May 27, 2021

Supreme Court Decides City of San Antonio, Texas v. Hotels.com, L.P.

On May 27, 2021, the Supreme Court of the United States decided City of San Antonio, Texas v. Hotels.com, L.P., No. 20-334, holding that the federal courts of appeals have the discretion to apportion all the appellate costs covered by Federal Rule of Appellate Procedure 39, and that district courts cannot alter that allocation.

In 2006, the City of San Antonio (the “City”), on behalf of a class of Texas municipalities, initiated an action against several online travel companies (“OTCs”), including Hotels.com, over their calculations of hotel occupancy taxes. The City prevailed at the district court level, and after the post-trial motions were adjudicated, received a judgment in their favor of $84 million. The OTCs appealed and stayed the judgment by securing supersedeas bonds sufficient to cover the judgment amount. As would later become important, the OTCs had to pay millions of dollars in bond premiums to secure the supersedeas bonds.

On appeal, the U.S. Court of Appeals for the Fifth Circuit reversed, a result which had consequences for taxation of appellate costs. Under Federal Rule of Appellate Procedure 39(a)(3), when a court reverses on the merits, appellate costs are then “taxed against the appellee,” i.e., against the City. The OTCs therefore filed a bill of costs for more than $2.3 million, most of which were the supersedeas bond premiums. The City objected and asked the district court to exercise its equitable discretion and decline to tax most or all of those costs. The district court ruled that it did not have authority to do so, and the Fifth Circuit affirmed.

After granting certiorari, the Supreme Court likewise agreed, and held that a district court has no discretion to decline to tax costs authorized by Federal Rule of Appellate Procedure 39. It did so for several reasons.

First, as a matter of text, Federal Rule of Appellate Procedure 39 specifies that the court of appeals taxes costs based on certain default rules unless “the court orders otherwise.” As a matter of plain-language interpretation, the Supreme Court held that language naturally meant that the appeals court and not the district court had such discretion. The appellate courts’ discretion to “order otherwise” is set out in “broad language,” which allows an appellate court to “depart from the default rules” and to determine not only who can receive costs, but also what “the allocation of appellate costs” should be amongst the parties.

Second, the Court rejected the City’s argument that district courts could exercise a “second layer of discretion” to modify the appellate courts’ taxation of costs. Such an interpretation was not consistent with the text, purpose, or structure of the appellate rules.

Finally, the Court rejected the City’s policy arguments for why district courts should have discretion to modify or reduce costs otherwise taxable under the appellate rules. Unlike costs taxed in district court proceedings — where district courts do have discretion — it made sense for appellate courts to have the exclusive power to modify costs incurred in appellate proceedings, because such an interpretation “quite sensibly gives federal courts at each level primary discretion over costs relating to their own proceedings.” What’s more, appellate courts have successfully been apportioning costs on appeal under Rule 39 for “more than 50 years” at a rate of “tens of thousands of cases each year,” so there was no reason to change that paradigm. Finally, litigants can object to Rule 39 cost allocations directly in the appellate court by a motion under Federal Rule of Appellate Procedure 27, so there was no need to give district courts additional power to modify such costs.

Thus, the Court unanimously agreed that appellate courts have the discretion to apportion all the appellate costs covered by Rule 39 and that district courts cannot alter that allocation. Justice Alito delivered the opinion for a unanimous Court.

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