Commercial Litigation and Arbitration

Rule 26(b)(4)(E) Supersedes 28 U.S.C. § 1821 and Authorizes Award of Expert Fees and Expenses Over § 1821’s Cap — Appellate Brief Filed within 30 Days of Appealed Order = Additional Notice of Appeal for Issues Unmentioned in Original Notice

Halasa v. ITT Educational Servs., 2012 U.S. App. LEXIS 16930 (7th Cir. Aug. 14, 2012):

ITT Educational Services is a for-profit corporation that runs "ITT Technical Institutes" in several locations throughout the United States, including Lathrop, California. Plaintiff Jason Halasa was the Lathrop Campus's College Director for six months in 2009. The parties provide competing accounts of the end Halasa's tenure: ITT says that Halasa was fired for exhibiting poor management skills and delivering inadequate results; Halasa alleges that he was fired in violation of the False Claims Act, 31 U.S.C. § 3730(h), after identifying and reporting several irregularities in the way ITT was handling its federally subsidized loans and grants for students. We conclude that even if Halasa did engage in protected conduct under the Act, he has not shown that he was fired because of this conduct. Thus, we affirm the decisions of the district court granting summary judgment and costs in ITT's favor.***

Halasa also appeals from district court's decision requiring him to pay costs in the amount of $33,401.04 pursuant to 28 U.S.C. § 1920, and another $2,975.00 under Federal Rule of Civil Procedure 26(b)(4)(E)(i) for the deposition fees of an expert witness, Dr. Gerald Lynch. We first address our appellate jurisdiction over this part of the case, and then the merits of the two orders.


*** Halasa's notice of appeal predates the district court's order for costs and is thus not effective as to that order. See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 468 (7th Cir. 1999) ("The notice of appeal from the order dismissing their suit could not bring up an order entered later.").

The notice of appeal, however, is not the only document that can satisfy the requirements of Appellate Rules 3 and 4. As the Supreme Court stated in Smith v. Barry, 502 U.S. 244, 248-49 (1992), "[i]f a document filed within the time specified by Rule 4 gives the notice required by Rule 3, it is effective as a notice of appeal." See also In re Turner, 574 F.3d 349, 354 (7th Cir. 2009) ("[R]equirements for perfecting an appeal that do not involve deadlines are not jurisdictional"). Thus in Smith the Court ruled that a timely filed appellate brief substituted for a properly filed notice of appeal. Here, Halasa's opening appellate brief was filed within 30 days of the district court's costs order, and it clearly gives notice of his intent to contest that ruling. We therefore have jurisdiction over this aspect of Halasa's appeal.


Halasa's appeal from the costs order presents a novel question: How should we reconcile provisions in the federal rules providing for the cost-shifting of expert discovery with statutes that impose limits on payable fees for expert witnesses? Formally, this requires us to consider whether the payment provisions of Federal Rule of Civil Procedure 26(b)(4)(E) supersede, by force of the Rules Enabling Act, 28 U.S.C. § 2072(b), the rules set forth in 28 U.S.C. § 1821, which governs witness expenses. The costs ITT would like to have reimbursed are for Lynch's deposition preparation, travel to and from his deposition, and time spent reviewing his deposition transcript.

The Rules Enabling Act authorizes the Supreme Court to "prescribe general rules of practice and procedure," 28 U.S.C. § 2071, and further provides that "[a]ll laws in conflict with such rules shall be of no further force or effect." Id. at § 2072(b). In order to ascertain the combined effect of Rule 26(b)(4)(E) and § 1821, we must first determine whether the payment provisions in Rule 26 postdate the relevant provisions of 28 U.S.C. § 1821. See Jackson v. Stinnett, 102 F.3d 132, 135 (5th Cir. 1996) (The supersession clause trumps "only statutes passed before the effective date of the rule in question."). If this part of Rule 26 went into effect after the statute was passed, then we must decide whether there is a conflict between the rule and the statute. See Collins v. Gorman, 96 F.3d 1057, 1059 (7th Cir. 1996). If there is such a conflict, then under the supersession clause, the rule controls; if there is no conflict, then we must determine how to apply both the rule and the statute.

