Marie O. Pedraza v. United Guaranty Corporation

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
________________________ December 9, 2002
THOMAS K. KAHN
No. 01-15854 CLERK
________________________

D. C. Docket No. 99-00239-CV-AAA-1

MARIE O. PEDRAZA, on behalf of herself
and all other persons similarly situated, et al.,

Plaintiff-Appellee,

versus

UNITED GUARANTY CORPORATION
UNITED GUARANTY RESIDENTIAL
INSURANCE COMPANY,

Defendants,

JOSHUA O. OLORUNNISOMO,

Movant-Appellant.

________________________

Appeal from the United States District Court
for the Southern District of Georgia
_________________________
(December 9, 2002)
Before BLACK and MARCUS, Circuit Judges, and UNGARO-BENAGES*, District
Judge.

MARCUS, Circuit Judge:

This appeal requires us to address a question of first impression in this

circuit: Under what circumstances, if any, can anticipated attorneys’ fees properly

be included within an appellate cost bond issued by a district court pursuant to

either Fed. R. App. P. 7 (“Rule 7”) or the court’s inherent power to manage its

affairs?

The district court concluded that both Rule 7 and its inherent power are

legitimate sources of authority for including attorneys’ fees within an appellate

cost bond, and further, that it was appropriate to rely on both of these bases in

holding appellant jointly and severally liable for posting a $180,000 bond, the

overwhelming majority of which corresponded to the appellee-class’s estimated

appellate attorneys’ fees. After careful review of the parties’ briefs and the body of

law that bears on these issues, we conclude that although the district court correctly

determined that there are cases in which anticipated attorneys’ fees may be

included in an appellate cost bond, it erred in holding that this is such a case.

*
Honorable Ursula Ungaro-Benages, United States District Judge for the
Southern District of Florida, sitting by designation.
2
Accordingly, we vacate the district court’s bond order and remand for further

proceedings consistent with this opinion.

I.

The factual and procedural history of this large class action is

straightforward but complex. Plaintiff Marie O. Pedraza is the representative of a

class of borrowers who obtained mortgage insurance from defendants United

Guaranty Corporation and United Guaranty Residential Insurance Company

(collectively “UG”).1 The class claimed that in 1996 UG began systematically

paying kickbacks to lenders, which in exchange agreed to steer borrowers to UG

for their mortgage insurance needs, and that UG thereby violated the anti-kickback

provision contained in the Real Estate Settlement Procedures Act of 1974

(“RESPA”), 12 U.S.C. § 2607(a).2

1
This case actually is one of three companion actions that present the same
questions. The other two are captioned: Baynham v. PMI Ins. Co., 01-15855 and
Downey v. Mortgage Guar. Ins. Corp., 01-15857.
2
This section provides: “No person shall give and no person shall accept any
fee, kickback, or thing of value pursuant to any agreement or understanding, oral or
otherwise, that business incident to or a part of a real estate settlement service
involving a federally related mortgage loan shall be referred to any person.” 12
U.S.C. § 2607(a).

3
 The class filed its complaint on December 17, 1999, and UG promptly

responded to these allegations by raising several defenses, including (1) that

RESPA did not apply to mortgage insurance; (2) that the “filed-rate doctrine”

precluded any recovery; (3) that the McCarran-Ferguson Act barred the application

of RESPA; and (4) that claims brought by borrowers who had closed their loans

more than one year prior to the filing of the action were barred under RESPA’s

statute of limitations. UG subsequently moved to dismiss on statute of limitations

grounds the claims of all borrowers who had closed their loans prior to December

17, 1998. The district court denied the motion, holding that RESPA’s limitations

period was subject to equitable tolling for up to three years, provided that the class

member pled with particularity that UG had fraudulently concealed its activities,

thereby precluding the timely assertion of a claim under § 2607. See Pedraza v.

United Guaranty Corp., 114 F. Supp. 2d 1347, 1358 (S.D. Ga. 2000). Accordingly,

the class amended its complaint to include allegations that would give rise to

equitable tolling for members whose loans had closed between December 17, 1996

and December 17, 1998.

Discovery ensued, and on May 31, 2000 the class moved for certification.

Before the court could rule on the motion, however, UG moved for summary

judgment based in significant part on the first three defenses listed above. On

4
August 14, 2000, the district court granted summary judgment to UG on the

ground that the McCarran-Ferguson Act, 15 U.S.C. § 1012(b),3 invalidated the

class’s RESPA claims. The class responded by moving for reconsideration under

Fed. R. Civ. P. 59(e), and subsequently by filing a notice of appeal. During the

pendency of this motion, settlement negotiations began between UG and the

plaintiffs. These discussions ultimately proved fruitful, and on December 15,

2000, the parties filed with the court a proposed settlement.4 The settlement

agreement required UG to pay an amount exceeding $13 million to the class

members. Any class member whose claim had accrued between December 17,

1996 and December 17, 1998 was required to submit a form indicating that he or

she was unaware of UG’s practices prior to the latter date. Although the class

agreed to relinquish any future claims against UG, its members retained the right to

cancel their mortgage insurance policies. Moreover, UG agreed to permanently

cease and desist from two of the alleged kickback practices. On December 20,

3
That subsection provides, in pertinent part, that “[n]o Act of Congress shall be
construed to invalidate, impair, or supersede any law enacted by any State for the
purpose of regulating the business of insurance, or which imposes a fee or tax upon
such business, unless such Act specifically relates to the business of insurance.” 15
U.S.C. § 1012(b).
4
Proposed settlements were filed in companion class actions Baynham and
Downey on the same date.
5
2000, the court conditionally certified the class, ordered that the class members be

notified, and scheduled a fairness hearing for June 15, 2001.

