Bail was set for Arthur Bogarez in the amount of $2 million, a high bail for sure but not an unreasonable one given the circumstances.  He was charged in a no-fault insurance scam, and found in Puerto Rico, where he was extradited to Brooklyn.  There was good reason to believe he was a flight risk if released.

But the court didn’t just set high bail. It also required an examination of surety, a hearing to ascertain whether the monies used for bail came from legitimate sources or his crimes, and whether the surety, the person(s) posting bail were doing so because they had a real affiliation to Bogarez or were straw sureties, people pretending to put up the bail as a front.

His wife, Karine Gevorkyan, sought out a bail bond for her husband’s release, and was turned down by two bail bondsmen. To be clear, bail bondsmen do not turn down $2 million bonds lightly. These are hugely profitable, and only turn unprofitable for two reasons: the defendant skips town or they aren’t going to be able to get the bond through, going through a lot of work and ending up with bupkis. Not to be dismissive of bondsmen, but they really hate ending up empty handed. Bail bonds are definitely intended as a profit-making business.

So she went to a third bondsman, Ira Judelson, who agreed to take on the bond. He charged a fee of $120,560 for the bond, and went to work. He presented the bond to a judge, who signed off on its facial adequacy and ordered a hearing to examine surety.  Gevorkyan and two other sureties (who were putting up property to secure the bond) blew the hearing, and the bond was ultimately rejected. Bogarez never got out.

Gevorkyan then demanded a refund of the $120,560 premium paid Judelson, who refused, arguing that he did his job and earned his fee upon the initial judge signing off on the bond. Gevorkyan sued for its return, raising the question of when does a bail bondsman earn his fee?

The problem is fairly clear: Nobody pays for a piece of paper, but for the release of the defendant. If the defendant isn’t released, then the bond is worthless.

SDNY Senior Judge Richard Berman held that while the contract for the bail bond was ambiguous as to when the fee was earned, extrinsic testimony resolves the ambiguity in Judelson’s favor, as he testified credibly that he fully explained to Gevorkyan that when the judge signed off on the bond, before the surety examination, his job was done.*

Judge Berman’s approach to the issue, that it was a straight forward contract case, was surprising. A bail bond is, in essence, an insurance policy. The trigger for payment is the defendant’s failure to comply with the terms of his release. The “fee” is a premium paid to an International Fidelity Insurance, and Judelson gets paid like any other insurance agent.

Nowhere in Judge Berman’s decision is this acknowledged, and whether the contract was ambiguous, which under ordinary contract law would mean that ambiguity is construed against the writer of the contract, doesn’t address the core issue. In insurance law, no premium can be earned in the absence of an insurable interest.  In other words, if there is nothing at risk, the insurance company hasn’t done anything to earn a premium.

Since Bogarez was never released, there was never any risk of flight, and there was no risk to International Fidelity that they would have to pay off the $2 million.

Judelson explained that he put in a great deal of time and effort to getting this bond through, and the fact that Gevorkyan was unable to survive the examination of surety wasn’t his fault. He did all he could do and the rest was up to them. And, according to the finding of the examining judge, the proposed sureties failed miserably to pass muster as legitimate.

But then, Gevorkyan wasn’t paying for Ira Judelson’s hard work and time wasted in this futile effort. She was paying for a bond for the release of her husband. If this is viewed as a straight contract issue, then the release would be deemed a “condition subsequent,” a contract that wasn’t fulfilled until the occurrence of an act after signing was completed. That act was Bogarez’s actual release. Without the release, there was a failure of consideration, no benefit to Gevorkyan for the payment of the $120,560 premium.

This is a very hairy situation. For someone seeking to bond someone out of jail, the bail bondsman’s fee can be a significant stumbling block, a rather high cost for something that only applies to a very limited situation (until the outcome of the prosecution) and, in the case of an innocent defendant or one with no intention of fleeing, a cost imposed without any hard justification.

At the very least, someone who pays the bail bondsman’s fee would expect to obtain the benefit intended, the release of the defendant from jail. When that release doesn’t happen, plus they lose the significant fee paid upon execution of the bail bond agreement, they get double screwed.

From Judelson’s side, it’s understandable that he doesn’t want to walk away from a big payday, and that he wants compensation for the time and effort he put into getting a difficult bond done.  But Judge Berman’s decision ignores the nature of what a bail bond is and why a bondsman gets paid. Whether, under relevant insurance law concepts, Judelson is entitled to his fee, or a quantum meruit fee where the failure of a condition subsequent was not his fault, are valid questions, but nothing in this decision approaches the salient issues of the case.

The case will now go to the Second Circuit on appeal, which should reverse and remand as the ruling failed to address the proper issues raised in the case. As this could play a significant role for many, it shouldn’t be left hanging on a contract credibility determination. The question of when a bondsman’s fee is earned is an issue of insurance law, not fact or contract, and this question was never addressed.

*Full disclosure: I’m friends with both Gevorkyan’s attorney, Andrew Bluestone, and Ira Judelson. I tried to mediate a resolution before suit, but Ira was adamant that he earned his fee and wasn’t giving anything back.