L & W Supply Corporation, Plaintiff-appellant, v. Acuity, Defendant-appellee, 475 F.3d 737 (6th Cir. 2007)

ON BRIEF: John H. Dwyer, Jr., Pedley, Zielke, Gordinier & Pence, Louisville, Kentucky, for Appellant. Joseph L. Hardesty, Bethany A. Breetz, Matthew Arnold Gillies, Stites & Harbison, Louisville, Kentucky, for Appellee.

Before BOGGS, Chief Judge; MARTIN, Circuit Judge; OLIVER, District Judge.^* 

OPINION

OLIVER, JR., District Judge.

L & W Supply Corp. ("L & W") appeals the order of the district court in this diversity contract action awarding appellee Acuity ("Acuity") costs for expert witness fees. For the reasons which follow, we reverse the district court's decision.

L & W, a material supplier to a subcontractor on a construction project, brought two separate actions against Acuity and International Fidelity Company ("International Fidelity"), which were consolidated, to collect from the sureties on payment bonds associated with that project. L & W also asserted a claim against Acuity, maintaining it acted in bad faith in handling its claim by not paying it in a timely manner in violation of Kentucky's Unfair Claims Settlement Practices Act.¹  One bond, issued by Acuity, secured the payment obligations of the general contractor. The other, issued by International Fidelity, secured the payment obligations of the subcontractor to whom L & W supplied the materials. During the course of litigation, International Fidelity settled the bond claim against it by completely satisfying the bond obligation. This had the effect of mooting any further claim for payment under the bond issued by Acuity. However, L & W did not dismiss its bad faith claim against Acuity.

Acuity moved for summary judgment on L & W's bad faith claim, and the district court granted Acuity's motion, concluding that the evidence was insufficient to establish a claim of bad faith on any of the theories asserted by L & W. L & W did not appeal the district court's order granting Acuity's motion for summary judgment. Thereafter, Acuity filed a motion to recover costs. One of the costs which Acuity sought to recover was $11,067.75 that it paid to its expert witness to defend the bad faith claim. This amount included charges for telephone calls, document review, drafting the expert report, preparing for the deposition, and time spent during the actual deposition. L & W objected to the motion for costs, specifically objecting to the allowance of costs for the expert witness fees. The district court awarded Acuity some of its costs, including $11,067.75 for Acuity's expert witness, without explanation.

The issue presented on appeal is whether expert witness fees may be taxed as costs. The question of whether expert fees may be taxed as costs raises a legal issue; therefore, we employ a de novo standard of review. In re Adkins, 425 F.3d 296, 298 (6th Cir. 2005).

Prevailing parties may recover certain allowable, reasonable, and necessary costs, pursuant to Federal Rule of Civil Procedure 54(d). The prevailing party may recover fees for witnesses under 28 U.S.C. § 1920(3).²  Available witness expenses only include attendance, travel, and subsistence fees as specified in 28 U.S.C. § 1821.³  L & W maintains that expert [475 F.3d 739] 739 fees are not among those items recoverable as costs under § 1920. Acuity argues that although § 1920 does not explicitly mention expert witness fees, such fees are recoverable when the expert's testimony was crucial to the resolution of the case.

Acuity relies on Murphy v. International Union of Operating Eng'rs, Local 18, 774 F.2d 114 (6th Cir. 1985), where the appellant challenged the district court's order refusing to award him expert witness fees as costs. The Murphy court recognized that Henkel v. Chicago, S. P., M. & O.R. Co., 284 U.S. 444, 52 S. Ct. 223, 76 L. Ed. 386 (1932) clearly held that when an award of expert witness fees is not expressly allowed by statute, it may not be taxed as costs. Murphy, 774 F.2d at 132-34. While noting that the majority of courts interpreting the provision for witness fees in § 1920 had found that the recovery of expert witness fees was limited to the statutory costs specified in 28 U.S.C. § 1821, the Murphy court also acknowledged that the Eighth and Third Circuits⁴  allowed for the taxation of expert witness fees in the court's discretion when the expert's testimony was indispensable to the determination of a case. Id. at 133. Those courts permitting such taxation found that Farmer v. Arabian American Oil Co., 379 U.S. 227, 85 S. Ct. 411, 13 L. Ed. 2d 248 (1964),⁵  had modified Henkel such that it was within the district court's discretion to award expert fees. Murphy, 774 F.2d at 133. The Murphy court observed that "the law in the Sixth Circuit is unclear,"⁶  but concluded that even those courts that allowed for an award of expert fees did so only when "the expert's testimony was crucial to the resolution of the case," and that the testimony of Murphy's expert was not crucial. Id. at 133-34. Therefore, the Murphy court upheld the district court's determination denying expert witness fees as costs without determining whether an award of expert fees was permissible when not expressly authorized by statute. Id.

