Federal Trade Commission v. Kuykendall

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
September 28, 2006
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
FED ERAL TR AD E C OM M ISSION,
Plaintiff - Appellee/
Cross - Appellant,
No. 05-6047, 05-6138
v.
H . G . K U Y K EN D A LL, SR .; C . H.
KU YK END ALL,
Defendants - Appellants/
Cross - Appellees,
and
H.G. KU YK END ALL, JR.; DIVERSIFIED
M ARKETING SERVICE
C ORPO RA TIO N ; N A TIO N A L
M ARK ETING SERVICE INC.; NPC
CO RPO RA TION OF TH E M IDW EST
IN C.; M AG A ZIN E C LU B B ILLING
SERVIC E, IN C.,
Defendants.
A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
FO R TH E W ESTERN DISTRICT O F O K LAH O M A
(D. Ct. No. CIV-96-388-M )
Andrew W . Lester, Lester, Loving & Davies, P.C., Edmond, Oklahoma (G regory
J. Kerwin, Gibson, Dunn & Crutcher LLP, Denver, Colorado, and Susan B.
Loving, Lester, Loving & Davies, P.C., Edmond, Oklahoma, with him on the
briefs), for Defendants-Appellants/Cross-Appellees.
M ichele Arington, Attorney (W illiam Blumenthal, General Counsel, John F. Daly,
Deputy General Counsel, and Gary L. Ivens, Of Counsel, with her on the briefs),
Federal Trade Commission, W ashington, DC, for Plaintiff-Appellee/Cross-
Appellant.
Before TA CH A, Chief Circuit Judge, EBEL, Circuit Judge, and CASSELL,
District Judge. †
TA CH A, Chief Circuit Judge.
H.G. Kuykendall, Sr. and C.H. Kuykendall (together, the “Senior
Kuykendalls”) appeal the District Court’s denial of attorney fees pursuant to the
Equal Access to Justice Act (“EA JA”), 28 U.S.C. § 2412(b). The Federal Trade
Commission (“FTC”) cross-appeals the District Court’s award of certain costs
under 28 U.S.C. § 2412(a)(1). W e take jurisdiction under 28 U.S.C. § 1291,
AFFIRM the denial of attorney fees, and REVERSE the award of certain costs to
the Senior Kuykendalls.
I. BACKGROUND
The factual background of this case has been exhaustively set out in our en
banc opinion, F.T.C. v. Kuykendall, 371 F.3d 745 (10th Cir. 2004) (“En banc
Opinion”), and the vacated panel opinion, F.T.C. v. Kuykendall, 312 F.3d 1329(10th Cir. 2002) (“Panel Opinion”). W e therefore only briefly summarize the
procedural history. In 1996, the FTC brought an action against a number of
†
The Honorable Paul G. Cassell, District Judge of the United States District
Court for the District of Utah, sitting by designation.
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affiliated telemarketing corporations as well as the Senior Kuykendalls and H.G.
Kuykendall, Jr., both as individuals and as officers of the corporate defendants
(collectively “the defendants”). The complaint alleged that the defendants
engaged in deceptive and misleading business practices in violation of 15 U.S.C.
§ 45. The parties entered into a settlement agreement that was eventually
incorporated into a “Stipulated Final Judgment and Order for Permanent
Injunction” (“Permanent Injunction”).
In 2002, the FTC filed a motion to show cause why the defendants should
not be found in contempt of the Permanent Injunction and requested that the
District Court award $51 million in contempt sanctions. All of the defendants
moved to dismiss on due process grounds, and the Senior Kuykendalls separately
filed a motion to dismiss claiming a lack of personal liability. The Senior
Kuykendalls argued that they played no role in the management of the
corporations during the period of the alleged contempt and therefore could not be
held liable for violating the Permanent Injunction. After an evidentiary hearing,
the D istrict Court denied the Senior Kuykendalls’ motion, ruled in the FTC’s
favor as to liability, and held each of the defendants jointly and severally liable
for $39 million. En Banc Opinion, 371 F.3d at 750–51.
