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CISG CASE PRESENTATION

United States 12 February 2002 Federal District Court [Illinois] (Zapata Hermanos v. Hearthside Baking)
[Cite as: http://cisgw3.law.pace.edu/cases/020212u1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20020212 (12 February 2002)

JURISDICTION: United States [federal court]

TRIBUNAL: U.S. District Court, Northern District of Illinois, Eastern Division [federal court of 1st instance]

JUDGE(S): Milton I. Shadur

CASE NUMBER/DOCKET NUMBER: 99 C 4040

CASE NAME: Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc, d/b/a Maurice Lenell Cooky Company

CASE HISTORY: We publish nine parts of the record of these proceedings:
-      8 December 2000, Ruling on pre-trial motions
-      18 July 2001, Memorandum opinion and judgment order [Court's ruling on buyer's motions for judgment as a matter of law and for a new trial]
-      19 July 2001, Supplement to Memorandum opinion and judgment order [Supplement to Court's opinion dated 18 July 2001]
-      15 August 2001, Memorandum opinion and order [Ruling on second motion by buyer attacking the judgment]
-      22 August 2001, Memorandum opinion and order [Ruling on seller's motion for an award of attorney's fees: ruling on seller's motion advanced against buyer's litigation counsel]
-      28 August 2001, Memorandum opinion and order [Ruling on seller's motion for an award of attorney's fees: ruling on seller's motion advanced against buyer]
-      12 February 2002, Memorandum opinion and order [Ruling related to amount of attorney's fees] [Case text presented below]
-      13 March 2002, Memorandum opinion and order [Ruling on amount of attorney's fees]

The most recent proceeding in this case is an appellate ruling by the U.S. 7th Circuit Court of Appeals handed down on 19 November 2002. The Circuit Court of Appeals reversed and remanded the District Court's ruling on attorneys' fees. A petition for certiorari was filed with the U.S. Supreme Court and denied.

SELLER'S COUNTRY: Mexico (plaintiff)

BUYER'S COUNTRY: United States (defendant)

GOODS INVOLVED: Cookie tins


Classification of issues present

APPLICATION OF CISG: Yes [In the final pre-trial order, the parties agreed that the CISG governed]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: CISG not discussed in this opinion but Articles 74 and 77 can be relevant. To be noted, however, is the fact that the reasoning of the Court is domestic internal-law reasoning.

Classification of issues using UNCITRAL classification code numbers:

74A [Damages (general rules for measuring): loss suffered as consequence of breach];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Attorneys fees ; Damages ; Mitigation of loss

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Editorial remarks

See companion proceedings dated 28 August 2001 for related editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): Text presented below; see also 2002 U.S. Dist. Lexis 2177

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text

Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., etc.

No. 99 C 4040

United States District Court, Northern District of Illinois, Eastern Division

12 February 2002

MEMORANDUM OPINION AND ORDER

In connection with the continued motion by Zapata Hermanos Sucesores, S.A. ("Zapata") to recover certain attorneys' fees and expenses that it has paid and incurred in connection with the completed litigation between the parties, the evidentiary hearing to resolve matters that remain at issue (based on the parties' most recent submissions) has been set for its expected completion on February 14, 2002. In the meantime Hearthside Baking Co., Inc. d/b/a Maurice Lenell Cooky Co. ("Lenell") has filed its Memorandum of Law (cited "Lenell Mem.--" ) in response to Zapata's motion and supporting brief (cited "Zapata Mem.-") seeking to bar testimony of Lenell's purported expert witness, Michael J. O'Rourke ("O'Rourke"). This memorandum opinion and order resolves that motion in part.

To begin with, this Court (like counsel for both sides) has reviewed transcripts of the various status hearings - November 7 and 19 and December 6, 20 and 28, 2001 - during which arrangements and procedures for the then-anticipated evidentiary hearing were discussed. This Court agrees that Lenell had contemplated that O'Rourke would testify briefly in accordance with his two affidavits (which would appear to serve as his Fed. R. Civ. P. ("Rule") 26(a)(2)(B) written report,[1] required in light of O'Rourke's purported expert witness status), as well as his then being available for cross examination by Zapata's counsel. This Court has therefore predicated this Memorandum Opinion and Order in terms of the matters covered (as well as the matters not addressed) in O'Rourke's October 11 and December 3, 2001 affidavits and in the "Disclosure of Witnesses" document referred to in n.1.

