Northwestern Mutual Life Insurance Company v. Kathleen L. Babayan

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 06-3109
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NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
v.
KATHLEEN L. BABAYAN;
THOMAS GALLINA; JOSEPH M. SAVINO
(D.C. No. 03-cv-00717)
KATHLEEN BABAYAN
v.
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY;
JOSEPH M. SAVINO, General Agent Northwestern
Mutual Financial Network a/k/a AND d/b/a
THE SAVINO FINANCIAL GROUP; THOMAS GALLINA
(D.C. No. 03-cv-01622)
Kathleen L. Babayan,
Appellant
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Nos. 03-cv-00717 and 03-cv-01622)
District Judge: Honorable Michael M. Baylson
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Submitted Under Third Circuit LAR 34.1(a)
October 23, 2007
Before: FISHER, ALDISERT and GREENBERG, Circuit Judges.
(Filed: October 30, 2007)
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OPINION OF THE COURT
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FISHER, Circuit Judge.
Northwestern Mutual Life Insurance Company, et al. (“Northwestern”), obtained
summary judgment against Kathleen Babayan in a lawsuit regarding rescission of her
disability insurance policy. Costs were duly taxed against Babayan, and later reduced by
the District Court upon Babayan’s motion. Babayan appeals from this order to pay the
reduced costs on the grounds that the District Court abused its discretion in taxing costs at
all because (1) Babayan is indigent, and (2) the costs are excessive in light of
Northwestern’s “unclean hands.” For the reasons set forth below, we will affirm the
decision of the District Court.
I.
As we write only for the parties, we will forgo a lengthy recitation of the factual
and legal background to this case. On March 25, 2002, Babayan applied for disability
benefits under an insurance policy issued to her by Northwestern. Northwestern denied
this claim and subsequently brought an action seeking rescission of her policy on the
grounds that she had made material misrepresentations in her application. Babayan

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responded by bringing an action of her own, alleging breach of contract and other claims.
This action was later consolidated with Northwestern’s action. The District Court granted
summary judgment for Northwestern, which we later affirmed. Pursuant to Rule 54(d)(1)
of the Federal Rules of Civil Procedure, Northwestern filed a Bill of Costs in the amount
of $6,437.44. Over Babayan’s objection, the Clerk entered a judgment against Babayan
in this amount. Upon Babayan’s motion, the District Court reduced the judgment to
$4,770.94 on the grounds that Northwestern “had used a relatively expensive method for
securing documents” and thus should only receive half of the amount it billed for copying
charges.
Babayan argues on appeal that she is indigent and that the District Court abused its
discretion in not fully exempting her from paying costs in light of Northwestern’s
“unclean hands.” She asks that the matter be remanded for an order striking all costs.
II.
The District Court properly exercised subject matter jurisdiction in this case as a
diversity action pursuant to 28 U.S.C. § 1332. Petitioner’s appeal was timely filed, and
this Court has jurisdiction pursuant to 28 U.S.C. § 1291. Given the District Court’s
discretionary equitable power to award costs under Rule 54(d)(1), taxation of costs is
reviewed only for abuse of discretion.” In re Paoli R.R. Yard PCB Litig., 221 F.3d 449,
458 (3d Cir. 2000) (citations omitted).

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III.
We have held that certain factors may be applicable to the District Court’s exercise
of its discretion in taxing costs against the losing party in a lawsuit. These include
(1) the unclean hands, or bad faith or dilatory tactics, of the prevailing
party; (2) the good faith of the losing party and the closeness and difficulty
of the issues they raised; (3) the relative disparity of wealth between the
parties; and (4) the indigence or inability to pay a costs award by a losing
party.
Id. at 463. However, as Babayan concedes, the presence of one or more of these factors
does not automatically exempt her from being taxed with costs, and Rule 54(d)(1) creates
a strong presumption in favor of awarding costs to the prevailing party. Id. at 462; Fed R.
Civ. P. 54(d)(1).
Babayan cites two grounds for her claim, her alleged indigence and
Northwestern’s unclean hands. She essentially conflates these grounds and argues that
the combination of these factors militates for a finding that the District Court abused its
discretion. Her argument is unavailing. In its Order of May 18, 2006, the District Court
acknowledged Babayan’s “modest economic resources” and consequently, “believing it
[had] discretion in such a situation,” reduced her costs from $6,437.44 to $4,770.94.
Contrary to Babayan’s claims, it is clear that the District Court took her purported
indigence into account in exercising its equitable powers and ordering this reduction. At
any rate, a finding of indigence does not require the District Court to reduce costs to zero.
Babayan’s unclean hands claim is raised for the first time on appeal and is not
included in her Objections to the Bill of Costs. We are therefore not obligated to consider

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it. Harris v. City of Phila., 35 F.3d 840, 845 (3d Cir. 1994) (“This court has consistently
held that it will not consider issues that are raised for the first time on appeal.”).
Regardless, Babayan’s unclean hands claim is without merit. Babayan first argues that
Northwestern’s costs were incurred because of an alleged failure to properly underwrite
her policy, a substantive claim which the District Court already decided in
Northwestern’s favor and which will not be revisited here. Babayan also argues that
Northwestern’s Bill of Costs represents costs incurred in obtaining evidence to be used
against her, and that imposition of those costs is thus inequitable. However, the costs
Northwestern seeks include those incurred in bringing suit, as well as defending against
Babayan’s claims. Babayan’s assertion that all costs were incurred by Northwestern in
bringing the rescission claim is thus disingenuous. Irrespective of this, there is no case or
rule suggesting that costs incurred in bringing suit and procuring evidence to satisfy the
burden of proof are not taxable. The District Court therefore acted within its sound
discretion in reducing but not eliminating the costs taxed.
IV.
For the foregoing reasons, we will affirm the order of the District Court.

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