Courthouse Steps Oral Argument Teleforum: City of San Antonio, Texas v. Hotels.com

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Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Nick Marr:  Welcome everyone to The Federalist Society's teleforum conference call as this afternoon, April 21st, 2021, we're having a special Courthouse Steps Oral Argument coverage on a case called City of San Antonio v. Hotels.com. I'm Nick Marr, Assistant Director of Practice Groups at The Federalist Society.

 

      As always, please note that expressions of opinion on our call today are those of our expert.

 

      And we're very glad to be joined this afternoon by Dean Charles Campbell. He's Associate Professor of Law and Interim Dean at Faulkner University's Jones School of Law. We're very pleased to have you today, Dean Campbell. And without further ado I'll give the floor to you.

 

Dean Charles Campbell:  Thanks very much and good afternoon everyone. City of San Antonio v. Hotels.com was argued this morning. And it's an interesting and very long-running case that presents for the Court a question about the proper interpretation of Rule 39 of the Federal Rules of Appellate Procedure.

 

      The case, as I said, is long-running. It started in 2006. It's a class action that was filed by the City of San Antonio on behalf of itself and 172 other Texas municipalities against 11 online travel companies, like Hotels.com, the lead defendant, Expedia, Hotwire, Travelocity, that kind of thing. 11 of those that the courts and the parties collectively refer to as online travel companies, or OTCs.

 

      And basically the claim was that the OTCs were underpaying municipal hotel occupancy taxes by basing the taxes paid on the discounted wholesale room rates that the OTCs had negotiated with the hotels, rather than the retail room rates that were paid by the consumers when they actually stayed. There were collateral proceedings involving the City of Houston going on in state court at the same time. And Houston eventually lost its case in one of the appellate courts of Texas.

 

      But in the district court, the district court did not follow the Texas appellate court case and entered a judgment in favor of the municipalities in 2013 in the amount of approximately $55 million. The OTCs appealed, filed supersedeas bonds to stay paying the judgment pending their appeal.

 

      And it took an unusually long time for the district court to dispose of the online travel company's post-judgment motion so that those were not finally ruled on until 2016. And at that time, the OTCs appealed to the Fifth Circuit Court of Appeals. And in 2017, the Fifth Circuit decided that the state appellate decision was likely what the Supreme Court of Texas would do. And followed it and vacated the district court's decision and rendered judgment for the online travel companies.

 

      Once the travel companies had won on the merits of their appeal, they filed a bill of costs with the Fifth Circuit clerk for $905.60. And the municipalities did not object. Fifth Circuit issued its mandate ordering the municipalities to pay the OTCs their costs.

 

      At that point, the case -- the Fifth Circuit issued its mandate back into district court. The OTCs asked for a final judgment stating that costs shall be taxed against the cities in favor of the OTCs pursuant to 28 U.S.C. § 1920, Federal Rule of Civil Procedure 54, and Federal Rule of Appellate Procedure 39.

 

      San Antonio did not object "to the form of the proposed judgment." The OTCs then submitted a bill of costs that included about $2 million for their supersedeas bonds. The municipalities objected to the bond costs and there were a variety of objections, partly that it was all being imposed on the class representative, and that was inequitable. Other arguments as to the unfairness of it.

 

      And the district court observed that the cities had "some persuasive arguments." But ruled that it lacked discretion to reduce the cost of the bonds under Fifth Circuit precedent, specifically a 1991 unpublished Fifth Circuit decision called In Re Sioux, Ltd., Securities Litigation. Despite which, being unpublished, the Fifth Circuit has a rule that its unpublished decisions before 1996 nonetheless are binding precedent.

 

      In the 1991 case, a panel of the Fifth Circuit ruled that "absent some limiting provision in the mandate from the Court of Appeals, the party entitled to costs in the Court of Appeals is entitled to costs in the district court under Rule 39(e). The district court has no discretion regarding whether, when, to what extent, or to which party to award costs of the appeal. And taxing the cost on appeal, its sole responsibility is to ensure only that proper costs are awarded."

