Kelley v. BMO Harris Bank N.A., as successor to M&I Marshall and IIsley Bank

Background

Douglas A. Kelley, acting as trustee of the BMO litigation trust, had sued BMO Harris Bank N.A., as successor to M&I Marshall and Ilsley Bank. A jury found for the trustee and awarded more than $500 million. The Eighth Circuit reversed that result and remanded with directions to enter judgment for BMO, holding that the equitable defense of in pari delicto barred the trustee’s action under Minnesota law.

After the appeal, BMO filed two bills of costs. Under Federal Rule of Appellate Procedure 39(e), BMO sought $3,112,364.71 in appellate costs, including $3,092,267.21 in appellate bond premiums. The Clerk taxed $3,109,808.26 against the trustee. Under Federal Rule of Civil Procedure 54(d) and the District of Minnesota’s local rule, BMO also sought $23,287.82 in district-court costs, and the Clerk allowed $16,563.09.

The trustee asked the court to review both cost judgments. He argued that appellate bond premiums were not taxable because they are not listed in 28 U.S.C. § 1920. He also argued that awarding BMO district-court costs would be inequitable because of BMO’s litigation conduct, including conduct related to spoliation of evidence.

Appellate Bond Premiums

The court rejected the trustee’s legal challenge to the appellate bond premiums. Although § 1920 does not list appellate bond premiums among the costs that may be awarded, Rule 39(e) expressly provides that premiums paid for a bond or other security to preserve rights during an appeal are taxable in the district court. The court followed the decisions holding that Rule 39(e) authorizes taxation of those premiums.

The court also noted that the Eighth Circuit had affirmed a district-court order taxing appellate bond premiums, even though it had not directly addressed the conflict between § 1920 and Rule 39(e). The court concluded that the trustee’s cited authorities did not support a different result. One Supreme Court decision acknowledged the issue but declined to decide it, and another decision did not address appellate bond premiums and was later characterized as containing an overbroad statement in dicta.

District-Court Costs

The court explained that prevailing parties generally have a strong presumption in favor of recovering taxable costs, although district courts have substantial discretion to reduce or deny costs when an award would be inequitable. The losing party bears the burden of showing that an award is inequitable.

The court found the trustee’s argument unconvincing. It acknowledged that the Bankruptcy Court had imposed spoliation sanctions against BMO and that the district court had affirmed that ruling. But the court found a counterbalancing consideration: BMO had previously moved to dismiss the adversary proceeding based on in pari delicto, and that argument had been rejected at the time. In light of the Eighth Circuit’s later ruling, the proceeding should have been dismissed on that ground earlier, before BMO incurred the district-court costs at issue.

The court also declined to reduce transcript costs based on the trustee’s claim that some hearings were necessitated by BMO’s spoliation. The trustee did not identify how much of the awarded transcript fees related to those hearings. The Clerk had not awarded transcript costs for two witnesses identified by the trustee, and the trustee did not specifically challenge the $375.66 hotel cost awarded for another witness.

Disposition

Judge Eric C. Tostrud denied the trustee’s Motion to Review Clerk’s Taxation of Costs. The court affirmed the Clerk’s cost judgments of $3,109,808.26 and $16,563.09 for BMO.