AeroTech, Inc. v. Estes
| Decision Date | 11 April 1997 |
| Docket Number | No. 95-1504,95-1504 |
| Citation | 110 F.3d 1523 |
| Parties | 1997-1 Trade Cases P 71,771, 37 Fed.R.Serv.3d 867, 97 CJ C.A.R. 514 AEROTECH, INC., Industrial Solid Propulsion, Inc., Plaintiffs--Appellees, v. Vernon ESTES, Defendant--Appellant, and Hobby Products, Inc., Estes Industries; Centuri Corp., Defendants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Phillip S. Figa (Dana L. Eismeier, with him on the briefs), Burns, Figa & Will, Englewood, Colorado, for Defendant-Appellant.
John M. Aerni, New York, New York, (John S. Lutz, Otto K. Hilbert, II, and Stephanie E. Dunn, LeBoeuf, Lamb, Greene & MacRae, Denver, Colorado, with him on the brief), for Plaintiffs-Appellees.
Before TACHA, BALDOCK, and BRORBY, Circuit Judges.
Vernon Estes appeals an order of the district court denying him costs as a prevailing party under Federal Rule of Civil Procedure 54(d) and denying him attorneys' fees under Rule 11, Rule 41(a)(2), 28 U.S.C. § 1927, and the court's inherent authority. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm in part, reverse in part, and remand for proceedings consistent with this opinion.
On March 26, 1993, AeroTech Industries and Industrial Solid Propulsion, Inc. (collectively "AeroTech") filed suit in the United States District Court for the Southern District of New York. AeroTech named the following entities as defendants: (1) Estes Industries/High Flier Manufacturing Co. ("Estes Industries"), (2) TCW Capital, (3) Trust Company of the West, (4) Century Corp., and (5) Hobby Products, Inc. In its complaint, AeroTech alleged violations of the Sherman Act, 15 U.S.C. §§ 1-2, and interference with existing and prospective economic advantage. The trial judge dismissed TCW Capital and Trust Company of the West from the action for reasons unrelated to this appeal. The remaining parties filed a stipulation to transfer the case to the United States District Court for the District of Colorado.
On July 22, 1994, AeroTech filed an amended complaint in Colorado, alleging violations of the Sherman Act, 15 U.S.C. §§ 1-2, the Lanham Act, 15 U.S.C. § 1125(a), the Colorado Consumer Protection Act, Colo.Rev.Stat. § 6-1-105, and common law doctrines prohibiting product disparagement and injurious falsehood. AeroTech named Estes Industries, Centuri Corp., and Hobby Products On April 17, 1995, AeroTech sought leave to amend its complaint pursuant to Federal Rule of Civil Procedure 15. AeroTech requested the dismissal of its Sherman Act and product disparagement claims, eliminating Vernon Estes as a defendant.
as defendants in each count. In addition, AeroTech named Vernon Estes as a defendant in the Sherman Act and product disparagement claims.
On April 24, 1995, Vernon Estes filed a motion for attorneys' fees and costs as a condition of dismissal pursuant to Federal Rule of Civil Procedure 41(a)(2). Alternatively, Vernon Estes requested that the court award attorneys' fees under its inherent authority because AeroTech had acted in bad faith and oppressively in bringing suit against him. Vernon Estes also requested attorneys' fees under 28 U.S.C. § 1927 in a joint response brief to AeroTech's motion to amend filed by all of the defendants on June 1, 1995.
On May 1, 1995, the magistrate held a hearing on the pending motions. The magistrate granted AeroTech's motion to amend but declined to rule on Vernon Estes' motion for costs and fees.
On June 8, 1995, AeroTech filed a "Notice of Conversion of Dismissal of Certain Claims Without Prejudice to Dismissal With Prejudice." In the "Notice," AeroTech argued that because of the decision to dismiss the claims with prejudice, the magistrate should deny Vernon Estes attorneys' fees and costs.
On October 13, 1995, the magistrate filed an order denying Vernon Estes' motion for costs and attorneys' fees. The magistrate treated the plaintiffs' request to amend their complaint under Rule 15 as a motion for voluntary dismissal governed by Rule 41(a)(2). The magistrate concluded that it would not condition a voluntary dismissal with prejudice under Rule 41(a)(2) on the payment of Estes's attorneys' fees. The magistrate also rejected Estes's motion for Rule 11 sanctions and request for relief under 28 U.S.C. § 1927.
The district court agreed with the analysis of the magistrate in denying Vernon Estes's motion for attorneys' fees and costs. The district court also declined to award costs to Vernon Estes as a prevailing party under 28 U.S.C. § 1920 and Rule 54(d). Vernon Estes now appeals the order of the district court denying him costs and attorneys' fees.