Acuity's reliance on Murphy is misplaced as there are subsequent Supreme Court cases which have held that expert [475 F.3d 740] 740 witness fees are not recoverable as costs absent explicit statutory authority. Therefore, any earlier Sixth Circuit and/or any other earlier precedent is no longer controlling.

Subsequent to the Sixth Circuit decision in Murphy, the Supreme Court decided Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 107 S. Ct. 2494, 96 L. Ed. 2d 385 (1987), which affirmed Henkel. Crawford consisted of two consolidated cases in which the petitioners, as the prevailing parties, had been denied expert witness fees as costs in excess of the limit of § 1821(b) by the Fifth Circuit. Crawford, 482 U.S. at 438-39, 107 S. Ct. 2494. Petitioners had argued that "§ 1920 [did] not preclude taxation of costs above and beyond the items listed, and more particularly, amounts in excess of the § 1821(b) fee. Thus, the discretion granted by Rule 54(d) [was] a separate source of power to tax as costs expenses not enumerated in § 1920." Id. at 441, 107 S. Ct. 2494. In affirming the denial of expert witness fees as costs, the Supreme Court stated that petitioners' view rendered § 1920 "superfluous." Id. The Crawford Court held that "when a prevailing party seeks reimbursement for fees paid to its own expert witnesses, a federal court is bound by the limit of § 1821(b), absent contract or explicit statutory authority to the contrary." Id. at 439, 107 S. Ct. 2494.

After Crawford, the Supreme Court decided W. Va. Univ. Hosps. v. Casey, 499 U.S. 83, 111 S. Ct. 1138, 113 L. Ed. 2d 68 (1991), where the issue was whether fees for services rendered by experts in civil rights litigation could be shifted to the losing party pursuant to 42 U.S.C. § 1988, which permitted the award of a reasonable attorney's fee. The Supreme Court restated that when "a prevailing party seeks reimbursement for fees paid to its own expert witnesses, a federal court is bound by the limits of § 1821(b), absent contract or explicit statutory authority to the contrary." Casey, 499 U.S. at 86, 111 S. Ct. 1138 (quoting Crawford, 482 U.S. at 439, 107 S. Ct. 2494). The Court then determined that attorney's fees and expert fees were distinct items of expense. Id. at 92, 111 S. Ct. 1138. In conclusion, the Court held that § 1988 did not convey authority to shift expert fees and that " [w]hen experts appear at trial, they are . . . [only] eligible for the fee provided by § 1920 and § 1821" absent statutory law permitting otherwise. Id. at 102, 111 S. Ct. 1138. Congress later amended § 1988 to allow recovery of expert witness fees, but Casey remains good law on the construction of Rule 54(d) and 28 U.S.C. §§ 1920 and 1821.⁷ 

Finally, the recent Supreme Court case of Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, ___ U.S. ___, 126 S. Ct. 2455, 165 L. Ed. 2d 526 (2006), supports the conclusion that expert fees are not recoverable as costs absent explicit statutory authority. In Arlington, the Court determined that the prevailing parents in an action under the Individuals [475 F.3d 741] 741 with Disabilities Education Act were not entitled to recover an educational consultant's fees under 20 U.S.C. § 1415(i) (3) (B), which allowed for an award of attorney's fees as part of the costs. The Court explained that the reasoning of both Crawford and Casey reinforced its conclusion that unless a statute unambiguously authorized the recovery of expert fees, no such fees were recoverable as costs. Specifically, the Court stated:

The reasoning of Crawford Fitting strongly supports the conclusion that the term "costs" in 20 U.S.C. § 1415(i) (3) (B), like the same term in Rule 54(d), is defined by the categories of expenses enumerated in 28 U.S.C. § 1920. This conclusion is buttressed by the principle, recognized in Crawford Fitting, that no statute will be construed as authorizing the taxation of witness fees as costs unless the statute "refers explicitly to witness fees."

Arlington Cent. Sch. Dist. Bd. of Educ., 126 S. Ct. at 2462 (citations omitted).

Based on the clear Supreme Court precedent as set forth in Crawford, 482 U.S. 437, 107 S. Ct. 2494, Casey, 499 U.S. 83, 111 S. Ct. 1138, 113 L. Ed. 2d 68, and Arlington, ___ U.S. ___, 126 S. Ct. 2455, 165 L. Ed. 2d 526, we hold that expert witness fees may not be taxed as costs at a court's discretion under Rule 54(d) because § 1920 does not provide for them. Therefore, Acuity is not entitled to recover expert witness fees (i.e., the hourly rate charged for the expert's time and services). It is, however, entitled as a matter of course to recover the witness costs provided for in § 1821, which are largely compensatory in nature.

For the foregoing reasons, the district court's decision awarding expert witness fees as costs to Acuity is reversed. This case is remanded to the district court to determine the amount of costs the expert may recover as ordinary witness costs for attendance fees, travel expenses, and as a subsistence allowance under § 1821.