Case preview

Justices to consider awards of costs of appellate litigation

Wednesday’s argument in City of San Antonio v. Hotels.com brings the justices a basic nuts-and-bolts question of civil procedure: how courts should decide the “costs” that the prevailing party on appeal can recover from the losing party.

Generally speaking, under the “American” rule that prevails in the United States, the prevailing party in litigation must pay its own attorney’s fees. There is, however, a relatively narrow category of administrative “costs” related to litigation that the prevailing party can recover from the losing party. This case involves the costs that are awarded after a successful appeal in federal court. The relevant rule is Rule 39 of the Federal Rules of Appellate Procedure. Subsection (a) describes who should pay the costs, explaining in relevant part that “unless the law provides or the court orders otherwise … if a judgment is reversed, costs are taxed against the [losing party].” Subsection (e), in turn, provides that “[t]he following costs on appeal are taxable in the district court for the benefit of the party entitled to costs under this rule,” and then lists four types of costs that are available: costs of preparing the record, costs of preparing the transcript, the fee for filing the notice of appeal, and premiums associated with any bond pending appeal. Posting an appeal bond allows a defendant who loses in the district court to prevent the plaintiff from executing on the judgment while the appeal is pending.

The specific question in this case is whether the district court must award all of the four listed costs to the prevailing party or instead has discretion to deny or reduce some part of the costs. In this case — a dispute between Texas municipalities and online-travel companies over hotel-occupancy taxes — the costs of documentation and the filing fee were about $350,000, and the losing party on appeal (the city of San Antonio) had no objection to paying those. But Hotels.com (which lost in the district court but ultimately prevailed on appeal) also spent more than $2 million in premiums on an appeal bond, and the city asked the district court to reduce or deny that expense for various reasons I need not summarize here. The district court refused that request, not because it found San Antonio’s arguments unreasonable – it characterized them as “persuasive.” Rather, the court explained that under long-standing precedent in the U.S. Court of Appeals for the 5th Circuit, district courts have no discretion at all to deny or reduce the listed costs, but rather must award the entire amount of the listed costs in each case. As it happens, a contrary rule prevails in each of the other courts of appeals to have considered the question (about nine other courts, depending on how you count them). If this case had arisen anywhere outside the 5th Circuit, the district court probably would have had discretion to reduce the amount of costs San Antonio would have to pay.

As you would expect, the principal arguments in this case are straightforward textual arguments. For San Antonio, it is central that the rule says only that the costs are “taxable” in the district court, which it regards as a “permissive” term defining the costs that are eligible for recovery rather than an absolute mandate that those costs always be awarded. San Antonio points out that an earlier version of Rule 39 provided that the listed costs “shall be taxed in the district court,” and contends that the shift from the mandatory “shall be taxed” formulation to the less absolute description of those costs as “taxable” reflects the validation of discretion in the district court to determine the appropriate level of costs.

Hotels.com predictably argues that the district court is obligated to tax the listed costs. For Hotels.com, the point of the statement in 39(e) that the costs are “taxable in the district court” is simply to specify that the district court is the place to claim the costs listed in 39(e). Under the reading pressed by Hotels.com, 39(a) allocates to the court of appeals the determination of who is to pay those costs, and 39(e) describes what those costs are. Hotels.com emphasizes the absence of any textual hint in Rule 39 that the district court is entitled to “contradict” the determination by the appellate court of the prevailing party’s entitlement to costs.

To my mind, the textual arguments in this case are close to equipoise. Two considerations lead me to expect that the justices nevertheless might lean toward San Antonio’s “discretionary” position. First, the acting solicitor general filed an amicus brief in support of San Antonio strongly arguing that San Antonio has the better of the debate. Because the United States participates in federal-court appeals more than any other party, it has perhaps the strongest interest in a sensible solution. Its unqualified and relatively disinterested view that San Antonio has the superior argument will impress some of the justices. Indeed, because the United States doubtless wins most of the appeals in which it participates, its appearance in support of the loser on appeal in this case strongly suggests that this is a better way to determine the proper level of costs.

The second consideration is the disruption of accepting the view of the lower court. As San Antonio and the federal government demonstrate, courts all across the nation for decades – everywhere except the 5th Circuit – have proceeded on the assumption that district courts decide the appropriate level of costs to be awarded. Local rules, forms and procedures in all of those courts would change if the justices accepted the outlier 5th Circuit rule. To be sure, the justices often don’t mind upsetting the applecart when they see a lopsided split in the lower courts that flies in the face of a strong textual argument, but the textual arguments here are so closely balanced that the disruption of adopting the minority rule may weigh in the balance. We’ll know more on Wednesday.