Opinion ID: 1356144
Heading Depth: 2
Heading Rank: 2

Heading: Reduction in Chrysler's Costs

Text: {6} In all civil actions or proceedings of any kind, the party prevailing shall recover his [or her] costs against the other party unless the court orders otherwise for good cause shown. NMSA 1978, § 39-3-30 (1966). Similarly, our rules provide that [e]xcept when express provision therefor is made either in a statute or in these rules, costs, but not attorneys' fees, shall be allowed as a matter of course to the prevailing party unless the court otherwise directs.... Rule 1-054(D)(1) NMRA 2000. As the prevailing party, Chrysler is entitled to a presumption that it should be awarded costs. See Marchman v. NCNB Tex. Nat'l Bank, 120 N.M. 74, 94, 898 P.2d 709, 729 (1995) (Rule [1-054] creates a presumption that the prevailing party will be awarded costs.); Pioneer Sav. & Trust, F.A. v. Rue, 109 N.M. 228, 231, 784 P.2d 415, 418 (1989) (noting that Rule 1-054 allows costs to be awarded to the prevailing party as a matter of course). Key must overcome this presumption by showing bad faith on Chrysler's part, misconduct during the course of the litigation, that an award to Chrysler would be unjust, or that other circumstances justify the denial or reduction of costs. Marchman, 120 N.M. at 94, 898 P.2d at 729. {7} The trial court has discretion in assessing costs, and its ruling will not be disturbed on appeal unless it was an abuse of discretion. Pioneer, 109 N.M. at 231, 784 P.2d at 418; accord Dunleavy v. Miller, 116 N.M. 353, 362-63, 862 P.2d 1212, 1221-22 (1993). While it is clear that the trial court is invested with wide discretion in determining whether to award costs, ... such discretion is not unlimited. Martinez v. Martinez, 1997-NMCA-096, ¶ 20, 123 N.M. 816, 945 P.2d 1034. {8} Chrysler's first argument is that the district court abused its discretion by reducing Chrysler's allowable costs by 80% based on unsupported findings that there was a disparity of wealth between the parties. The district court stated: However, I'm going to reduce the entirewhatever is left, I'm going to allow those costs but reduce that by 80 percent and allow 20 percent of that. The reason being, is there is clearly a gross disparity between the size [and] resources of the litigants. Given the resources of the plaintiff, it could beallowing the full amount could possibly result in a bankruptcy of the party, and the court does have to take in consideration the ability of the parties to pay the costs. Additionally, the Court is concerned that allowing the full amount of costs to be taxed would not only have a chilling [e]ffect, but would close the courthouse door to automobile dealers under this particular statute. The Court of Appeals concluded that the district court properly exercised its discretion when it decided to partially reduce the cost award in this case because of the financial disparity between the parties, Key's perceived inability to pay all of Chrysler's costs, and the chilling effect that a large cost award would have on future litigation under the Act. Key II, 1999-NMCA-028, ¶ 13, 127 N.M. 38, 976 P.2d 523. {9} If the trial court exercises its discretion not to award costs to the prevailing party it should articulate the reasons for its ruling, unless the basis for denying costs is readily apparent on the face of the record. Marchman, 120 N.M. at 94-95, 898 P.2d at 729-30 (quoted authority and internal quotation marks omitted). While the district court found that there was a gross disparity in the size and resources of the parties, that a chilling effect would result, and that Key was unable to pay, we conclude that there was no evidence supporting these findings in the record. See Marshall v. Providence Wash. Ins. Co., 1997-NMCA-121, ¶ 35, 124 N.M. 381, 951 P.2d 76 ( [T]he trial court did not find Defendants' conduct to be willful, unreasonable, or in bad faith. Moreover, the record does not clearly establish willfulness, bad faith, or other fault indicating the basis for the trial court's award of costs against Defendants and the reason for deviating from the general rule that the prevailing parties are entitled to an award of costs. Under these circumstances, we deem it necessary to remand for entry of specific findings of fact and conclusions of law detailing the basis for the court's award of costs.). {10} In upholding the district court's reduction of Chrysler's costs, the Court of Appeals, Key II, 1999-NMCA-028, ¶ 10, 127 N.M. 38, 976 P.2d 523, relied on Gallegos v. Southwest Community Health Services, 117 N.M. 481, 489-91, 872 P.2d 899, 907-09 (Ct.App.1994). The Court of Appeals, in Gallegos, held that the district court may, in its discretion, deny or limit an award of costs to the prevailing party when the losing party lacks the resources to pay the cost award and the losing party acted in good faith and brought a claim that was not frivolous. Id. at 491, 872 P.2d at 909. In Gallegos, evidence given at trial indicated