Republic Tobacco v. North Atlantic Tradi ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-3634
REPUBLIC TOBACCO COMPANY,
Plaintiff-Appellant,
v.
NORTH ATLANTIC TRADING COMPANY,
INC., NORTH ATLANTIC OPERATING
COMPANY, INC., AND NATIONAL TOBACCO
COMPANY,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 4011—John F. Grady, Judge.
____________
ARGUED NOVEMBER 28, 2006—DECIDED FEBRUARY 22, 2007
____________
Before FLAUM, MANION, and WILLIAMS, Circuit Judges.
FLAUM, Circuit Judge. In 1998, Republic Tobacco
Company (Republic) sued North Atlantic Trading Com-
pany, Inc., North Atlantic Operating Company, Inc., and
National Tobacco Co., L.P. (collectively “NATC”), alleging
that NATC wrote false and accusatory letters to Republic’s
customers. In 2004, this Court affirmed a jury’s finding of
liability against NATC but reduced the jury’s damages
award to $3 million. Republic Tobacco Co. v. N. Atl.
Trading Co., 381 F.3d 717, 734-36 (7th Cir. 2004). Back in
2 No. 05-3634
the district court, NATC attempted to recover the costs it
incurred by securing the judgment in excess of $3 million.
The district court granted NATC’s motion, and Republic
appeals. For the following reasons, we reverse in part and
affirm in part.
I. Background
Republic and NATC are competing distributors of roll-
your-own cigarette papers. In January 1998, a NATC
employee wrote a letter to one of Republic’s largest retail
customers, Clark Oil, stating that Republic was violating
NATC’s patent and trademark rights and that, as a result,
NATC had taken legal action against one of Republic’s
other customers. In August 1998, NATC wrote a letter to
all of its customers (many were also Republic customers),
alleging that Republic’s marketing programs violated
federal and state antitrust laws.
Republic sued NATC for defamation and violations of the
Lanham Act, 15 U.S.C. § 1125(a). It also sought a declara-
tory judgment that its marketing programs were lawful.
NATC filed counterclaims alleging that Republic violated
federal and state antitrust laws and that it committed a
variety of other state law commercial torts. At the sum-
mary judgment stage, the district court dismissed all of
NATC’s claims and granted Republic both the declaratory
relief it sought and summary judgment on its defamation
claim. On July 8, 2003, a jury awarded Republic $18.6
million in damages.
NATC moved to stay execution of the judgment pursuant
to Federal Rule of Civil Procedure 62(b). It supported its
motion with an affidavit from the company’s President and
Chief Financial Officer, David Brunson, who averred that
NATC could not afford to secure an $18.6 million appeal
bond because it had no unencumbered assets to serve as
No. 05-3634 3
collateral. It then asked the court to waive the security
requirement or, alternatively, allow a security bond of
$3 million. Republic opposed NATC’s request to waive or
reduce the security requirement and insisted on security
in the full amount of the judgment.
The district court held four hearings to determine the
proper security. On July 16, 2003, NATC offered to post as
security for the judgment a $3 million letter of credit.
Based on an overnight review of NATC’s public financial
statements, however, Republic complained that NATC
actually possessed $44 million worth of unencumbered
assets. NATC responded that the assets were in fact
encumbered and that it could only post $3 million from a
revolving line of credit. Republic mentioned the possibility
of accepting, in lieu of a bond, a second priority secured
interest in NATC’s assets, provided that it received more
information about NATC’s financial status, but NATC
never provided that documentation.
On July 23, 2003, NATC advised the court that one of its
investors could obtain an $18.6 million loan for $595,000
plus interest.1 In response, Republic offered to secure the
judgment for $1.1 million, which approximated the offer
from NATC’s investor. On July 31, the district court
ordered NATC to secure the full judgment, and NATC
promptly obtained the loan through its investor.
On November 20, 2003, the district court granted
NATC’s post-trial motion for a remittitur or, alternatively,
a new trial and reduced the jury verdict to $7.44 million.
On December 23, Republic accepted the remittitur, and the
district court entered an amended judgment of $7.44
million. NATC immediately sought and obtained a reduc-
1
Under the terms of the loan, the $595,000 was a one-time, non-
refundable payment.
4 No. 05-3634
tion of the security to reduce the amount of interest paid
on its loan. On January 7, 2004, the district court awarded
Republic $185,785.02 in costs pursuant to Federal Rule of
Civil Procedure 54(d).
On September 1, 2004, this Court affirmed the district
court’s grant of summary judgment in Republic’s favor on
NATC’s antitrust claims and Republic’s defamation claim.
