Court: Supreme Court of Minnesota; August 16, 2017; Minnesota; State Supreme Court
A jury awarded Alan Klapmeier $10 million in damages after finding that Cirrus Industries, Inc. breached a non-disparagement clause. The court of appeals later reversed this verdict and partially granted Cirrus's request to tax costs, awarding Cirrus $671,863.88, primarily for interest accrued on a loan taken to secure a supersedeas bond during the appeal. Klapmeier contested the taxation of this interest, seeking review under Minnesota Rules of Civil Appellate Procedure 117 and a writ of prohibition under Rule 120. The court determined that while Rule 117 does not allow for review of such taxation decisions, it does have discretionary authority under Rule 120 to grant a writ. Ultimately, the court concluded that the taxation of borrowing costs is not permitted under Minnesota Rule 139 in this case. Consequently, the court granted the writ of prohibition, reversed the court of appeals' decision regarding cost taxation, and instructed the Clerk of the Appellate Courts on the appropriate taxation of costs and disbursements. The case background includes Klapmeier's removal from Cirrus in 2008, a settlement in 2011, and subsequent legal actions leading to the jury verdict in 2014 and the appeals that followed.
Cirrus requested $192,000 for bond costs and $743,750 for borrowing costs related to a supersedeas bond and a loan from an affiliated entity. Klapmeier opposed this request, arguing that Minnesota law does not permit taxation of interest payments and that Cirrus's borrowing costs were effectively self-funded, implying no real expenses were incurred. Klapmeier sought discovery and an evidentiary hearing, which the court of appeals denied, citing lack of authorization under appellate rules. The court allowed some bond premium payments and reduced other disbursements but permitted $542,583.33 in borrowing costs, ruling Klapmeier failed to prove these costs were excessive. Klapmeier petitioned for review and a writ of prohibition, asserting the court of appeals' taxation deviated from Minnesota law. The court noted it has the authority to review any court of appeals decision but highlighted that appeals on cost taxation are typically not permitted under Rule 139.04. Cirrus contended that reviewing these taxation decisions would contradict the rule's language and that a writ of prohibition was inappropriate since the court had not exceeded its authority in taxing allowable costs.
Interpretation of the Rules of Civil Appellate Procedure is a question of law reviewed de novo. The plain language of procedural rules is followed, and each rule is interpreted in context to avoid redundancy. The court has broad discretionary authority to review any court of appeals decision, but this is limited by Rule 139.04, which prohibits appeals regarding the taxation of costs and disbursements. Specific provisions generally take precedence over general rules, as established by Minnesota statutes. While the court has declined to review decisions on costs and disbursements under Rule 117, they have granted a writ of prohibition under Rule 120 in cases where alternative remedies are inadequate. This writ serves as a potential avenue for relief concerning court decisions on costs and disbursements, supported by precedent from Dargi v. City of Golden Valley.
The petitioner in Dargi sought a writ of mandamus to compel the court of appeals to tax specific costs and disbursements. While acknowledging that Rule 139.04 and precedent prohibit appeals from such taxations via petition for review, it was determined that a writ of mandamus is an appropriate mechanism to contest a failure to award these costs. This extraordinary writ serves as a remedy when traditional appellate review is unavailable or ineffective. The court indicated that a writ of prohibition is similarly available under certain circumstances to challenge appellate court decisions regarding cost taxation.
To issue a writ of prohibition, three criteria must be met: (1) the district court must be exercising judicial power; (2) this exercise must be unauthorized by law; and (3) it must result in injury without an adequate remedy. In this case, the first and third requirements were satisfied, as the order to tax costs constitutes an exercise of judicial power and cannot be reviewed by standard means. The primary question remaining was whether the taxation of borrowing costs related to securing a supersedeas bond was lawful.
According to Minnesota Rule of Civil Appellate Procedure 139.02, the prevailing party is entitled to disbursements necessarily paid or incurred, and supersedeas bonds qualify as appeal costs. However, it has not been definitively ruled whether "disbursements necessarily paid or incurred" includes the interest on loans for securing such bonds. Although Cirrus acknowledged that the rule does not explicitly permit the taxation of borrowing costs, it argued for their inclusion based on the treatment of other disbursements typically taxed, despite their absence in the rule's language.
The only disallowed disbursement is the cost associated with preparing informal briefs as specified in Minn. R. Civ. App. P. 139.02. Cirrus contends that this limitation implies all other disbursements are taxable. However, the court disagrees, stating that Cirrus misinterprets the phrase “necessarily paid or incurred.” Taxation requires more than just demonstrating that an expense was paid; it necessitates that the expense be essential to the appeal process.
