Indigency excuses payment of costs

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The Seventh Circuit on Nov. 21 de-clined to make the award of costs against a losing party pursuant to FRCP 54(d)(1) mandatory.

However, the court did place a greater burden on trial courts if they exercise discretion not to award costs because of indigence, and a concurrence suggested that courts should not have discretion to deny costs.

In 2001, former Chicago police officer Mario Morales went to Emily Rivera’s apartment, identified himself as a police officer and demanded that Rivera let him in.

Morales was wearing a bulletproof vest and a badge pouch. Rivera opened the back door and Morales forcibly entered the apartment. Once inside, Morales led Rivera upstairs, handcuffed her hands behind her back and placed her on a bed. While Rivera was handcuffed upstairs, Morales ransacked the apartment and then left.

Following the incident, Morales pled guilty to numerous federal felonies, for which he is currently incarcerated.

Rivera brought suit against Morales in federal court, alleging a violation of her Fourth Amendment rights under Section 1983, and a state law battery claim. She obtained a $175,000 default judgment.

Rivera then attempted to collect this judgment from the city through a supplemental collection proceeding under FRCP 69, arguing that the city was liable, because Morales was a city employee and acted under color of state law.

The district court granted summary judgment to the city, after which the city submitted its bill of costs.

The court found Rivera indigent and denied costs, based on her affidavit, stating that she is a single mother of four children, earns a salary of $1,800 per month, has only a nominal amount of money in her checking account, receives food stamps, and has no other assets.

The affidavit did not list her expenses or include the $175,000 judgment against Morales among her assets.

The city appealed, and the court of appeals vacated the order in an opinion written by Judge Joel M. Flaum, and joined by Judge William J. Bauer. Judge Frank H. Easterbrook wrote a concurrence.

Statutory Language

The court first rejected the city’s argument that it should abolish the exception that allows indigent losing parties to avoid paying costs under Rule 54(d)(1).

The rule provides in pertinent part, “[e]xcept when express provision therefore is made either in a statute of the United States or in these rules, costs shall be allowed as of course to the prevailing party unless the court otherwise directs.”

The court concluded that the rule provides a presumption that costs will be awarded, but does not prohibit a district court from considering indigence when assigning costs to a losing party.

The court noted that, since 1983, it has allowed district courts to consider indigence in denying costs under Rule 54(d). Badillo v. Cent. Steel & Wire Co., 717 F.2d 1160, 1165 (7th Cir. 1983).

In addition, although the Supreme Court has never adopted an indigence exception to Rule 54(d), it has never foreclosed it either, and seven other circuits permit an indigence exception.

In contrast, only the Sixth Circuit has prohibited district courts from considering a losing party’s indigence when awarding costs. McDonald v. Petree, 409 F.3d 724, 732 (6th Cir.2005).

Finding the exception well-established, the court declined to abandon it.

Limits

Nevertheless, the court found that a claim of indigence does not automatically justify an exception, and held that the evidence was insufficient to warrant an exception in this case.

First, the court noted that, where the claim is frivolous, a court can award costs, even if the defendant is indigent.

Offering guidance to lower courts, the court adopted a two-part inquiry.

First, a district court must make a threshold factual finding that the losing party is incapable of paying costs at present or in the future, with the burden on the losing party to make that showing.

Documentation should include evidence of both income and assets, as well as a schedule of expenses, to ensure that the district court has clear proof of the non-prevailing party’s financial circumstances.

Second, the court should consider the amount of costs, the good faith of the losing party, and the closeness and difficulty of the issues raised by a case when using its discretion to deny costs. In addition, the district court should provide an explanation for its decision, whether to award or deny costs.

The court wrote, “Though we decline to abolish the indigence exception, we note that the exception is a narrow one. Rule 54(d)(1) provides a presumption that costs are awarded to the prevailing party, and the burden is on the non-prevailing party to overcome this presumption.”

In this case, the court found the presumption was not overcome.

The court noted that she did not supply any information regarding her monthly expenses. In addition, she earned a salary of $1,800 per month, and lived in a building owned by her mother (speculating that she may pay below-market rent).

In addition, one of her four children that she claimed has not lived with her for two years.

Finally, the court noted that she has a $175,000 judgment against Morales, but she has made no efforts to attempt to recover from him. The court acknowledged that he is in prison and collection may be impossible. Without having made any attempt to recover, however, the court found she could not demonstrate indigence.

Accordingly, the court vacated the order, and remanded for further proceedings.

The Concurrence

Judge Easterbrook wrote a separate opinion, concurring with the court’s decision not to abolish the indigence exception: “Only the Supreme Court or an amendment under the Rules Enabling Act can produce national uniformity; there is little point in our moving restlessly from one side of the conflict to the other.”

However, he added that, if the court were to express an opinion on the subject, it would be better to award costs “as of course,” without an indigence exception.

Easterbrook wrote, “the parties’ relative wealth is not a good reason to deny costs to the winner, any more than a losing litigant’s indigence would be a good reason to withhold an award of damages for battery, theft, or breach of contract.”

Easterbrook argued that the proper place to determine whether an indigent must actually pay the award is bankruptcy court, maintaining, “If an indigent person hits someone with a car and causes a $1,000 loss, the court will award $1,000 without regard to the driver’s income. If an indigent person hits someone with a lawsuit and causes a $1,000 loss (in costs of defense), the same consequence should ensue: an award of $1,000. For either award, whether collection occurs is a question for bankruptcy.”

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Excusing the payment of costs, Easterbrook concluded, does nothing except “interfere with the Bankruptcy Code’s system.”

Easterbrook also found the exclusion inconsistent with 28 U.S.C. 1915, which excuses indigent litigants from prepaying the filing fees.

Easterbrook noted, “Only pre-payment is excused (emphasis in original),” but the filer remains liable for the filing fee and costs.

Finally, Easterbrook listed three more reasons for making the award of costs routine: avoiding suit-by-suit inquiries; avoiding false positives, noting, “the very assertion ‘I’m indigent, so please excuse me’ implies solvency”; and avoiding disparate treatment of identically situated litigants.

Easterbrook concluded, “Some [courts] regularly excuse costs for indigents; some never do; some draw hard-to-articulate lines. Rights measured by the chancellor’s foot are not ‘rights’ of any kind, and such a stochastic process is not the administration of justice. We need rules that apply in an even-handed fashion.”

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