The first question is readily answered. As the Supreme Court explained in Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 439-40 (1987), Congress in 1793 "enacted a general provision linking some taxable costs . . . to the practice of the court of the State in which the federal court sat." Dissatisfied with the widely divergent practices that persisted through the mid-nineteenth century, Congress passed the Act of Feb. 26, 1853, 10 Stat. 161, which comprehensively regulated fees and costs in the federal courts. Crawford Fitting, 482 U.S. at 440; see also Taniguchi v. Kan Pac. Saipan, Ltd., 132 S. Ct. 1997, 2001 (2012). Those "sweeping reforms" have "carried forward to today," with occasional modifications by Congress. Crawford Fitting, 482 U.S. at 440. Notably for our purposes, Congress amended § 1821 in 1959 specifically to include "the taking of a deposition pursuant to any rule of a court of the United States." Thus, since 1959 the limitations on reimbursement set forth in § 1821 have applied not only to trial witnesses, but also to deposition witnesses. (This disposes of the timing issue that the parties have debated: if § 1821 applies, then it would govern any award of fees, whether the motion was made at the pre-trial stage, during the trial, or post-trial.)

By contrast, the provisions now appearing in Civil Rule 26(b)(4)(E) for the payment of expert witnesses in discovery were added after the 1959 amendment to § 1821. Subsection (b)(4) to Rule 26 was introduced with the 1970 amendments to the Civil Rules; it required a court to issue an order "that the expert be paid a reasonable fee for time spent in responding to discovery" and "that the party whose expert is made subject to discovery be paid a fair portion of the fees and expenses . . . incurred." See Fed. R. Civ. P. 26, adv. comm. n. (1970 Amendment). These provisions took on their current form in 1993, after a major set of revisions, and were then renumbered as subsection (b)(4)(E) in the 2010 amendments. Fed. R. Civ. P. 26, adv. comm. nn. (1993 Amendments, 2010 Amendments). In short, because the relevant statutory provision was enacted in 1959 and the relevant rule was promulgated in 1970 (and revised in 1993), the rule prevails over any inconsistent part of the statute.

But is there a conflict? There is surprisingly little law on this issue. The case that comes closest to addressing this issue is from the D.C. Circuit, but that court never squarely confronted the question now before us. It noted that "§ 1821(b) does in fact limit witness fees to $40 per day," Haarhuis v. Kunnan Enter., Ltd., 177 F.3d 1007, 1015 (D.C. Cir. 1999), but then it went on to assume the answer to the question before us: whether that limit carries over to an award made under Rule 26 (then Rule 26(b)(4)(C)). After noting that the expert there was seeking fees under Rule 26, it apparently found that § 1821 was irrelevant, and then went on to conclude that the award of a fee based on the expert's normal charge of $300 per hour for the time he spent "responding to the opposing party's discovery request" was "reasonable." Id.; see also Trepal v. Roadway Express, Inc., 266 F.3d 418, 426-27 (6th Cir. 2001); Anderson v. City of St. Louis, 220 F.3d 898, 905 (8th Cir. 2000); Louisiana Power & Light Co. v. Kellstrom, 50 F.3d 319, 332-33 (5th Cir. 1995). The district courts have taken different approaches to the way in which § 1821 applies to motions for costs under Rule 26(b)(4)(E) when those particular items are also addressed in § 1821. Compare, e.g., United States v. Davis, 87 F. Supp. 2d 82, 91 (D.R.I. 2000) ("no need to depart from th[e] rule" set out in Crawford Fitting in the context of Rule 26, and therefore limiting attendance fees to $40 per day); Hm v. City of Creve Coeur, No. 4:07-CV-00946, 2010 WL 1816693 at *2 (E.D. Mo. May 4, 2010) with Jorden v. Steven J. Glass, MD, No. 09-1715, 2010 WL 3023347 at *3 (D.N.J. July 23, 2010) (distinguishing between fee payable to deposition witness under § 1821 and fee payable to expert deposition witness under Rule 26(b)(4)).