On February 7, 2001, a notice of pendency of class proposed settlement was

filed, and then on March 6, 2001 notice of this settlement was published in

nationally circulating newspapers. These notices delineated not only the terms of

the settlement, but also the lengthy procedural history of the case and the right of

class members to opt out. They also announced an April 24, 2001 deadline for the

submission of objections to the settlement. Ultimately, out of 670,000 class

members, three filed timely objections and 277 opted out of the class. More than

25,000 members whose claims were potentially subject to equitable tolling

submitted claim forms to receive their payments.

On May 17, 2001, Olorunnisomo filed an untimely objection to the

settlement, a motion for leave to file a late objection, and a motion for leave to

intervene. On June 8, 2001, the district court held a hearing on appellant’s

motions, and denied on timeliness grounds his requests to intervene and to file an

objection. Roughly a week later, the court held its fairness hearing, at which

Olorunnisomo was permitted to argue that a Texas subclass, i.e., a subclass

comprised of Texas residents, should be created. Specifically, appellant

contended that (1) given the facts at bar, Tex. Ins. Code § 21.48A provided class

6
members with an automatic right of recovery; and (2) UG’s filed-rate defense was

not recognized in Texas. Accordingly, he argued that it was unfair to require that

the claims of class members residing in Texas be governed by the less

advantageous provisions of Georgia law. The district court considered and rejected

these contentions, and approved the settlement with only one minor change, viz.,

that 20% of the attorneys’ fees were to be withheld pending distribution of the

settlement proceeds to the class. As a corollary of its approval of the settlement,

the court vacated its previous summary judgment order.

On July 6, 2001, Olorunnisomo filed both a Rule 59 motion for

reconsideration and a notice of appeal from the orders approving the settlement and

denying his request to intervene. He asserted that our then recent holding in

Wooden v. Bd. of Regents, 247 F.3d 1262 (11th Cir. 2001), established that the

district court’s certification of the class constituted error. However, on September

19, 2001 the district court denied his Rule 59 motion for lack of standing, and

appellant amended his notice of appeal to encompass the September 19, 2001 order

as well.

While Olorunnisomo’s motion for reconsideration was pending, the class

moved to require all objectors and would-be intervenors who had filed notices of

appeal to post bonds for attorneys’ fees, damages, costs and interest that would be

7
lost on appeal. Although appellant opposed the inclusion of anticipated attorneys’

fees in the requested bond, he did not contest the amount of the bond sought by the

class. The district court determined that attorneys’ fees were properly bondable

under Fed. R. App. P. 7, and in support of this conclusion it cited the holding of the

United States Court of Appeals for the Second Circuit in Adsani v. Miller, 139

F.3d 67, 71-76 (2d Cir.), cert. denied, 525 U.S. 875, 119 S. Ct. 176, 142 L. Ed. 2d

144 (1998). See Baynham v. PMI Mortgage Ins. Co., No. 199-241, slip op. at 6

(S.D. Ga. Oct. 1, 2001) (reasoning that Adsani’s approach to Rule 7 “best comports

with the ‘American Rule’” that absent exceptional circumstances each litigant

bears responsibility for its own attorneys’ fees). The district court also indicated

that it could include attorneys’ fees in an appellate cost bond pursuant to its

inherent power to manage its affairs. See id. at 4.5

However, the district court recognized the existence of constraints on its

authority to require the posting of such a bond. In particular, it determined that the

standard that governs the propriety of including attorneys’ fees in an appellate cost

bond is set forth in Independent Fed’n of Flight Attendants v. Zipes, where the

Supreme Court held that attorneys’ fees could not be assessed against losing Title

5
Although the district court’s holding technically related to the Baynham action,
its holding applied with equal force to Pedraza and Downey.
8
VII intervenor-plaintiffs unless their claims were “frivolous, unreasonable or

without foundation.” 491 U.S. 754, 761, 109 S. Ct. 2732, 2737, 105 L. Ed. 2d 639

(1989). The district court concluded that the Zipes standard was satisfied in this

case, stating: “Having asserted no new reason supporting their contention that the

denial of intervention was an abuse of the Court’s discretion, the Court finds that

the appeal of the denial of intervention is without foundation.” Baynham, slip op.

at 9-10 (emphasis added).

Ultimately, the district court granted the class’s bond motion in part and

denied it in part,6 and held six objectors,7 who had manifested an intent to appeal,

jointly and severally responsible for posting a $180,000 bond. This bond

encompassed both filing and copying costs, but also -- and more significantly from

the perspective of this appeal -- approximately $29,000 per appellant in anticipated

attorneys’ fees. See id. at 12.

