Locke Lord QuickStudy: Successful Plaintiffs Need to be Careful about Supersedeas Bonds in Federal Court

Locke Lord LLP
May 27, 2021

In a unanimous opinion, the United States Supreme Court decided on May 27, 2021 that a district court cannot alter the allocation of appellate costs awarded under Federal Rule of Appellate Procedure 39. City of San Antonio v., L.P., Cause No. 20-334 (U.S. May 27, 2021). In this case, San Antonio, serving as class representative for 173 cities, sued a number of online travel companies alleging they had underpaid hotel occupancy taxes. Following a jury trial, the district court entered judgment for $55 million in favor of the class. The travel companies posted a supersedeas bond that equaled approximately $84 million to cover the judgment, interest, and further taxes. The court of appeals reversed and rendered judgment for the travel companies.

Federal Rule of Appellate Procedure 39 provides that, unless the appellate court orders otherwise, “if a judgment is reversed, costs are taxed against the appellee.” Here, the court of appeals reversed and rendered but said nothing about cost allocation, thereby relying on Rule 39’s default allocation. The travel companies filed a bill of costs with the Circuit Clerk of $905.60 to cover printing charges. Those items were taxed without objection. In the district court, however, the travel companies filed a bill of costs for more than $2.3 million, most of which was supersedeas bond premiums. Fed. R. App. P. 39(e)(3). San Antonio opposed the request, arguing it should not have to pay the costs on behalf of the entire class. The district court determined it had no discretion except to decide whether the requested costs were proper and ultimately taxed over $2.2 million against San Antonio. The Fifth Circuit affirmed, as did the Supreme Court.

San Antonio argued “the appellate court may say ‘who can receive costs (party A, party B, or neither)’ but lacks ‘authority to divide up costs.’” Opinion at 5. The travel companies argued the court of appeals had discretion to divide costs as it deemed appropriate, and the district court could not alter that allocation. The Supreme Court agreed with the travel companies. The district court has only a limited role in verifying the bill of costs, as outlined in 19 U.S.C. § 1924, to determine whether the items are correct, necessarily incurred, and whether the services were actually and necessarily performed.

There are two lessons to be learned from this case. First, pay attention to the appellate court’s judgment. If the Court does not specify otherwise, Fed. R. App. P. 39 may dictate who pays costs. If you have an issue with how the costs have been taxed, you must assert those issues in the court of appeals while it retains jurisdiction to change its judgment. Second, if you are a plaintiff with a substantial judgment, consider whether you need to require a supersedeas bond at all. If the defendant is solvent and has considerable resources, contemplate entering into an agreement that would protect the plaintiff without the need for the defendant to expend money to preserve its rights pending appeal.