The MACPA brought a strong panel of witnesses to a Maryland General Assembly Judiciary Committee hearing earlier this week, testifying in support of HB 171, “Judgments – Appeals – Supersedeas Bonds.” HB 171 would amend the $100 million supersedeas bond (appeal bond) cap instituted by the Maryland General Assembly last year, to specify a lower appeal bond cap of $5 million for small businesses. The bill defines ‘small businesses’ as entities having fewer than 250 employees.
Introducing the MACPA panel, Del. Joseph F. Vallario, Jr., Chairman of the Judiciary Committee, remarked, “The CPAs are here; there’s three of them, come on up!” Tom Hood, CEO of the MACPA, Lisa Cines, Regional Partner, Dixon Hughes Goodman and vice chair of the MACPA Board of Directors, and Mark Cissell, president and CEO, KatzAbosch testified from the MACPA. They were joined by attorney Paul Tiburzi, managing partner of DLA Piper of Baltimore, on behalf of the Maryland Tort Reform Coaltion, and Delora Sanchez of Cornerstone Government Affairs, on behalf of the Maryland Chamber of Commerce, joining the MACPA in support of the small business appeal bond cap.
Del. Kathleen Dumais, vice chair of the Judiciary Committee, is the sponsor of HB 171. She noted in her opening remarks, “If you are a small business and there is a large judgment against you, you have to post a bond,” in order to appeal that judgment. For a small business, a large judgment “could cripple you, as a result, you won’t take the appeal.” That is why she has sponsored HB 171.
Attorney: It’s Groundhog Day All Over Again
“Even though yesterday was Groundhog Day,” Tiburzi testified, “this is a Groundhog Day bill,” noting that HB 171 was aimed at putting the small business cap back in the bill that was unanimously passed by the House last year, but removed from the Senate’s version of last year’s bill. Senator Feldman has proposed SB 231 this year, mirroring the small business appeal bond cap in HB 171.
He observed that some states do not require supersedeas bonds at all, and among those that do, most states have a cap on supersedeas (appeal) bonds, with some offering a small business cap. Noting, “If a business or entity can’t post bond, they don’t have access to justice,” Tiburzi added, “Maryland should be a leader.”
Sanchez reiterated that small businesses that provide services don’t have assets to post supersedeas (appeal) bonds, and urged the committee to support the bill, which would be “very helpful to small business, a major economic driver.”
CPAs, Service Businesses Need Small Business Cap for Access to Justice
MACPA CEO Tom Hood testified, “Today I am here representing my small and mid-size CPA firms and the thousands of small businesses they serve,” he said. “I have with me 18 letters from CPA firms ranging in size from one sole practitioner in Western Maryland to a large mid-size firm in Baltimore County with 250 CPAs. These 18 firms are located all caross Maryland and employ over 1,000 CPAs and staff, representing thousands of small and mid-size businesses in Maryland.”
“They appreciate the work you did last year passing HB 164 that set a cap of of $100 million for appeal bonds. They want you to know that they do not have access to the public markets or large credit facilities in order to post a large appeal bond, should they get a frivolous lawsuit that they believe can be won on appeal. That situation can literally put them out of business and cost the loss of their employees’ jobs.” They are asking for the same ‘access to justice’ that large businesses enjoy and 32-plus other states have granted,” Hood continued.
Citing remarks by William Thompson, CPA, President of CPA Mutual Insurance (an insurance program that covers thousands of CPAs), from an article that appeared in AccountingWEB last week, 5 steps CPA firms can take to avoid legal claims, Hood noted “the specter of potential litigation” is the issue cited most by CPAs as causing them to lose the most sleep. Additionally, claims against CPA firms increased by 41% since 1998, and “One trend driving this is that plaintiffs’ lawyers discovered… ‘accounting firms have deep pockets,'” according to CPA Mutual’s Thompson, which means “one out of every nine firms can expect to have some kidn of legal issue annually.”
MACPA Vice Chair Lisa Cines provided an example of a CPA firm with approximately 200 employees which was sued for $2 million dollars, with the jury awarding treble damages; the case was ultimately settled for a great deal less than the jury award. “The point is,” said Cines, “professional services firms and most small businesses lack the hard assets required to post large appeal bonds, limiting their ability to get full access to the justice system.”
“In our litigious world, these lawsuits are growing in numbers and size, and that is why this bill is so important,” she added. “I can say that we as a firm felt the strain in ongoing operations due to the appeal bond, which is exactly why we are asking for your support of HB 171 today.”
Cissell said, “We share the profession’s concern about the impact on small firms having to post large appeal bonds. With awards now reaching hundreds of millions of dollars, it is often financially ruinous for a defendant, such as a small to mid-size CPA firm to post such a large bond.”
“The CPA profession’s concern regarding the impact of huge appeal bonds is not just theoretical,” he added. “There have been several multi-millon dollar judgments througout the country in recent years. Defendants may be forced to settle cases; although confident an unfair award would be lowered or dismissed at the appellate level.” He encouraged the Judiciary Committee to pass HB 171 to ensure the appellate level remains accessible to small, as well as large businesses.
“I believe HB 171 is worthy, practical legislation and a step in the right direction to help protect CPA firms like ours and all privately owned, mostly family businesses throughout Maryland. It is for these reasons I respectfully request a favorable report for HB 171,” concluded Cissell. Of note, the National Federation of Independent Business (NFIB) is also a supporter of HB 171, the small business appeal bond cap.
According to Hood, the MACPA will be testifying again on the Senate side of the Maryland General Assembly next week, where SB 231 is expected to meet with some support, and possibly some dissent. The hearing on SB 231 is scheduled to take place at 1:00 p.m. on Tuesday, February 9. Hearings in the House and Senate are videocast; the Feb. 3 House Judiciary Committee hearing on HB 171 begins approximately 48 minutes into the Feb. 3 video link.