6
The court granted the requested bond except insofar as the class sought
compensation for the interest it would lose while the case was on appeal. It reasoned
that plaintiffs were not entitled to any compensation until the conclusion of all
appeals, so they were not losing any interest to which they were otherwise entitled as
a consequence of any appeal. See Baynham, slip op. at 13-14.
7
This figure includes two objectors in Pedraza, three in Baynham and one in
Downey. In several instances, the objector in question actually is a married couple,
the members of which are parties to the same loan, and accordingly are considered a
single objector.
9
 On October 15, 2001, Olorunnisomo filed a notice of appeal from the district

court’s bond order, and it is this appeal that presently is before us. Appellant

challenges the order on the grounds that: (1) the term “costs,” as used in Fed. R.

App. P. 7, does not encompass estimated attorneys’ fees on appeal; (2) even if Rule

7 permitted the inclusion of anticipated appellate attorneys’ fees in some contexts,

RESPA is not such a context, as attorneys’ fees are explicitly distinguished from

“costs” in § 2607(d)(5); (3) the district court lacked the inherent power to set an

appellate cost bond to cover items not encompassed under Fed. R. App. P. 7; (4)

district courts are not permitted to impose a bond to cover anticipated sanctions on

appeal, i.e., to cover attorneys’ fees that, it anticipates, will be shifted as a punitive

or deterrent measure; (5) the court erred in determining that Olorunnisomo’s

appeal of the court’s denial of his motion for leave to intervene was “without

foundation”; (6) the court’s decision to hold Olorunnisomo jointly and severally

liable for the class’s anticipated costs and attorneys’ fees constituted an abuse of

discretion; and (7) setting the bond for substantially more than what Olorunnisomo

can be required to pay contravened the Fifth Amendment’s Due Process Clause.

II.

Typically, a district court’s decision to impose a cost bond pursuant to Fed.

R. App. P. 7 is reviewed for abuse of discretion. See Adsani, 139 F.3d at 71.

10
However, a trial court’s legal determination as to the proper interpretation of Rule

7’s language -- e.g., whether the term “costs” should be read to encompass

attorneys’ fees -- is reviewed de novo. See id. (citation omitted). The exercise of

the court’s inherent powers is reviewed for abuse of discretion. See Chambers v.

NASCO, Inc., 501 U.S. 32, 50, 111 S. Ct. 2123, 2136, 115 L. Ed. 2d 27 (1991).

However, a determination as to the scope of those powers is a legal conclusion, and

as such is reviewed de novo. See generally Christo v. Padgett, 223 F.3d 1324,

1336 (11th Cir. 2000).

Federal Rule of Appellate Procedure 7 provides in pertinent part:

In 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.

Fed. R. App. P. 7 (emphasis added). This case requires us to determine whether

the term “costs,” as used in this rule, includes anticipated appellate attorneys’ fees.

Alhough we never have addressed the issue before, this precise question was

analyzed in 1998 by the Second Circuit. See Adsani, 139 F.3d at 71-75. Given the

paucity of caselaw on this point -- only the D.C. and Third Circuits have joined the

Second Circuit in addressing it directly8 -- coupled with the persuasiveness of the

8
The First Circuit has touched on this issue, but has done so by implication
only. See Sckolnick v. Harlow, 820 F.2d 13, 15 (1st Cir. 1987).
11
Adsani court’s discussion and fact that the arguments of the instant litigants track

those advanced before the Second Circuit, we examine the Adsani decision in some

detail.

Adsani was a copyright infringement case in which summary judgment was

granted by the district court in favor of the defendants.9 Adsani filed a timely

notice of appeal, and the district court required her, pursuant to Fed. R. App. P. 7,

to post a bond in the amount of $35,000, a figure which included estimated

appellate attorneys’ fees. The district court cited in support of its decision the facts

that the plaintiff had no assets in the United States and posted no supersedeas bond

pursuant to Fed. R. App. P. 8.10 Adsani appealed this bond order, and argued --

9
Because of the subject matter of the dispute, the case implicated the fee shifting
provision codified at 17 U.S.C. § 505, which states:

In any civil action under this title, the court in its discretion may allow the
recovery of full costs by or against any party other than the United States or an
officer thereof. Except as otherwise provided by this title, the court may also
award a reasonable attorney’s fee to the prevailing party as part of the costs.

17 U.S.C. § 505.
10
The Second Circuit summarized the distinction between a cost bond under
Fed. R. App. P. 7 and a supersedeas bond under Fed. R. App. P. 8 in these terms: “It
appears that a ‘supersedeas bond’ is retrospective covering sums related to the merits
of the underlying judgment (and stay of its execution), whereas a ‘cost bond’ is
prospective relating to the potential expenses of litigating an appeal.” Adsani, 139
F.3d at 70 n.2.
12
precisely as Olorunnisomo does in this case -- that the definition of the term