 

      And as I said, the district court held that it was bound. Therefore it had no discretion to reduce the amount of costs to be awarded on the supersedeas bonds, entered a judgment for costs, about $2.2 million, and the cities appealed.

 

      On appeal, the Fifth Circuit agreed with the travel companies that the Sioux case was binding precedent. Interestingly, they said they expressed no view on the merits of Sioux's interpretation of Rule 39(e), just that Sioux was binding, and therefore, they had to follow it. The cities then filed a petition for rehearing en banc. The court denied that by a vote of 10:6, and so San Antonio then petitioned for certiorari, which was granted earlier this term.

 

      The City had some support for amici, one was the National Association of Counties and the League of Municipalities. But the big amicus brief in support of the petitioner was from the United States, which was pretty much an endorsement of the petitioner's position that Rule 39(e) says that costs are taxable in the district court, which means there is some discretion in the district court as to which costs are to be taxed, and that the Fifth Circuit's rule is an outlier that is pretty much unworkable if it straightjackets the district court when determining which costs to award.

 

      The interesting thing, the Solicitor General's office asked for permission to participate in oral arguments. San Antonio agreed, was willing to give the Solicitor General 10 minutes of oral argument. But the Court denied the Solicitor General's motion. That's the second time that they have done that this term, which is rather unusual. Because for about the last decade, every time the Solicitor General asked for permission to participate in oral argument, it was granted.

 

      But now, apparently, that's not going to be a foregone conclusion going forward and I've seen some speculation online that that may be because of the telephonic nature of oral arguments, that it actually takes a little more time because you have to go through the roster of judges -- of the justices. But just an interesting aside.

 

      The petitioner's, the City of San Antonio, was represented by Daniel Geyser of the Dallas Office of Alexander Dubose & Jefferson. The online travel companies were represented by David Salmons of the D.C. Office of Morgan, Lewis, and Bockius. So both sides had very experienced Supreme Court counsel. And they brought their A game to this oral argument.

 

      Basically, as I mentioned, the petitioner's argument was that Rule 39(e) says that costs are taxable in the district court. And it lists four categories. Preparation, transmission of the record, reporter's transcript, premiums paid for a bond or other security to preserve rights pending appeal, and a fee for filing the Notice of Appeal.

 

      And basically, petitioner's argument is that taxable means -- implies capable of being taxed, not that it must be taxed by the district court, under Rule 39(e), but that it is capable of being taxed and thus implies some discretion in the district court as to what to tax. And their argument is that the Fifth Circuit's Sioux decision gives no discretion whatsoever, and thus is inconsistent with the plain meaning of Rule 39(e).

     

      The respondents responded with Rule 39(a), which gives the basic ground or default rules for taxing costs in an appeal. And the following rules apply, unless the law provides, or the court orders otherwise. And it's basically essentially loser pays the costs of the appeal, and then there's an option for when there's partial affirmance, partial reversal. And respondent argued that unless the court orders otherwise, and that's talking about the court of appeals.

 

      And so under respondent's reading of Rule 39, all of the discretion on whether to give costs resides in the court of appeals. And that is where a party ought to ask for that discretion. Not after the court of appeals has decided that question and then sent the matter of setting the amounts taxable under 39(e) back to the district court.

 

      The Chief started off the questioning with a question about why the Court shouldn't just leave the whole issue of Rule 39 and the precise process that the courts of appeals would use to the local rules of the courts of appeals, observing that it hadn't been much of a problem, but presumably they would have the bill of costs submitted to the clerk. If there was a problem, one side would object.

 

      If it was something that the court of appeals could resolve pretty easily, they would. If not, they would refer it to the district court. Or they might have a local rule that says, file your objections to the costs in 39(e) in the district court in the first instance and we'll take it up on an appeal. And why not just let local rules govern that process? Because either way, as long as it was clear it would work.