The defendants appealed the District Court’s ruling on a variety of grounds
including an individual appeal by the Senior Kuykendalls arguing that the District
Court erred by denying their motion to be dismissed from the contempt
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proceedings. A panel of this court affirmed the District Court’s findings that all
of the defendants were liable, but remanded for further proceedings as to the
amount of damages awarded. See Panel Opinion, 312 F.3d at 1342–43. This
Court granted rehearing en banc, vacated the panel opinion, and reversed the
District Court’s judgment as to the Senior Kuykendalls’ liability, but upheld the
District Court’s finding of liability as to H.G. Kuykendall, Jr. and one of the
corporate defendants. See En Banc Opinion, 371 F.3d at 757–63.
Thereafter, the Senior Kuykendalls filed a motion for attorney fees and
expenses, pursuant to 28 U.S.C. § 2412(b). They also sought taxation of
approximately $168,000 in costs associated with the appeal, see 28 U.S.C.
§ 2412(a)(1), which included over $161,000 needed to secure a $5 million letter
of credit that the District Court required in order to stay enforcement of the
judgment during the course of the appeal. The District Court awarded the Senior
Kuykendalls a total of $167,946.77, but denied their motion for attorney fees.
The Senior Kuykendalls now appeal the D istrict Court’s denial of attorney fees,
and the FTC cross-appeals the award of costs associated with the letter of credit.
II. D ISC USSIO N
A. The District Court Properly Denied the M otion for Attorney Fees
Under the “American Rule,” the prevailing party in civil litigation may not
collect attorney fees from the loser. United States v. M cCall, 235 F.3d 1211,
1216 (10th Cir. 2000). In certain rare circumstances, however, an exception to
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this rule is applied when a party opponent is found to have acted “in bad faith,
vexatiously, wantonly, or for oppressive reasons.” Id. (quotation omitted). This
“bad faith exception” to the American Rule applies to the Government pursuant to
28 U.S.C. § 2412(b), which states that the United States is liable for attorney fees
“to the same extent that any other party would be liable under the common law.”
28 U.S.C. § 2412(b). In order to fall within the exceedingly narrow bad faith
exception to the general rule, there must be clear evidence that the challenged
claim “is entirely without color and has been asserted wantonly, for purposes of
harassment or delay, or for other improper reasons.” F.T.C. v. Freecom
Commc’ns, Inc., 401 F.3d 1192, 1201 (10th Cir. 2005). Because a fee award
under § 2412(b) is punitive, it “requires more than a showing of a weak or legally
inadequate case,” and is only appropriate “in exceptional cases and for
dominating reasons of justice.” United States v. 2,116 Boxes of Boned Beef, 726
F.2d 1481, 1488 (10th Cir. 1984).
W hether the bad faith exception applies turns on the party’s subjective bad
faith. Sterling Energy Ltd. v. Friendly Nat’l Bank, 744 F.2d 1433, 1435 (10th
Cir. 1984). A district court’s determination as to whether a party has acted in bad
faith is a finding of fact that we review for clear error. Bergman v. United States,
844 F.2d 353, 357 (6th Cir. 1988); Vibra-Tech Eng’rs, Inc. v. United States, 787
F.2d 1416, 1418 (10th Cir. 1986); Int’l Union of Petroleum and Indus. Workers v.
W. Indus. M aint., Inc., 707 F.2d 425, 428 (9th Cir. 1983). Finally, we review a
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district court’s denial of attorney fees for an abuse of discretion. 2,116 Boxes of
Boned Beef, 726 F.2d at 1488.
The District Court did not make any findings as to the first prong of the bad
faith test— whether the FTC’s claim was colorable— because it concluded that the
Senior Kuykendalls had failed to present any evidence that the FTC’s claims were
brought for an improper purpose. The Senior Kuykendalls’ argument on appeal
relies on statements made in our En Banc Opinion to support their claim of bad
faith. Specifically, they highlight that this Court found that the FTC failed to
introduce any evidence to support a finding that the Senior Kuykendalls could be
held personally liable for the challenged conduct. See En Banc Opinion, 371 F.3d
at 759–63.