“costs” in Rule 7 is supplied by Fed. R. App. P. 39, which plainly excludes from its

scope attorneys’ fees.11 The defendants countered by arguing -- as the class

presently does -- that the list of costs contained in Rule 39 is irrelevant, and that

instead the propriety of including attorneys’ fees in a Rule 7 bond should be

evaluated by referring to the definition of “costs” contained in the statutory fee

shifting provision that attends the plaintiff’s underlying cause of action. In other

words, they posited that if the fee shifting provision that applies to the underlying

cause of action includes attorneys’ fees within awardable “costs,” then Rule 7

“costs” may likewise be said to encompass attorneys’ fees. Thus, the Adsani

defendants asserted that in copyright cases, which implicate 17 U.S.C. § 505, see

supra note 8, Rule 7 bonds may properly include attorneys’ fees. Here, the class

similarly attempts to support its position by pointing to RESPA’s fee shifting

provision, which provides that “the court may award to the prevailing party the

11
The relevant language is found in Rule 39(e), which says that four distinct
costs related to the taking of an appeal “are taxable in the district court for the benefit
of the party entitled to costs under this rule.” Fed. R. App. P. 39(e). These are: 1) the
preparation and transmission of the costs of the record; 2) the reporter’s transcript, if
needed; 3) the premiums paid for a supersedeas bond or other bond to preserve rights
pending appeal; and 4) the fee for filing the notice of appeal. See id.
13
court costs of the action together with reasonable attorneys fees.” 12 U.S.C. §

2607(d)(5).

In Adsani, the Second Circuit ultimately sided with the defendants, and in so

doing squarely rejected Adsani’s argument that Rule 39 supplies the definition of

“costs,” as that term is used in Rule 7. It did so because Rule 39 contains no

definition of “costs” at all, and instead clarifies the circumstances when costs

should or may be awarded, see Fed. R. App. P. 39(a) & (b), requires the courts of

appeals to establish rules pertaining to the taxation of copying costs, see Fed. R.

App. P. 39(c), sets forth procedural requirements for the obtainment of costs, see

Fed. R. App. P. 39(d), and finally lists some costs that are taxable in the district

court. See Fed. R. App. P. 39(e). Notably, the rule never sets forth an exhaustive

list or a general definition of “costs.” This analysis is plainly correct. Under no

fair reading of the simple, unambiguous language of Rule 39 can an exportable

definition of “costs” be perceived in the language of that provision.

This is so, we believe, despite the contrary conclusions of several treatises

and the two circuit level decisions other than Adsani to address this issue. See

Hirschensohn v. Lawyers Title Ins. Corp., 3d Cir., 1997, (No. 96-7312, June 10,

1997); In re Am. President Lines, Inc., 779 F.2d 714, 716 (D.C. Cir. 1985); 20

James Wm. Moore et al., Moore’s Federal Practice (“Moore’s”) § 307.10[2], at

14
307-6 (3d ed. 2002) (“Attorney’s fees . . . are not considered to be costs under

Appellate Rule 7.”); Wright, Miller & Cooper, Federal Practice & Procedure

(“Wright, Miller & Cooper”) § 3953, at 293 (3d ed. 1999) (“The costs secured by a

Rule 7 bond are limited to costs taxable under Appellate Rule 39. They do not

include attorney fees that may be assessed on appeal.”).12

12
In concluding that only the costs discussed in Rule 39 may be the subject of
a Rule 7 bond, the Hirschensohn court relied heavily on the Third Circuit’s earlier
opinion in McDonald v. McCarthy, 966 F.2d 112, 116 (3d Cir. 1992). Yet in
McDonald, the Third Circuit simply joined a long list of courts in reaching the
uncontroversial conclusion that attorneys’ fees are not included among the “costs”
contemplated by Rule 39. See id. Although this decision undoubtedly was correct,
the exclusion of attorneys’ fees from Rule 39 “costs” in no way informs (or purports
to inform) the definition of the term “costs” in Rule 7. Indeed, in our view, the
Hirschensohn court did not adequately explain its application of the valid proposition
expressed in McDonald in the context of Rule 7. Although the court did cite several
treatises in support of its conclusion, including Wright, Miller & Cooper, it is notable
that the most recent edition of that treatise relies on Hirschensohn as fully one-half of
its support for this reading of Rule 7. See Wright, Miller & Cooper, Federal Practice
& Procedure § 3953, at 293.

We add that In re Am. President Lines, Inc., cited no case law in support of its
bare conclusion that “[t]he 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.” 779 F.2d at 716. Although
the court cited the same treatises as did the Hirschensohn court, the current version of
Wright, Miller & Cooper relies on In re Am. President Lines as the other half of its
support for the limitation of Rule 7 “costs” to those discussed in Rule 39. See Wright,
Miller & Cooper, Federal Practice & Procedure § 3953, at 293. Moore’s present
edition features this case as its only circuit level support for this proposition.
See Moore’s § 307.10[2], at 307-6.
15
 Indeed, as the Adsani court noted, neither In re Am. President Lines nor

Hirschensohn arose in the context of an underlying statute that provides for the

shifting of attorneys’ fees. See 139 F.3d at 73-74. Accordingly, the Second

Circuit, we think correctly, found both of these precedents to be distinguishable

and neither to be compelling given the precise contours of the dispute then at bar.

Instead, the court took Rule 39 at face value; while that Rule certainly limits the

universe of costs on appeal that are taxable in the district court, it does not attempt

to -- much less can it be read to -- set forth an omnibus, generalizable definition of

“costs” that governs the construction of Fed. R. App. P. 7. As the Adsani court

said: “We find that Adsani’s argument that Rule 39’s ‘definition’ of costs should

be imported into Rule 7 is unavailing because Rule 39 has no definition of the term

‘costs’ but rather defines the circumstances under which costs should be awarded.”

