City Loses Supreme Court Appellate Costs Case

In City of San Antonio, Texas v. Hotels.com the U.S. Supreme Court held unanimously that federal district courts may not alter a court of appeals’ allocation of appellate costs. The State and Local Legal Center (SLLC) filed an amicus brief in this case arguing for district court discretion.  

The City of San Antonio won in federal district court a class action lawsuit against online travel companies (OTCs) after they collected hotel occupancy taxes on the wholesale rate rather than the retail rate consumers paid. The OTCs were ordered to pay $55 million. To avoid paying the judgment while they appealed, the OTCs purchased a bond.  

On appeal, the Fifth Circuit ruled against San Antonio. Each party, win or lose, generally pays most of its own litigation expenses, including attorney’s fees, except “costs.” Federal Rule of Appellate Procedure 39(a) states that unless the “court orders otherwise” the party losing on appeal pays appellate costs, including bond premium costs.

In this case, total costs were over $2 million—most of which were bond costs. When describing its judgment against San Antonio, the Fifth Circuit didn’t “depart[] from the default allocation” of costs. Before the district court San Antonio argued it had discretion to not require San Antonio to pay some or all of the appellate costs. The district court and the Fifth Circuit disagreed.  

Before 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,” instead the district court has this discretion. The OTCs argued that the appellate court has the discretion to divide up appellate costs “as it deems appropriate and that a district court cannot alter that allocation.”

The Supreme Court, in an opinion written by Justice Alito, agreed with the OTCs, focusing on the “orde[r] otherwise” language in the federal rules.  According to the Court: “This broad language does not limit the ways in which the court of appeals can depart from the default rules, and it certainly does not suggest that the court of appeals may not divide up costs.” Understanding that courts of appeals may allocate appellate costs, “it is easy to see why district courts cannot exercise a second layer of discretion. Suppose that a court of appeals, in a case in which the district court’s judgment is affirmed, awards the prevailing appellee 70% of its costs. If the district court, in an exercise of its own discretion, later reduced those costs by half, the appellee would receive only 35% of its costs—in direct violation of the court of appeals’ directions.”

The SLLC amicus brief pointed out that as frequent litigators local governments would sometimes benefit from the rule the Court adopted in this case. Nevertheless, the SLLC argued in favor of discretion to district courts to allocate appellate costs because district courts “are best positioned to make the fact-intensive determination of whether taxable appellate costs—most notably bond premiums—should be reduced or denied.” The Court reject this argument stating: “Most appellate costs are readily estimable, rarely disputed, and frankly not large enough to engender contentious litigation in the great majority of cases.”

Rick Simpson and Emily Hart of Wiley Rein and Andrew Hessick and Luke Everett of UNC School of Law wrote the SLLC amicus brief which the following organizations joined:  National Association of Counties, National League of Cities, U.S. Conference of Mayors, International City/County Management Association, and International Municipal Lawyers Association.