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Note: To appeal a judgment of approximately US$1,800,000 million in favor of Steward and Steward Enterprises, Inc., North Pointe Insurance Company (Applicant) was required to post an appeal bond in the amount of US$2,325,000. In order to obtain a bond in this amount, North Pointe posted a letter of credit issued by Comerica Bank in the amount of the bond. The Court of Appeals of Michigan reversed the decision being appealed, allowing taxation of the appeals bond costs of US$52,339 but disallowing taxation of the costs of US$82,041.55 for the letter of credit. On appeal, the Supreme Court of Michigan, vacated and remanded the order of the intermediate appellate court for reconsideration of the taxation of costs on appeal, suggesting that there was an apparent inconsistency between the decision in this case and that in Lewis v. Grand Rapids Plastics, 453 Mich. 886, 554 N.W.2d 313 (1996). On remand, the Court of Appeals of Michigan, Borrello, J., allowed taxation of the LC costs.

The appellate court clerk had stated that LC costs "are not taxable costs because a letter of credit is not an 'appeal or stay bond.'"

In reviewing authorities, the appellate court noted that "[i]n cases such as the present case, where a party has obtained a supersedeas[footnote omitted] or stay bond and collateralized that bond with a letter of credit, the federal circuits have generally held a taxed cost to be 'reasonable' under Rule 39(e) if the total cost of the bond premium and the letter of credit is no greater than the total cost of an uncollateralized bond." It also stated that "[o]ther states have adopted this majority view" citing opinions from Massachusetts and Idaho, while recognizing that a minority of states, including California and Indiana, have not allowed taxation. In reviewing its own decisions, the appellate court found "a clear factual distinction existed.... Here, plaintiff insurance company sought to tax the premiums for an appeal bond as well as the cost of a letter of credit issued as collateral for the bond, whereas in Lewis, the defendant sought to tax the cost of an irrevocable standby letter of credit that was obtained in lieu of an appeal bond." [Emphasis in original]

The appellate court adopted the following three rules: (1) "Where a party obtains an appeal or stay bond, the premiums are fully taxable if 'reasonable.'" (2) "Where a party obtains a letter of credit in lieu of an appeal or stay bond, the costs of the letter of credit are fully taxable as 'reasonable,' so long as the opposing party has either agreed to the letter of credit in lieu of a bond, or the costs of the letter of credit are not greater than the premiums would have been had a bond been obtained. In such circumstances, the cost of the letter of credit is considered the equivalent of a bond premium, for purposes of MCR 7.219(F)(2)." (3) "Where an appeal or stay bond is obtained as well as a letter of credit as collateral for the bond, the costs are fully taxable so long as the total cost of the bond premiums and the letter of credit is 'reasonable' and is no greater than the total cost of a bond without collateral."

In applying the rules to this case, the appellate court concluded that the use of a LC as collateral for the appeal bond was reasonable because the LC was necessary to secure the appeal bond. The court based this conclusion on various affidavits that stated Applicant could not procure the required bond without full collateralization. Concluding that the LC was necessary, the appellate court allowed the full cost of the LC, stating that the costs were reasonable.

[JEB/jjdd]

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