139 F.3d at 75.

Instead of gleaning the meaning of Rule 7 “costs” from Rule 39, the Adsani

court determined that the definition of that term (as it is used in Rule 7) should be

derived from the statutory fee shifting provision that attends the plaintiff’s

underlying cause of action. In support of this conclusion, the Second Circuit relied

heavily on the Supreme Court’s decision in Marek v. Chesny, 473 U.S. 1, 105 S.

Ct. 3012, 87 L. Ed. 2d 1 (1985). Marek was a § 1983 action brought jointly by the

16
father and estate of a police shooting victim. Prior to the rendering of the jury’s

verdict, the defendants tendered a settlement offer of $100,000. See id. at 3-4, 105

S. Ct. at 3013-14. This was rejected by the plaintiffs, who ultimately were

awarded $60,000, and subsequently sought attorneys’ fees pursuant to 42 U.S.C. §

1988. See id. at 4, 105 S. Ct. at 3014. Although these fees totaled $171,692, all

but $32,000 of this sum had been incurred after the defendants had made their

settlement offer. See id. The defendants argued that “costs,” as used in Fed. R.

Civ. P. 68,13 included attorneys’ fees, and that as such they were not liable for any

of the fees incurred by the plaintiffs after the rejection of the settlement offer. See

id. Accordingly, the question confronting the Supreme Court in Marek was

whether attorneys’ fees are included within the definition of “costs” under Fed. R.

Civ. P. 68.

In holding in the affirmative, the Court first acknowledged the general

applicability of the American Rule regarding fee shifting, i.e., that each party bears

its own attorneys’ fees. See Marek, 473 U.S. at 8, 105 S. Ct. at 3016; Aleyska

Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257, 95 S. Ct. 1612, 1621,

13
That rule provides, in pertinent part, that “[i]f the judgment finally obtained
by the offeree is not more favorable than the [pre-judgment settlement] offer [that the
offeree rejected], the offeree must pay the costs incurred after the making of the
offer.” Fed. R. Civ. P. 68 (emphasis added).
17
44 L. Ed. 2d 141 (1975) (discussing “the general rule that, absent statute or

enforceable contract, litigants pay their own attorneys’ fees”) (citations omitted).

However, the Court proceeded to note that Congress indisputably possesses the

authority to abrogate the rule in any given circumstance. See Marek, 473 U.S. at 8,

105 S. Ct. at 3016; Aleyska Pipeline, 421 U.S. at 260, 95 S. Ct. at 1623 (“[W]hile

fully recognizing and accepting the general rule [Congress has made] specific and

explicit provisions for the allowance of attorneys’ fees under selected statutes

granting or protecting various federal rights.”).

The Supreme Court then set forth a list of statutes that permit attorneys’ fees

to be awarded as “costs” and observed:

The authors of Federal Rule of Civil Procedure 68 were fully aware of these
exceptions to the American Rule. The Advisory Committee’s Note to Rule
54(d) . . . contains an extensive list of the federal statutes which allowed for
costs in particular cases; of the 35 “statutes as to costs” set forth in the final
paragraph of the Note, no fewer than 11 allowed for attorney’s fees as part
of costs. Against this background of varying definitions of “costs,” the
drafters of Rule 68 did not define the term; nor is there any explanation
whatever as to its intended meaning in the history of the Rule. In this
setting, given the importance of “costs” to the Rule, it is very unlikely that
this omission was mere oversight; on the contrary, the most reasonable
inference is that the term “costs” in Rule 68 was intended to refer to all costs
properly awardable under the relevant substantive statute or other authority.
In other words, all costs properly awardable in an action are to be considered
within the scope of Rule 68 “costs.” Thus, absent congressional expressions
to the contrary, where the underlying statute defines “costs” to include
attorney’s fees, we are satisfied such fees are to be included as costs for
purposes of Rule 68.

18
Marek, 473 U.S. at 8-9; 105 S. Ct. at 3016.

Federal Rule of Appellate Procedure 7 does not differ from Federal Rule of

Civil Procedure 68 in any way that would lead us to adopt a different interpretive

approach in this case than was embraced by the Supreme Court in Marek. Quite

the contrary, close scrutiny reveals that there are several substantive and linguistic

parallels between Rule 68 and Rule 7. Both concern the payment by a party of its

opponent’s “costs,” yet neither provision defines the term “costs.” See Adsani,

139 F.3d at 74 (“Rule 7 does not have a pre-existing definition of costs any more

than Fed. R. Civ. P. 68 . . . had its own definition.”). Moreover, just as the drafters

of Rule 68 were aware in 1937 of the varying definitions of costs that were

contained in various federal statutes, the same certainly can be said for the authors

of Rule 7, which bears an effective date of July 1, 1968. As such, the reasoning

that guided the Marek Court’s determination that Rule 68 “costs” are to be defined

with reference to the underlying cause of action is equally applicable in the context

of Rule 7.

As is specifically relevant in this case, section 8 of RESPA, 12 U.S.C. §

2607, was enacted in 1974. See Culpepper v. Inland Mortgage Corp., 132 F.3d

692, 695 (11th Cir. 1998). Congress amended this section effective January 1, 1984

to provide that “the court may award to the prevailing party the court costs of the

19
action together with reasonable attorneys fees.” 12 U.S.C. § 2607(d)(5).