that the plaintiffs' income consisted of part-time work for approximately $5.00 per hour, demonstrating the plaintiffs' inability to pay $130,000 in costs to the defendants. Id. at 490, 872 P.2d at 908. {11} Chrysler maintains, and following a review of the record we agree, that Key did not present any evidence to the district court regarding Key's ability to pay except to characterize Chrysler's trial counsel's testimony of the reasonableness and necessity of the items in its cost bill as valuing Key's dealership to be worth less than $200,000. Key states that [t]estimony at the hearing showed that Defendant's expert valued Plaintiffs' dealership at $113,000 to $172,000. Chrysler persuasively contends, however, that this testimony involved the value of Key's claim of damages, not the value of Key's existing dealership. {12} Chrysler's witness, George Finger, was one of two trial lawyers involved in the case between Chrysler and Key. The relevant portion of Finger's testimony is as follows: Q. And isn't it true, Mr. Finger, that Chrysler's expert, Mr. Walter valued Jack Key's dealership at $275,000? A. I think the value of the dealership, the net value, the net damage value that he projected was $172,000, that was after deducting the [$]300,000 that Mr. Key would have invested had he made the investment. And Mr. Kolbe included the [$]300,000 as part of the underlying investments. Q. So, according to your expert, the net amount of damages to Mr. Key was $172,000? A. $172,000 under his alternative evaluation, assuming a consent was unreasonably withheld. Under Kolbe's calculation, with the corrections that he made it was [$]113,000. We agree with Judge Hartz's conclusion in Key II that this testimony referred to an estimate of the value of the franchise that was the subject of this litigationthe franchise that Key had hoped to acquire but that Chrysler had denied him. Key II, 1999-NMCA-028, ¶ 25, 127 N.M. 38, 976 P.2d 523 (Hartz, C.J., concurring in part and dissenting in part). {13} Chrysler accurately asserts that the Court of Appeals relied on Key's counsel's characterization of Key's business value as less than $200,000, which was in reference to the damage value of Key's claim, not the value of Key's dealership, for its conclusion that Key was unable to pay Chrysler's costs. See Key II, 1999-NMCA-028, ¶ 11, 127 N.M. 38, 976 P.2d 523. The Court of Appeals stated that the evidence of ability to pay was somewhat ambiguous, and that [i]t is up to the trial court to draw appropriate inferences from the evidence. Id. Thus, both the Court of Appeals and the district court appear to have determined that Key was unable to pay Chrysler's full costs based on Key's incorrect characterization of Chrysler's evidence. {14} Chrysler concedes that inability of a party to pay may be a factor considered by the trial court in assessing costs; however, Chrysler argues that Key did not offer any evidence regarding its financial condition, thus failing to satisfy its burden. Although concluding that the district court did not abuse its discretion, the Court of Appeals recognized that Key has the burden of demonstrating that Key lacks the resources to pay Chrysler's costs. Key II, 1999-NMCA-028, ¶ 11, 127 N.M. 38, 976 P.2d 523 (To the extent that Key maintains the financial disparity of the parties required the denial of all costs, we simply point out that Key failed to present any proof that it could not pay the $42,000 in costs ultimately awarded by the court.). Key did not present any evidence regarding its ability to pay Chrysler's costs. Instead, Key simply inaccurately characterized Chrysler's witness's testimony as valuing Key's dealership as less than $200,000. Thus, we conclude that the district court abused its discretion in reducing Chrysler's costs based on Key's unsupported assertion that Key is unable to pay Chrysler's costs. {15} We also observe that Key failed to present any evidence regarding the disparity in size and resources between the two parties or evidence regarding a chilling effect on future litigation under the Franchising Act. Further, as Judge Hartz concluded, [t]he failure of Key to establish his inability to pay the cost award is critical, because otherwise the disparity in wealth between Chrysler and him is immaterial. Key II, 1999-NMCA-028, ¶ 26, 127 N.M. 38, 976 P.2d 523 (Hartz, C.J., concurring in part and dissenting in part). Without Key's misconstruction of the testimony, there is no evidence from which the district court could infer that Key is unable to pay Chrysler's costs, and a perceived disparity in wealth between the parties is not, alone, dispositive. The Court of Appeals recently concluded that disparity of wealth between the parties, without additional evidence of the losing party's inability to pay or bad faith of the prevailing party, is not enough to justify a reduction in the cost award. Cafeteria Operators, L.P. v. Coronado-Santa Fe Assocs., 1998-NMCA-005, ¶ 37, 124 N.M. 440, 952 P.2d 435 (upholding the trial court's decision that both parties bear their own costs because the trial court articulated several reasons unrelated to the wealth of the parties). The Court of Appeals, in Cafeteria Operators, stated, and this Court agrees, that a party should not be denied an award of costs simply because it can `afford to swallow' the expense. Id. ; accord, e.g., Smith v. Southeastern Pa. Transp. Auth., 47 F.3d 97, 99-100 (3d Cir.1995) (We reject the general proposition that it is `inequitable' to tax costs in favor of a prevailing party with substantially greater wealth than the losing party.... If the losing party can afford to pay, the disparity in the parties' financial resources seems to us to be irrelevant for purposes of Rule 54(d).). On remand, the court must consider the ability of Key to pay the cost bill, and not the disparity in the wealth of the parties. {16} Chrysler also argues that Key did not present any evidence to support the notion that a large costs award could potentially cause a chilling effect; thus, the district court's findings are unsupported and speculative. The Court of Appeals rejected this argument, stating that Chrysler did not specifically argue to the trial court that it needed a factual record regarding a chilling effect and that the Court question[s] whether the district court needed an evidentiary record to support its commonsense observation that extremely large cost awards may discourage car dealers from seeking relief under the Act. Key II, 1999-NMCA-028, ¶ 13, 127 N.M. 38, 976 P.2d 523. Again, as Chrysler notes, Key had the burden to overcome Chrysler's presumptive entitlement to costs. Further, as the Court of Appeals recognizes, the Legislature could have, but did not, restrict cost awards against unsuccessful parties under the Franchising Act. Key II, 1999-NMCA-028, ¶ 12, 127 N.M. 38, 976 P.2d 523. Compare NMSA 1978, § 57-16-13 (1973) (allowing the district court, under the Franchising Act, to award costs and attorneys' fees to a successful plaintiff, but silent as to any limitation on a successful defendant's cost recovery), with NMSA 1978, § 47-9-7 (1991) (If a court determines that any action alleging that an agricultural operation is a nuisance is frivolous, the court may award reasonable costs and attorneys' fees to the defendant.). Thus, we conclude that the Legislature did not intend to limit recovery of costs to prevailing defendants on the basis of a theoretical chilling effect. See Cypress-Fairbanks Indep. Sch. Dist. v. Michael F., 118 F.3d 245, 256-57 (5th Cir.1997) (rejecting defendants' claim that an award of costs would cause a chilling effect on parents' contesting school district decisions, holding that because the federal statute at issue does not prohibit an award of costs to a school district as a prevailing party in district court even when the parents have prevailed at the administrative level, the district court did not abuse its discretion in awarding costs to the school district). Especially considering the fact that Key failed to present any evidence regarding why the district court should deny Chrysler its costs, we conclude that the trial court abused its discretion by relying on an unsubstantiated assertion that the cost bill in this case would cause a chilling effect to future plaintiffs under the Franchising Act. See, e.g., Cochran v. E.I. duPont de Nemours, 933 F.2d 1533, 1540 (11th Cir.1991) (holding that the trial court did not abuse its discretion by awarding costs, and rejecting the losing party's chilling effect argument). {17} We conclude that the district court abused its discretion by reducing the award of costs by 80%. The district court, as well as the majority of the Court of Appeals, appear to have accepted a critical misrepresentation of testimony and based their findings and conclusions upon that misrepresentation. Key failed to present any evidence or testimony regarding Key's inability to pay Chrysler's costs. Without the mistaken finding, the district court's decision is then founded upon the perceived disparity of wealth between the parties and a theoretical chilling effect on future plaintiffs under the Financing Act. Key failed to present any evidence regarding these issues, thus failing to satisfy its burden. Neither assertion, without support in the record and without evidence regarding an inability to pay, justifies the reduction in Chrysler's costs. Because Key failed to present any evidence regarding its ability to pay Chrysler's costs, this Court is unable to discern any apparent rationale in the record for the 80% reduction in costs. Wong v. Takeuchi, 88 Hawai'i 46, 961 P.2d 611, 617 (1998) (remanding the issue of cost reduction to the trial court for recalculation). We therefore remand on this issue for further proceedings so that the district court may consider evidence and argument consistent with this opinion and articulate findings and conclusions supporting which and how much of Chrysler's costs are allowable.