Commercial Litigation and Arbitration

Cost of Letter of Credit Required to Support Supersedeas Bond Not a Taxable Cost under FRAP. 39(e) Even Though Cost of Bond Is and Cost of LOC in Lieu of Bond Would Be — Circuit Split

Hynix Semiconductor Inc. v. Rambus, Inc., 2012 U.S. Dist. LEXIS 3552 (N.D. Cal. Jan. 11, 2012):

The district court may tax "premiums paid for a supersedeas bond or other bond to preserve rights pending appeal." Fed. R. App. P. 39(e)(3). Hynix claims in excess of $8 million in premiums paid for the supersedeas bond it acquired, and in excess of $8.3 million in other security expenses related to acquiring the bond. With respect to the other security costs, Hynix asserts that given the global economic climate when it attempted to obtain the original bond in 2009, Hynix was required to provide standby letters of credit (or the equivalent) in an amount equal to the original bond. Hynix also was required to provide standby letters of credit (or the equivalent) for the full amount of the increased bond. Rambus contends that these other security expenses are not recoverable under Rule 39(e)(3), and that even the premium expenses themselves are excessive.

The circuits are split as to whether security costs, as opposed to bond premiums, may be recovered under Rule 39(e)(3). A number of courts have held that such costs may be recovered. See, e.g., Republic Tobacco, 481 F.3d at 450 (permitting recovery of costs incurred in obtaining security in lieu of a supersedeas bond); Bose, 806 F.2d at 305 (permitting recovery of both bond premium and cost of letter of credit); Dana Corp. v. IPC Limited Partnership, No. 90-1443, 1991 WL 5890, at *2-3 (Fed. Cir. Jan. 25, 1991) (permitting recovery of same). While this court finds the rationales underlying these decisions appealing, it is bound to follow Ninth Circuit authority. See Dana Corp., 1991 WL, at *2 n.2. In Johnson v. Pacific Lighting Land Co., 878 F.2d 297 (9th Cir. 1989), the Ninth Circuit framed the question before it as follows: "This case of first impression involves the question of whether the costs of a letter of credit used to secure a supersedeas bond are properly taxable as costs of the appeal." Id. at 297. It is clear from the opinion that, like Hynix, the appellant in Johnson was required to obtain a letter of credit as security in order to obtain the supersedeas bond necessary to stay execution of the judgment. Id. The appellant was successful on appeal; the appellate court reversed the judgment, remanded the case for trial, and ordered that appellate costs be taxed. Id. Nonetheless, the Ninth Circuit held that the costs of the letter of credit were not taxable under Rule 39(e)(3). Id. at 298. In noting that the First Circuit had permitted taxation of such costs in Bose Corp. v. Consumers Union of U.S., Inc., 806 F.2d 304 (1st Cir. 1986), the Ninth Circuit commented that: "[w]here a letter of credit has been used and the total cost has been no greater than a supersedeas bond without collateral, the charge for the letter of credit has been treated as the equivalent of premiums paid for the cost of a supersedeas bond." Johnson, 878 F.2d at 298. The court distinguished Bose by stating that in the case before it "the costs paid for the letter of credit were in addition to the costs of the premiums paid for the supersedeas bonds." Id. The court concluded that there simply "was no authorization in Rule 39 for such costs," and that "[i]t was an abuse of discretion to allow them." Id. In accordance with the holding in Johnson, Hynix's security expenses other than the bond premiums are not taxable.

However, the bond premiums themselves fall squarely within Rule 39 and, therefore, are recoverable. Rambus contends that Hynix paid excessive rates for the supersedeas bond. In support of this contention, Rambus submits the declaration of E. Allen Jacobs, who has a Ph.D. in economics. Jacobs discusses in great detail the declarations of Yoo Ho Roh submitted in support of Hynix's costs bills, and opines about numerous shortcomings in the manner in which Hynix obtained and maintained the supersedeas bond. Hynix relies upon the Roh declarations and the exhibits attached thereto to prove that it struck the best deal it could given the economy in 2009, when it obtained the initial bond, and its relatively weak bargaining position. See, e.g., Second Suppl. Decl. of Yoo Ho Roh ¶¶ 4-8. Hynix was able to get better terms on the increased bond. Id. ¶ 13. Although the evidence is conflicting, the court is not persuaded that Hynix could have obtained the supersedeas bond on more favorable terms. It appears that Hynix was highly motivated to obtain the bond on the best terms possible, but that it was presented with a number of hurdles that were costly to overcome. Based upon this record, the court declines to deny or reduce Hynix's recovery of the premium costs.

Finally, Rambus requests that the court reduce any award of bond premiums to reflect the fact that Hynix prevailed only partially on appeal. As discussed above, the court finds Rambus's "proportional success" argument persuasive with respect to Hynix's transcript costs; those costs were dictated by Hynix's choices as to the scope of its appeal and the necessity of certain transcripts. However, Hynix had no choice but to post the full amount of the supersedeas bond required by the court. Rambus has not cited, and this court has not found, any cases holding that bond premiums subject to taxation under Rule 39(e) should be reduced to reflect the prevailing party's proportional success on appeal. Hynix has presented substantial evidence that the premiums were necessary and reasonable under the circumstances. Accordingly, the court will tax costs in the amount of the total bond premiums paid by Hynix through discharge of the bond.

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