[00:00:05] Speaker 01:
Case number 25-3650, Faye Irene Gunther versus Joseph Emmons.

[00:00:41] Speaker 03:
Good morning, Your Honors. I'm John DiLorenzo. I'm here on behalf of Mr. Emmons. I'd like to reserve six minutes, if I may, for rebuttal.

[00:00:54] Speaker 03:
Midway through this diversity case, long after the union plaintiffs were dismissed, Gunther expressly triggered RCW 4.84.250, by way of her letter of February 7, 2024, notifying Emmons that for the first time, her damages were now below $10,000.

[00:01:22] Speaker 03:
When he ultimately prevailed at summary judgment, Mr. Emmons had a substantive entitlement to attorney's fees by virtue of RCW 4.84.270, which makes clear that the defendant is deemed the prevailing party if the plaintiff receives nothing.

[00:01:45] Speaker 03:
The federal court at that point was obligated to award Mr. Emmons his attorney's fees since there is no federal rule that conflicts.

[00:01:55] Speaker 03:
This court in CRST Van Expedited said as much.

[00:02:00] Speaker 03:
This court said, quote, we have held that when state statutes authorize fee awards to litigants in a particular class of cases, statutes are substantive for eerie purposes if there is no direct collision with federal rule.

[00:02:22] Speaker 03:
Also, this court in Kona Enterprises versus the State of Bishop has made clear that a federal court sitting in diversity applies the law of the forum state with respect to attorney fee entitlements.

[00:02:37] Speaker 03:
These are attorney's fees. They are not costs per se.

[00:02:44] Speaker 03:
They, under the statute, may be taxed as part of costs. But the statute makes absolutely clear that they are attorney's fees.

[00:02:55] Speaker 03:
And I think the case that we cited, Merrick v. Chesney, makes that clear. that sometimes what are truly attorney's fees are taxed as costs. In fact, that happens in 1983 litigation, where under 1988, a prevailing party receives attorney's fees. They are taxed as costs. That doesn't mean we utilize FRCP 54C1 to Determine what the amounts are going to be.

[00:03:29] Speaker 03:
Well, you see, too, that's the procedure, because they are attorney's fees, even though they are taxed as costs. Now, Section 1920, which is what my friends believe is the countervailing federal rule, represents no overarching policy whatsoever. It is purely procedural. It just provides for categories of costs.

[00:03:57] Speaker 03:
Because 4.8, 4.250 is substantive, and because it represents a policy choice by the Washington legislature, and because it clearly identifies attorney's fees, it conflicts in no way with Section 1920. The policy choice refers to a class of smaller claims under $10,000.

[00:04:26] Speaker 03:
Now, the Washington legislature created this class of cases for a couple purposes. First, it wanted to encourage out-of-court settlements. And second, it wanted to discourage those who unjustly bring or who resist small claims.

[00:04:46] Speaker 03:
And the public utility district number one of Gray's Harbor versus Cray case makes that clear. That's a Washington Supreme Court case.

[00:04:55] Speaker 01:
Counsel, do we need to address the Erie issue? I understand the district court didn't address it, right? The district court just said the amount pleaded was more than $10,000. So the statute doesn't apply on those grounds.

[00:05:12] Speaker 01:
Assuming we agree with your argument that at the outset, the district court had diversity jurisdiction because the amount at the time of removal was above $75,000.

[00:05:25] Speaker 01:
That amount, the pleaded amount for purposes of this small claim statute is still met under 10,000 because Gunther is the only one left in the case and the unions are out of the case.

[00:05:37] Speaker 01:
We can reverse on that ground alone and send all the other issues back for the district court to decide, right? Normally, we are a court of review, not a first view.

[00:05:46] Speaker 03:
You could, Your Honor.

[00:05:49] Speaker 03:
But my friends make a big deal of the Erie Doctrine. And so we wanted to address that.

[00:05:55] Speaker 01:
But what do you want us to do?

[00:05:57] Speaker 03:
What we think should be done is to remand this case back to the federal district court with instructions to proceed on the claim for attorney's fees. They were clearly met under the state statute. A federal district court is obligated to honor that state statute because it is substantive in nature.

[00:06:20] Speaker 03:
And that should be the end of the case as far as this Ninth Circuit Court of Review is concerned.

