Mother and Father v. Cassidy

• Decision Date: 30 July 2003
• Docket Number: No. 01-2832.,01-2832.
• Citation: 338 F.3d 704
• Parties: MOTHER AND FATHER, et al., Plaintiffs-Appellees, v. James CASSIDY, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

338 F.3d 704

MOTHER AND FATHER, et al., Plaintiffs-Appellees, v. James CASSIDY, et al., Defendants-Appellants.

No. 01-2832.

United States Court of Appeals, Seventh Circuit.

Argued February 18, 2003.

Decided July 30, 2003.

COPYRIGHT MATERIAL OMITTED

James Barz (argued), Office of the U.S. Attorney, Chicago, IL, for Plaintiff-Appellee.

Richard H. Parsons, Andrew J. McGowan (argued), Office of the Federal Public Defender, Peoria, IL, for defendant-appellant.

Janis M. Susler (argued), People's Law Office, Chicago, IL, for plaintiffs-appellees.

Benna R. Solomon (argued), Meera Werth, Office of the Corporation Counsel, Appeals Division, Chicago, IL, for defendants-appellants.

Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

This case presents an interesting twist on the perennial problem of how to coordinate related federal and state court litigation. Put simply, the question is whether a district court may transfer the determination of costs allowed under Fed. R. Civ. P. 54(d) for a prevailing defendant to a state court that has before it certain state-law claims that were originally part of the federal suit, when the plaintiff has voluntarily dismissed her federal-law claims with prejudice under Fed. R. Civ. P. 41. For a number of reasons, we conclude that the answer is no, and we therefore reverse and remand so that the district court may decide what costs should be awarded for the defendants.

I

Although as the case has reached us it concerns purely procedural issues, it arose out of a particularly wrenching murder investigation in the City of Chicago. In the summer of 1998, eleven-year-old Ryan Harris was murdered. Suspicion fell upon two young boys—R.G. and his eight-year-old companion E.H. (For the harrowing details of the botched investigation, see Maurice Possley & Steve Mills, Charges Dropped Against 2 Boys, CHICAGO TRIBUNE, September 5, 1998, at 1.) A month after charges were brought against the boys, it became clear that an adult had committed the crime, and the charges were dropped. About a year later, in May 1999, the parties known here as Mother and Father (their true names are available to the court but under seal; we refer to them as M&F for convenience) brought this suit in federal court on behalf of their son R.G. against the City of Chicago and several Chicago police officers, raising both federal and state claims. The parents of E.H. brought similar proceedings in state court. Despite the fact that many of the underlying facts were likely to be identical, the parties had no interest in coordinating their respective lawsuits. As a result, discovery was duplicative and costly, involving for M&F's federal lawsuit alone more than 70 depositions and 30,000 documents, at a cost of more than $100,000.

In May 2001, nearly two years after the original complaints were filed in federal and state court, M&F moved for voluntary withdrawal of their federal claims pursuant to Fed. R. Civ. P. 41. In their motion, they stated their intention to re-file their state-law claims in state court and to seek consolidation with the related E.H. litigation. In an order dated June 12, 2001, the district court agreed to dismiss the federal-law claims without prejudice for the time being, but it indicated that the dismissal would be converted to one with prejudice upon M&F's state court filing. In addition, the district court ruled over the City's objection that the costs of the federal case would not be assessed at all in federal court, but instead would be assessed by the state court at the conclusion of its proceedings. The City moved for reconsideration, but the district court made no material change in its ruling. On June 26, 2001, it announced that the "Rule 54 costs would travel to the state court" and that whichever party prevailed in state court would be entitled to an award of costs from that court. The City now appeals.

II

We turn first to the question of our ability to adjudicate the question the City has presented. Although M&F have cast that issue in jurisdictional terms, that much at least is easy to reject. They do not seriously contest the fact that the district court has dismissed all claims of all parties, and that the federal claims have now been dismissed with prejudice. That is enough to create a final judgment for purposes of appellate jurisdiction under 28 U.S.C. § 1291. What they are really arguing is that we should rule against the City with dispatch because it has waived its claim to costs under Fed. R. Civ. P. 54(d) by failing to raise it before the district court until the motion to reconsider.