O'Rourke's October 11 affidavit says that he is "familiar with the usual and customary market rates charged by attorneys with varying degrees of experience in cases similar to the case entitled Zapata v. Hearthside," and it then goes on to state his views as to such "usual and customary market rates." But that approach, like Lenell's responsive Memorandum, has demonstrated O'Rourke's total failure to conform to the demands of Fed. R. Evid. ("Evid. Rule")702 - and most particularly to the teaching of Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) , which the Committee Note to Evid. Rule 702 confirms as having established the definitive standard for testimony that is potentially admissible under Evid. Rule 702 but that does not fit under the "scientific knowledge" rubric. Both O'Rourke (in describing his approach to the issue) and Lenell's Memorandum (in discussing the applicable law) have totally misstated the principles that control a case such as this one.[2]

What Lenell Mem. 2-3 [3] seeks to do is to rely on five opinions from our Court of Appeals: McNabola v. CTA, 10 F.3d 501, 519 (7th Cir. 1993); Cooper v. Casey, 97 F.3d 914, 920 (7th Cir. 1996); Gusman v. Unisys Co., 986 F.2d 1146, 1150 (7th Cir. 1993); Connolly v. Nat'l Sch. Bus. Serv. Inc., 177 F.3d 593, 596 (7th Cir. 1998); and People Who Care v. Rockford Bd. Of Educ., 90 F.3d 1307, 1310 (7th Cir. 1996). But all five of those cases share a common factor that makes them truly irrelevant to the case at hand. In every instance the fee award at issue in those cases was dependent on a fee-shifting statute (three cases seeking an award under 42 U.S.C. 1983; one case asking for fees under ADEA and one case involving Title VII). Not one of them involved, as this case does, the sought indemnification of fees that were incurred by a party pursuant to an agreement that had been reached between that party and its lawyers entirely without reference to the prospect of a later potential recovery from the client's adversary. It is in the totally different unbilled-fee-shifting context that the cases cited by Lenell speak variously of "prevailing" market rates charged by lawyers of similar ability and experience in the community, or of "presumptive" market rates, or of using such figures as a "starting point."

By sharp contrast, this case poses the classic situation of a true market rate in the sense of the price paid by a willing buyer to a willing seller - in this instance, of legal services. Zapata hired the Mayer Brown & Platt firm; the work was within the regular range of practice of the Mayer Brown litigation team; Zapata's house counsel has reviewed and approved all of the Mayer Brown billings at issue; and all of Mayer Brown's billed fees have either been paid or acknowledged by Zapata as its unconditional obligation. Under those circumstances, what our Court of Appeals has said in Balcor Real Estate Holdings, Inc. v. Walenta-Phoenix Corp., 73 F.3d 150, 153 (7th Cir. 1996) (emphasis in original) might well have been written for this case:

"Courts award fees at the market rate, and the best evidence of the market value of legal services is what people pay for it. Indeed, this is not 'evidence' about market value; it is market value. Although courts interpolate the word 'reasonable' into clauses of this kind, the best guarantee of reasonableness is willingness to pay. Balcor asked Walentas to make good its actual outlays. Although Walentas denies that Balcor got its money's worth, it does not deny that these were real bills that Balcor paid and it does not argue that Balcor's lawyers ran the meter because they thought that Walentas would have to cover the tab. Corporate inside counsel monitor bills submitted by outside counsel; nothing in this record suggests that these bills received less than the usual review. They were deemed commercially reasonable and paid. Having defaulted on its obligations and forced Balcor to incur these costs, Walentas is in no position to complain that it induced Balcor to incur large legal costs - especially not when the lengthy discovery into the negotiating history was at Walentas' insistence."[4]

Indeed, this case poses an even more unequivocal predicate for the proposition that the actual billing as rendered by the Mayer Brown firm and approved by Zapata "is not 'evidence' about market value; it is market value." Balcor, after all, involved the enforcement of a contract for indemnification by which the litigants there had substituted an indemnification agreement as to bearing the winning party's legal expenses in place of the so-called American Rule, under which each side must bear its own legal expenses. Such a contract might of course create the possibility that a party, believing itself to have a dead-bang winner, could run up the legal tab inordinately in an effort to punish its opponent (a possibility that is glanced at in the quotation from Balcor). Here Zapata had no such indemnification undertaking from Lenell, so that nothing whatever casts a cloud on the conclusiveness of the Mayer Brown rates as establishing market value - not presumptively, but actually.

Nor is Balcor alone in establishing that proposition as Seventh Circuit law. More recently Medcom Holding Co. v. Baxter Travenol Labs., Inc., 200 F.3d 518, 520-21 (7th Cir. 1999) has applied the identical analysis, again in the context of an indemnification agreement. In fact, the Medcom discussion has made some additional points as to the different nature of billing practices and procedures where a fee-shifting statute is not involved, points that bear obvious relevance on other aspects of the current proceeding and that this Court will take into account at the appropriate time.