 

      Justice Thomas got to what I think would become part of a central feature of the oral argument, which was why didn’t the City of San Antonio proactively object to the supersedeas bond costs when the online travel companies filed their bill of costs in the court of appeals? And basically the City responded, well they had not requested those costs yet, and so they didn't know really when they were supposed to object to those. Do they do it in the merits brief? On rehearing? Do they do it when the bill of costs is filed?

 

      Justice Thomas continued asking about is this $2 million award something of an outlier and counsel agreed that it was. Justice Breyer, again, sort of echoed the Chief Justice's process for setting out in local rules that you file your bill of costs here. And if there's a dispute, then the court of appeals can take it up, or can refer it down to the district court. The City pretty strongly emphasized that it didn't know what the 39(e) disputes would be until after the court had decided who was entitled to costs under 39(a). And I think that got some traction with the Court.

 

      And then Justice Alito wanted to know how much discretion was allowed in the district court under the City's theory. And was asked, for instance, where you had a partial affirmance and partial reversal, could the -- if the court of appeals apportioned the cost 60/40, would the district court be allowed to revisit the apportionment? And also wanted to know why have the district court review a bond it had already approved under Rule 62 when the bond was initially authorized.

 

      And the City responded, well the district court may not know what alternatives there were to a supersedeas bond, other things that could have happened. And Justice Alito -- and then Justice Sotomayor got into the point, really, and this was Justice Sotomayor saying that it's really a due process problem, because it's when do you object, and the City takes the position,

 

      Sotomayor raised the point that they had an opportunity to ask the court of appeals, and why wasn't that good enough? And the city said, well there hadn't been a request for the supersedeas bond in the Fifth Circuit bill of costs. And so there was no reason to object to a cost that had not been requested. So Justice Sotomayor said, well it's really a due process problem and the City agreed with that.

 

      Justice Kagan was interested in discretion in the district court under Rule 1920(4) that -- and wanted to know what kind of discretion, was interested in the nature of the discretion that the district court could exercise properly under 39(e). And with 1920(4)'s background suggested that it was discretion to determine whether the amounts sought as cost were correct, and also to determine whether they were necessarily incurred. And the City emphasized that the appellate court would have to decide those kinds of things if they were to decide initially whether the supersedeas bond costs would be allowed in their entirety, they'd have to do that without a factual record.

 

      So Justice Gorsuch came back to the due process argument, again pressing why this was not raised just as a matter of proactively noting that the City did object to the supersedeas bond costs, at least wanting them reduced if not disallowed entirely. City's response was, well it hadn't been requested yet and so that's why we didn't object.

 

      Justice Gorsuch pressed Mr. Geyser, that you knew that that was coming. But the City responded that asking for an objection before the request is made for costs is unusual. But Justice Gorsuch, again, stressing that there was really no surprise to the City. They knew that there was a supersedeas bond. They knew it was large. And pressed the City about why this isn't the bed that they had made by failing to object when the bill of costs was initially filed in the court of appeals.

 

      Justice Kavanaugh suggested that the district court probably would have -- well would have discretion to determine the particular amounts that were allowable as costs, but no authority to reallocate. And everyone agreed, it seems, according to Mr. Geyser, everyone agrees that someone has discretion. Justice Kavanaugh said, well it's probably the court of appeals when it's allocating, but it's not looking at amounts. It's just allocating based on how the appeal went.

 

      Justice Breyer -- excuse me. Justice Barrett finally pressed again on the nature of the discretion that the court has under 39(e) when the bill of costs is submitted in the district court to determining correct and necessary. And she brought the point that basically, because of what the Fifth Circuit precedent in the Sioux case had done, that there were costs that were falling through the cracks because it was too soon to object when they hadn't been requested. But then in the district court, if you objected, there was no discretion under the Fifth Circuit precedent to have it heard. But again, there was, again, emphasis that there was not any surprise that the supersedeas bond costs were going to be sought in the district court.

 

      With the respondent's argument, as I mentioned, Mr. Salmons emphasized that Rule 39(a) directs that costs are taxed. And it's the court of appeals that decides under the respondent's reading of Rule 39, the district court can calculate, but has no discretion to disallow costs, other than as matters of calculous or perhaps out of finding that they were unnecessary.

