Supreme Court to Decide Litigation Costs Case involving a City

In City of San Antonio, Texas v. Hotels.com, L.P. the Supreme Court will decide whether a federal district court has discretion to waive appellate costs which in this case the City of San Antonio had to pay Hotels.com after the Hotels.com won its appeal.  

The City of San Antonio won in federal district court a class action lawsuit against online travel companies (OTCs) requiring them to collect occupancy taxes on the “retail rate” for a hotel room—the amount they collect for the room rate plus the service fee. On appeal, the Fifth Circuit ruled against San Antonio because a state court ruled OTCs only have to collect tax on the room rate.  

Federal Rule of Appellate Procedure 39(e) lists the costs that are “taxable in the district court for the benefit of the party entitled” to them. After Hotels.com won its appeal, the district court ordered San Antonio to pay Hotels.com over $2 million in costs per this rule.

San Antonio argued that the district court was incorrect to conclude that it lacked the discretion to deny or reduce the award of costs pointing out that most other federal courts of appeals have held (or implied) they may do so.  

The Fifth Circuit disagreed. In a previous Fifth Circuit case from 1991, In re Sioux Ltd., Sec. Litig., the Fifth Circuit held under Rule 39(e) district courts have no discretion “whether, when, to what extent, or to which party to award costs of the appeal.”

San Antonio argued that Sioux is no longer good law because it relied on an older version of Rule 39(e), which was amended in 1998. The old version stated appellate costs "shall be taxed in the district court" whereas the current version states appellate costs "are taxable in the district court."

The Fifth Circuit responded: “As San Antonio concedes, the 1998 amendment worked no substantive change to Rule 39(e). This means that, at most, Sioux’s treatment of Rule 39(e) was just as wrong before the amendment as it was after. But even assuming arguendo that Sioux was wrong from the start as a matter of interpretation, its treatment of Rule 39 nevertheless remains controlling law.”

When states and local governments win cases on appeal, they might like the Fifth Circuit’s rule prohibiting the federal district court from having the ability to limit the costs the other side has to pay them. But, as this case illustrates, when a state or local government wins a case at the district court and loses after the other side appeals, states and local governments would benefit from a rule where courts have discretion to not require them to pay costs.