We also reduced Republic’s damage award from $7.44
million to $3 million and ordered each party to bear its
own costs.
On September 15, 2004, NATC moved this Court to
award NATC the costs, approximately $1.1 million, that it
incurred by securing the judgment to the extent it ex-
ceeded $3 million. The Court denied NATC’s motion,
stating, “Any request for costs associated with [NATC’s]
supersedeas bond should be directed to the district court.”
Following our instructions, NATC filed a motion in the
district court under Federal Rule of Civil Procedure 54(d),
seeking the costs it incurred by securing the jury’s $18.6
million judgment during the district court’s post-trial
proceedings. The motion also asked the court to award,
under Federal Rule of Appellate Procedure 39(e), the costs
associated with securing the $7.44 million judgment on
appeal.
Republic opposed the motion, arguing that (1) NATC was
not entitled to costs incurred prior to appeal because it
was not the prevailing party in the district court, (2) it did
not seek the costs within thirty days of judgment as
required by Local Rule 54.1(a), (3) it did not prevail on
appeal to justify an award of costs under Rule 39(e), and
(4) it chose an unnecessarily expensive mode of security.
The district court granted NATC’s motion in its entirety.
It pointed out that NATC had to secure judgments before
appeal, during appeal, and after appeal. It said that Rule
No. 05-3634 5
39(e) allowed it to award costs during appeal and that
Local Rule 54.1(c) allowed it to award costs before and
after appeal.2 It also rejected Republic’s contention that
NATC’s costs in securing the judgment were unreasonably
high. It found credible Brunson’s assertion that NATC
attempted to obtain a bond from a bonding company but
was unable to do so because it had no unencumbered
assets to pledge as collateral.
II. Analysis
A. Prevailing Party
Republic first argues that the district court erred by
awarding NATC’s post-trial, pre-appeal costs under
Federal Rule of Civil Procedure 54(d), because NATC was
not the prevailing party in the district court. NATC
responds that the district court correctly awarded those
costs because it prevailed at the post-trial stage insofar as
the district court reduced the jury’s damages award. The
question, therefore, is whether a defendant can be a
prevailing party under Rule 54(d) if its only success in the
district court is a reduction of the plaintiff ’s damages
award. The Court reviews the district court’s interpreta-
tion of the phrase “prevailing party” de novo. See Dattner
v. Conagra Foods, Inc., 458 F.3d 98, 100 (2d Cir. 2006);
Dupuy v. Samuels, 423 F.3d 714, 718 (7th Cir. 2005)
(reviewing de novo a district court’s interpretation of
“prevailing party” for purposes of 42 U.S.C. § 1988).
2
Local Rule 54.1(c) reads as follows, “If costs shall be awarded
by the court to either or any party[,] then the reasonable
premiums or expenses paid on all bonds or stipulations or other
security given by the party in that suit shall be taxed as part of
the costs of that party.”
6 No. 05-3634
Rule 54(d)(1) states that “costs other than attorney’s fees
shall be allowed as of course to the prevailing party unless
the court otherwise directs.” Courts and commentators
have interpreted “prevailing party” to mean “the party in
whose favor judgment has been entered.” Moore’s Federal
Practice § 54.101[3] (3d ed. 2006); see also Barber v. T.D.
Williamson, Inc., 254 F.3d 1223, 1234 (10th Cir. 2001)
(noting that a party prevails if judgment is entered in its
favor); Head v. Medford, 62 F.3d 351, 354 (11th Cir. 1995)
(“Usually the litigant in whose favor judgment is rendered
is the prevailing party for purposes of rule 54(d).”); Three
Seventy Leasing Corp. v. Ampex Corp., 528 F.2d 993, 998-
99 (5th Cir. 1975) (reversing a district court’s award of
costs to the defendant where the plaintiff won its breach
of contract claim and was entitled to an award of nominal
damages). Additionally, one commentator has stated that
“a determination of who is the prevailing party for pur-
poses of awarding costs should not depend on the position
of the parties at each stage of the litigation but should be
made when the controversy is finally decided.” Wright &
Miller, Federal Practice & Procedure § 2667 (3d ed. 2006).
We agree that a district court’s award of costs should
not depend on who wins the various battles preceding final
judgment. Indeed, we have not found, and NATC has not
cited, any case in which an appellate court has upheld an
award of costs to a party that did not obtain a judgment in
its favor. In this case, Republic prevailed, notwithstanding
NATC’s successful post-trial motion, because the district
court entered a $7.44 million judgment in its favor.
Consequently, the district court erred by taxing NATC’s
post-trial, pre-appeal costs against Republic.
