IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 07-41056 FILED
October 31, 2007
Charles R. Fulbruge III
KAREN VAUGHN,
Clerk
Individually and on behalf of all others similarly situated,
Plaintiff–Appellee,
v.
AMERICAN HONDA MOTOR COMPANY INC; HONDA MOTOR
COMPANY, LTD; NEW SABINA INDUSTRIES, INC; NIPPON SEIKE
COMPANY, LTD
Defendants,
v.
ZACK HAWTHORN; JESUS ITUARTE,
Appellant.
SHARON MCQUISTON,
Individually and on behalf of all others similarly situated,
Plaintiff–Appellee,
v.
AMERICAN HONDA MOTOR COMPANY INC; HONDA MOTOR
COMPANY, LTD
Defendants,
v.
ZACK HAWTHORN; JESUS ITUARTE
Appellant.
No. 07-41056
Appeals from the United States District Court for the Eastern District of
Texas
Before HIGGINBOTHAM, STEWART, and OWEN, Circuit Judges.
PER CURIAM:
In these consolidated appeals, Zack Hawthorn asks this court to stay the
district court’s requirement that he file a $150,000 bond for costs on appeal, set
pursuant to FED. R. APP. P. 7. He further requests that we reduce the amount
of the bond to $1,000. For the reasons expressed below, we grant the motion and
order that Hawthorn file a bond for costs on appeal in the amount of $1,000
within the time prescribed by the district court.
Hawthorn’s motion arises from a proposed settlement of a class-action
lawsuit against American Honda Motor Co. (Honda). Hawthorn is a class
member. Plaintiffs allege odometers in certain Honda vehicles overstate actual
mileage. After extensive discovery, class counsel and Honda memorialized the
terms of a settlement proposal. The proposed settlement provides some class
members various forms of relief, including warranty extensions, lease
extensions, lease refunds, and repair reimbursements. These benefits are
estimated to cost Honda $115 million, although there is evidence that their value
on the open market would be approximately $244 million.1 Honda is to pay
approximately $10 million in lease refunds upon the effective date of the
settlement,2 which is at the conclusion of any appeals. However, Hawthorne
traded his vehicle toward the purchase of a new one, and the settlement
1
Vaughn v. American Honda Motor Co., 2007 WL 2901666 *6 (E.D. Tex. 2007)
2
Id. at *10.
2
No. 07-41056
agreement provides no compensation to him or class members similarly situated,
including class members who have sold their Honda vehicles.3
Class counsel and Honda moved to certify a settlement class and to settle
the lawsuit. Several class members—including Hawthorn—objected on
disparate grounds. Hawthorn specifically objected that the settlement provides
no compensation to him or other class members who sold or traded their
vehicles. He contends that the settlement should include amounts for
“diminution in value,” or value lost on a sale or trade-in due to inflated odometer
readings.
The district court overruled this objection. The district court also required
any objector who appealed to post a bond for costs on appeal of $150,000. The
district court’s memorandum opinion approving the settlement concluded in this
regard:
Class counsel requests that this court require any objector
filing a notice of appeal to post a bond. The court agrees that the
detrimental impact of an appeal as to the entire class renders it
appropriate for the court to require any objector to post an appeal
bond. See Fed. R.App. P. 7 (“[i]n a civil case, the district court may
require an appellant to file a bond or provide other security in any
form and amount necessary to ensure payment of costs on appeal”).
It bears mention that Honda stands ready to deliver approximately
$10 million in lease refunds to class members. Also, the court is of
the opinion that the amount of bond should reflect the significant
possibility that any objector's appeal will be subject to Fed. R.App.
P. 38. See Sckolnick v. Harlow, 820 F.2d 13, 15 (1st Cir.1987)
(holding that it is proper for a district court to considered [sic] the
possibility that an appeal may result in the award of attorneys' fees
in determining the appeal bond amount); and Allapattah Servs., Inc.
v. Exxon Corp., 2006 WL 1132371, *17 (S.D.Fla.2006) (requiring
appeal bond if an objector appeals on behalf of the entire class).4
3
Id. at *8.
4
Id. at *10.
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No. 07-41056
Additionally, in its final judgment and order of dismissal, the district court
concluded as follows:
The court further concludes that the [sic] there is a significant
probability that any appeal of the court’s decision to overrule these
objections would be summarily denied pursuant to Federal Rule of
Appellate Procedure 38 and an award of attorneys’ fees and costs
assessed against the appealing objector(s). Therefore, pursuant to
Federal Rule of Appellate Procedure 7, any person wishing to appeal
this Final Order shall deposit a cashier’s check or surety bond from
an approved company with the Clerk of the Court to secure the costs
of appeal as a condition of prosecuting the appeal. The amount of
the bond will be $150,000 per appealing objector.
The first reason given by the district court for requiring a bond in the
amount of $150,000 is to provide security for the “detrimental impact of an
appeal as to the entire class.”5 To the extent the district court had in mind
securing the benefits that would inure to the class members under the
settlement agreement, the court was essentially using a bond for costs on appeal
as a surrogate for a supersedeas bond. Bonds to supersede a judgment must be
set under Rule 8, not Rule 7.6
The district court alluded to the fact that Honda “stands ready to deliver
approximately $10 million in lease funds to class members.”7 We are persuaded
that the costs of delay are adequately captured by the settlement. The
settlement agreement makes no provision for the payment of pre-judgment
interest on the benefits Honda has agreed to pay, and the settlement does not
become effective, by its terms, until any appeals are concluded. The parties to
the settlement thus agreed that the financial time-value of the benefits to be
paid under the settlement is not to be awarded to the plaintiffs. To the extent
5
Id.
