Republic Tobacco Co. v. North Atlantic Trading Co., 05-3634.

• Citation: 481 F.3d 442
• Decision Date: 22 February 2007
• Docket Number: No. 05-3634.,05-3634.
• Parties: REPUBLIC TOBACCO COMPANY, Plaintiff-Appellant, v. NORTH ATLANTIC TRADING COMPANY, INC., North Atlantic Operating Company, Inc., and National Tobacco Company, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

481 F.3d 442

REPUBLIC TOBACCO COMPANY, Plaintiff-Appellant, v. NORTH ATLANTIC TRADING COMPANY, INC., North Atlantic Operating Company, Inc., and National Tobacco Company, Defendants-Appellees.

No. 05-3634.

United States Court of Appeals, Seventh Circuit.

Argued November 28, 2006.

Decided February 22, 2007.

Rehearing and Rehearing En Banc Denied March 21, 2007.

Charles S. Bergen (argued), Michael Kazan, Grippo & Elden, Chicago, IL, for Plaintiff-Appellant.

Anne G. Kimball, Wildman, Harrold, Allen & Dixon, Chicago, IL, Christopher Landau (argued), John C. O'Quinn, Kirkland & Ellis, Washington, DC, for Defendants-Appellees.

Before FLAUM, MANION, and WILLIAMS, Circuit Judges.

FLAUM, Circuit Judge.

In 1998, Republic Tobacco Company (Republic) sued North Atlantic Trading Company, Inc., North Atlantic Operating Company, Inc., and National Tobacco Co., L.P. (collectively "NATC"), alleging that NATC wrote false and accusatory letters to Republic's customers. In 2004, this Court affirmed a jury's finding of liability against NATC but reduced the jury's damages award to $3 million. Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 734-36 (7th Cir.2004). Back in the district court, NATC attempted to recover the costs it incurred by securing the judgment in excess of $3 million. The district court granted NATC's motion, and Republic appeals. For the following reasons, we reverse in part and affirm in part.

I. Background

Republic and NATC are competing distributors of roll-your-own cigarette papers. In January 1998, a NATC employee wrote a letter to one of Republic's largest retail customers, Clark Oil, stating that Republic was violating NATC's patent and trademark rights and that, as a result, NATC had taken legal action against one of Republic's other customers. In August 1998, NATC wrote a letter to all of its customers (many were also Republic customers), alleging that Republic's marketing programs violated federal and state antitrust laws.

Republic sued NATC for defamation and violations of the Lanham Act, 15 U.S.C. § 1125(a). It also sought a declaratory judgment that its marketing programs were lawful. NATC filed counterclaims alleging that Republic violated federal and state antitrust laws and that it committed a variety of other state law commercial torts. At the summary judgment stage, the district court dismissed all of NATC's claims and granted Republic both the declaratory relief it sought and summary judgment on its defamation claim. On July 8, 2003, a jury awarded Republic $18.6 million in damages.

NATC moved to stay execution of the judgment pursuant to Federal Rule of Civil Procedure 62(b). It supported its motion with an affidavit from the company's President and Chief Financial Officer, David Brunson, who averred that NATC could not afford to secure an $18.6 million appeal bond because it had no unencumbered assets to serve as collateral. It then asked the court to waive the security requirement or, alternatively, allow a security bond of $3 million. Republic opposed NATC's request to waive or reduce the security requirement and insisted on security in the full amount of the judgment.

The district court held four hearings to determine the proper security. On July 16, 2003, NATC offered to post as security for the judgment a $3 million letter of credit. Based on an overnight review of NATC's public financial statements, however, Republic complained that NATC actually possessed $44 million worth of unencumbered assets. NATC responded that the assets were in fact encumbered and that it could only post $3 million from a revolving line of credit. Republic mentioned the possibility of accepting, in lieu of a bond, a second priority secured interest in NATC's assets, provided that it received more information about NATC's financial status, but NATC never provided that documentation.

On July 23, 2003, NATC advised the court that one of its investors could obtain an $18.6 million loan for $595,000 plus interest.¹ In response, Republic offered to secure the judgment for $1.1 million, which approximated the offer from NATC's investor. On July 31, the district court ordered NATC to secure the full judgment, and NATC promptly obtained the loan through its investor.

On November 20, 2003, the district court granted NATC's post-trial motion for a remittitur or, alternatively, a new trial and reduced the jury verdict to $7.44 million. On December 23, Republic accepted the remittitur, and the district court entered an amended judgment of $7.44 million. NATC immediately sought and obtained a reduction of the security to reduce the amount of interest paid on its loan. On January 7, 2004, the district court awarded Republic $185,785.02 in costs pursuant to Federal Rule of Civil Procedure 54(d).

