United States Supreme Court Holds That Prevailing Defendants On Appeal Are Entitled To The Full Amount Of Premium Supersedeas Bond Costs From A Losing Plaintiff
by Melinda S. Kollross
In City of San Antonio, Texas v. Hotels.com, L.P., No. 20-334 (U.S. 5-27-21), the Supreme Court issued a unanimous ruling crucial and beneficial to defendants seeking to stay a money judgment in federal court pending appeal. The Court ruled that a district court had no discretion to reduce the amount of surety bond premiums assessed as costs against the plaintiff-appellee who lost on appeal.
The City of San Antonio acting on behalf of a class of 173 Texas municipalities sued several popular online travel companies (OTCs) claiming that the OTCs were systematically underpaying hotel occupancy taxes. The City prevailed at trial and a $55 million judgment was entered against the OTCs.
The Federal Rules of Civil Procedure only provide an automatic stay of execution for 30 days. After that period, the defendant must either work out an agreement with the plaintiff to stay execution of judgment without a bond during the post-trial and appellate phases or secure a surety/supersedeas bond in a sufficient amount to cover the judgment and interest, have it approved by the district court and plaintiff, and have an order entered staying execution.
In City of San Antonio, the OTCs had to purchase a supersedeas bond to obtain the entry of a stay order enjoining the City from executing on the judgment. The parties initially agreed to a bond of $69 million to cover the judgment, interest, and accrual of further taxes, but at the City’s urging, the bond amount grew to $84 million after years of post-trial proceedings.
The OTCs prevailed on appeal against the City, wiping out the entire $55 million judgment. The appellate mandate directed that judgment be entered for the OTCs. The OTCs thereafter filed a bill of costs in the district court pursuant to Federal Rule of Appellate Procedure 39(e) which provides for the taxation of the premiums paid for a bond to stay execution. The district court taxed these costs over the City’s objection in the approximate amount of $2.2 million. The Court of Appeals affirmed, and the Supreme Court granted the City’s certiorari petition.
The United States Supreme Court ruled that Federal Rule of Appellate Procedure 39 governs the taxation of appellate costs, and a district court had no discretion to deny or reduce those costs to a party entitled to taxation of those costs. Rule 39 allows an appellate tribunal to allocate costs as it sees fit, and a district court is powerless to disturb that appellate determination on costs.
In this case, when the OTCs prevailed on appeal, they were entitled to their costs under Federal Rule of Appellate Procedure 39(a)(3), which taxes costs against the appellee when the judgment is reversed. The Court of Appeals in reversing the City’s judgment did not order that the OTCs would be entitled to anything less than what the costs provision of Rule 39 allows. Accordingly, the OTCs were entitled to recover their full premium bond costs from the City as costs, and the district court could not deny or reduce those costs.
Learning Point: There is no reason to force a defendant to post a supersedeas bond to stay execution of judgment pending appeal where the defendant has sufficient assets or is adequately insured. But some litigants use the bond issue to discourage defendants from pursuing appellate remedies…demanding exorbitant bond amounts and the use of surety companies with expensive premiums unrelated to a defendant’s liability carrier—all the while dangling a threatened garnishment against the defendant. City of San Antonio now gives the defense the ammunition to fight these tactics, as a plaintiff might have to think twice about forcing an insured defendant or a defendant with adequate assets to purchase an additional bond when the plaintiff will be personally responsible for the bond premiums if unsuccessful on appeal. City of San Antonio should be used by the defense to persuade plaintiffs to forego a supersedeas bond under these circumstances, and have the court stay execution upon the stipulation of the parties.