Key expenses like filing fees, transcript costs, and briefing expenses are deemed necessary for advancing an appeal. For instance, a filing fee is required to initiate an appeal, and a transcript is crucial for raising issues about sufficiency of evidence. Similarly, timely filing of briefs is mandatory to avoid dismissal of the appeal. Even bond premiums may be necessary if required by a district court for staying judgment during an appeal.
Conversely, borrowing costs lack a direct connection to the appeal process. These costs are influenced by the borrower's unique financial circumstances and decisions, such as interest rates and loan terms, rather than the appeal itself. Therefore, borrowing costs cannot be classified as “necessary” expenses related to the appeal. The court emphasizes that allowing such costs to be taxable would complicate the determination of what constitutes necessary disbursements, as they stem from individual financial decisions rather than the appeal's requirements.
In complex corporate financing environments, tracing the origin and nature of interest expenses can be challenging. The California Supreme Court, in Rossa v. D.L. Falk Constr. Inc., noted that interest charges can vary significantly based on multiple factors, making them unpredictable and potentially substantial. Courts generally agree that borrowing costs are not necessary for an appeal and thus not taxable. For instance, the Second Circuit ruled that borrowing expenses for collateralizing a bond cannot be taxed alongside bond premiums. Conversely, the Seventh Circuit allowed such costs when they substituted for bond premiums. The First Circuit upheld the taxation of letter of credit costs for a bond, provided those costs were reasonable and did not exceed other bond expenses. Following these precedents, the Ninth Circuit ruled that borrowing costs related to securing a supersedeas bond were non-taxable without mutual party agreement, equating them to bond premiums. The California Supreme Court similarly denied taxation for interest expenses related to borrowing funds for a letter of credit intended for an appeal bond, despite existing rules allowing recovery of surety bond costs. Consequently, it was concluded that interest on loans for supersedeas bonds is not a taxable appeal expense. The writ of prohibition was issued, reversing the court of appeals' decision allowing taxation of Cirrus Industries’ borrowing costs, and directing the Clerk of the Appellate Courts to tax costs and disbursements accordingly. Additionally, the district court initially mandated Cirrus to post a $10 million bond but later permitted Cirrus to choose between different forms of a $12 million bond or check to account for interest during the appeal.
Klapmeier contends that his due process rights were violated by the court of appeals due to the denial of discovery and an evidentiary hearing on the reasonableness of costs claimed by Cirrus. However, he did not present this due process claim in the court of appeals, nor did he challenge the denial in his petition for review or alternative petition for a writ of prohibition. Consequently, the court will not consider these arguments. It is noted that generally, issues not raised in a petition for review will not be addressed. While recognizing that extraordinary writs can be used to challenge taxation decisions, the court emphasizes that such decisions are typically final and that petitions for extraordinary writs are rarely granted. Klapmeier's request to deny Cirrus's costs based on arguments regarding borrowing costs was not raised in his petition for review, and he acknowledges that other expenses incurred by Cirrus are generally taxable. The court limits its review to the taxation of Cirrus's borrowing costs, asserting that the Clerk of the Appellate Courts shall tax various costs, including bond premiums. It clarifies that the necessity of bond premiums is determined by the court's order, not the party's financial situation.
The dissent's criticism focuses on the distinction between bond premiums and borrowing costs, arguing that bond premiums can be avoided if a party allows judgment to be entered during an appeal. Although the taxability of bond premiums is not contested, the dissent’s argument that these premiums are unnecessary undermines its claim that borrowing costs for obtaining a supersedeas bond are taxable as necessary expenses. The document provides an example where some parties might choose to finance appeal-related expenses through loans or credit cards, which, despite being necessary costs, do not lead to taxation of the borrowing costs incurred. While some courts have allowed taxation of costs tied to letters of credit, the prevailing rule here does not permit taxation of borrowing costs as necessarily incurred in an appeal. The California Supreme Court has since amended its rule to allow for such taxation. The dissent also suggests that this ruling conflicts with federal precedent, which does allow for the taxation of borrowing costs under limited circumstances, but generally upholds that borrowing costs are not taxable. The majority disagrees with the dissent’s concerns that this ruling might deter parties from pursuing appeals, emphasizing the potential rewards of doing so. Additionally, the dissent claims that fees for letters of credit are routinely taxed in Minnesota, but this assertion is not substantiated and does not need resolution at this time. The majority concludes that the dissent's policy arguments lack support in the rule's plain language, indicating that any significant expansion of taxable costs on appeal would require a formal amendment to the rule.
