The opinion of the court was delivered by: William C. Conner, District Judge:
United Artist Records, Inc. ("UAR") moves for taxation of the
cost of a letter of credit obtained to secure a supersedeas
bond. The district court judgment clerk denied such taxation on
January 26, 1990 after the Second Circuit Court vacated this
Court's previous judgment and remanded for proceedings not
inconsistent with its opinion. See Record Club of America, Inc.
v. United Artists Records, Inc., 890 F.2d 1264 (2d Cir. 1989).
Record Club of America, Inc. ("RCOA") opposes UAR's motion and
moves to vacate the taxation of other costs imposed by the
district court judgment clerk.*fn1 For the following reasons,
both motions are denied.
Preliminarily, this Court must determine whether, as RCOA
argues, the taxing of costs is premature. When costs are
awarded on appeal, a portion of the costs is taxed in the
circuit court and a portion is taxed in the district court.
See Fed.R. App.P. 39(e) Advisory Committee's Notes ("[costs
described in this subdivision] are made taxable in the district
court for general convenience"). A district court lacks
discretion to refuse to impose the costs on appeal when ordered
to do so by the Second Circuit Court, Lamborn v. Dittmer,
726 F. Supp. 510 (S.D.N.Y. 1989).
When a judgment is vacated, "costs shall be allowed only as
ordered by the [appellate] court." Fed.R.App.P. 39(a). Since
the Second Circuit Court concluded its opinion vacating this
Court's prior judgment with the words "costs to defendant
[UAR]," RCOA cannot argue persuasively that taxing of costs by
the district court under Fed.R.App.P. 39(e) is premature. The
fact that the Court of Appeals has yet to determine the costs
it will tax against RCOA is irrelevant to this Court's duty to
fix the costs taxed in the district court under Rule 39(e).
Since RCOA raises no other objection to the district court
judgment clerk's taxation of $6,743.50, it is hereby upheld.
The Court now turns to the district court judgment clerk's
refusal to tax the cost of the letter of credit. While the
district court has discretion to fix costs under Fed.R.Civ.P.
54(d), Farmer v. Arabian American Oil Co., 379 U.S. 227, 233,
85 S.Ct. 411, 415, 13 L.Ed.2d 248 (1964), such discretion does
not include the ability to tax costs beyond those authorized by
statute. Crawford Fitting Co. v. J.T. Gibbons, Inc.,
482 U.S. 437, 441-43, 107 S.Ct. 2494, 2497-98, 96 L.Ed.2d 385 (1987).
Rule 39(e) provides:
Since Rule 39(e) governs the costs which may be taxed on
appeal, the issue presented is whether the premium on a letter
of credit to secure a supersedeas bond constitutes a "cost" of
that bond under Rule 39(e).
The district court in Lamborn v. Dittmer, 726 F. Supp. 510
(S.D.N.Y. 1989) recently held that the cost of a letter of
credit as collateral for a supersedeas bond could not be taxed
against the non-prevailing party based on the Second Circuit
Court's decision in Lerman v. Flynt Distributing Co., Inc.,
789 F.2d 164 (2d Cir.), cert. denied, 479 U.S. 932, 107 S.Ct. 404,
93 L.Ed.2d 357 (1986). In Lerman, the party prevailing on
appeal borrowed a million dollars at 15% interest to secure a
supersedeas bond and received no interest on the million
dollars from the bonding company. The party then requested the
difference between its interest payments and the amount it
could have made if it invested the sum borrowed at the
prevailing money market rates. The Second Circuit Court held
that the district court's taxing of the lost interest was an
abuse of discretion because "borrowing expense, sought in
addition to the premium on a supersedeas bond, is not a
permissible item of taxable appellate costs . . ." Id. at 167.
As Lamborn recognized, there is no significant difference
between interest charges on borrowed funds used as collateral
and charges for a letter of credit. While UAR attempts to
distinguish Lerman on the grounds that UAR's costs, unlike the
costs in Lerman, were not clearly unreasonable, the
reasonableness of the costs was not a factor in Lerman's broad
holding. Based on Lerman, therefore, UAR cannot recover the
costs of its letter of credit.*fn2
Nor can UAR rely on Trans World Airlines, Inc. v. Hughes,
515 F.2d 173, 177 (2d Cir. 1975), cert. denied, 424 U.S. 934, 96
S.Ct. 1147, 47 L.Ed.2d 341 (1976), in which the Second Circuit
Court stated, "[w]hen a judgment is reversed . . . the costs of
obtaining a supersedeas bond have long been held to be a proper
item of costs . . ." The Second Circuit Court in Lerman
distinguished Trans World Airlines on its facts and limited its
holding to cases where the costs are agreed to by the parties
and are less expensive substitutes for costs explicitly
authorized by Rule 39(e). Lerman, 789 F.2d at 166.
It is uncontested that UAR never approached RCOA to seek
agreement on alternative means to a letter of credit. Nor did
UAR seek this Court's permission for the letter of credit or
otherwise bring the matter to this Court's attention.
Furthermore, it is by no means clear that the total cost of the
letter of credit and the bond premium was less than what the
total cost of the premium would have been without the letter of
credit. An attorney for UAR presents an affidavit stating that
bonding companies at the relevant time indicated that rates of
1% of the bond amount or less were possible for a subsidiary of
a firm "like" Thorn-EMI (a parent corporation of Capitol
Records, Inc. ("Capitol") into which UAR was merged in the
early 1980's). While this supports UAR's claim that its costs
were less than the cost of a premium alone, it appears that
these rate quotations were not based on an examination of the
financial statements of Capitol or Thorn-EMI. Indeed, UAR
claims that it was required by the bonding companies to obtain
the letter of credit because neither Capitol nor Thorn-EMI,
Capitol's British parent corporation, maintained its financial
statements in a form acceptable to the bonding
For the foregoing reasons, UAR's motion for taxation of costs
of the letter of credit is denied, as is RCOA's motion to
vacate taxation of costs ...