Rule 54(d) provides that "[e]xcept when express provision therefor is made in a statute of the United States or in these rules, costs other than attorneys' fees shall be allowed as of course to the prevailing party unless the court otherwise directs." Fed.R.Civ.Pro. 54(d). Vernon Estes argues that the district court erred in refusing to award him costs as a "prevailing party" under Rule 54(d). We review a district court's denial of costs under Rule 54(d) for an abuse of discretion. Klein v. Grynberg, 44 F.3d 1497, 1506 (10th Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 58, 133 L.Ed.2d 22 (1995).
Vernon Estes relies primarily on Cantrell v. International Brotherhood of Electrical Workers, 69 F.3d 456 (10th Cir.1995), our en banc opinion issued just one day before the district court entered its order denying Vernon Estes costs. In Cantrell, we addressed the scope of Rule 54, noting that it limits a district court's discretion to award costs in two ways. Id. at 458. First, Rule 54 creates a presumption that the district court will award costs to the prevailing party. Id. at 458-59. Second, a district court must provide a valid reason for not awarding costs to a prevailing party. Id. at 459.
We then discussed some of the circumstances in which a district court may properly deny costs to a prevailing party. Id. For example, a denial of costs does not constitute an abuse of discretion when the prevailing party is only partially successful. Id. (citing Howell Petroleum Corp. v. Samson Resources Co., 903 F.2d 778, 783 (10th Cir.1990)). We noted that other circuits have held that a district court may decline to award costs when the prevailing party acted in bad faith, the prevailing party received only nominal damages, the nonprevailing party was indigent, the issues were close and difficult, or the costs were unreasonably high or unnecessary. See id. (citations omitted). Because a denial of costs is a "severe penalty," In this case, the district court declined to award costs to Vernon Estes because AeroTech "terminated this litigation as to this defendant early in the litigation" and because "the litigation was not initiated in bad faith or frivolously." AeroTech, Inc. v. Estes Indus., Civ. No. 94-M-1572, slip op. at 2 (D.Colo. Oct. 31, 1995). We hold that in relying on these grounds, the district court abused its discretion in refusing to award Vernon Estes costs under Rule 54(d).
there must be "some apparent reason to penalize the party if costs are to be denied." Klein, 44 F.3d at 1507 ().
The mere fact that AeroTech dismissed Vernon Estes early in the litigation is insufficient to warrant a denial of costs. Nothing in Rule 54(d) or our case law suggests that we should penalize a party for prevailing early. Similarly, the district court's finding that AeroTech did not initiate its suit against Vernon Estes in bad faith is insufficient to permit the court to deny costs under Rule 54(d). "All parties to a federal action have an obligation to act in good faith and with proper purpose." National Info. Servs., Inc. v. TRW, Inc., 51 F.3d 1470, 1472 (9th Cir.1995). Thus, we reverse the district court's order denying costs to Vernon Estes under Rule 54(d) on these grounds and remand for reconsideration of the issue in light of this opinion.
Federal Rule of Civil Procedure 41(a)(2) states that "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." Vernon Estes argues that the district court erred in declining to award him attorneys' fees as a term and condition of dismissal under Rule 41(a)(2). While we generally review a denial of attorneys' fees for an abuse of discretion, Cobb v. Saturn Land Co., Inc., 966 F.2d 1334, 1338 (10th Cir.1992), we review de novo any statutory interpretation or other legal analysis underlying the district court's decision concerning attorneys' fees. In re Meridian Reserve, Inc., 87 F.3d 406, 409 (10th Cir.1996).
Again, Vernon Estes relies primarily on Cantrell v. International Brotherhood of Electrical Workers, 69 F.3d 456 (10th Cir.1995) (en banc). In particular, Vernon Estes argues that we should extend Cantrell 's abolition of the distinction between dismissal with prejudice and dismissal without prejudice in awarding costs under Rule 54(d) to an award of attorneys' fees under Rule 41(a)(2). We decline to do so.
Prior to Cantrell, we held that under Rule 54(d), a district court could award a defendant costs when a plaintiff dismissed its action without prejudice but not when the plaintiff dismissed the action with prejudice. See Mobile Power Enters., Inc. v. Power Vac., Inc., 496 F.2d 1311, 1312 (10th Cir.1974). In Cantrell, we overruled Mobile Power "to the extent that it distinguishes between voluntary dismissals with and without prejudice." Cantrell, 69 F.3d at 458. We held that "a defendant is a prevailing party under Rule 54 when, in circumstances not involving settlement, the plaintiff dismisses its case against the defendant, whether the dismissal is with or without prejudice." Id. at 456. We recognized that a...
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