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Justices Dig Into Appellate Cost Awards With No Clear Winner

April 21, 2021, 5:41 PM

There was no clear winner following oral arguments on Wednesday as the U.S. Supreme Court considered whether district courts have the discretion to reduce cost awards ordered by an appellate court.

All federal circuit courts—save the New Orleans-based U.S. Circuit Court for the Fifth Circuit—agree that district courts have discretion to reduce the amount of administrative costs the losing party must pay the winning side after an appeal.

The Fifth Circuit’s contrary rule resulted in a more than $2 million cost award against several Texas municipalities—an award that the parties seem to agree is an outlier among typical cost awards. Here, the winning party initially asked for $905.60 in costs, which was later amended to the higher amount.

The court’s ruling could require most circuits to change their longstanding rules.

Nitty-Gritty

The case that appeared to divide the court’s conservatives, required the justices to dig into the nitty-gritty of civil procedure.

The so-called American rule generally requires that parties in litigation bear their own costs—win or lose. But there is an exception for certain administrative costs associated with a winning appeal.

Federal Rule of Appellate Procedure 39 says that prevailing parties on appeal can recoup things like the cost of creating the record for the appellate court, preparing the transcript, filing fees, and—importantly for this case—any bonds secured during the appeal. Such bonds, called supersedeas bonds, help to place any money judgment on hold until the appeal can be resolved.

Appellate courts are responsible for considering who is the prevailing party on appeal and how any cost award should be allocated among the parties. The default rule is that the losing party will bear 100% of the costs, but the appellate court can change that allocation—say 75% for the losing party and 25% to the winning side—in close cases.

Court clerks will then decide the amounts associated with that allocation.

As Justice Brett Kavanaugh described it, the appellate courts are responsible for determining how the pie is divided, but the clerks are responsible for how big it is.

The case then goes back to the district court which is supposed to ensure that the costs were actually incurred and fit into the category of costs that are supposed to be awarded.

The question for the justices is whether this includes the discretion to consider whether the amount of the award was equitable, or whether it should be reduced.

The municipalities here argue that the bonds obtained by the winning party, Hotels.com, were too expensive and that they could have obtained cheaper ones.

The district court said it had no discretion to consider that argument, putting the municipalities and attorneys on the hook for the entire cost.

Awkward Argument

Arguing for the municipalities, Daniel Geyser, of the boutique firm Alexander Dubose Jefferson, said the losing party has no opportunity to object to the actual amount until after the appellate court has made its allocation, given that it is the clerk that determines that actual amount.

It would make no sense to require the party—who won at the district court level but lost on appeal—to make preemptive arguments about some hypothetical amount.

Chief Justice John Roberts and Justice Samuel Alito seemed to agree, questioning whether it makes sense to require that the issue be brought up in the parties’ merits briefs on appeal.

The party is supposed to argue to the appellate court that they should win, but if they don’t they shouldn’t have to pay for the bond? Roberts asked. “That strikes me as awful tough.”

“The idea of raising cost issues in the merits brief is awkward,” Alito said.

Embossed Invitation

But Justice Clarence Thomas, Neil Gorsuch, and Kavanaugh said the losing party was on notice of the amount the other side might seek. Notably, the district court had to approve the bond before the appeal.

There is no risk of surprise here, said Hotels.com attorney David Salmons, of Morgan Lewis.

Geyser argued that even though the municipalities knew of the amount of the bond, they didn’t know that the other side would seek the full amount on appeal.

“Maybe you didn’t get an embossed invitation,” Gorsuch said. But “you knew it was coming.”

“So why wouldn’t you proactively object?” Thomas asked.

No Solicitor General

Noticeably missing from the arguments was the federal government’s top lawyer at the Supreme Court, the U.S. solicitor general.

The solicitor general filed an amicus, or friend-of-the-court brief in the case, siding with the municipalities. Typically when the U.S. weighs in, it is given time to argue alongside the parties to the case.

But the justices declined the solicitor general’s request to argue Wednesday. Although not unheard of, the justice rarely deny such a request.

The justices didn’t explain why they refused to let the solicitor general argue, but it could be a message to the federal government that it shouldn’t expect to be permitted to weigh in every time it requests.

The Justice Department is already the most frequent litigant—by far—in the Supreme Court. Wednesday’s argument was the only case, out of 12 the court is hearing this sitting, that the federal government isn’t scheduled to appear at the lectern.

The case is City of San Antonio v. Hotels.com, L.P, U.S., No. 20-334, argued 4/21/21.

To contact the reporter on this story: Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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