B. Crawford and Rule 54(d)
Even if NATC had prevailed below, there is a second
reason that the district court erred by awarding NATC its
No. 05-3634 7
post-trial, pre-appeal costs.3 The Supreme Court has said
that a district court may not tax costs under Rule 54(d)
unless a federal statute authorizes an award of those costs.
See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S.
437, 441-43 (1987) (holding that expert witness fees in
excess of the statutory allowance are not recoverable under
Rule 54(d)); Cefalu v. Vill. of Elk Grove, 211 F.3d 416, 427
(7th Cir. 2000) (“To be compensable . . . a particular
expense must fall into one of the categories of costs
statutorily authorized for reimbursement.”).
Section 1920 of Title 28 of the United States Code lists
the costs taxable under Rule 54(d), and it does not mention
costs associated with securing a judgment pending the
resolution of post-trial motions:
A judge or clerk of any court of the United States may
tax as costs the following:
(1) Fees of the clerk and marshal;
(2) Fees of the court reporter for all or any part of the
stenographic transcript necessarily obtained for use in
the case;
(3) Fees and disbursements for printing and witnesses;
3
NATC contends that Republic forfeited this argument by not
raising it in the district court. NATC is correct that Republic
raised the issue for the first time on appeal, but the issue is one
of statutory interpretation, which has been fully briefed and
which we review de novo. See Mother & Father v. Cassidy, 338
F.3d 704, 708 (7th Cir. 2003) (reviewing district court’s interpre-
tation of Rule 54(d) de novo). For that reason, we exercise our
discretion to address the issue for the first time on appeal. See
Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 750 (7th Cir.
1993) (resolving an issue not raised in the district court where it
involved a pure issue of statutory interpretation and “the district
judge’s view . . . could have no effect on [the Court’s] review,
which is plenary on matters of law.”).
8 No. 05-3634
(4) Fees for exemplification and copies of papers
necessarily obtained for use in the case;
(5) Docket fees under section 1923 of this title;
(6) Compensation of court appointed experts, compen-
sation of interpreters, and salaries fees, expenses, and
costs of special interpretation services under section
1828 of this title.
NATC does not contend that any other statute authorizes
such costs. Consequently, Crawford mandates our reversal
of the district court’s award.
NATC attempts to avoid this result by citing three fifty-
year-old Seventh Circuit decisions that were issued long
before Crawford. See Intertype Corp. v. Clark-Congress
Corp., 249 F.2d 626, 629 (7th Cir. 1957); In re N. Ind. Oil
Co., 192 F.2d 139, 143 (7th Cir. 1951); Swalley v.
Addressograph-Multigraph Corp., 168 F.2d 585, 587 (7th
Cir. 1948). To the extent these cases suggest that Rule
54(d) empowers a district court to tax costs not outlined in
§ 1920, they are not controlling in light of Crawford.
NATC also contends that if § 1920 precludes an award of
bond premiums under Federal Rule of Civil Procedure
54(d), then it also precludes the award of bond premiums
under Federal Rule of Appellate Procedure 39(e). We
disagree. NATC is correct, as one of the Advisory Commit-
tee Notes to Rule 39 mentions, that § 1920 provides courts
with the authority to award costs under Rule 39. NATC is
also correct that § 1920’s categories do not include one that
allows costs for bond premiums. Nevertheless, Congress
approved Rule 39 after it passed § 1920, and Rule 39
specifically provides that a district court may award
“premiums paid for a supersedeas bond or other bond to
preserve rights pending appeal.” Where the Federal Rules
conflict with a “procedure provided in an earlier act of
Congress,” the Federal Rules control. Am. Fed’n of Musi-
No. 05-3634 9
cians v. Stein, 213 F.2d 679, 686 (6th Cir. 1954); see also
28 U.S.C. § 2072 (allowing the United States Supreme
Court to promulgate rules of procedure and declaring
invalid any laws that conflict with those rules at the time
the rules take effect). In short, because Rule 39(e) ex-
pressly authorizes the taxation of supersedeas bond costs,
it is binding on district courts regardless of whether § 1920
authorizes an award of those costs. By contrast, Rule 54(d)
does not outline any specific costs taxable by the district
court, and therefore, as discussed in Crawford, remains
limited by § 1920.