There are respectable arguments both for reconciling the rule and the statute and for finding a conflict that would require giving precedence to the rule. The former conclusion would flow from literal adherence to Crawford Fitting, under which one would find that Rule 26 authorizes recoupment of expenses and § 1821 simply caps the amount that may be awarded. Crawford Fitting involved the computation of costs taxable under Rule 54; in that context, the Court found a way to harmonize the rule and the statute. It held that the effect of the "language and interrelation" of § 1821 and Rule 54 (directing the entry of costs for a prevailing party) was (1) that the rule "provides that the cost shall be taxed against the losing party," (2) that another statute - -28 U.S.C. § 1920 -- directs that witness fees were among the costs that could be taxed, and finally, (3) that "§ 1821 specifies the amount of the [witness] fee that must be tendered." 482 U.S. at 441. Although Rule 54 and Rule 26 provide distinct avenues of cost recovery, Chambers v. Ingram, 858 F.2d 351, 360-61 (7th Cir. 1988), the same methodology might apply to both, especially because nothing in § 1821 limits its rules to awards to prevailing parties. Under this view, one would say that Rule 26(b)(4)(E) directs a district court to "require" the payment of a reasonable or fair fee to compensate the expert for time spent in responding to discovery, Fed. R. Civ. P. 26(b)(4)(E), but that the amount recoverable for certain components of the expert's expenses is dictated by statute. Section 1821 sets a mandatory cap on certain specified costs related to the taking of a "deposition pursuant to any rule or order of a court of the United States." 28 U.S.C. § 1821(a)(1). Those costs include an attendance fee of $40, actual expenses of travel, and a subsistence allowance consistent with federal law. See id. § 1821(b), (c), (d).

The other approach would reject such a close analogy to Crawford Fitting and Rule 54. To begin with, the language of the two rules is different. Rule 54(d) refers to "costs" generically, while Rule 26(b)(4)(E)(i) says that "[u]nless manifest injustice would result, the court must require that the party seeking discovery . . . pay the expert a reasonable fee . . . ." (Emphasis added.) This amounts to a much more explicit expense-shifting mandate, and it also provides some guidance on the amount of costs (i.e., a "reasonable" fee). In Collins, we observed that the 1993 amendments to the rules were "designed to reduce the expense of litigation without altering who must bear that expense." 96 F.3d at 1060. See also Gwin v. American River Transp. Co., 482 F.3d 969, 975 (7th Cir. 2007) (stating that the relevant language of Rule 26, then in subpart (b)(4)(C), required only that "the expert's fees must be reasonable.") The Committee Notes that accompanied the addition of subpart (4)(E) confirm this view, stating that "[c]oncerns regarding the expense of [*18] such depositions [meaning those of experts, whether testifying or just for trial preparation] should be mitigated by the fact that the expert's fees for the deposition will ordinarily be borne by the party taking the deposition." Fed. R. Civ. P. 26, adv. comm. nn. (1993 Amendments, Subdivision (b)).

In choosing between these two approaches, we think it important to pay heed to the differences between Rule 54 and Rule 26. Both rules direct the court to shifts some costs; but as we have noted, unlike Rule 54, Rule 26 sets out a substantive standard--a reasonable fee for time spent in responding to discovery. We think it unrealistic in the extreme to assume that $40 is by definition a "reasonable" fee. Rule 26's flexible reasonableness standard is "irreconcilabl[e]" with the hard-and-fast schedule embodied in § 1821. Henderson v. United States, 517 U.S. 654, 663 (1996). This is not a case where the statute and the rule both contain flexible standards that can easily be read together. United States v. Microsoft, 165 F.3d 952, 959-60 (D.C. Cir. 1999). Rather, the rule operates to give courts the discretion to award a fee that appropriately compensates an expert witness, while application of the statute "extinguish[ es] all discretion." Crawford Fitting, 482 U.S. at 446 (Marshall, J., dissenting). Importantly, § 1821 acknowledges that other laws may override its terms: it begins with the phrase "[e]xcept as otherwise provided by law." 28 U.S.C. § 1821(a)(1). Rule 26, the later-enacted of the two, does "otherwise provide[]."Although we consider it a close call, we conclude that the flexible authorization for a reasonable fee contained in Rule 26 supersedes the specific schedule outlined in § 1821(b). This means, as the district court held, that certain expenses and fees associated with experts are not capped by § 1821 when recovered under Rule 26.

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