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November 13, 2018 Top Story

Do "Costs" Equal “Fees” Under Rule 41(d)? It Depends on the Court

Circuit court chooses sides in circuit split over attorney fees after voluntary dismissal

By Anthony R. McClure

Taking sides in a growing circuit split, a U.S. Court of Appeals recently allowed the recovery of attorney fees under Rule 41(d) of the Federal Rules of Civil Procedure.

Four partners of a seafood restaurant filed four lawsuits over The Sloppy Tuna trademark

Four partners of a seafood restaurant filed four lawsuits over The Sloppy Tuna trademark

Pexels | Karolina Grabowska

In deciding Horowitz v. 148 South Emerson Assocs. LLC, the Second Circuit sided with the Eighth and Tenth Circuits, and parted ways with the Fourth, Fifth, Sixth, and Seventh Circuits.

Background of Horowitz

The procedural history of Horowitz is complicated. As the Second Circuit described it, “[t]his case is one in a series of bitterly contested suits adjudicating rights associated with The Sloppy Tuna, a restaurant in Montauk, NY.”

The story begins in 2010, when four business partners at a Wall Street investment firm formed a new partnership to pursue the restaurant concept. By 2013, however, the partners were embroiled in conflict. “The record evinces the open and personal hostility between the parties.” The hostility came to a head in October 2013, when some of the partners purportedly entered into a license agreement regarding the use of The Sloppy Tuna intellectual property, while others decried that license agreement as a “sham” and “unenforceable.”

Four lawsuits followed—all relating to use of The Sloppy Tuna’s trademarks. The first was a declaratory judgment action filed in December 2014 in the U.S. District Court for the Northern District of Georgia. This action was later transferred to the Eastern District of New York. The second lawsuit came in January 2015 in New York state court. The third lawsuit was filed in March 2016 in Georgia state court but was voluntarily dismissed a month later. Then in May 2016, the same plaintiff filed the Horowitz lawsuit in the Eastern District of New York. These third and fourth lawsuits became the basis for the Second Circuit’s decision under Rule 41(d).

District Court Grants Fees

On opposing motions for preliminary injunction and dismissal, the district court found substantially in favor of the defendant on all issues. Most notably, the district court concluded that the plaintiff must pay the defendant the costs—including attorney fees—incurred in the earlier Georgia state action pursuant to Rule 41(d), which provides:

If a plaintiff who previously dismissed an action in any court files an action based on or including the same claim against the same defendant, the court . . . may order the plaintiff to pay all or part of the costs of that previous action.

Second Circuit Affirms in Part

On appeal, the Second Circuit affirmed the district court’s grant of attorney fees. On the issue of whether the term “costs” in this rule includes attorney fees, the Second Circuit observed that “[t]he issue has split our sister circuit courts.”

In this split, the circuits fall into three categories. First, “[t]he Sixth Circuit has concluded in light of Rule 41(d)’s silence as to attorneys’ fees that such fees are never available under the rule.” Second, “[o]n the other hand, the Eighth and Tenth Circuits have concluded without much discussion that attorneys’ fees may be awarded under Rule 41(d).” And finally, “[t]he Fourth, Fifth, and Seventh Circuits have taken a hybrid approach and concluded that attorneys’ fees may not generally be awarded as costs under the rule, but with an exception for when the statute serving as the basis for the original suit itself allows for attorneys’ fees (such as 42 U.S.C. § 1983).”

Ultimately, the Second Circuit “agree[d] with the outcomes arrived at by the Eighth and Tenth Circuits: district courts may award attorneys’ fees as part of costs under Rule 41(d).” Specifically, the court observed that “Rule 41(d)’s purpose is clear and undisputed: ‘to serve as a deterrent to forum shopping and vexatious litigation.’” That goal would be “greatly limited” if a district court could not award attorney fees as part of costs. The court therefore affirmed the award of fees, noting: “The targets of deterrence under the rule will often be litigants, such as [plaintiff], that file complaints and quickly dismiss them, perhaps in reaction to initial unfavorable rulings, or hoping for a subsequent case assignment to a judge they view as more favorable.”

A Bit of Irony?

Horowitz followed the analysis of the ‘always awarded’ interpretation group that attorney fees and costs should be included to prevent forum shopping and vexatious litigation,” says Angela Foster, New Brunswick, NJ, cochair of the ABA Section of Litigation’s Intellectual Property Committee. In perhaps an ironic twist, she says, this may actually leave this issue even more “open to forum shopping.”

The Court’s Discretion

Christopher M. Jackson, Denver, CO, cochair of the Sound Advice Subcommittee for the Section’s Appellate Practice Committee, believes the court had a tough decision because the rule is “on its face ambiguous” with respect to the term “costs.” But if you believe that the purpose of Rule 41 is to “prevent or deter vexatious litigation, it would obviously be better to have a district court have the option to award more in fees and costs to deter that conduct.”

Ultimately, Jackson agrees with the court’s decision. “I think it’s good that [district courts] have the power to require the payment of fees,” he says, adding that “this interpretation doesn’t require a district court to award fees. It’s still at the court’s discretion.” While Foster thinks the issue may be “ripe for the Supreme Court,” Jackson is not so sure. “This doesn’t strike me as the kind of case that the Supreme Court is necessarily going to have a ton of interest in.”

Practice Pointers

Foster views the issue from the perspective of an intellectual property lawyer. “Historically, it has been difficult for trademark litigators to obtain an award of attorney fees in a federal trademark case, no matter how egregious the opposing party’s actions,” she says. Now, “plaintiffs should be mindful of potential fee-shifting under Rule 41(d) in certain circuits.”


Anthony R. McClure is an associate editor for Litigation News.

Hashtags: #attorneyfees, #FRCP

Related Resources

  • Horowitz v. 148 South Emerson Assocs. LLC, 888 F.3d 13 (2d Cir. 2018).
  • Rogers v. Wal-Mart Stores, 230 F.3d 868 (6th Cir. 2000).
  • Evans v. Safeway Stores, Inc., 623 F.2d 121 (8th Cir. 1980).
  • Meredith v. Stovall, 216, F.3d 1087 (10th Cir. 2000).
  • Andrews v. America’s Living Ctrs., LLC, 827 F.3d 306 (4th Cir. 2016).
  • Portillo v. Cunningham, 872 F.3d 728 (5th Cir. 2017).

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