Because O'Rourke's report (even in its presently-assumed expanded form) did not fully disclose the claimed "basis and reasons" for his wrongheaded approach to the controlling market rate (as Rule 26(a)(2)(B) obligated him to do), this Court has no way of knowing whether his adoption of a principle so directly at odds with controlling Seventh Circuit precedents was the product of a deliberate decision to do so or rather of ignorance of those precedents. It is scarcely necessary to comment on the significance of the former alternative if it were indeed the case (as this Court trusts it was not). And if the latter alternative applies instead, there is really no excuse for a lawyer who holds himself out as an expert on a legal matter to be unaware of what even brief research would have disclosed.[5]

As for Lenell's counsel and his Memorandum, unawareness of the law is an unavailable excuse: Zapata's Memorandum expressly cited to and quoted from both Balcor and Medcom. Indeed, Lenell Mem. 5 (emphasis in original) essays this feeble attempt to distinguish those cases:

"The case at bar is different for two reasons. First, there is countervailing evidence of the prevailing market rate, and second, the plaintiff has not paid its lawyers. Even if the plaintiff's argument that a paid fee establishes the market rate is true the plaintiff cannot take comfort from it here."

As to the first purported reason, it is demolished by the Balcor-emphasized holding that what was billed to Zapata is the market rate, and not merely evidence. And as for the second purported reason, it is so ethically (and morally) bankrupt as to invite sanctionability.[6]

In sum, O'Rourke's proposed excursion into the hourly rates that may be charged by some other lawyers in the legal community - even apart from the considerations that demonstrate the plain unacceptability of that proposed excursion under the standards established by Kumho Tire, Evid. Rule 702 and its accompanying Committee Note - is rejected as a matter of law. At the continued evidentiary hearing on Zapata's motion, it will be permissible to establish a record as to O'Rourke's attempted methodology (something that seems particularly appropriate in light of the uncertainty as to whether Ex. C to Zapata's motion to bar is to be viewed as part of O'Rourke's report under Rule 26(a)(2)(B) and hence as a permissible component of his opinion testimony, if it were to be allowed at all).

There is another component to Zapata's motion: It also seeks to bar O'Rourke's opinions as to the reasonableness of the hours billed by the Mayer Brown lawyers. For the nonce this Court will defer ruling on that facet of Zapata's motion in order that it may better address the question whether O'Rourke has passed or flunked the Kumho-Evid. Rule 702 standards on that score as well, a ruling that may be facilitated by a consideration of O'Rourke's actual testimony in that respect.

 /s/      Milton I. Shadur              
Senior United States District Judge

Date: February 12, 2002


FOOTNOTE

1. It is unclear whether an additional document furnished by Lenell's counsel -- "Defendant Lenell's Disclosure of Witnesses," faxed by Lenell's counsel to Zapata's counsel on January 17, 2002 and included as Ex. C of Zapata's motion to bar O'Rourke's testimony -- is also intended to serve as part of O'Rourke's report under that Rule. For one thing, it is not signed by O'Rourke himself, as Rule 26(a)(2)(B) requires. But because that document would not make any difference to the outcome here in any event, this Court will make a pro-Lenell assumption in that respect for purposes of this opinion.

2. This fundamental and fatal flaw is separate and apart from the deficiency in O'Rourke's methodology as exposed by the "Disclosure of Witnesses" document referred to in n.1. That document reflects a wholly insufficient effort by O'Rourke to research and identify what would serve as the relevant market rates even on his (and Lenell's) skewed notion of what is sought to be ascertained in the present proceeding. Under the circumstances, however, this opinion will not pause to particularize the several methodological deficiencies in that respect (on that score, see Zapata Mem. 4-5).

3. For some reason Lenell's counsel has failed to number the pages of his memorandum. This Court has thus had to do so manually, and the bracketed page numbers in this opinion are the result.

4. [Footnote by this Court] Here the counterpart to the "lengthy discovery" referred to in Balcor was the conduct by Lenell that converted what might have been a potentially simple goods-sold-and-delivered litigation into a far more convoluted and time-consuming (and hence far more expensive) lawsuit.

5. Some limited inquiry at the continued evidentiary hearing may perhaps cast light on the subject, and that may in turn bear on the credibility to be ascribed to O'Rourke's other assertedly expert opinions.

6. That nervy contention by Lenell's counsel is in the best tradition of the son who has killed his parents and then seeks mercy from the court because he is an orphan. Zapata's general counsel has confirmed during the current hearing that the only reason any fees remain unpaid is that Zapata is suffering financial difficulties, so that it is paying the outstanding acknowledged indebtedness (presently in the amount of some $200,000) as its cash flow permits. It will be remembered, of course, that Lenell stubbornly refused to pay a dime toward the hundreds of thousands of dollars that its own books and records showed it as owing to Zapata for goods sold and delivered -- what Lenell did was to point to some asserted disputes as to the remaining portion of Zapata's claims as the predicate for stiffing its creditor entirely. If Lenell had even begun to do the honorable thing by paying a substantial part (if not all) of its admitted liability to Zapata, Zapata's outstanding obligation to its law firm would long since have been paid in full. If anything, the argument by Lenell's counsel is rendered even more outrageous by his stressing at Mem. 5 (emphasis again in original) that Zapata "has failed to pay them [Mayer Brown] even after the recovery of a judgment and attorneys' fees was certain." But Zapata still has not seen the color of Lenell's green, for the adverse judgment has been met by Lenell with continued stonewalling during its appeal -- even as to the admitted portion of its liability.

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