to enforce the
original judgment and rendered supererogatory the supersedeas bond; (2)
because, under the terms of the supersedeas bond itself, the obligations of both
principal and surety had been discharged when the court of appeals vacated the
original judgment.

II.
11

Fireman's Fund argues, first, that the supersedeas bond became superfluous
when TVA filed its cross-appeal, because the cross-appeal in itself prevented
TVA from executing the district court's judgment. Fireman's Fund then
concludes that its obligation under the bond was excused when the bond was
rendered superfluous.

12

Fireman's Fund is correct in contending that TVA's filing of a cross-appeal

deprived TVA of the right to execute the original judgment even in the absence
of a supersedeas bond. Where the prevailing party in the lower court appeals
from that court's judgment, the appeal suspends the execution of the decree.
Bronson v. La Crosse R.R. Co., 68 U.S. (1 Wall.) 405, 410, 17 L.Ed. 616
(1863); Price v. Franklin Investment Co., 574 F.2d 594, 597 (D.C.Cir.1978);
Luther v. United States, 225 F.2d 495, 497 (10th Cir.1955). Moreover, where
the prevailing party is the first to take an appeal, no supersedeas bond can be
required of the losing party when it subsequently files its own appeal, because
the execution of the judgment has already been superseded by the prevailing
party's appeal. Bronson v. La Crosse R.R. Co., 68 U.S. (1. Wall.) at 410, 17
L.Ed. 616. 3

13

However, Fireman's Fund can point to no authority to support its conclusion

that where the losing party is the first to appeal and a supersedeas bond is
properly required, the appellant's obligations under that bond are excused when
the prevailing party subsequently files a cross-appeal. On the contrary, the
Fifth Circuit implicitly rejected that view in Aviation Credit Corporation v.

Conner Air Lines, 307 F.2d 685 (5th Cir.1962), where it enforced a supersedeas
bond filed by an appellant despite the fact that the appellee had taken a crossappeal. While no explanation for the court's ruling is forthcoming in its
opinion, we are satisfied as to the correctness of its result. Had Atlas filed the
bond as part of a bargained-for exchange, receiving in return TVA's promise not
to execute the district court's judgment, Fireman's Fund might perhaps be
entitled to argue that its obligation was excused because TVA's filing of a
cross-appeal deprived Atlas of consideration or frustrated its purpose. Those
contract-law doctrines are inapplicable here, however, where the bond was
given, not as part of a bargained-for exchange, but pursuant to the requirements
of Fed.R.Civ.P. 62(d). Moreover, to hold the bond vacated by the cross-appeal
would have put TVA to an untenable choice of either taking a $200,300.20 bird
in the hand or, with a substantial degree of probability, losing any recovery
altogether, although it was fully vindicated in its conclusion that the damages
award had been very substantially understated.
III.
14

Fireman's Fund argues further that, even if its obligation under the bond was
not excused by TVA's cross-appeal, that obligation was discharged when this
court vacated the district court's original damages award on the previous
appeal. Fireman's Fund contends that it could be held liable on the bond only if
this court had substantially affirmed the original judgment.

15

No federal statute or provision of the Federal Rules of Civil Procedure or the

Federal Rules of Appellate Procedure defines the conditions that must occur to
trigger an appellant's obligation under a supersedeas bond. See Moore v.
Townsend, 577 F.2d 424, 426 n. 5 (7th Cir.1978); 11 Wright & Miller, Federal
Practice and Procedure Sec. 2905 (1973).4 Instead, the extent of the appellant's
liability is governed by the terms of the bond itself. Aviation Credit Corp. v.
Conner Air Lines, Inc., 307 F.2d 685, 688 (5th Cir.1962). The relevant
language of the bond at issue here is as follows:

16 if the said appellant shall pay to the said appellee all costs and damages that
Now
shall be adjudged against said appellant on said appeal, and shall also satisfy or
perform the said judgment or order appealed from in case it shall be affirmed and
any judgment or order which the Court of Appeals may render or order to be
rendered by the District Court, not exceeding in amount or value the original
judgment or order, and all rents of, or damages to property during the pendency of
the appeal out of the possession of which the appellee is kept by reason of the
appeal, then this obligation to be void, otherwise to be and remain in full force and
virtue.

17

Fireman's Fund correctly points out that our disposition of the prior appeal
discharged certain obligations provided for in the bond. Because the original
judgment was not affirmed, neither the appellant nor its surety could be
required to satisfy that judgment out of the bond. Nor could the bond be used to
pay "costs and damages that shall be adjudged against the appellant on said
appeal," because no such costs or damages were awarded.

18

However, the bond went on to require satisfaction of "any judgment or order

which the Court of Appeals may ... order to be rendered by the District Court,
not exceeding in amount or value the original judgment or order." We, on the
initial appeal, ordered the district court to render a new judgment as to
damages. To the extent of $200,300.20, it did not exceed in amount or value the
original order by the district court from which the appeal had been taken.