In general, of course, a party may not raise on appeal an issue it did not present to the district court. United States v. Payne, 102 F.3d 289, 293 (7th Cir.1996). That rule is not invariable, however, and it is particularly inapplicable if the aggrieved party raised the issue at the first opportunity it had. Our review of the rather unusual proceedings that took place here convinces us that the City did alert the district court to its position as soon as it could. The initial June 12 order, after all, was a dismissal without prejudice, and thus was not enough to make the City a prevailing party for Rule 54 purposes. Szabo Food Serv., Inc. v. Canteen Corp., 823 F.2d 1073, 1077 (7th Cir.1987). There is thus no mystery about why the City did not file a Rule 54 motion immediately after that order. It was only after the district court's June 26 order was entered that it became clear that the dismissal had been changed into one with prejudice, and thus that the City's right to costs under Fed. R. Civ. P. 54 was in play. Prior to the entry of the revised order, the City was under no obligation to present Rule 54 arguments in anticipation of dismissal with prejudice. Accordingly, we have no trouble finding that the City has not waived or forfeited its right to complain on appeal about the district court's refusal to entertain any application for costs on its behalf.

M&F also argue that the costs issue is not properly before us because the City filed its actual bill of costs pursuant to Rule 54 in the district court only after it had filed a notice of appeal. Our review of the record confirms that this sequence of the filings is accurate: the City filed its notice of appeal on July 11, three weeks after the court's June 21 order, and then it filed a bill of costs two days later, on July 13, 2001. At worst, however, this sequence means that the bill of costs was a meaningless document. The notice of appeal transferred jurisdiction over the costs question to this court. Kusay v. United States, 62 F.3d 192, 193 (7th Cir.1995). The district court was not quibbling about whether the City ran up bills that were too high: it was refusing categorically to award costs, and it is that categorical refusal that the City is challenging here. If M&F had prevailed here, the City's filing could have been tossed in the trash; the consequence of the City's prevailing is that full proceedings on the costs issue must now go forward in the district court.

III

On the merits, the City's principal claim is that the district court abused its discretion by failing to award it costs "as of course" as required by Rule 54. M&F respond that the district court had the power under Rule 41 to abrogate the normal Rule 54 entitlement to costs, and more specifically that it had the power under Rule 41 to decide that the costs issue would (in the court's own words) "travel" to the state court. We must therefore consider not only how Rules 41 and 54 operate together, but also, even if we agreed that some Rule 41 conditions affecting Rule 54 were permissible, whether this one was.

A

Whether the district court's power under Rule 41 to condition a voluntary dismissal "upon such terms and conditions as the court deems proper" includes the power to refuse to award Rule 54 costs to a prevailing party is a question of law that we review de novo. Jaffee v. Redmond, 142 F.3d 409, 412 (7th Cir.1998). As the City notes, a voluntary dismissal with prejudice renders the opposing party a "prevailing party" within the meaning of Rule 54. First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1015 (7th Cir.1985); see also Tex. State Teachers Assoc. v. Garland Indep. Sch. Dist., 489 U.S. 782, 792-93, 109 S.Ct. 1486, 103 L.Ed.2d 866 (1989) (noting that, in the analogous context of the award of attorney's fees under § 1988, a prevailing party must have worked a "material alteration of the legal relationship of the parties"). In addition, Rule 54(d)(1) expressly notes that the award of costs is "as of course," and we have interpreted this language as creating a strong presumption that the prevailing party will recover costs. M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1409 (7th Cir.1991). We have recognized only two situations in which the denial of costs might be warranted: the first involves misconduct of the party seeking costs, and the second involves a pragmatic exercise of discretion to deny or reduce a costs order if the losing party is indigent. See Contreras v. City of Chicago, 119 F.3d 1286, 1295 (7th Cir.1997); Weeks v. Samsung Heavy Indus., Co., 126 F.3d 926, 945 (7th Cir.1997); Congregation of the Passion, Holy Cross Province v. Touche, Ross & Co., 854 F.2d 219, 222 (7th Cir.1988). But see McGill v. Faulkner, 18 F.3d 456, 458 (7th Cir.1994) (noting that litigants proceeding in forma pauperis are still exposed to awards of costs). If Rule 54 were the sole focus of our inquiry, it is clear that the City would be entitled to costs unless the court found that the City was guilty of misconduct or the plaintiffs had no ability to pay.

Yet Rule 54 does not stand alone here. Rule 41(a)(2) grants a district court broad discretion to impose conditions on a voluntary dismissal of a claim. See Fed. R. Civ. P. 41(a)(2); Chavez v. Ill. State Police, 251 F.3d 612, 654-55 (7th Cir.2001...