Even if we were to accept the Senior Kuykendalls’ contention that the
claim against them w as colorless, that fact alone would not support taxation of
fees on the FTC. 1 The test for bad faith is conjunctive— it requires clear evidence
of both a complete lack of color and an improper purpose on the part of the
government. See Freecom, 401 F.3d at 1201. Our statements regarding the
1
W e note, however, the en banc court specifically observed that “[s]ome
evidence exists” to support one of the FTC’s theories of liability as to the Senior
Kuykendalls— that as signatories to the Permanent Injunction, the Seniors may
have obliged themselves to oversee compliance with the Permanent Injunction.
En Banc Opinion, 312 F.3d at 760. This observation alone undercuts the Senior
Kuykendalls’ contention that the claim against them was totally without color.
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factual inadequacies in the FTC’s case do not shed light on whether the FTC
subjectively acted with an improper purpose. In fact, there is no evidence to
suggest as much.
The Senior Kuykendalls argue, however, that the case against them was so
deficient as to give rise to an inference that the claim was motivated by an
improper purpose. See Sterling Energy, 744 F.2d at 1437 (stating that “a case can
be so frivolous as to reflect impermissible conduct”). The District Court found
that such a finding was not warranted in this case because there was a dearth of
other evidence to suggest that the FTC brought the claims for any improper
reason. Indeed, “bad faith requires more than a mere showing of a weak or
legally inadequate case, and the exception is not invoked by findings of
negligence, frivolity, or improvidence.” F.D.I.C. v. Schuchmann, 319 F.3d 1247,
1252 (10th Cir. 2003).
Finally, the Senior Kuykendalls point out that this Court, in questioning
why the FTC waited approximately five years before filing the contempt action,
suggested that the FTC’s conduct “raises questions about its bona fides.” En
Banc Opinion, 371 F.3d at 755. As the District Court noted, however, this
observation was made with regard to the timing of the FTC’s actions against all
the defendants (some of whom were properly held liable) and does not provide
“clear evidence,” see Freecom, 401 F.3d at 1201, that the action against the
Senior Kuykendalls was motivated by an improper purpose. Accordingly, the
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District Court’s factual determination that the FTC did not pursue its action
against the Senior Kuykendalls in bad faith is not clearly erroneous. Clearly,
then, the court did not abuse its discretion in denying the Senior Kuykendalls’
recovery of attorney fees.
B. Sovereign Immunity Bars the Award of Costs not Enumerated in 28 U.S.C.
§ 1920The Federal Rules of A ppellate Procedure direct that costs be taxed against
the party who loses on appeal. See Fed. R. App. P. 39(a). These costs may
include “premiums paid for a supersedeas bond or other bond to preserve rights
pending appeal.” Fed. R. App. P. 39(e)(3). But “[c]osts for or against the United
States, its agency, or officer will be assessed under Rule 39(a) only if authorized
by law .” Fed. R. App. P. 39(b). The EAJA authorizes an award of certain costs
against the United States. Specifically, the EAJA provides that:
[A] judgment for costs, as enumerated in section 1920 of this title,
but not including the fees and expenses of attorneys, may be awarded
to the prevailing party in any civil action brought by or against the
United States or any agency or any official of the United States
acting in his or her official capacity in any court having jurisdiction
of such action.
28 U.S.C. § 2412(a)(1).
After prevailing on appeal, the Senior Kuykendalls filed a bill of costs with
the clerk of the District Court. Among other expenses, the Senior Kuykendalls
sought remuneration for the $161,722.86 incurred in obtaining a $5 million letter
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of credit that the District Court required as a condition of obtaining a stay of
enforcement of the contempt judgment while the case was on appeal. The FTC
objected to assessment of this cost, arguing that there was insufficient
documentation to justify it. The District Court assessed the cost to the FTC,
finding first that a letter of credit is similar to a supersedeas bond and therefore
the cost incurred in obtaining it was taxable to the Government under Fed. R.
App. P. 39(e)(3), and second, that there was sufficient documentation to justify
the cost. Thereafter, the FTC filed a motion for reconsideration raising for the
first time a jurisdictional objection to the award of costs. The FTC argued that 28
U.S.C. §§ 2412(a)(1) and 1920 do not authorize the taxation of costs associated
with a letter of credit against the United States. The District Court denied the
FTC’s motion, finding that the FTC waived the issue having not raised it earlier.