[00:06:29] Speaker 02:
To leave the Erie Doctrine question for the district court to consider?

[00:06:33] Speaker 03:
I don't think the district court should even have to consider it. I think it's plain as day.

[00:06:42] Speaker 03:
But it hasn't considered it yet. It has not. The district court went a totally different way. The district court basically said, well, if this case only concerned $10,000, how could it have even been in federal court to begin with? And I think the court lost sight of the fact that there was diversity jurisdiction when the case commenced.

[00:07:06] Speaker 03:
The case was removed based on the initial disclosures, which made it very clear that the amount of damages claimed were well in excess of the jurisdictional limits. But then the union plaintiffs were dismissed. leaving Ms. Gunther, and for a long time, it was the view of the defendants anyway that she still had claims well in excess of the jurisdictional limits. It's only when we received that letter that triggered specifically that particular Washington provision that made it clear that now her damages were less than $10,000.

[00:07:43] Speaker 03:
And if you take a look at your excerpt of record, Your Honor...

[00:07:49] Speaker 03:
that letter made it very clear that it was for two basic reasons. Number one, to show us that the amount pled was now under $10,000, but number two, to trigger the statute.

[00:08:04] Speaker 03:
So, you know, the U.S. Supreme Court's established the general rule that state laws providing for attorney's fees that reflect substantive state policies should be applied by the federal court sitting in diversity.

[00:08:22] Speaker 03:
If the court feels that it would merit addressing the Erie issue, that certainly would be welcomed by the defendants. But at this point, the district court should proceed.

[00:08:41] Speaker 03:
RCW 4.84.250 is not merely a rule to facilitate the orderly progression of cases.

[00:08:48] Speaker 03:
It is a declaration of state policy. It is substantive. It does not conflict with the federal rules. It is not based on litigation conduct. That isn't what triggers it. What triggers it is who prevails and it's a class of cases under $10,000.

[00:09:07] Speaker 03:
It's about as substantive as can be It should be applied by the federal court in a diversity case.

[00:09:14] Speaker 03:
And unless the court has any other questions, I will reserve the balance of my time for rebuttal.

[00:09:20] Speaker 01:
Thank you, counsel.

[00:09:21] Speaker 03:
Thank you.

[00:09:34] Speaker 00:
May it please the court. My name is Gabe Frumkin of Barnard, Eglinton, and Lovett. I'm representing Appellee Faye Gunther.

[00:09:42] Speaker 00:
28 U.S.C. 1920 controls the taxation of costs in federal court.

[00:09:48] Speaker 00:
In this case, the court is asked to decide whether a federal court sitting in diversity must yield to a state-created statutory exception to the American rule, which provides the parties bear their own attorney's expenses and which the Supreme Court has described as a feature of the federal court's that is deeply rooted in our history and in congressional policy, or whether federal procedural law still controls the taxation of costs when they exercise diversity jurisdiction.

[00:10:21] Speaker 00:
As explained in the supplemental authority that the appellee submitted to this court, the dispositive question is whether 28 U.S.C. Section 1920 defines the closed universe of costs in federal court such that Washington State statute in dispute, RCW 4.84.250, must yield. This is in Burke v. Choi, a 2026 case from the United States Supreme Court, which essentially adopts the plurality opinion in Shady Grove, which we cited.

[00:10:52] Speaker 02:
That's not the basis that the district court decided that matter, correct? That's correct, Your Honor. Let's talk about what the district court did and the reasoning of the district court. And I'm looking at the order and it says, If this case only involved less than $10,000, this court would not have jurisdiction over the lawsuit. And then reasoned that because the case was before the court under diversity jurisdiction, the amount in controversy must be over $75,000.

[00:11:17] Speaker 02:
But you'll agree by that point, and this is covered even in a prior order from the district court, the amount in controversy was under $10,000. And under Ninth Circuit law, that wouldn't divest the district court of jurisdiction, diversity jurisdiction, because... Diversity jurisdiction is determined at the time of removal. So can you defend the district court's reason for denying fees in its order? It's very narrow, it's explicit, and doesn't seem correct.

[00:11:49] Speaker 00:
Your Honor, I can attempt to defend the decision of the lower court. We attempt to do so by stating that Rule 15 of the Federal Rules of Civil Procedure govern in federal court. Here, as the record will show, the appellee never made a pleading consistent with Rule 15.