NATC also cites Winniczek v. Nagelberg, 400 F.3d 503,
504 (7th Cir. 2005) in support of its argument that § 1920
prohibits an award of bond premiums under Rule 39(e). In
Winniczek, the Court held that an appellate court’s
docketing fee is properly taxable under Rule 39(e) because
it appears as one of the listed costs in § 1920. In so
holding, the Court said that “Rule 39(e) lists four types of
cost on appeal that must be obtained from the district
court rather than from the court of appeals. There is no
attempt to broaden the list of taxable items that appears
in section 1920.” Id. The Court’s dicta suggests that the
four types of costs taxable under Rule 39(e) are included in
the types of costs taxable under § 1920. Nothing in § 1920
allows a district court to award the premium paid for a
supersedeas bond, which is not a fee of the clerk, a fee of
the court reporter, a printing fee, a copying fee, or any
other fee listed in the statute. Consequently, any sugges-
tion in Winniczek’s dicta that Rule 39(e) does not expand
the costs taxable under § 1920 is an over-reading and does
not control the resolution of this case.
C. Securing Judgment on Appeal
Republic next argues that the district court erred by
awarding NATC the costs that it expended by securing
10 No. 05-3634
Republic’s judgment on appeal. Republic first contends
that the district court erred by not following this Court’s
September 1, 2004 order, which stated that each party
should bear its own costs. We reject this argument. In
Guse v. J.C. Penney Co., 570 F.2d 679, 681 (7th Cir. 1978),
we held that a district court has discretion not to award a
party costs under Federal Rule of Appellate Procedure
39(e), despite an order by the appellate court awarding
costs to that same party. The Court said that when it
awarded costs, its ruling only referred to those costs
taxable in the appellate court under Rule 39(c) and did not
preclude the district court from awarding (or declining to
award), in its discretion, costs taxable under Rule 39(e).
Id. Our September 1, 2004 order in this case cited Guse,
plainly indicating that the district court was permitted to
award costs under Rule 39(e).
Republic also maintains that the district court abused its
discretion by awarding NATC all of its appellate costs
under Rule 39(e) because Republic, not NATC, won the
majority of relief on appeal. The Court rejects this argu-
ment as well. Rule 39(a) says,
(1) if an appeal is dismissed, costs are taxed against
the appellant, unless the parties agree otherwise;
(2) if a judgment is affirmed, costs are taxed against
the appellant;
(3) if a judgment is reversed, costs are taxed against
the appellee;
(4) if a judgment is affirmed in part, reversed in part,
modified, or vacated, costs are taxed only as the court
orders.
Rule 39(e) then provides that a district court may tax, “for
the benefit of the party entitled to costs under this rule . . .
premiums paid for a supersedeas bond or other bond to
preserve rights pending appeal.”
No. 05-3634 11
Few cases have discussed how Rules 39(a) and 39(e)
work together, but we have held that a district court has
broad discretion to deny costs to a successful appellee
under Rule 39(e). See Guse, 570 F.2d at 681. In Guse, the
Court said that “unless . . . the court orders otherwise”
language in Rule 39(a) confirms that a district court may,
in its sound discretion, depart from the default awards set
out in Rule 39(a)(1)-(3) when assessing costs under Rule
39(e). We believe that similar discretionary language found
in Rule 39(a)(4) affords district courts broad discretion to
allocate costs where, as here, an appellate court modifies
a district court’s judgment.
Our conclusion is supported by a decision from the
Eighth Circuit. See Emmenegger v. Bull Moose Tube Co.,
324 F.3d 616, 626-27 (8th Cir. 2003). In Emmenegger, the
plaintiffs won a multi-million dollar judgment, and the
defendant had to secure the judgment with a supersedeas
bond to avoid execution pending appeal. The Eighth
Circuit affirmed the judgment for the plaintiffs on one
claim but vacated the judgment on another claim and
remanded for a new trial. The plaintiffs recast the vacated
claims, but the new jury awarded less damages the second
time around. After trial, the district court allowed the
defendant the cost of its supersedeas bond, concluding that
it “would not have had to pay for a supersedeas bond in
the first instance but for the plaintiffs’ pursuit of their
claims under the wrong legal theory.” Id. at 627. The
Eighth Circuit held that the district court did not abuse its
discretion.
The disposition of the original appeal in this case, as in
Emmenegger, falls into the category described in Rule
39(a)(4). We affirmed summary judgment in favor of
Republic on its defamation claim and NATC’s antitrust
claims, but we modified the large damages award. Given
the district court’s broad discretion in this area, see Guse,
570 F.2d at 681, it did not err by awarding appellate costs
12 No. 05-3634
to NATC, particularly where the costs at issue stemmed
from Republic’s defense of an unreasonably large damages
award that we ultimately modified on appeal. That said,
the district court, on remand, has discretion to revisit its
award of appellate costs and may elect—after hearing
more from the parties on this issue—to award NATC only
a percentage of its appellate costs given that Republic did
retain a significant judgment.