 

      Respondent's criticized the City for giving the Court too much discretion and pressed pretty heavily that the district court has no power to award less than full costs. The Chief Justice followed up asking when does the party object to costs. And Mr. Salmons responded, well they can do it in the merits brief, or on rehearing, or at the bill of costs, an objection to the bill of costs. The Chief Justice thought the merits stage was pretty unworkable to ask someone to write their brief as to why they ought to win the appeal, but if we lose, divert over into why costs shouldn't be taxed.

 

      It seemed that Mr. Salmons said, well it could be done on rehearing, it could be done in the objection to the bill of costs that filed at the court of appeals stage. They had cited cases in their briefs on pages 41 and 42 of where that had been done in other circuits, all of those options had been followed.

 

      And Chief Justice made a point, picked up on one of the City's point, that the court of appeals wouldn’t know much about the Rule 39(e) categories of costs, preparation of the record transcript, premiums for the bond, that kind of thing. And basically boiled it down to, does the objection have to be done in the court of appeals first? Or in the district court. And I think a lot of the judges kept coming back to that. Basically this is, do you make your objection in the district court after it's back down for the bill of costs under 39(e) or do you have to make your objection to the supersedeas bond costs when the bill of costs is filed under Rule 39(d) with the court of appeals clerk.

 

      I think that's going to be where the -- really where -- because everybody kept coming back to that. I think that is going to be the central part of the decision and how far the Court thinks it is irregular to have a party object before it's been requested. But if it's not really a surprise, it's a foregone conclusion that the costs will be sought, ultimately, then it ought to be expected that they should be raised with the court of appeals, rather than the district court in the first instance.

 

      Justice Thomas, in his questioning of Mr. Salmons raised a point that was, I believe, was eluding to a point that had been raised in the United States amicus brief. The United States pointed out in a footnote in their brief that there was no statutory authority, other than Rule 39(e)(3) for awarding costs for the premiums of a supersedeas bond. It's not one of the categories that's authorized in Section 1920 of Title 28. And the United States had pointed out that the cities had waived any argument about costs not being allowed for lack of statutory authority.

 

      But Justice Thomas did ask counsel for the online travel companies whether there was any statutory basis for bond costs other than 39(e). And so I don't think the case will turn on that, but I think it is an interesting point as to whether that lack of reference to supersedeas bonds in Section 1920 might cast a shadow over supersedeas bonds in Rule 39(e)(3). And the response was, there wasn't statutory authority, but it had been done for many decades, since Rule 39, and thus it had generally been accepted practice.

 

      Justice Breyer, again, wanted to know how can they object when they don't know what you're going to ask for. And the response was basically, well they were involved in the process of approving and agreeing to the supersedeas bonds. They knew that it was going to come up. And they should have raised it with the court of appeals because that's where the discretion to decide things, like equitable entitlement to those costs ought to be decided.

 

      Justice Alito agreed that -- seemed to agree that bill of costs would be an objection to the bill of costs in the court of appeals would be the appropriate place for objections to a supersedeas bond to be made. Mr. Salmons pointed to a moor case out of the Second Circuit where that had been done. And Justice Alito said, so if you do an objection at the bill of cost stage in the court of appeals, then that gives the court of appeals to refer it back to the district court for any factual findings that would be necessary to decide the question.

 

      Sotomayor agreed that the only practical time for the objection really was in objecting to the bill of costs when it was filed with the circuit clerk. She, then, moved into an interesting point that gets along with her due process question. When would someone object when they genuinely were surprised by the amount of a request for costs? The example she used was preparation of a record that usually is not terribly expensive, but say it came back 10 times normal, they had no -- the party who was going to have to pay it had no idea that that was going to happen. Then when would they object when you don't know until after you had gotten back to the district court on Rule 39(e) and how does one get that corrected? And going back to objecting before a party has requested and the fairness of that.

 

      I'll move quickly through the end of the argument. Most of the justices seemed to agree that objecting at the bill of costs stage in the court of appeals was the most practical, if you're going to require it to be done in the court of appeals.

