No Tiebreaker Necessary: Breaking with the Federal Circuit, Court Holds That Litigation Can Result in No “Prevailing Party” for Cost and Fee Shifting

In Royal Palm Properties, LLC v. Pink Palm Properties, LLC, 2022 U.S. App. LEXIS 18682 (11th Cir. July 7, 2022), the Eleventh Circuit held that there may be no prevailing party for the purposes of post-verdict cost and fee shifting. A unanimous appellate panel affirmed a district court’s denial of a litigant’s motion for costs and fees, finding that the jury’s split verdict resulted in a legal tie and thus no prevailing party.

Royal Palm Properties, LLC (“Royal Palm”) initiated the underlying lawsuit, alleging that Pink Palm Properties, LLC (“Pink Palm”) infringed upon its registered federal trademark. In response, Pink Palm countersued, seeking cancellation of Royal Palm’s trademark registration and a declaratory judgment of non-infringement. At trial, the jury rendered a split verdict, finding that the Royal Palm mark was valid but that Pink Palm did not infringe. Following the verdict, Pink Palm filed a motion for judgment as a matter of law to invalidate Royal Palm’s trademark registration, which the district court granted. As the prevailing party, Pink Palm sought and was awarded costs under Federal Rule of Civil Procedure 54(d). But Royal Palm successfully challenged that ruling on appeal; in the first appeal in the case, the Eleventh Circuit reinstated the jury’s verdict. Upon return to the trial court, Pink Palm once again moved for costs and “exceptional case” fees under the Lanham Act against Royal Palm, arguing that the award was justified since it had successfully defended against the infringement claim. However, this second motion resulted in a decidedly different outcome: the district court denied the motion, finding that the award of costs and fees was inappropriate because neither party prevailed on its claims. Pink Palm appealed this ruling, bringing the case back before the Eleventh Circuit.

On appeal, the Eleventh Circuit was faced with the question of whether “courts [are] required to name a prevailing party in every case, or can there be no prevailing party?” Although the underlying claims sounded in trademark law, this legal question is broadly applicable to any case tried in federal court. The Federal Rules of Civil Procedure as well as numerous federal statutes allow for the shifting of certain litigation-related costs and fees. Specifically, Rule 54(d) provides for the award of costs to the “prevailing party” in a litigation. Other federal statutes, such as the Lanham Act, include similar language, only permitting the shifting of costs or fees if a party can demonstrate that it prevailed at the resolution of the case.

The Eleventh Circuit, in an opinion written by Judge Wilson and joined by Judge Rosenbaum and Judge Virginia Covington, visiting from the Middle District of Florida, began its analysis by articulating the definition of a “prevailing party.” Based on Supreme Court precedent, the court adopted a two-part test for determining whether one is a prevailing party. First, a party must have been “awarded some relief on the merits of its claim by the court.” Second, the legal relationship between the parties to the litigation must be “materially altered” following the judicial resolution of the dispute. The court took care to note that although the majority of Supreme Court case law on the issue of cost- and fee-shifting arose in the civil rights context, the definition of prevailing party was broadly applicable to any case in federal court.

Having dispensed with the issue of what constitutes a prevailing party, the court then turned to the central issue of the case, and one of first impression in the Eleventh Circuit: whether a legal dispute must have a prevailing party. The panel began by noting that this issue has never been decided by the Supreme Court and has resulted in a split among the federal circuit courts of appeals. In Shum v. Intel Corp., 629 F.3d 1360 (Fed. Cir. 2010), the Federal Circuit held that a trial court must determine the prevailing party in each case for the purposes of awarding costs under Fed. R. Civ. P. 54(d). On the other hand, the Second, Fifth, and Eighth Circuits have determined that federal litigation can result in a legal tie in which no prevailing party emerges.

Based on the language of Rule 54(d) and Supreme Court precedent, the Eleventh Circuit sided with the majority of its sister circuits, finding that no prevailing party must be determined following judgment in a federal case. In coming to its decision, the court criticized the Federal Circuit’s holding in Shum. In that case, the Federal Circuit determined that because the language of Rule 54(d) only allows one party to be eligible for an award of costs, every case must have a prevailing party. The Eleventh Circuit disagreed, finding that the language of Rule 54(d) does not mandate that a prevailing party be determined in every action. Instead, the court held that a legal dispute can result in a situation in which the legal relationship between the parties is not materially changed and thus neither party has prevailed.

Applying the holding to the case at bar, the Eleventh Circuit affirmed the lower court’s refusal to award costs or fees. Following the jury’s verdict, the legal relationship between Royal Palm and Pink Palm was not materially altered by the resolution of their dispute. Royal Palm lost on its infringement claim but prevailed on the validity of its trademark registration, while Pink Palm lost its bid to cancel Royal Palm’s registration but successfully defended against the infringement claim. As such, neither party could be said to have prevailed over the other side. While the Eleventh Circuit noted that the district court did apply an incorrect legal standard, namely, the “central issue” test that has been rejected by the Supreme Court, the court found that the district court’s reasoning remained sound and its judgment was in line with the court’s holding.

Interestingly, at the conclusion of its opinion, the Eleventh Circuit noted that few cases would result in a legal tie and that most courts will easily be able to identify the prevailing party in a litigation. However, the holding articulated in Royal Palm provides a basis for denying costs and fees for those rare occurrences when a district court cannot name a winner. In essence, when necessary, courts in the Eleventh Circuit can call a legal dispute a draw and not resort to a tiebreaker to award litigation costs.

Posted by Jennifer Sandlin.

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