[00:12:15] Speaker 02:
So let me ask another question. You would agree that under Washington laws, for example, if this was in state court, Washington state court, that wouldn't be required. All that would be required is the notice that your client sent out saying the amount in if we prevail.

[00:12:33] Speaker 00:
Under Beckman, which is a state court of appeals case, that's correct, Your Honor.

[00:12:39] Speaker 02:
Doesn't Washington also have a Rule 15, very similar to the federal Rule 15?

[00:12:45] Speaker 00:
I believe it does, Your Honor, but there are also cases that apply more specifically. In this case, .250 does apply as interpreted by Beckman.

[00:12:57] Speaker 00:
What's also important there, Your Honor, is that this court has the ability to affirm on other grounds. And so here, we do believe that there are two other grounds, one being the Berk v. Choi argument that .250 does not even apply because the dispute is controlled by federal statute and to another extent by Rule 54D. So the reason that we are solidly in the area of federal court and federal statute is because 1920 articulates the closed universe of six enumerated costs, which federal court can tax.

[00:13:42] Speaker 00:
That is understood through Crawford, which is a 1987 case, and through Taniguchi, which we cited in our brief, a 2012 case. Those cases also need to be understood through the recent decision of Burke v. Choi. Now, what we can see is that the state statute in dispute, .250, is about costs, and very clearly so. We can see this by way of the name of the chapter in which the code exists, costs, the name of the section, attorney's fees as costs, the language of the section referring to attorney's fees as costs, and the legislation creating the statute, also referring to attorney's fees as costs.

[00:14:33] Speaker 00:
There are three Washington state court cases on point that refer to DOT 250 as assigning attorney's fees as costs.

[00:14:45] Speaker 00:
And perhaps most importantly is the essential characteristic of DOT 250. DOT 250 is transubstantive. It applies to any type of cause of action. be it tort, contract, personal injury, real estate. It's also party agnostic or what I would call a double-edged sword, right? It can impact either party, whoever's non-prevailing.

[00:15:14] Speaker 00:
So in this sense, if it looks like a cost, if it acts like a cost, if the courts describe it as a cost, it is most likely a cost.

[00:15:24] Speaker 01:
Well, even if we agreed with you that under state law, attorney's fees in this context are considered cots.

[00:15:32] Speaker 01:
Federal law clearly treats costs differently from attorney's fees, right? And if that's the case, maybe there's no conflict.

[00:15:42] Speaker 00:
I don't think there – I think that I would refer the court to, again, Crawford and Taniguchi, which do address and really narrowly confine 1920s.

[00:15:54] Speaker 00:
You are referring, you may be referring, I should say, to Section 1923, which does define attorney's fees distinctly from costs.

[00:16:04] Speaker 00:
I think this is a good time to address a case that the appellant referenced, Merrick v. Chesney, which he argues stands for the proposition that, you know, labels don't mean everything. That case is very easily distinguishable, though, because it refers to the deep sort of legislative history of uh, to federal, uh, federal statute, I should say in a federal rule. Um, and by engaging in this, this analysis, they reconcile those two that they, so they can continue to exist.

[00:16:37] Speaker 00:
I would also say that, uh, federal rule of civil procedure 54 here does advise, uh, an answer to your question. Um, that rule states that costs other than attorney's fees, um, shall be taxed. I would suggest that the only way to reconcile that with Section 1920 of the U.S. Code is to understand it as costs except for attorney's fees.

[00:17:10] Speaker 00:
That basically carves out saying that if a cost or if attorney's fees are delineated as costs, they cannot be taxed unless they are potentially provided for by another U.S. statute, rule, or court order as 54D1 states.

[00:17:32] Speaker 00:
So there is another conflict between both Section 1920 and Rule 54, and this is the mandatory nature of .250 versus the permissive nature of the federal rules that are on point here.

[00:17:55] Speaker 00:
In the Ninth Circuit case, Kaysen, this court held that the mandatory versus permissive natures alone created a conflict such that a Nevada state statute had to yield.

[00:18:12] Speaker 00:
So these conflicts being established, the only question remaining before this court that it needs to answer is whether or not 28 U.S.C. 1920 is ultra-various or not? And the answer is provided by this court in its decision in Kaysen, which holds that it was constitutionally passed through the power provided to Congress by the necessary and proper clause.