D. Premiums Paid for a Supersedeas Bond
Republic next contends that the district court should not
have awarded NATC the costs associated with obtaining
the loan used to secure the district court’s judgment
because Rule 39(e) only allows a party to recover “premi-
ums paid for a supersedeas bond or other bond.” As
Republic correctly points out, NATC did not purchase a
bond to secure Republic’s judgment, but rather borrowed
money located by an investor and deposited it with the
clerk of the court.
Several courts have discussed whether a party can
recover costs, other than those associated with obtaining
a bond, that serve to secure a judgment pending appeal. A
number of those courts have held that costs paid in
addition to costs paid for a supersedeas bond are not
recoverable. See Johnson v. Pac. Lighting Land Co., 878
F.2d 297, 298 (9th Cir. 1989) (holding that a party may not
recover the cost of a letter of credit used to obtain a
supersedeas bond); Lerman v. Flynt Distrib. Co., 789 F.2d
164, 166 (2d Cir. 1986) (holding that a party may not
recover the interest on a loan obtained to purchase a
supersedeas bond). Other decisions have held that a party
may recover the costs of securing a judgment if they are
paid in lieu of obtaining a supersedeas bond. See, e.g.,
Trans World Airlines, Inc. v. Hughes, 515 F.2d 173, 177-78
(2d Cir. 1975) (holding that a party may recover costs of a
No. 05-3634 13
letter of credit and auditing costs paid in lieu of a
supersedeas bond premium, where the “obtaining of a
supersedeas bond was impracticable”). Another court has
held that a party may recover expenses, such as those
incidental to obtaining a letter of credit, in addition to the
premium paid for a bond, so long as the total cost of those
expenses is less than the cost of obtaining a bond without
supporting collateral. See Bose Corp. v. Consumers Union
of U.S., Inc., 806 F.2d 304, 305 (1st Cir. 1986).
In this case, unlike Johnson and Lerman, NATC did not
pay borrowing costs in addition to a premium for a
supersedeas bond. Rather, as in Trans World Airlines,
NATC paid borrowing costs in lieu of a premium for a
supersedeas bond. Additionally, as in Bose Corp., NATC
has offered evidence, in the form of David Brunson’s
affidavit, that NATC’s borrowing costs were no more
expensive than the premium for a supersedeas bond,
because no bond-seller was willing to secure Republic’s
$18.6 million judgment.4 Republic has not offered evidence
to the contrary. As a result, the district court did not abuse
its discretion by taxing the costs that NATC paid to obtain
its loan, but only to the extent those costs can be allocated
to the period of time the case was on appeal.
E. Reasonableness
Finally, Republic argues that NATC should not be
allowed to recover its borrowing costs because they were
4
Republic takes issue with the fact that NATC’s costs were more
of a finder’s fee than an actual borrowing cost because its
investor received $500,000 though he did not actually loan money
to NATC. Regardless of how NATC’s costs are characterized, if
the cheapest way to secure Republic’s judgment on appeal
required NATC to pay a finder’s fee, then Rule 39(e) authorized
the district court to award those costs.
14 No. 05-3634
unreasonably expensive. It maintains that NATC had
plenty of unencumbered assets that it could have used to
obtain a reasonably priced supersedeas bond or less
expensive loan. In the end, however, Republic is quibbling
with the district court’s decision to credit Brunson’s
testimony that at the time of the jury verdict, NATC had
no unencumbered assets to pledge as collateral and that
NATC could not obtain a “typical” supersedeas bond. This
credibility determination is one that is classically reserved
for the district court, and it did not abuse its discretion in
concluding that NATC’s borrowing expenses were reason-
able. See SK Hand Tool Corp. v. Dresser Indus., Inc., 852
F.2d 936, 943 (7th Cir. 1988). (“[W]e will not overturn a
district court’s decision that the cost was necessary to
the litigation nor its determination of what amount is
reasonable, absent, of course, a showing of clear abuse of
discretion.”).
We note, as a final matter, that NATC’s loan secured
Republic’s judgment both during the district court’s post-
trial proceedings and during the pendency of appeal. On
remand, the district court should determine what percent-
age of NATC’s costs are allocable to the period of time this
case was on appeal by evaluating the equitable consider-
ations that may be relevant to that issue.
III. Conclusion
The Court REVERSES the district court’s ruling to the
extent that it awarded NATC costs under Federal Rule of
Civil Procedure 54(d) and AFFIRMS the district court’s
ruling to the extent that it awarded costs under Federal
Rule of Appellate Procedure 39(e). The Court REMANDS the
case so that the district court may, in the first instance,
determine what portion of NATC’s costs should be allo-
cated to the proceedings in this Court.
No. 05-3634 15
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-22-07