 

      And then Justice Barrett got Mr. Salmons to admit that there was some discretion in the district court in determining whether costs were necessarily incurred. Mr. Salmons finished with a pretty strong close that the drafters of Rule 39 had intended to make the cost of supersedeas bond ordinary costs, taxable just as a matter of form, like other costs. And thus, there was no need to rewrite Rule 39 to provide a second round of discretion for the district court.

 

      Another point that he emphasized was that the district court really had already had an opportunity to exercise its discretion in approving the supersedeas bond to begin with. And so there was no need for a second round of that discretion in the district court. And if the party paying costs had a problem with the supersedeas bond, they should raise it in their objection to the bill of costs at the court of appeals.

 

      Interesting oral argument. All of the justices seemed very engaged on it. And I left it, not knowing which way the Court was going to go on it. So I'll be happy to answer any questions that you might have.

 

Nick Marr:  Thanks so much, Dean Campbell. We're now going to open the floor to audience questions. And while we're waiting, Dean Campbell, that was a great overview. My go-to question is usually where do you think this is going. What do you think the ruling is going to be, but you addressed that in your last point. You're not really sure. And sometimes the interesting ones are when you don't know.

 

Dean Charles Campbell:  Yeah, I think everyone -- everyone agreed that there needed to be -- there was discretion. And the respondent's point was, but the discretion reside with the court of appeals. That's where you should raise the issue.

 

      And I think what was giving members of the Court pause was that since supersedeas costs aren't sought until the bill of costs is filed in the district court, after the court of appeals is done, then you're asking somebody to object to something that hasn't even been requested yet. And how is that fair?

 

      And I couldn't tell where the -- because they were saying, you know it really isn't a surprise in this case because you participated in approving the supersedeas bond before it was allowed by the district court. You could argue that any surprise was harmless because they knew it was coming. But it's very unusual to say that you ought to proactively anticipate, and go ahead and object beforehand.

 

Nick Marr:  So it looks like your review was so comprehensive that we have no questions about it. I'll send it back to you if you want to close out a little bit early. Oh, and we just got a question, actually. Great timing.

 

Caller 1:  Yes sir. So can you comment on some issues that are beyond the scope of what we're looking at this call?

 

Dean Charles Campbell:  Well, I won't know until you ask. But I'm happy to try.

 

Caller 1:  This is a very controversial issue. But how is it that our President can comment on a trial as it's ongoing and is a member of a state bar? How is that even --

 

Nick Marr:   I'm sorry, caller, I didn't get the first part of your question. But we like to keep these generally to the issues at hand that we're covering. So if we do have a Teleforum program on that topic, you can feel free to call in and ask that question. But again, seeing none, Dean Campbell, oh actually, we have another question.

 

Dean Charles Campbell:  Okay.

 

Caller 2:  If it were up to you to write, how would you decide it?

 

Dean Charles Campbell:  I am uncomfortable with requiring the losing litigant on appeal to anticipate what will be requested in the district court before it's requested and object before it's been requested. And so I think, given the way the Rule 39 is structured right now, I think there ought to be an opportunity for the party that lost on appeal and is going to pay costs to object to costs in the district court when the district court is proceeding under Rule 39(e).

 

      Now I don't think everybody agrees that ought to happen. And the question is, do you make the party raise that first in the court of appeals? And although I agree that there's no much surprise. They had to know that the request for supersedeas bond was coming. But when it hadn't been requested yet, I think it's unusual to require the party to anticipate issues that are going to come down the road. That there ought to be an opportunity for that objection to be made in the district court under Rule 39(e). The district court can rule on it and then it can be reviewed on appeal back in the court of appeals.

 

      I think the easiest thing here, of course, would be to just simply amend Rule 39 to say that when you file a bill of costs, and this would be 39(d), objections -- this is 39(d)(2), it says objections must be filed within 14 days after service of the bill of costs unless the court extends the time. A sentence saying that all objections to costs in the bill of costs and to any costs that may be taxed, if you were to put a party on notice that they need to go ahead and do that, to the 39(e) categories, as well, there would be no notice problem. 