19

Our interpretation of the language of the bond finds support in the line of cases
decided under former statutes and rules governing the scope of liability under
supersedeas bonds. Although those statutes and rules are no longer in effect,
they provide a framework within which the language of a bond may be usefully
evaluated. Tully v. Kerguen, 304 F.Supp. 1225, 1227 (D.V.I.1969); 11 Wright
& Miller, Federal Practice & Procedures Sec. 2905 at 327 (1973). Prior to the
enactment of the Federal Rules of Civil Procedure, an appellant's obligation
under a supersedeas bond was governed by statute. Section 22 of the Judiciary
Act of 1789, 1 Stat. 73, 85, provided that the party who gave the bond remained
obligated under it unless he "prosecute[d] his writ to effect," and he was liable
to pay on the bond "if he fail to make his plea good." See Kountze v. Omaha
Hotel Co., 107 U.S. 378, 381, 2 S.Ct. 911, 914, 27 L.Ed. 609 (1882). In 1878,
this provision was revised and codified as Sec. 1000 of the Revised Statutes (2d
ed.). The revised version provided that the supersedeas bond would secure the
judgment unless "the plaintiff in error or the appellant shall prosecute his writ
to effect, and, if he fail to make his plea good, shall answer all damages and
costs...." Cases decided under these statutes held that an appellant was not
discharged from his obligation under a supersedeas bond unless he won a
substantial reversal of the lower court's judgment. Crane v. Buckley, 203 U.S.
441, 446-47, 27 S.Ct. 56, 57-58, 51 L.Ed. 260 (1906); Gay v. Parpart, 101 U.S.
391, 392, 11 Otto 391, 25 L.Ed. 841 (1879).

20

From 1938 to 1968, supersedeas bonds were governed by former Rule 73(d) of
the Federal Rules of Civil Procedure.5 Former Rule 73(d) provided that an
appellant would be liable under a supersedeas bond

21 the satisfaction of the judgment in full together with costs, interests, and damages
for
for delay, if for any reason the appeal is dismissed or the judgment is affirmed, and

to satisfy in full such modification of the judgment and such costs, interest and
damages as the appellate court may adjudge and award.
22

Cases decided under former Rule 73(d) generally held that an appellant
remained obligated under a supersedeas bond unless his appeal had resulted in a
reversal on the issue of his liability to the appellee. Thus, a partial reversal as to
one of two appellants did not affect the bond obligation of the appellant whose
liability was affirmed. Scholz Homes, Inc. v. Larson, 437 F.2d 1060 (7th
Cir.1971). Nor was an appellant freed from his bond where his appeal had
resulted in the reversal of the dismissal of his counterclaim, but his liability on
the plaintiff's claim against him had been affirmed. Rector v. Massachusetts
Bonding & Insurance Co., 191 F.2d 329 (D.C.Cir.1951). Of particular interest,
for the purposes of the present case, are two Fifth Circuit cases enforcing
supersedeas bonds against parties whose appeals had led to the affirmance of
their liability, with a reversal and remand limited to the redetermination of
damages. Aviation Credit Corp. v. Conner Air Lines, Inc., 307 F.2d 685 (5th
Cir.1962); Franklinville Realty Co. v. Arnold Construction Co., 132 F.2d 828
(5th Cir.1943).

23

Because the previous appeal resulted in an affirmance of Atlas' liability and a

remand solely for a redetermination of damages, we conclude that Atlas and its
surety, Fireman's Fund, remained liable under the terms of the supersedeas
bond. We accordingly reverse the district court's order and remand to direct
entry of an order directing Fireman's Fund to pay to TVA the sum of
$200,300.20, with interest accruing from June 8, 1983, the date of the filing of
the bond and the stay of execution of the original judgment.

24

REVERSED.

The bond was intended to be in the amount of the initial, unamended judgment.
Through an inadvertent error, however, the bond was actually given in an
amount two cents less than the amount of the judgment

The original bifurcated trial had been conducted by Judge Oren Lewis. On
remand, after Judge Lewis' death, the retrial was held before Judge Albert
Bryan

Thus, if TVA had filed its appeal first, Atlas would not have been obliged to
give a supersedeas bond. However, because Atlas, the losing party in the
district court, was in fact the first to take an appeal, a supersedeas bond was
properly required

Fed.R.Civ.P. 62(d) deals only with the procedure to be followed in filing a

supersedeas bond. The rule provides:
(d) Stay Upon Appeal. When an appeal is taken the appellant by giving a
supersedeas bond may obtain a stay subject to the exceptions contained in
subdivision (a) of this rule. The bond may be given at or after the time of filing
the notice of appeal or of procuring the order allowing the appeal, as the case
may be. The stay is effective when the supersedeas bond is approved by the
court.

Rule 73(d) was rescinded in 1968 when the Federal Rules of Appellate
Procedure were adopted. The Appellate Rules, however, contain no provision
concerning supersedeas bonds. See 11 Wright & Miller, Federal Practice &
Procedure Sec. 2905 at 327 (1973)