Newton v. Consolidated Gas Co. of NY

Background

A private gas company challenged a New York law fixing gas at 80 cents per thousand feet, arguing that the price was confiscatory under the Fourteenth Amendment. A federal court found the rate confiscatory, enjoined state officials from enforcing it, and ordered the company to hold in court the money charged above 80 cents until the dispute was finally resolved. The company substituted surety bonds for the cash, agreed to seven percent interest on the fund, and paid large premiums to surety companies to obtain those bonds. The District Court then taxed the premium payments as costs against the losing state parties.

Reasoning

The central question was whether the premiums a party paid for surety bonds, substituted for impounded cash, could be allowed as taxable costs against the losing side. The Court acknowledged the general rule that appeals from cost-only decrees are disfavored but explained an exception where the court awards costs that are not ordinarily taxable or where the costs affect a fund under court control. Relying on long-standing practice in the Second Circuit and on Congress’s support for use of surety companies, the Court concluded it was not an abuse of discretion for the District Court to allow the premiums as costs. The bonds had been taken to protect both the company and the consumers, and taxing the losing parties for that expense was reasonable under local practice.

Real world impact

Companies forced to substitute surety bonds for impounded funds in the Second Circuit can seek to recover bond premiums as court costs. Losing state officials or other defendants may be required to pay those expenses where local rules or long practice allow it. The decision rests on circuit practice and does not establish a uniform national rule.