The FTC now appeals the award of costs associated with the letter of credit
based only on principles of sovereign immunity. Specifically, the FTC argues
that under § 2412(a)(1), w hich is a limited waiver of sovereign immunity, see
Vibra-Tech Eng’rs, 787 F.2d at 1419, the only costs that are taxable against the
United States are those listed in § 1920. Although the FTC’s failure to timely
raise this issue before the District Court is regrettable, the FTC’s claim of
sovereign immunity presents an exception to the general rule that issues not
raised before the District Court are waived. See In re Talbot, 124 F.3d 1201,
1205 (10th Cir. 1997). W e review whether the federal government has waived
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sovereign immunity de novo. See Shaw v. United States, 213 F.3d 545, 548 (10th
Cir. 2000). In doing so, we note that waivers of sovereign immunity “cannot be
implied but must be unequivocally expressed,” United States v. M itchell, 445 U.S.
535, 538 (1979), and that any such waiver “must be strictly construed in favor of
the United States,” Ardestani v. INS, 502 U.S. 129, 137 (1991).
The starting point in interpreting a statute “must be the language employed
by Congress, and we assume that the legislative purpose is expressed by the
ordinary meaning of the words used.” Hain v. M ullin, 436 F.3d 1168, 1176 (10th
Cir. 2006) (en banc) (quoting Am. Tobacco Co. v. Patterson, 456 U.S. 63, 68
(1982)). The word “enumerate” ordinarily means “to ascertain the number of,” to
“list,” or to “specify.” W ebster’s Third New Int’l Dictionary 759 (1981). In
context, the most natural reading of the phrase “as enumerated in section 1920 of
this title” is that those costs taxable to the prevailing party are those listed in §
1920. Indeed, this Court has stated that “the very terms of section 2412(a)
indicate that the limits contained in section[] 1920 . . . apply to any award of
costs made pursuant to that statute.” Hull by Hull v. United States, 978 F.2d 570,
573 (10th Cir. 1992). There is no question that costs associated with staying a
civil judgment on appeal are not among those listed in § 1920. 2
2
28 U.S.C. § 1920 states:
A judge or clerk of any court of the United States may tax as costs
the following:
(continued...)
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The Senior Kuykendalls argue, however, that the comma placed after the
word “costs” sets off the entire phrase “judgment for costs” from the qualifying
phrase “as enumerated in section 1920.” Therefore, according to the Senior
Kuykendalls, the qualifying phrase modifies the word “judgment”— and the
statute is therefore better understood to broadly authorize a judgment “like” that
provided for in § 1920, rather than an exclusive list of what qualifies as “costs.”
The Senior Kuykendalls’ grammatical arguments are not persuasive for
several reasons. First, such an interpretation is contrary to the ordinary meaning
of the w ord “enumerate,” w hich, again, means to “list” or to “specify.” W ebster’s
Third New Int’l Dictionary 759 (1981). Second, punctuation is not necessarily
decisive in interpreting a statute. See United States v. Ron Pair Enters., Inc., 489
U.S. 235, 250 (1989) (O ’Connor, J., dissenting) (“‘Punctuation is . . . not a
controlling[] element in interpretation, and courts will disregard the punctuation
of a statute . . . to give effect to what otherwise appears to be its purpose and true
2
(...continued)
(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;
(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, compensation of
interpreters, and salaries, fees, expenses, and costs of special
interpretation services under section 1828 of this title.
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meaning’” (quoting Barrett v. Van Pelt, 268 U.S. 85, 91 (1925)). And “[c]ourts
will not resort to grammatical niceties or the technicalities of punctuation in the
interpretation and construction of an instrument, unless they may be utilized to
make plain that which is otherwise obscure.” Hughes v. Samedan Oil Corp., 166
F.2d 871, 873 (10th Cir. 1948). Finally, the open-ended construction advocated
by the Senior Kuykendalls would render the limiting provision “as enumerated in
section 1920” meaningless. See Lamb v. Thom pson, 265 F.3d 1038, 1051 (10th
Cir. 2001) (stating that a “cardinal principle” of statutory construction is the
“duty to give effect, if possible, to every clause and word of a statute”). It would
permit a court to tax the loser with any cost associated with the litigation. Had
Congress intended to provide such a general waiver of immunity, there is no
doubt that it could have done so. See Freesen v. Comm’r of Internal Revenue, 89
T.C. 1123, 1130 (1987) (holding that “in the absence of clearly expressed
legislative intent to the contrary” costs awarded under 28 U.S.C. § 2412(a)(1) are
limited to those specified in 28 U.S.C. § 1920); Wells M arine v. United States, 1
Cl. Ct. 327, 328 (1983) (same).
