Argument analysis

Meandering argument sheds little light on mandatory awards of costs of appellate litigation

Wednesday’s argument in City of San Antonio v. Hotels.com considered what would seem to be a basic procedural question: how courts should decide the “costs” that the prevailing party on appeal can recover from the losing party. It turns out, at least as far as the argument suggests, that nothing about that question is simple or obvious.

The case involves two subsections of Rule 39 of the Federal Rules of Appellate Procedure. The first question is which party should pay costs. All agree that subsection (a) allocates that question to the court of appeals that decided the appeal. The rule generally provides that the losing party should pay the costs of the prevailing party, but contemplates the possibility that the court might order otherwise, which happens with some regularity; in a close case the court might depart from the baseline “winner-take-all” arrangement and order the parties to split the costs evenly or in some specific proportion.

The second question — the question before the Supreme Court — is who (if anybody) decides whether the loser has to pay all of the costs sought by the prevailing party. All agree that the district court plays a major role in determining what those costs are, because subsection (e) of Rule 39 lists the five categories of permissible costs and states that they are “taxable” in the district court; generally the case returns to the district court for finalization of the cost award after the resolution of the appeal by the appellate court.

The winner in the appeal in this case (Hotels.com) argues that any decisions about reducing the award of costs are to be made by the court of appeals, and secondarily that there rarely if ever should be any reason not to award all costs that the winner incurred. The loser in the appeal (the city of San Antonio), by contrast, argues that the district court has broad discretion to determine whether the loser should pay the entire amount of the costs sought by the party that prevailed on appeal. In this case, for example, San Antonio balks at paying the $2 million cost of the bond that Hotels.com obtained to stay the district court’s judgment pending its (successful) appeal.

Several inconsistent threads confused the discussion. First, several justices seemed convinced that San Antonio easily could have challenged the amount of the bond either in the court of appeals or in the district court at the time the bond was issued. In that vein, Justice Clarence Thomas asked Daniel Geyser (representing San Antonio) “why wouldn’t you proactively object to the costs taxation before the 5th Circuit,” with Justices Sonia Sotomayor, Neil Gorsuch, and Brett Kavanaugh raising similar concerns. Gorsuch was particularly pointed, suggesting that “maybe you didn’t get an embossed invitation, but the rule is there, and you had, I think, four opportunities by my count to raise it.” Justice Samuel Alito, for his part, sought confirmation that Geyser’s client had “the opportunity … when … the district court approved the bond, to raise objections.”

Another group of justices seemed to think it obvious that somebody must have the authority to consider the propriety of the costs, but they seemed relatively agnostic about which court it might be. Sotomayor, for example, commented that “you raised your objections, and the t5th Circuit said the district court couldn’t look at it, but it didn’t look at your objections either.” As Justice Amy Coney Barrett put it, “the 5th Circuit approach says that there’s basically no one [to consider those objections], because it falls through the cracks, so no one decides.” She seemed to think that perhaps “the court of appeals, which has just resolved the appeal, is in a better position to decide what the strength of the arguments were.”

As the argument progressed, concerns arose about the practicality of leaving those determinations to the court of appeals, given the likelihood that the amount of the costs in dispute would not be known until the case returned to the district court. Chief Justice John Roberts, as well as Thomas and Justice Stephen Breyer, worried about that point, with Thomas suggesting that the situation would seem “ripe for sandbagging” if the court left the determination in the hands of the court of appeals and the prevailing party waited to reveal the costs until the case returned to the district court.

As the argument wound down, several justices seemed to find an answer to the problem in Section 1924 of the Judicial Code, a provision that the parties did not even address in their briefs. Sotomayor, for example, perhaps recalling her days as a trial judge, pressed David Salmons (representing Hotels.com) to admit that his position would not prevent a district court from declaring any costs that are far above market value as “unnecessary” — a reference to the requirement in Section 1924 that taxable costs be “necessarily incurred.” Barrett and Justice Elena Kagan both took the same view, suggesting that it seemed obvious to them that the district court would have discretion to reject an item that did not seem to be necessarily incurred. As Kagan put it, “1924 suggests that the district court really has two functions and there is discretion in these functions. One is to decide whether the costs are correct, and the other is to decide whether they’ve been necessarily incurred. … Wouldn’t you say that the district court has discretion to do something about that?”

One final point on that argument: Sotomayor and Barrett, if not others, seemed to take seriously the Salmons’ contention that, even under Section 1924, the district court would not have the authority to lower the costs related to the bond in this case, because the district court’s approval of the bond in the first instance (before the appeal) demonstrates that the costs of the bond were “necessarily incurred.”

So by the end of the argument you could see three things. First, a strong majority of the justices seem to believe that somebody must have the authority to police the amount of the costs. Several of the justices (though perhaps not all of them) don’t think it is practical for the court of appeals to do that, because the relevant information wouldn’t exist when the case was in the court of appeals. Finally, several of the justices think that Section 1924 seems to provide that authority, but the parties did not address that argument in their briefs. It is not at all obvious what the justices will do here, and they well might even ask for supplemental briefing about the import of Section 1924.