Following this change, Rule 7 was itself stylistically amended on December 1,

1998. Accordingly, the drafters of the present incarnation of Rule 7 must not only

have been aware in general terms that numerous federal statutes encompass

attorneys’ fees within the definition of “costs,” see Marek, 473 U.S. at 9, 105 S. Ct.

at 3016, but also of the fact and nature of RESPA’s fee shifting regime. This

timetable also weighs in favor of defining Rule 7 “costs” in the context of a

RESPA action by referring to the definition of that term contained in § 2607(d)(5).

Also counseling in favor of the adoption of the Marek approach in the

context of Rule 7 is the fact that this interpretive method is consonant with the

purposes underlying that rule, as well as the primary rationales underlying fee

shifting statutes generally and § 2607(d)(5) in particular. The purpose of Rule 7

itself appears to have been correctly ascertained by the Adsani court, which held

that:

The court has made a determination that this particular appellant poses a
payment risk because she has no assets in the United States and has failed to
post a supersedeas bond. The purpose of Rule 7 appears to be to protect the
rights of appellees brought into appeals courts by such appellants . . . .

139 F.3d at 75.

By contrast, the fee shifting provisions in various federal statutes serve two

purposes. The first is “to ensur[e] the effective prosecution of meritorious claims.”

20
Kay v. Ehrler, 499 U.S. 432, 437, 111 S. Ct. 1435, 1438, 113 L. Ed. 2d 486

(1991).

Second, fee shifting provisions help to “protect defendants from burdensome

litigation having no legal or factual basis.” Christiansburg Garment Co. v. EEOC,

434 F.3d 412, 420, 98 S. Ct. 694, 700, 54 L. Ed. 2d 648 (1978). Courts have

ascribed the former purpose to § 2607(d)(5). See Glover v. Standard Fed. Bank,

283 F.3d 953, 965 (8th Cir. 2002) (“Congress has guaranteed legal representation

under RESPA by permitting attorneys fees and costs as part of each allowable

recovery. This permits and encourages individual consumers to raise valid RESPA

claims.”) (internal citations omitted); Mullinax v. Radian Guar., Inc., 199 F.

Supp.2d 311, 318 (M.D.N.C. 2002) (stating that the fee shifting provision ensures

that the RESPA’s substantive facets will be enforced).

If Fed. R. App. 7 is read to include attorneys’ fees within the definition of

“costs” whenever Congress has so defined the term in the statutory fee shifting

provision that attends the plaintiff’s underlying cause of action, then in appropriate

qualifying cases -- e.g., where there is a significant risk of insolvency on the

appellant’s part -- district courts can require that the fees that ultimately would be

shiftable be made available ab initio. It seems clear to us that the guaranteed

availability of appellate attorneys’ fees prior to the taking of an appeal will further

21
the goal of providing incentives to attorneys to file (or defend against) such

appeals. Notably, this reasoning coincides with the aim of Rule 7, namely, “to

protect the rights of appellees brought into appeals courts by . . . appellants [who

have no assets in the United States and have failed to post a supersedeas bond].”

Adsani, 139 F.3d at 75. This reading of Rule 7 also furthers the second purpose

underlying fee shifting statutes, i.e., to protect defendants from the burdens that

stem from being forced to defend frivolous lawsuits and to deter plaintiffs from

bringing such suits. Simply stated, an appellant is less likely to bring a frivolous

appeal if he is required to post a sizable bond for anticipated attorneys’ fees prior

to filing the appeal.14

For the foregoing reasons, both Marek and Adsani’s persuasive application

of that decision lead us to conclude that the 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.

14
We note, however, that although the possible inclusion of such fees within a
Rule 7 bond serves this goal, appellees will be largely protected against such baseless
claims even were we to adopt the approach to Rule 7 urged by Olorunnisomo. This
is so because appellate courts may on motion dismiss frivolous claims at the outset
(that is, before substantial fees are incurred). See Am. President Lines, 779 F.2d at
717. Moreover, upon sustaining such a challenge, an award of fees and double costs
would be warranted under Fed. R. App. P. 38. See Geaneas v. Willets, 911 F.2d 579,
582 (11th Cir. 1990).
22
 III.

Although we believe that pursuant to Rule 7 attorneys’ fees may be included

in an appellate cost bond, this does not answer the ultimate question whether the

district court properly included attorneys’ fees within the bond in this case. The

precise question at issue before the Second Circuit -- and before the Supreme Court

in Marek -- is distinguishable from the one presented here, because there is a

powerful linguistic distinction between the fee shifting provisions codified at 17

U.S.C. § 505 and 42 U.S.C. § 1988 on the one hand, and RESPA’s fee shifting

provision, 12 U.S.C. § 2607(d)(5), on the other. Specifically, § 1988 provides that

“the court, in its discretion, may allow the prevailing party, other than the United

States, a reasonable attorney’s fee as part of the costs.” 42 U.S.C. § 1988(b)

(emphasis added). § 505 features identical language. See 17 U.S.C. § 505 (“[T]he

court may . . . award a reasonable attorney’s fee to the prevailing party as part of

the costs.”) (emphasis added). By contrast, under RESPA “the court may award to

the prevailing party the court costs of the action together with reasonable attorneys

fees.” 12 U.S.C. § 2607(d)(5) (emphasis added). Seizing on this linguistic

distinction, Olorunnisomo contends that the reasoning of the Second Circuit does

not compel the same conclusion in this case as was reached in Adsani. We agree.

