What Are Appellate Courts?

Appellate courts, also known as the court of appeals, are the part of the American judicial system that is responsible for hearing and reviewing appeals from legal cases that have already been heard in a trial-level or other lower court.

Persons or entities such as corporations that experience an unsuccessful outcome in a trial-level or other lower courts may file an appeal with an appellate court to have the decision reviewed. If the appeal has merit, the lower ruling may be reversed. Appellate courts are present at both the state and federal levels and do not include a jury. 

How Appellate Courts Work

Appellate courts review the decisions of lower courts to determine if the court applied the law correctly. They exist as part of the judicial system to provide those who have judgments made against them an opportunity to have their case reviewed.

A publicly traded company with an unfavorable judgment against it will likely experience a drop in share price, but an appeal could overturn this previous ruling. If an appeal is successful, the stock price usually jumps.

Courts at the appellate level review the findings and evidence from the lower court and determine if there is sufficient evidence to support the determination made by the lower court. In addition, the appellate court will determine if the trial or lower court correctly applied the law.

The highest form of an appellate court in the U.S. is the U.S. Supreme Court, which hears only appeals of major importance and consequence.

Appellate Courts vs. Supreme Courts

Supreme courts typically have more authority and breadth than appellate courts. The U.S. Supreme Court is the highest legal authority there is in America and many states have their own supreme courts, or court of last resort.

Supreme courts review decisions made by appeals courts. Overall, there are 13 appellate courts on the federal level⁠—12 district appellate courts and an appeals court for the Federal Circuit. 

Many states have intermediate appellate courts, which serve as appeals courts meant to cut down on the workload for the state Supreme Court.

Example of an Appellate Court Ruling

Shares of ride-sharing companies Uber Technologies Inc. and Lyft Inc. rose in the summer of 2020 after an appellate court granted a delay in the implementation of a new California law that requires many so-called “gig workers,” including drivers for ride-share companies, to be reclassified as employees.

In this instance, the appellate court decided that a previous ruling from a lower California court, affirming the constitutionality or legality of the state employment law, would be put on hold until it could evaluate the appeal and rule on its merits.

Not long after, investor hopes that Uber and Lyft could potentially get away with offering drivers no access to benefit plans or workers’ compensation coverage were dashed. In October of 2020, the California First District Court of Appeals ruled that the law was, in fact, legal and enforceable, meaning Uber and Lyft must treat their California drivers as employees, rather than independent contractors, and provide them with the benefits and wages they are entitled to under state labor law.

In February of 2021, the U.S. Supreme Court refused to hear Uber and Lyft’s appeal, affirming the lower court’s decision. The U.K. Supreme Court has also done the same.

What Is an Assignment?

Assignment most often refers to one of two definitions in the financial world:

1. The transfer of an individual’s rights or property to another person or business. This concept exists in a variety of business transactions and is often spelled out contractually.
2. In trading, assignment occurs when an option contract is exercised. The owner of the contract exercises the contract and assigns the option writer to an obligation to complete the requirements of the contract.

Property Rights Assignment

Assignment refers to the transfer of some or all property rights and obligations associated with an asset, property, contract, etc. to another entity through a written agreement. For example, a payee assigns rights for collecting note payments to a bank. A trademark owner transfers, sells, or gives another person interest in the trademark. A homeowner who sells their house assigns the deed to the new buyer.

To be effective, an assignment must involve parties with legal capacity, consideration, consent, and legality of object.

Examples

A wage assignment is a forced payment of an obligation by automatic withholding from an employee’s pay. Courts issue wage assignments for people late with child or spousal support, taxes, loans, or other obligations. Money is automatically subtracted from a worker’s paycheck without consent if they have a history of nonpayment. For example, a person delinquent on $100 monthly loan payments has a wage assignment deducting the money from their paycheck and sent to the lender. Wage assignments are helpful in paying back long-term debts.

Another instance can be found in a mortgage assignment. This is where a mortgage deed gives a lender interest in a mortgaged property in return for payments received. Lenders often sell mortgages to third parties, such as other lenders. A mortgage assignment document clarifies the assignment of contract and instructs the borrower in making future mortgage payments, and potentially modifies the mortgage terms.

A final example involves a lease assignment. This benefits a relocating tenant wanting to end a lease early or a landlord looking for rent payments to pay creditors. Once the new tenant signs the lease, taking over responsibility for rent payments and other obligations, the previous tenant is released from those responsibilities. In a separate lease assignment, a landlord agrees to pay a creditor through an assignment of rent due under rental property leases. The agreement is used to pay a mortgage lender if the landlord defaults on the loan or files for bankruptcy. Any rental income would then be paid directly to the lender.

Options Assignment

Options can be assigned when a buyer decides to exercise their right to buy (or sell) stock at a particular strike price. The corresponding seller of the option is not determined when a buyer opens an option trade, but only at the time that an option holder decides to exercise their right to buy stock. So an option seller with open positions is matched with the exercising buyer via automated lottery. The randomly selected seller is then assigned to fulfill the buyer’s rights. This is known as an option assignment.

Once assigned, the writer (seller) of the option will have the obligation to sell (if a call option) or buy (if a put option) the designated number of shares of stock at the agreed-upon price (the strike price). For instance, if the writer sold calls they would be obligated to sell the stock, and the process is often referred to as having the stock called away. For puts, the buyer of the option sells stock (puts stock shares) to the writer in the form of a short-sold position.

Example

Suppose a trader owns 100 call options on company ABC’s stock with a strike price of $10 per share. The stock is now trading at $30 and ABC is due to pay a dividend shortly. As a result, the trader exercises the options early and receives 10,000 shares of ABC paid at $10. At the same time, the other side of the long call (the short call) is assigned the contract and must deliver the shares to the long.