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Note: In a claim for fraud and breach of fiduciary duty brought against L-3 Communications Corporation (Defendant/Applicant) by OSI Systems, Inc. (Plaintiff/Beneficiary), the United States District Court for the Southern District of New York, Crotty, J., awarded US$125 million in damages to Plaintiff/ Beneficiary. To secure a stay of the execution of the judgment awaiting appeal, Defendant/Applicant provided Plaintiff/Beneficiary with a US$138,750,000 standby letter of credit. The costs for this standby were US$1.5 million.

When judgment against Defendant/Applicant was reversed, Defendant/Applicant was granted the right to claim legal expenses from Plaintiff/Beneficiary under the applicable rules of procedure (Federal Rule of Appellate Procedure 39(e)). Plaintiff/Beneficiary appealed Defendant's/Applicant's right to tax costs incurred outside of the appellate court, namely the US$1.5 million paid by Defendant/Applicant for issuance of the LC. The United States Court of Appeals for the Second Circuit, Katzmann, Livingston, & Stanton, JJ., in an opinion by Livingston, J., affirmed the ruling of the trial court in favor of the Defendant/Applicant.

Federal Rule of Appellate Procedure 39, entitled "Costs", reads in part:

(a) Against Whom Assessed. The following rules apply unless the law provides or the court orders otherwise:

(1) if an appeal is dismissed, costs are taxed against the appellant, unless the parties agree otherwise;

(2) if a judgment is affirmed, costs are taxed against the appellant;

(3) if a judgment is reversed, costs are taxed against the appellee;

(4) if a judgment is affirmed in part, reversed in part, modified, or vacated, costs are taxed only as the court orders.

...

(e) Costs on Appeal Taxable in the District Court. The following costs on appeal are taxable in the district court for the benefit of the party entitled to costs under this rule:

. . .

(3) premiums paid for a supersedeas bond or other bond to preserve rights pending appeal . . . .

Therefore, the Judge ruled that the Defendant/ Applicant did not abuse its rights of taxation in taxing Plaintiff/Beneficiary for any of the requested costs, including the costs of creating the LC. The Trial Judge concluded that in light of the appellate court's order, costs should be taxed in accordance with Federal Rule of Appellate Procedure Rule 39(e)(3). Plaintiff/Beneficiary argued that before Defendant/ Applicant could tax any costs incurred in the district court, the appellate court must expressly and specifically order taxation of those items. On appeal, the Court ruled that once it determines that costs are to be taxed to a certain party, they may be taxed under Rule 39(e).

[JEB/kmw]

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