Sun Ship, Inc. v. Lehman

• Citation: 655 F.2d 1311
• Decision Date: 19 June 1981
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 1311

655 F.2d 1311

211 U.S.App.D.C. 81, 28 Cont.Cas.Fed. (CCH) 81,503

SUN SHIP, INC., et al. v John LEHMAN, Secretary of the Navy, et al., Appellants.

No. 80-1679.

United States Court of Appeals District of Columbia Circuit.

Argued 18 May 1981.

Decided 19 June 1981.

Kenneth M. Raisler, Asst. U. S. Atty., Washington, D. C., with whom Charles F. C. Ruff, U. S. Atty., and Royce C. Lamberth, Asst. U. S. Atty., Washington, D. C., were on the brief for appellants. John A. Terry, Asst. U. S. Atty., Washington, D. C., also entered an appearance for appellants.

E. Sanderson Hoe, Washington, D. C., with whom Herbert L. Fenster, Michael T. Kavanaugh, Gerald P. Norton, Murray J. Belman and Gilbert E. Geldon, Washington, D. C., were on the brief for appellees.

Before TAMM, Circuit Judge, THORNBERRY, ^* Senior Circuit Judge for the Fifth Circuit, and WILKEY, Circuit Judge.

WILKEY, Circuit Judge:

In defending this suit on the merits, appellant Secretary of the Navy prevailed not once, but three times first, on a motion for a temporary restraining order; second, on a motion for a preliminary injunction; and finally, on a dispositive motion for summary judgment. Fed.R.Civ.P. 54(d) embodies the presumption that prevailing parties will recover their costs "as a matter of course;" ¹ 28 U.S.C. § 1920 further authorizes courts to tax losing plaintiffs for certain costs which the Secretary indisputably incurred in defending this action. ² These provisions notwithstanding, the district court summarily denied the Secretary recovery of any and all litigation costs.

We hold that the district court abused its discretion under Fed.R.Civ.P. 54(d) by failing to explain its outright denial of costs to the Government. Accordingly, we reverse and remand the question of costs with instructions that the district judge both redetermine the cost award and support his new determination with a statement of reasons.

This case presents many of the same issues as Baez v. United States Dep't of Justice, ³ decided 7 May 1981, where the panel majority denied a prevailing Government defendant-appellee recovery of costs in a suit brought under the Freedom of Information Act (FOIA). The three opinions in that case extensively analyze the precedent necessary to resolve the issues before us; furthermore, they highlight the bifurcated standard which now governs judicial discretion to award or deny costs to prevailing parties in this Circuit. ⁴ Thus we make frequent reference to Baez throughout this opinion.

I. BACKGROUND

In August 1979 the Secretary of the Navy ("the Secretary" or "the Navy") awarded the National Steel and Shipbuilding Company (NASSCO) a government contract to design and construct a ship, the "T-ARC 7," capable of retrieving, repairing, and deploying cable on the ocean floor. In October of that year, Sun Ship, Inc. (Sun Ship), a rival shipbuilder who had failed in its bid for the same contract, sought a temporary restraining order (TRO) enjoining performance of the contract, alleging that the Secretary had unlawfully and irrationally awarded the contract to NASSCO in violation of the Armed Services Procurement Act of 1947 ⁵ and the Defense Acquisition Regulations promulgated thereunder. ⁶

NASSCO promptly intervened as a defendant on the side of the Secretary and soon thereafter, the district jduge denied Sun Ship's motion for a TRO, ordering the parties "to commence discovery forthwith." ⁷ One month later, the district court denied plaintiff's motion for a preliminary injunction, but directed that discovery continue until late 1979. ⁸

Plaintiffs then proceeded to depose thirteen Navy officials at length, producing some 3500 pages of deposition transcript in eighteen days. ⁹ Neither the Government nor NASSCO noticed or conducted any depositions. Both defendants, however, ordered daily copies of the plaintiffs' deposition transcripts. ¹⁰

In mid-January defendants moved for summary judgment. Four days later, the plaintiffs filed their depositions with the court under seal. ¹¹ The day before trial would have commenced, the district court gave summary judgment to the defendants, ruling in their favor on every issue. ¹²