23
 Each and every statute cited in Marek as including attorneys’ fees within the

definition of allowable costs features either the words “as part of the costs” or

similar indicia that attorneys’ fees are encompassed within costs. See Marek, 473

U.S. at 8, 105 S. Ct. at 3016. For example, § 77k(e) of the Securities Act of 1933

describes “the costs of . . . suit, including reasonable attorney’s fees.” 15 U.S.C. §

77k(e); see also 15 U.S.C. § 78i(e) (same). Indeed, in setting forth the governing

legal principle in that case, the Supreme Court observed: “where the underlying

statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be

included as costs for purposes of Rule 68.” Marek, 473 U.S. at 9, 105 S. Ct. 3016

(emphasis added). The Court did not say that where the underlying statute permits

the award of both costs and attorneys’ fees, fees are to be included as costs for

Rule 68 purposes. In explaining its holding, the Court stated: “This ‘plain

meaning’ interpretation of the interplay between Rule 68 and § 1988 is the only

construction that gives meaning to each word in both Rule 68 and § 1988.” Id.,

105 S. Ct. at 3017 (emphasis added).

In contrast with the statute at issue in Marek and those described by the

Supreme Court in that case is RESPA’s fee shifting provision, § 2607(d)(5). This

section, again, provides for the award of the “costs of the action together with

reasonable attorneys fees.” 12 U.S.C. § 2607(d)(5) (emphasis added). Simply

24
stated, the words “together with” are substantively and critically different from the

phrase “as part of.” Whereas the latter phrase plainly encompasses attorneys’ fees

within the universe of awardable costs, the former connotes that costs and fees are

distinct entities that are commonly awardable. Indeed, Justice Brennan explicitly

recognized this in Marek, as § 2607(d)(2)(b)15 is designated in the appendix to his

dissenting opinion as an example of a statute that does not include attorneys’ fees

within “costs.” See 473 U.S. at 48, 105 S. Ct. at 3037 (Brennan, J., dissenting).

We must assume that Congress selected the words “together with” carefully,

i.e., that while it wanted both costs and attorneys’ fees to be awardable under

RESPA, it did not want them treated as being indistinct in the context of this

statute. See generally United States v. Steele, 147 F.3d 1316, 1318 (11th Cir. 1998)

(en banc) (“[W]e must presume that Congress said what it meant and meant what it

said.”). This is especially so given that Congress had on so many previous

occasions enacted statutes designating attorneys’ fees “as part of costs.” To hold

otherwise would be to impermissibly ignore this obvious difference between the

language of RESPA and these other statutes, and thereby disregard the Supreme

15
This provision was the historical antecedent of, and linguistically identical to,
that presently codified at § 2607(d)(5).
25
Court’s admonition in Marek that every word of a statute, e.g., “together with,” is

to be afforded meaningful effect. See 473 U.S. at 9, 105 S. Ct. at 3017.

Thus, although we adopt the approach to defining Rule 7 “costs” taken by

Second Circuit, that analysis yields the opposite conclusion in this case from the

one it produced in Adsani. This is so because RESPA’s fee shifting provision, §

2607(d)(5), explicitly distinguishes attorneys’ fees from awardable “costs.” As

such, the district court erred in this case to the extent that it relied on Fed. R. App.

P. 7 in imposing a cost bond that encompassed anticipated appellate attorneys’ fees.

IV.

The district court also relied on its inherent power to manage its affairs as an

alternate basis for its inclusion of estimated attorneys’ fees within the appellate cost

bond that it required of Olorunnisomo. The court was correct in recognizing that in

addition to enjoying broad discretion to manage litigation before them, federal

courts possess the inherent power to require the posting of cost bonds and to

provide for the award of attorneys’ fees. See Chambers, 501 U.S. at 47-48, 111 S.

Ct. at 2134-35 (attorneys’ fees); HMG Prop. Investors, Inc. v. Parque Indus. Rio

Canas, Inc., 847 F.2d 908, 916 (1st Cir. 1988) (bonds). Notably, courts possess

26
these powers “even if procedural rules exist which [govern] the same conduct.”

Chambers, 501 U.S. at 49, 111 S. Ct. at 2135.

However, insofar as a district court employs its inherent power to require one

party to pay -- or, indeed, bond -- his adversary’s attorneys’ fees, this necessarily

constitutes an exception to the American Rule. As the Supreme Court explained in

Chambers, there are three permissible exceptions of this variety:

[I]n narrowly defined circumstances federal courts have inherent power to
assess attorney’s fees against counsel, even though the so-called “American
Rule” prohibits fee shifting in most cases. As we explained in Alyeska
[Pipeline Serv. Co. v. Wildnerness Soc’y, 421 U.S. 240, 257-59, 95 S. Ct.
1612, 1621-23, 44 L. Ed. 2d 141 (1975)], these exceptions fall into three
categories. The first, known as the “common fund exception,” derives not
from a court’s power to control litigants, but from its historic equity
jurisdiction, and allows a court to award attorney’s fees to a party whose
litigation efforts directly benefit others. Second, a court may assess
attorney’s fees as a sanction for the willful disobedience of a court order.
Thus, a court’s discretion to determine [t]he degree of punishment for
contempt permits the court to impose as part of the fine attorney's fees
representing the entire cost of the litigation. Third, and most relevant here, a
court may assess attorney’s fees when a party has acted in bad faith,
vexatiously, wantonly, or for oppressive reasons.

