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As a backstory to the new decision just published by the 9th Circuit Court of Appeals, a civil case, was filed April 11, 2022 in San Francisco Superior Court by the San Francisco and Los Angeles District Attorneys, alleging that the Potter Handy LLP San Francisco lawfirm and 15 of its lawyers — including name partners Mark Potter and Russell Handy — of violating California’s Unfair Competition Law by bringing fraudulent and deceitful litigation under the Americans with Disabilities Act against small businesses. The district attorneys asked the court to enjoin the law firm from further violations and make it repay thousands of small businesses that settled claims over the last four years.

In dismissing the district attorneys’ case in August 2022, San Francisco Superior Court Judge Curtis Karnow found that the conduct of Potter Handy attorneys was covered by California’s “litigation privilege” that attaches to court filings and communications related thereto. The judge found that the privilege applied “irrespective of the communication’s maliciousness or untruthfulness.”

On October 20,2022 the San Francisco District Attorney announced that they would appeal the dismissal of their case against Potter Handy LLP.  The outcome of that appeal is not yet known.

Meanwhile, on October 2, 2020, Orlando Garcia – who is currently represented in this case by Potter Handy LLP – filed a complaint in the California state court challenging Gateway Hotel’s “reservation policies and practices,” specifically “the lack of information provided on [Gateway’s] website that would permit [Garcia] to determine if there are rooms” that would accommodate his disability. Garcia contended that Gateway’s failure to provide this information violated the ADA and California law.

Gateway removed the case to federal court, and Garcia subsequently amended his complaint, dropping his claim based on California law. Gateway then moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), and the district court granted the motion after concluding that the information on Gateway’s website complied with the ADA’s requirements.

Gateway then sought an award of attorney’s fees, which the court denied because it could not “conclude on the record before it that [Garcia]’s case was frivolous or unreasonable” and because there was no “clear indication that [Garcia]’s lawsuit was vexatious.”

Gateway then filed an application for costs, which the court awarded. After filing two motions to retax costs that the court denied on procedural grounds, Garcia filed a third motion to retax costs, arguing that costs may be awarded to defendants under the ADA only if the action was frivolous, unreasonable, or without foundation. The court denied this motion after concluding that Brown v. Lucky Stores, Inc., 246 F.3d 1182 (9th Cir. 2001) – the legal authority cited in support of Garcia’s position – was irreconcilable with the Supreme Court’s intervening decision in Marx v. General Revenue Corp., 458 U.S. 371 (2013).

The district court followed “the Supreme Court’s intervening decision in Marx rather than the Ninth Circuit’s earlier precedent” in Brown, and determined that Rule 54(d)(1) governed the award of costs in ADA actions. And because Rule 54(d)(1) provides that costs may be awarded to a prevailing party at the district court’s discretion, the court concluded that Gateway properly received its costs in the action and denied Garcia’s motion to retax costs.

These orders were followed by a timely appeal. The 9th Circuit Court of Appeals reviewed the case, and affirmed the award of costs to the Hotel in the published case of Garcia v Gateway Hotel – 21-55926 (September 2023).

This case required the 9th Circuit Court of Appeals to clarify the circumstances under which a defendant may be awarded its costs in an action brought under the Americans with Disabilities Act of 1990 (“ADA”), 42 U.S.C. § 12101 et seq. Gateway contends that the standard for awarding costs to ADA defendants is governed by Federal Rule of Civil Procedure 54(d)(1), which allows courts the discretion to award costs to prevailing parties “[u]nless a federal statute . . . provides otherwise.”

Appellant Orlando Garcia contends that the ADA’s fee- and cost-shifting statute “provides otherwise” because it permits ADA defendants to receive their costs only where there is a showing that the action was frivolous, unreasonable, or groundless. He relied on Brown v. Lucky Stores, Inc., supra. Therefore, he contends that the district court should have granted his motion to retax costs, which would have, in effect, denied Gateway’s application for costs.

The majority opinion agreed with the district court and concluded that its decision in Brown cannot be reconciled with the Supreme Court’s decision in Marx, and therefore it has been effectively overruled. Accordingly, it held that Rule 54(d)(1) governs the award of costs to a prevailing ADA defendant, and such costs may be awarded in the district court’s discretion.

Circuit Judge Hurwitz wrote the dissenting opinion. He agreed with the majority that after Marx Rule 54(d)(1) controls the award of costs to a prevailing defendant in an ADA action. He also agreed with the majority that prior caselaw holding that the ADA “provides otherwise” than Rule 54(d)(1) cannot be reconciled with Marx. But, he parted company with his colleagues on whether our three-judge panel is free to reach these conclusions.

“The proper course – even when the eventual outcome is, as today, seemingly preordained – is to require an en banc court to inter our previous decisions unless an intervening Supreme Court abrogates them.”