6
F.R.APP.P. 7 & 8.
7
Vaughn, 2007 WL 2901666 *10.
4
No. 07-41056
that the district court found that interest should be secured as part of “costs,” it
was in error, assuming, without deciding, that interest accrued pending appeal
can appropriately be included as part of a bond for costs on appeal.
As a second basis to support the requirement of a $150,000 bond for costs
on appeal for each appealing objector, the district court found that there is a
probability that any appeal would be “summarily denied” and that this court
would award attorneys’ fees. We conclude that the district court abused its
discretion in this regard.
The Federal Rules of Appellate Procedure permit a court of appeals, “after
a separately filed motion or notice from the court and reasonable opportunity to
respond,” to “award just damages and single or double costs to the appellee” if
the appellate court “determines that an appeal is frivolous.”8 There is no
provision in the rules of procedure for a district court to predict that an appellate
court will find an appeal frivolous and to set a bond for costs on appeal based on
an estimate of what “just damages” and costs the appellate court might award.
We have observed that Rule 38 only allows an appellate court to impose damages
and costs in a frivolous appeal.9 We have held that “the appellate court is
generally better qualified to determine whether an appeal lacks merit.”10 The
district court could not use Rule 7 in conjunction with Rule 38 as a vehicle to
erect a barrier to Hawthorn’s appeal in the form of a $150,000 bond for costs on
appeal. Even if the rules permitted such a procedure, the district court’s
assessment of potential damages in the amount of $150,000 is not supported by
any findings or reference to evidence in the record, assuming, without deciding,
that “damages” under Rule 38 includes attorneys’ fees.
8
F.R.APP.P. 38.
9
Id. (quoting F.R.APP.P. 38).
10
Conner v. Travis County, 209 F.3d 794, 801 (5th Cir. 2000).
5
No. 07-41056
The district court did not affirmatively assess attorney’s fees against the
objectors, conditionally or otherwise, pursuant to a fee-shifting statute. We note
in this regard that there is a split among the federal circuit courts as to whether
a district court has the power to award attorneys’ fees as costs pursuant to Rules
7 and 39(e) of the rules of appellate procedure11 when an underlying statute
provides that attorneys’ fees may be included as costs.12 That issue is not before
us today.
Hawthorne requests that we reduce the amount of the bond to $1,000.
None of the appellees has asserted that this amount is inadequate if the motion
to stay the bond in the amount of $150,000 is granted. Accordingly, we reduce
the amount of the bond to $1,000.
We recognize that there are competing, significant interests when an
objector appeals a proposed class settlement. In some circumstances objectors
may use an appeal as a means of leveraging compensation for themselves or
their counsel. The detriment to class members can be substantial. On the other
hand, imposing too great a burden on an objector’s right to appeal may
11
F.R.APP.P. 7, 39(e).
12
Compare In re Cardizem CD Antitrust Litig., 391 F.3d 812, 817 (6th Cir. 2004)
(determining whether attorneys’ fees are included in“costs” by reference to the state statute
that formed the basis of the suit), Pedraza v. United Guar. Corp., 313 F.3d 1323, 1333 (11th
Cir. 2002) (“[T]he meaning of ‘costs,’ as used in Rule 7, should be derived from the definition
of costs contained in the statutory fee shifting provision that attends the plaintiff's underlying
cause of action.”), and Adsani v. Miller, 139 F.3d 67, 75 (2d Cir. 1998) (“Adsani’s argument
that Rule 7 costs cannot include attorney’s fees is also unavailing because the Copyright Act
in section 505 of Title 17 allows attorney’s fees to be levied ‘as part of the costs.’”), with
Hirschensohn v. Lawyers Title Ins. Corp., No. 96-7312, 1997 WL 307777 *3 (3d Cir. June 10,
1997) (“[W]e conclude that Rule 7 does not authorize a bond to cover estimated costs of
attorneys’ fees.”), and In re Am. President Lines, Inc., 779 F.2d 714, 716 (D.C. Cir. 1985) (“The
costs referred to [in Rule 7] are simply those that may be taxed against an unsuccessful litigant
under Federal Appellate Rule 39, and do not include attorneys’ fees that may be assessed on
appeal.”).
6
No. 07-41056
discourage meritorious appeals13 or tend to insulate a district court’s judgment
in approving a class settlement from appellate review. However, the
circumstances of the present case do not require us to consider the extent of a
district court’s authority to address these considerations.
***
The motion to stay the appeal bond in the amount of $150,000 and to
reduce the bond to $1,000 is GRANTED. Hawthorn is directed to file a bond for
costs on appeal in the amount of $1,000.
13
See generally Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 408 (1990) (“If
appellants were routinely compelled to shoulder the appellee’s attorney’s fees, valid challenges
to district court decisions would be discouraged.”).
7