U.S. Supreme Court To Address Whether Prevailing Party Wins Paralegal Fees At Billed Market Rate Rather Than At Cost

The U.S. Supreme Court has granted certiorari in Richlin Security Service Co. v. Chertoff, No. 06-1717 (cert. granted Nov. 13, 2007).

Plaintiff successfully pursued a claim in the Department of Transportation Board of Contract Appeals, and received an award as prevailing party under the Equal Access to Justice Act. However, the Board considered paralegal fees to be counsel’s expenses, reimbursable at cost rather than at the market rates at which the attorney billed his or her clients. The Federal Circuit affirmed, finding that “EAJA only permits reimbursement for paralegal services at cost.” Richlin Security Service Co. v. Chertoff, 472 F.3d 1370 (Fed. Cir. 2007).

The dissent argued that the majority’s holding was at odds with established Supreme Court and Federal Circuit precedent. In addition, the certiorari petition argued that the holding below contradicted the law of four other circuits.

Award Of Costs Must Be Charged To Party, Not Counsel

Pursuant to Fed. R. Civ. P. 54(D)(1) and 28 U.S.C. § 1920(6), “costs” are awarded to prevailing parties “as of course” for various trial-related expenses including court fees, reporters, and court-appointed experts.

In In re Cardizem CD Antitrust Litig., 481 F.3d 355 (6th Cir. Feb. 22, 2007), the district court ordered an attorney for an objector to the proposed class-action settlement to pay the compensation of a settlement administrator hired to disburse $80 million in settlement funds to the class. After unsuccessfully objecting to the settlement, the objector took an appeal, which was dismissed for failure to post bond. On remand the class plaintiffs sought sanctions and costs caused by the delay. The district court rejected various sanctions but awarded costs of over $250,000 for the settlement administrator’s fees as a court-appointed expert under 28 U.S.C. § 1920(6).

The Sixth Circuit reversed because the award was charged to objector’s counsel, while the court interpreted the statute and rules to permit awards to be charged only to parties, i.e., the objector here and not her counsel. The court rejected the argument that district courts have inherent or equitable power to charge awards of “costs” to counsel. However, in remanding, the court noted without deciding the question of whether settlement administrators are “court-appointed experts” for purposes of § 1920(6), and cited a circuit split.

Seventh Circuit Reaffirms Allowing Excusing Indigents From Taxation Of Costs

Federal Rule of Civil Procedure 54(d) provides that costs other than attorneys’ fees “shall be allowed as of course to the prevailing party unless the court otherwise directs.” Most courts have held that the final part of that clause gives district courts the discretion to excuse indigent persons from having to pay costs.

In Rivera v. City of Chicago, 469 F.3d 631 (7th Cir. Nov. 21, 2006), the City of Chicago asked the appellate court to abolish its precedent creating the indigence exception. The court refused to do so.

Instead, the Seventh Circuit provided guidance to district courts regarding the exercise of their discretion. First, they must make a threshold factual finding that the losing party is incapable of paying the court-imposed costs at this time or in the future. Second, the court should consider the amount of costs, good faith of the losing party, and the closeness and difficulty of the issues raised by a case. Finally, the court must have and state an explanation for its decision to make an exception and deny costs.

Award Of Costs That Exceeded Authorized Categories Reversed

Under U.S. Supreme Court precedent, absent specific statutory authorization for recovery of additional expenses, district courts are limited in taking costs against the losing party in federal litigation by Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920. Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987).

The Eleventh Circuit recently applied that principle in Corwin v. Walt Disney Co., 468 F.3d 1329 (11th Cir. Nov. 2, 2006), to disallow $120,000 of a total award of $171,000, despite the losing party’s failure to timely object to the cost award. The court specifically found that there was no authority to award costs for (a) expert witness fees beyond the statu­tory $40 per diem; (b) travel expenses for attorney travel; (c) mediation expenses; (d) various discovery expenses; and (e) paralegal services.

[Note: This opinion was vacated and superseded at 475 F.3d 1239.]