On September 1, 2004, this Court affirmed the district court's grant of summary judgment in Republic's favor on NATC's antitrust claims and Republic's defamation claim. We also reduced Republic's damage award from $7.44 million to $3 million and ordered each party to bear its own costs.

On September 15, 2004, NATC moved this Court to award NATC the costs, approximately $1.1 million, that it incurred by securing the judgment to the extent it exceeded $3 million. The Court denied NATC's motion, stating, "Any request for costs associated with [NATC's] supersedeas bond should be directed to the district court."

Following our instructions, NATC filed a motion in the district court under Federal Rule of Civil Procedure 54(d), seeking the costs it incurred by securing the jury's $18.6 million judgment during the district court's post-trial proceedings. The motion also asked the court to award, under Federal Rule of Appellate Procedure 39(e), the costs associated with securing the $7.44 million judgment on appeal.

Republic opposed the motion, arguing that (1) NATC was not entitled to costs incurred prior to appeal because it was not the prevailing party in the district court, (2) it did not seek the costs within thirty days of judgment as required by Local Rule 54.1(a), (3) it did not prevail on appeal to justify an award of costs under Rule 39(e), and (4) it chose an unnecessarily expensive mode of security.

The district court granted NATC's motion in its entirety. It pointed out that NATC had to secure judgments before appeal, during appeal, and after appeal. It said that Rule 39(e) allowed it to award costs during appeal and that Local Rule 54.1(c) allowed it to award costs before and after appeal.² It also rejected Republic's contention that NATC's costs in securing the judgment were unreasonably high. It found credible Brunson's assertion that NATC attempted to obtain a bond from a bonding company but was unable to do so because it had no unencumbered assets to pledge as collateral.

II. Analysis

A. Prevailing Party

Republic first argues that the district court erred by awarding NATC's post-trial, pre-appeal costs under Federal Rule of Civil Procedure 54(d), because NATC was not the prevailing party in the district court. NATC responds that the district court correctly awarded those costs because it prevailed at the post-trial stage insofar as the district court reduced the jury's damages award. The question, therefore, is whether a defendant can be a prevailing party under Rule 54(d) if its only success in the district court is a reduction of the plaintiff's damages award. The Court reviews the district court's interpretation of the phrase "prevailing party" de novo. See Dattner v. Conagra Foods, Inc., 458 F.3d 98, 100 (2d Cir.2006); Dupuy v. Samuels, 423 F.3d 714, 718 (7th Cir.2005) (reviewing de novo a district court's interpretation of "prevailing party" for purposes of 42 U.S.C. § 1988).

Rule 54(d)(1) states that "costs other than attorney's fees shall be allowed as of course to the prevailing party unless the court otherwise directs." Courts and commentators have interpreted "prevailing party" to mean "the party in whose favor judgment has been entered." Moore's Federal Practice § 54.101[3] (3d ed.2006); see also Barber v. T.D. Williamson, Inc., 254 F.3d 1223, 1234 (10th Cir.2001) (noting that a party prevails if judgment is entered in its favor); Head v. Medford, 62 F.3d 351, 354 (11th Cir.1995) ("Usually the litigant in whose favor judgment is rendered is the prevailing party for purposes of rule 54(d)."); Three-Seventy Leasing Corp. v. Ampex Corp., 528 F.2d 993, 998-99 (5th Cir.1976) (reversing a district court's award of costs to the defendant where the plaintiff won its breach of contract claim and was entitled to an award of nominal damages). Additionally, one commentator has stated that "a determination of who is the prevailing party for purposes of awarding costs should not depend on the position of the parties at each stage of the litigation but should be made when the controversy is finally decided." 10 Wright, Miller, & Kane Federal Practice & Procedure § 2667 (3d ed.2006).

We agree that a district court's award of costs should not depend on who wins the various battles preceding final judgment. Indeed, we have not found, and NATC has not cited, any case in which an appellate court has upheld an award of costs to a party that did not obtain a judgment in its favor. In this case, Republic prevailed, notwithstanding NATC's successful post-trial motion, because the district court entered a $7.44 million judgment in its favor. Consequently, the district court erred by taxing NATC's post-trial, pre-appeal costs against Republic.

B. Crawford and Rule 54(d)

Even if NATC had prevailed below, there is a second reason that the district court erred by awarding NATC its post-trial, pre-appeal costs.³ The Supreme Court has said that a district court may not tax costs under Rule 54(d) unless a federal statute authorizes an award of those costs. See Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 441-43, 107 S.Ct. 2494, 96 L.Ed.2d 385 (1987) (holding that expert witness fees in excess of...