[00:18:46] Speaker 00:
And that's citing to Hannah v. Plumer, a 1965 case.

[00:18:56] Speaker 00:
I do think that it may be worth spending a moment on the elemental and essential nature of DOT 250, whether or not it's substantive or procedural.

[00:19:09] Speaker 00:
The most important thing to understand about that question is that according to Burke v. Choi, in the last paragraph of the decision, the majority states very clearly that the substantive nature of a state statute is not relevant to the analysis. If you look to Shady Grove's plurality decision, which Burke v. Choi adopts, Justice Scalia, writing for the plurality, writes that what the court needs to do is look at the law as written, not as how it could be written.

[00:19:44] Speaker 00:
The point there is that the statute as written and then as interpreted by Washington state courts shows that we are solidly in the territory where these attorneys fees are understood to be costs, um, and were written as such.

[00:20:07] Speaker 00:
Um, that said, if the court were to embark on an analysis about the substantive versus procedural nature of dot two 50, um, it's very clear that it is a trans-substantive procedural rule that is in conflict both with Section 1920 and with Rule 54.

[00:20:31] Speaker 00:
The reasons for this and the way in which the court can reach this conclusion are very similar to how it's also a cost statute.

[00:20:39] Speaker 00:
The location of the statute, which is in Chapter 4, titled Civil Procedure, the legislative history, the plain language of the statute, and also, most importantly, its essential characteristics. Again, the fact that it's transubstantive and applies to any cause of action, where the amount pled is $10,000 or less, regardless of the cause of action, and additionally, the party agnostic aspect of it.

[00:21:11] Speaker 00:
I do want to respond to the appellant's argument that this is a substantive matter because of it evinces a state policy. According to the Washington State Court of Appeals in Beckman, the policy is to advance particular behavior and practice within litigation.

[00:21:35] Speaker 00:
The way in which it does so is by encouraging settlement and by attempting to deter lengthy litigation.

[00:21:47] Speaker 01:
Counsel is your client. Ms. Gunther is she, she is seeking less than $10,000 for her claim, correct?

[00:21:55] Speaker 00:
She, so she did eventually, uh, claim less than $10,000 in damages, your honor. That's correct. Um, now originally this, uh, claim was brought for over $250,000. Um, that's how we were able to, uh, pleaded amounting controversy of $75,000 or more, which again creates a bit of an obstacle course for some of the hypotheticals that the appellant addressed in his brief.

[00:22:31] Speaker 00:
It's very hard to imagine when we look at these questions about Erie doctrine, about forum shopping, about equitable administration of justice, other scenarios in which a party could be deprived of any types of substantive rights. In other words, it's very difficult to imagine a scenario where someone can plead both enough to be removed to federal court, as the appellee was in this case, but then also not enough so that this statute could attach.

[00:23:07] Speaker 00:
So I think I will address – A couple other cases with my remaining time, we've discussed Merrick v. Chesney, which I do think is easily distinguishable. Let me ask a question.

[00:23:24] Speaker 02:
Your response brief doesn't have an unguided analysis contained in it. So if we find that there's no federal rule that conflicts with the state statute, should we consider that you've waived that argument?

[00:23:37] Speaker 00:
No, Your Honor. I don't think we have waived the argument, and I'm happy to describe our argument on it now. Um, have you waived it by not putting it into your response brief?

[00:23:48] Speaker 00:
I don't believe we have your honor. Um, and the reason for this is that, um, we, uh, believe implicitly that it's sort of understood within having to go through the, the shady Grove plurality factors and think that in the alternate, um, if we do look at those factors, uh, we do come out with, uh, finding that we stay on the proper side of the Erie doctrine.

[00:24:21] Speaker 00:
Now, most important, though, is that to quote Shady Grove, we need not wade into the murky waters of Erie because of the plain and very straightforward holding in Burke v. Choi.

[00:24:36] Speaker 00:
With that, I would ask that you affirm the district court, either on the grounds it stated or on other grounds as argued.

[00:24:42] Speaker 01:
Thank you. Thank you, counsel.

[00:24:55] Speaker 03:
Thank you, Your Honors. Just a few points on rebuttal.