501 U.S. at 45-46, 111 S. Ct. at 2133 (internal citations and quotation marks

omitted); see also F.D. Rich Co., Inc. v. U.S. for the Use of Indus. Lumber Co., Inc.,

417 U.S. 116, 129-30, 94 S. Ct. 2157, 2165, 40 L. Ed. 2d 703 (1974) (“We have

long recognized that attorneys’ fees may be awarded to a successful party when his

27
opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons, or

where a successful litigant has conferred a substantial benefit on a class of persons

and the court’s shifting of fees operates to spread the cost proportionately among

the members of the benefitted class. The lower courts have also applied a rationale

for fee shifting based on the premise that the expense of litigation may often be a

formidable if not insurmountable obstacle to the private litigation necessary to

enforce important public policies.”), superseded by statute on other grounds, 31

U.S.C. § 3905(j).

In this case, none of the circumstances identified in Chambers are present.

Beginning with the first, although Pedraza’s efforts unquestionably benefitted her

class, Olorunnisomo is not part of that class. Accordingly, appellant did not benefit

from her actions as class representative, and the “common fund exception” is not

implicated by the facts of this case. See Alyeska Pipeline, 421 U.S. at 257, 95 S.

Ct. at 1621 (discussing “the historic power of equity to permit the trustee of a fund

or property, or a party preserving or recovering a fund for the benefit of others in

addition to himself, to recover his costs, including his attorneys’ fees, from the fund

or property itself or directly from the other parties enjoying the benefit”) (emphasis

added). Nor is the second situation contemplated by Chambers present here; there

28
is no allegation or indication that Olorunnisomo willfully disobeyed any court

order.

This leaves the third scenario mentioned by the Chambers Court, viz., that the

fee shifting is warranted because Olorunnisomo acted in bad faith, vexatiously,

wantonly, or for oppressive reasons. Yet the district court explicitly did not

conclude that this standard is satisfied here, holding instead that “the appeal of the

denial of intervention is without foundation.” Baynham, slip op. at 10 (emphasis

added). Though the court thus found appellant’s appeal to be objectively meritless,

this is vastly different from the subjective bad faith contemplated by the third

exception to the American Rule identified in Chambers. Indeed, in Christiansburg

Garment -- from which the Zipes standard employed by the district court was

derived -- the Court explicitly distinguished a claim that is “without foundation”

from one advanced in subjective bad faith. See 434 U.S. at 421, 98 S. Ct. at 700

(“In sum, a district court may in its discretion award attorney’s fees to a prevailing

defendant in a Title VII case upon a finding that the plaintiff's action was frivolous,

unreasonable, or without foundation, even though not brought in subjective bad

faith.”).

In imposing the bond against Olorunnisomo, the district court said nothing

that can be construed as a finding that appellant had acted in bad faith, vexatiously,

29
wantonly, or for oppressive reasons. Instead, the court focused exclusively on the

objective merit of his claims. Although the objectively unreasonable advancement

of a claim warrants the imposition of statutorily-authorized attorneys’ fees against,

for example, a Title VII plaintiff (or intervenor, under Zipes), it is insufficient to

justify an analogous action pursuant to the court’s inherent power. See Baker v.

Health Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir. 2001) (“Under the inherent

power of the court to supervise and control its own proceedings, an exception to the

American Rule has evolved which permits the court to award a reasonable

attorneys’ fee to the prevailing party when the losing party has acted in bad faith,

vexatiously, wantonly, or for oppressive reasons. ‘[A]n action is brought in bad

faith when the claim is entirely without color and has been asserted wantonly, for

purposes of harassment or delay, or for other improper reasons.’” (quoting

Hirschfeld v. Bd. of Elections, 984 F.2d 35, 40 (2d Cir. 1993))) (other citations and

internal quotation marks omitted).

Accordingly, although the district court could have required Olorunnisomo to

include attorneys’ fees in an appellate bond pursuant to its inherent power to

manage its affairs, it did not make the requisite factual findings in this case that

would have permitted it to do so.

V.

30
 In sum, the district court’s requirement that Olorunnisomo post an appellate

cost bond that included estimated attorneys’ fees was not justified under Fed. R.

App. P. 7 because RESPA’s fee shifting provision, § 2607(d)(5), does not define

“costs” to include attorneys’ fees, and was not warranted under its inherent power

to manage its affairs because the court did not find that appellant had acted in bad

faith, vexatiously, wantonly, or for oppressive reasons. Although the district court

was free to require Olorunnisomo to post an appellate cost bond, it was improper to

include anticipated attorneys’ fees within such a bond.16 Accordingly, we vacate

the court’s order and remand for further proceedings consistent with this opinion.

VACATED AND REMANDED.

16
Given this holding, it is unnecessary for us to address any of appellant’s
various other arguments.
31