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Interest payments writ large, reversed

It turns out there is a way to have an award of costs and disbursements reviewed by an appellate court — by a petition for a writ of mandamus or prohibition.

That’s a vehicle for discretionary review of an award that is not subject to review under Rule 117 of the Rules of Civil Appellate Procedure, the Supreme Court ruled Aug. 16.

The ruling saved the appellant more than half a million dollars because the court also ruled that a prevailing party in an appeal is not entitled to tax the interest incurred on a loan used to secure a supersedeas bond.

“A writ of prohibition provides a separate avenue for relief when an adequate, alternative appeal remedy is not available,” Justice G. Barry Anderson wrote for the court in Klapmeier v. Cirrus Industries Inc. Justice Natalie Hudson dissented, and Justice David Stras recused.

Bruce Jones, Cirrus’ attorney, said his client was disappointed by the decision but pleased to have the other costs upheld, and pleased to have the litigation behind it.

Interest of $542,583 at issue

The ruling is a piece of good news for appellant Alan Klapmeier, who won and then lost $10 million in a claim against respondent Cirrus Industries Inc. Klapmeier was one of the founders of the company but was subsequently squeezed out. He sued for violation of a non-disparagement clause, and the jury awarded $10 million, which was subsequently reversed.

Respondent borrowed the money to post a supersedeas bond to secure the judgment during an appeal.  After the Court of Appeals reviewed, Cirrus moved to tax costs and disbursements for the appeal. It requested $192,000 in premiums paid for the bond and $743,750 in interest paid on the loan that secured the bond. The Court of Appeals allowed $542,583 in interest.

Appellant sought review of the Court of Appeals’ order and, in the alternative, a writ of prohibition.

Disagreement insufficient for writ

The Supreme Court determined that Rule 117 gives it authority to review any decision of the Court of Appeals, but Rule 139.04 specifically prohibits an appeal from taxation of costs and disbursements. However, a writ of prohibition provides a separate avenue for relief. In 2013 the court allowed a writ of mandamus in connection with taxation of costs and this court therefore concluded that a writ of prohibition may be sought “in proper circumstances.”

The court warned that “Disagreement with the decision to tax costs and disbursements, by itself, is unlikely to warrant an extraordinary writ. Thus, although we granted the petition for a writ of prohibition here, we will scrutinize future petitions carefully, with a particular focus on whether the petition presents an important issue of law that warrants an exception to the general rule that prohibits an ‘appeal from the taxation of costs and disbursements.’”

The court then considered whether taxation of the interest costs was authorized, and determined it was not.

Taxable costs are those that are unavoidable, such has transcript or brief costs, the court said. Borrowing costs do not have the same direct relationship to an appeal because they are not necessarily paid or incurred to allow an appeal to proceed, the court said   Borrowing costs are “necessary” only if the litigant decided to finance the bond through a loan.

The court was also wary that the taxation of disbursements would become complicated if interest charges were included.

“In an era of interlocking corporations, wholly owned subsidiaries, and complicated financing vehicles, it may well prove difficult to trace why an interest expense was incurred, how the interest expense was incurred, what the interest expense actually was, or even whether the expense was actually incurred in the first place, the court said.

Dissent: Majority disregards reality

Justice Natalie Hudson, dissenting, agreed with the use of the writ but disagreed that borrowing costs are not taxable.

“The majority’s holding finds no support in the plain language of Rule 139.02 or case law, calls into question long-standing Minnesota practice regarding taxation of costs, and disregards the reality faced by parties involved in multimillion-dollar commercial litigation,” Hudson wrote.  She also asserted that the court is inconsistent when it allows taxation of bond premiums but not borrowing costs.

Hudson also noted, “To the extent the majority’s decision is animated by concerns regarding the court of appeals’ authority to assess and tax interest and other costs related to supersedeas bonds in commercial litigation, the proper method to allay such concerns is to refer Minn. R. Civ. App. P. 139.02 to the appropriate rule-making committee for consideration and potential amendment.”


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