[00:24:59] Speaker 03:
First of all, Burke is not applicable to this case. Section 1920 only controls costs, a term of art.

[00:25:08] Speaker 03:
4.84.250 relates to attorney's fees, not costs. It just allows them to be tacked as costs. In Burt, there was a Delaware law that required an affidavit of merit from a practitioner to to be filed contemporaneously with a complaint alleging medical malpractice.

[00:25:30] Speaker 03:
Almost a verified complaint.

[00:25:33] Speaker 03:
What Burt provided was, look, that's the type of code pleading that is inconsistent with federal notice pleading.

[00:25:43] Speaker 03:
The two pleading regimes collided head on. And as a result, the federal rules prevail because the case was in federal court.

[00:25:56] Speaker 03:
The whole issue about trans-substantive characterizations of RCW 4.84.250 is really a red herring. It is a concept from Justice Stevens' concurring opinion in Shady Grove.

[00:26:15] Speaker 03:
And as interesting as that concept is, It did not enjoy the support of five justices.

[00:26:22] Speaker 03:
The narrowest ruling of Shady Grove is basically a repeat of what this court has said over and over and over again about the appropriate analysis.

[00:26:34] Speaker 03:
The case in case, which was a case Judge Smith authored, provides a two-step test. Number one, does the federal rule answer the question?

[00:26:49] Speaker 03:
And number two, does the federal rule satisfy the Rules Enabling Acts requirement that the rule cannot abridge, enlarge, or modify a substantive right? But if the federal rule doesn't address the situation at all, there's no need to go on to the second step of the Kaysen test.

[00:27:12] Speaker 03:
The policy.

[00:27:14] Speaker 03:
is threefold, and the Washington Supreme Court cases make it clear. First of all, to discourage those who unjustly bring small claims.

[00:27:26] Speaker 03:
Secondly, to discourage those who unjustly resist small claims.

[00:27:33] Speaker 03:
And third, according to the Beckman case, to allow a litigant to pursue a meritorious claim without seeing the award diminished because of the attorney's fees involved in pursuing it.

[00:27:47] Speaker 03:
Those are the three policies that have been enunciated by the Washington Supreme Court. That sounds like policy to me.

[00:27:56] Speaker 03:
That's not, you know, an issue that costs would address.

[00:28:09] Speaker 01:
Counsel, can you address...

[00:28:11] Speaker 01:
The argument made by your friend on the other side with respect to Rule 15. So Rule 15 governs pleadings and amendments to pleadings. Sounds procedural.

[00:28:23] Speaker 01:
And he's saying that there's a conflict between Rule 15 and the state statute.

[00:28:30] Speaker 01:
And do we need another pleading? Do we need an amendment in order to satisfy ourselves that this case involves less than $10,000?

[00:28:40] Speaker 03:
Your Honor, I don't have the case at the top of my head, but it is a Washington Supreme Court case that makes it clear that the word pled in that state statute is a term of art. It can be satisfied by just providing a letter or a notice or a statement in open court. It does not need to be a formal filing.

[00:29:07] Speaker 03:
In fact, I've got a copy of it.

[00:29:10] Speaker 03:
I'll refer you to the excerpt of record to look at the letter.

[00:29:17] Speaker 03:
That's at excerpt of record 338 and 339.

[00:29:23] Speaker 03:
And the letter does two things. First of all, it makes clear that Gunther is the sole claimant as damages under $10,000. And secondly, it said this is a notice of applicability of RCW 4.8, 4.250.

[00:29:38] Speaker 03:
It's about as clear as you can get. I followed up with an email that is at excerpt of record 341.

[00:29:47] Speaker 03:
And I told my friends, as you know, a defendant is a prevailing party when one plaintiff recovers nothing or two, the recovery is the same or less than the amount offered in settlement.

[00:29:59] Speaker 03:
Therefore, this is to inform you that to the extent RCW 4.8, 4.250 is triggered, defendants intend to pursue your clients for fees and And costs should defendants be the prevailing parties in the litigation. And that's an excerpt of record 341.

[00:30:17] Speaker 03:
That is all that needs to be done under Washington law to trigger the applicability of that provision. Unless the court has any other questions, I'll yield the remainder of my time.

[00:30:35] Speaker 01:
Thank you, counsel. The case is submitted.