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Loser Pays: Cost-Shifting In The Third Circuit

By James M. Beck and Mark Herrmann

OK, we admit it. The title was a bit of a tease, and we realize that any plaintiffs? lawyers who read no further may flood us with comments like ?where do you think we are ? England?? So just to be clear: this post does not talk about a successful defendant recovering attorney?s fee awards, even though we may think that is a fine idea to curb some of the litigation abuse and baseless claims we see on a daily basis in the mass tort world.

But the recent Third Circuit decision in Reger v. Nemours Found., Inc., __ F.3d __, 2010 WL 1135800 (3d Cir. Mar. 26, 2010) is still interesting to us, even though it?s a med mal case, for what it says about an award of costs to the victorious defendant pursuant to Federal Rule of Civil Procedure 54(d). Awards of costs typically do not include the ?big ticket? items like attorney?s fees, deposition costs, expert fees, and trial support. In fact, in the two Nemours cases that were consolidated for appeal, the costs awarded amounted to only about $5,000 in one case and $21,500 in the other (although those plaintiffs claimed the cost award represented approximately 20% of their annual income). Certainly not chump change, but we?d imagine costs of defense were a wee bit higher than that. Rule 54(d)(1) states that costs ?should be allowed to the prevailing party,? and the losing plaintiffs ?did not contest the reasonableness of the items claimed,? Reger, 2010 WL 1135800, at *1 ? so why did the 3rd Circuit have to get involved in a pro forma cost award?

Well, the plaintiffs/appellants raised two core complaints. First, they thought the district courts should have written an opinion when affirming the clerk?s award of costs. That?s not the interesting part; there should be nothing controversial about a court affirming the clerk?s award ? it happens every day ? and so no opinion is necessary. The court only needs to articulate its reasons if it exercises discretion to deny or reduce a cost award.

But the bigger issue ? and the one that interests us ? arose because plaintiffs argued that it would be unfair to assess costs given the financial disparity between the parties. Id. at *1-2. Plaintiffs complained that Third Circuit precedent should be overruled because it ?effectively eliminated a party?s relative ability to pay as a consideration a district court may use in denying or reducing an award of costs.? Id. at *2. The Third Circuit rule is that a district court may consider things like true indigency and inability to pay when modifying a cost award, but mere wealth disparity is not enough to warrant a reduction. Id. at *2 n.3. Any other rule, of course, would amount to open season on any and all cost petitions filed by prevailing corporate defendants.

Of course, plaintiffs raised the specter (or spectre, since we?re being accused of anglophilia), of a ?chilling effect? on med mal and personal injury cases should filthy rich defendants be allowed to collect costs from poor little plaintiffs. Id. at *3. The Third Circuit wasn?t moved by this impassioned plea, seeing nothing ?chilling? whatsoever about a prevailing party seeking the costs to which it is entitled under Rule 54(d). In fact, the court suggested that maybe, just maybe, parties should ?pause and calculate the risk of pursuing meritless or marginal claims.? Id. The prevailing party?s entitlement to costs should come as no surprise to anyone who has ever read the Rules of Civil Procedure. So listen up, plaintiffs? lawyers, because the Third Circuit just sent you a pretty simple message: next time you decide to roll the dice with an iffy case, ?it is incumbent? on you to ?explain the risks of litigation? to your client ? including the risk that they have to shell out costs when they lose. Id. No, it?s not fee-shifting ? but at least it?s something.

Full post as published by Drug and Device Law on March 31, 2010 (boomark / email).