Referring now to the phrase “but not including the fees and expenses of
attorneys,” the Senior Kuykendalls argue that the FTC’s interpretation of the
statute as limiting the recovery of costs to those listed in § 1920 renders the
specific exclusion of attorney fees and expenses redundant to the extent that
§ 1920 does not include such costs. W e think, however, that by specifically
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excluding recovery of attorney fees and expenses Congress merely sought to make
explicit that such fees were not recoverable as a matter of course against the
United States. Rather, subsequent subsections prescribe the narrow circumstances
in which the United States is susceptible to the imposition of fee liability. That
is, the United States is liable “for such fees and expenses to the same extent that
any other party would be liable under the common law or under the terms of any
statute which specifically provides for such an award,” see 28 U.S.C. § 2412(b),
and in cases in which the United States’ position was not “substantially justified,”
see 28 U.S.C. § 2412(d)(1)(A).
Finally, the Senior Kuykendalls argue that the legislative history supports
their interpretation of the statute. The legislative history reveals that the purpose
of § 2412(a)(1) was to put “the private litigant and the United States on an equal
footing as regards the award of costs to the prevailing party in litigation involving
the Government.” S. Rep. No. 89-1329 (1966). Since the prevailing party may
recover against a private party the costs associated with a supersedeas bond, see
Fed. R. App. P. 39(e)(3), so, too, should the prevailing party be able to recover
such cost against the United States. Only in “rare and exceptional
circumstances,” however, can contrary legislative history rebut the “strong
presumption that the plain language of the statute expresses congressional intent.”
Ardestani, 502 U.S. at 135 (internal quotation marks omitted). This is not such a
case. Though the purpose of § 2412(a)(1) is to put the private litigant on equal
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footing with the United States, the legislative history also makes clear that “[t]he
costs which are referred to in this bill are listed in section 1920 of title 28, United
States Code.” S. Rep. No. 89-1329 (1966). Accordingly, we hold that those costs
recoverable against the U nited States under 28 U .S.C. § 2412(a)(1) are those
listed in § 1920 of that title.
W e note that the Ninth Circuit has reached a contrary conclusion regarding
the scope of costs that may be assessed to the United States under § 2412(a)(1).
See Com modity Futures Trading Comm’n v. Frankwell Bullion Ltd., 99 F.3d 299,
305 (9th Cir. 1996) (holding “that § 2412(a) authorizes any costs that could be
assessed against an ordinary citizen”); NORM L v. M ullen, 828 F.2d 536, 546 (9th
Cir. 1987) (same); see also United States v. Panhandle E. Corp., 696 F. Supp.
983, 986 (D . Del. 1988) (assuming in dicta that costs from a letter of credit would
be taxable against the United States if the defendant’s appeal was successful).
The Ninth Circuit rested its decision on the fact that the language of the statute is
not “explicitly exclusive” and on legislative history indicating that the purpose of
the EAJA was to put the United States “on an equal footing” with private party
litigants. See NORM L, 828 F.2d at 546. In reaching a contrary conclusion, we
are mindful that waivers of sovereign immunity must be strictly construed in
favor of the United States. See Ardestani, 502 U.S. at 137. As such, we find the
District Court abused its discretion in assessing the FTC with the cost to obtain a
letter of credit.
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III. C ON CLU SIO N
For the reasons stated above, the judgment of the District Court is
AFFIRM ED as to the decision not to award attorney fees, REVERSED as to its
award for costs related to the letter of credit, and REM ANDED for further
proceedings consistent with this decision.
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