 

      But there does seem to be the potential for unfair surprise, so it seems to me there ought to be an opportunity to object to the supersedeas costs, or any of the other Rule 39(e) costs when they are, in fact, requested down in the district court.

 

Nick Marr:   Great. Let's go to our next questioner, now.

 

Bob Fitzpatrick:  Bob Fitzpatrick here in D.C. First of all, thank you for a terrific presentation. I love the level of detail that you've shared with us. I'm interested in Justice Thomas's question and would like to ask you, is that a signal to practitioners as to, hey, guys you ought to be raising this issue in the future because there is no necessary [inaudible 00:34:21].

 

Dean Charles Campbell:  Well, I wondered about that. He did not refer specifically to the U.S. amicus brief, but having seen it there, I thought it was interesting that the United States raised, and then I thought it was very interesting that he asked about statutory authority for awarding costs of supersedeas bonds. And got concession that the only authority for it is in Rule 39(e)(3), which generally, the rule when you have a conflict -- or it's really not a conflict as much as you have no mention of it in the statutes. You have a later adopted rule that does mention it. Then the later adopted rule can control on procedural issues.

 

      And one question is, generally, you think about costs as being a procedural issue. But we're talking nearly $2 million. And I think it then becomes a question of does Rule 39 effect a substantive right to reimbursement of costs in granting that right that was not there under Section 1920(4). And if that is the case, then is this a potential problem under the Rules Enabling Act 2072(b). Have they [inaudible 00:35:57] a substantive right in a rule of procedure.

 

      And I don't pretend to know the answer to that question because I just have not thought about it in enough depth. But I can see arguments for it being substantive or for it being a merely procedural right that could be superseded by the rule. I can see that both ways and I don't know. I'll have to think about that a lot more.

 

Bob Fitzpatrick:  Putting aside your -- and I agree with you about kind of getting jumped by a big bill after you give an objection in the court of appeals does seem unfair. But wherever a court says the objection is to be raised, you seem to be saying that if there's potentially a lot of money at stake, good practice now should be to take your signal from Justice Thomas and the government's amicus brief and raise this issue and take it up to the court of appeals, or take it to the court of appeals depending upon where this objection can be made.

 

Dean Charles Campbell:  Yeah. I think a party should, I mean, subject to further research of course, but I would think that some parties are going to start adding that lack of statutory authority and lack of authority under the Rules Enabling Act for Rule 39(e)(3) to add a substantive right to reimbursement of our supersedeas bond costs. I think an objection will be made here before long.

 

Bob Fitzpatrick:  Thank you very much.

 

Dean Charles Campbell:  Yes sir.

 

Nick Marr:  All right great. Well, I've noticed some people have been dropping off so maybe we'll get another one. If one comes up, I'll let you know, Dean Campbell. But in the meantime, maybe we'll close out a little bit early and you might offer some closing remarks.

 

Dean Charles Campbell:  Well, you know obviously, it's April already, so I can't imagine having an opinion in this before June. I don't know that it's [inaudible 00:38:18] procedural cases. I don't think it's one that they'll have to wrestle with until the last week of June. But it will be very interesting to see what the Court does and then see how the Rules Committee -- if the Rules Committee finds that there's a need to revisit the text of Rule 39 to add greater clarity, or whether the Court is able to basically tell the courts of appeals, make your process clear in your local rules and essentially solve the problem that way.

 

Nick Marr:  Well, that sounds great and a great note to close on. Well, on behalf of The Federalist Society, I'd like to thank you, Dean Campbell, for the benefit of your valuable time and expertise this afternoon. To our audience for calling in for your good questions.

 

      As always, we welcome your feedback by email at [email protected]. Also check your emails and our website for announcements about upcoming teleforum calls. I have it on good authority that we have one coming up here around 3:00. Until next time, everyone have a great rest of your day. We are adjourned.     

 

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Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.