Both the Government and NASSCO then filed timely bills of costs with the district court clerk. The Navy requested that Sun Ship and General Dynamics be jointly taxed $10,547.19, for the total cost of two daily copies of plaintiffs' deposition transcripts, one copy of each of three court hearings, and one copy of the transcript of questions certified for the court's use. ¹³ When a prevailing party submits a bill of costs to the district court, the clerk of the court examines the bill in the first instance to determine which costs, if any, are taxable. While Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920 empower the clerk to decide taxation questions, neither requires him to do so. As a practical matter, then, the clerk routinely exercises his discretion by awarding costs to the victor when the sums requested are less than a few hundred dollars, and by deferring to the trial judge when sums far in excess of that figure are requested. ¹⁴ On 13 March 1980, however, the clerk denied the Government's bill in its entirety. ¹⁵

After the clerk had denied costs, the Government then timely moved under rule 54(d) that the district judge review the clerk's taxation decision. The district judge, stating no reasons, denied that motion and ordered that costs be taxed "as directed by the Clerk." ¹⁶ The Government, which consequently recovered no costs, now appeals.

II. ANALYSIS

A. The Two Standards for Discretionary Denials of Costs to Prevailing Government Defendants

Fed.R.Civ.P. 54(d) provides that "costs shall be allowed as of course to the prevailing party unless the (district) court otherwise directs." ¹⁷ Like its appellate analogue, Fed.R.App.P. 39(a), ¹⁸ rule 54(d) comprises two elements: (1) a heavy presumption favoring an award of costs to the prevailing party, and (2) a measure of clerical and judicial discretion to order "otherwise."

The precise relationship between the presumption and the discretion contained in the rule has recently become a matter of dispute in this Circuit. A long line of precedent in this and other circuits ¹⁹ had suggested that the strength of the presumption favoring cost awards to the victors narrows the scope of trial court discretion to reduce or deny costs to the prevailing party. ²⁰ Furthermore, because cost awards to the winners had traditionally been regarded as the fair price which losers must pay for using the judicial system, ²¹ many courts had suggested that there are "relatively few cases in which special circumstances may persuade the district judge to exercise his discretion to deny costs to the prevailing party." ²²

In the leading case of Chicago Sugar Co. v. American Sugar Refining Co. ²³ the Seventh Circuit held that "in the absence of some showing of bad faith (on the part of the prevailing party) or the deliberate adoption of a course of business dealings calculated to render litigation pertaining thereto unnecessarily prolix and expensive," ²⁴ trial judges properly exercise their discretion under rule 54(d) by awarding prevailing parties their costs "as a matter of course." ²⁵ As refined by later case law, the Chicago Sugar rule directs that courts deny costs to the victors "only when there would be an element of injustice in a cost award." ²⁶

In the recent case of Baez v. United States Dep't of Justice, ²⁷ however, a divided panel of this court recently held that, at least in FOIA suits, "costs should be denied to the Government if the plaintiff's claim has been pursued without confessed commercial self-interest, in a suit that is not frivolous, unreasonable, or without foundation." ²⁸ Although the Baez standard was expressly created to govern awards of costs in FOIA cases under Fed.R.App.P. 39(a), the majority's reasoning was clearly broad enough to encompass cost awards sought under Fed.R.Civ.P. 54(d) ²⁹ for lawsuits brought under other federal statutes. ³⁰ As a threshold matter, then, we must decide whether the traditional standard or the Baez standard applies to the cost award in this case. ³¹

Although there are superficial analogies between this case and Baez, we conclude that the traditional standard governing judicial discretion over cost awards controls this case. Despite language throughout Baez suggesting that courts have broad discretion to reject "claims for costs made by prevailing defendants under the federal rules" in order to "avoid discouraging the prosecution of public interest litigation," ³² in the end the Baez majority explicitly chose "to highlight the limited reach of (its) holding." ³³ Arguing that "the public interest incorporated in the Freedom of Information Act, in part demonstrated by the special attorneys fees and costs section of that statute, militates in favor of (its) standard," ³⁴ the Baez panel held that the "standard of Chicago Sugar should not be applied in FOIA actions in which the Government is the prevailing party." ³⁵

Here plaintiffs brought their unsuccessful lawsuit under the Armed Services Procurement Act of 1947, which contains no special attorneys' fees and costs provision. Thus Congress has not attempted in the Procurement Act, as it did in the FOIA, "to encourage individuals to pursue statutorily-created rights" by adopting statutory fee and cost incentives. ³⁶ Furthermore, while legitimate challenges to unlawful and irrational government contracts certainly serve the public interests embodied in the Procurement Act, plaintiffs' suit here was unsuccessful in every respect. It seems highly unlikely, therefore, that awarding the Government its costs in this case would chill contractors with legitimate claims from challenging irrational or unlawful government contract awards. Finally, although the unsuccessful plaintiffs here relied on a federal statute as the basis of their claim, the remedy they sought was a traditional...