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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

 

ZAPATA HERMANOS SUCESORES,      )     
S.A., a Mexican corporation,      )     
     )     
     Plaintiff,      )     
   v.         )      No. 99 C 4040
     )     
HEARTHSIDE BAKING CO., INC., d/b/a      )      Judge Milton I. Shadur
MAURICE LENELL COOKY COMPANY,      )     
     )     
     Defendant.      )     

ZAPATA'S CORRECTED BRIEF IN SUPPORT OF
ITS ENTITLEMENT TO ATTORNEYS' FEES

Plaintiff Zapata Hermanos Sucesores, S.A. ("Zapata"), for its corrected brief in support of its entitlement to payment of its attorneys' fees by Defendant Hearthside Baking Co., Inc., d/b/a Maurice Lenell Cooky Company ("Lenell"), states as follows:

INTRODUCTION

The evidence at trial graphically demonstrated that Lenell refused to pay Zapata for tins that it received, accepted, and used between 1997 and 1999 knowing full well that its refusal to pay for those tins was going to force Zapata to have to bring suit to recover the price of those tins, and thus Zapata would have to incur attorneys' fees to recover the debt in order ever to see a dime of what Lenell clearly owed. Indeed, Lenell has stipulated that Zapata's attorneys' fees in this case constitute foreseeable consequential damages, although reserving the right to have this Court consider their legal recoverability under applicable law. See Stipulation (attached hereto as Ex. 1). Given the stipulated facts of this case, and the evidence presented at trial, Zapata clearly is entitled to recover its reasonable attorneys' fees in this case from Lenell as consequential damages under Article 74 of the Vienna Convention for the International Sale of Goods (referred to herein as the "Convention").

Zapata also is entitled to reimbursement of its attorneys' fees and costs by Lenell under domestic law because those fees and costs were incurred as a direct and foreseeable result of Lenell's bad faith refusal to pay anything for the hundreds of thousands of tins that it received and used years ago, and its continuing course of misconduct throughout this litigation in denying any liability to Zapata, thereby dramatically and needlessly expanding the scope of this litigation to cover invoices for which Lenell had absolutely no defense against payment as a matter of law.

Under domestic law, this Court possesses the inherent power to award attorneys' fees and expenses where such fees and expenses are incurred as a result of bad faith conduct. Chambers v. NASCO, 501 U.S. 32, 45-46, 111 S. Ct. 2123, 2133 (1991). It is difficult to imagine a clearer case of bad faith than this one. Indeed, Terry Cohen admitted on the witness stand that on March 10, 1999, in response to Zapata's decision not to ship any more tins to Lenell until Lenell paid its past due balance in full, he threatened Zapata that as a former supplier, Zapata would no longer have any priority for payment. That testimony speaks volumes of Lenell's true motivation. As Mike Gibson and Dennis Headley both testified, Terry Cohen told Zapata in no uncertain terms that if Zapata stopped shipping any more tins to Lenell, Zapata would never get paid - and, in fact, that is exactly what happened. Since that date more than two years ago, Lenell has refused to pay Zapata even a dime for any of the 1.6 million tins that Lenell kept and used even though Lenell's own records showed it owed Zapata hundreds of thousands of dollars for the tins. Lenell thus carried out its threat as retribution for Zapata's audacious decision not to ship any more tins until Lenell paid for the tins it had already received.

To make matters even worse, Lenell decided to make it as difficult and expensive as possible for Zapata to recover its money in this litigation. Despite its own accounting records, and the fact that Lenell had absolutely no defense to payment of invoices totaling $857,796.90, Lenell answered the complaint by generally denying that Lenell "breached its contractual obligations" and by specifically denying that Lenell was "liable for any damages for any alleged breach." Answer,  2 (emphasis added) (attached hereto as Ex. 2). Lenell never amended this answer. Through its general denial, Lenell dramatically expanded the scope of this litigation, including discovery and the trial, by forcing Zapata to undertake the difficult and time-consuming task of proving its entitlement to payment for more than 100 invoices that Lenell knew full well it was obligated to pay.

Lenell's general denials also could not have been the product of any mistake, or any claim that it lacked sufficient information to confirm its obligation to pay Zapata's uncontested invoices. At the very outset of this litigation, Lenell answered Zapata's requests for admission, and admitted to receiving, accepting and using virtually all of the tins that have been the subject of this litigation, thereby establishing the very facts that, after a lengthy and needless trial, entitled Zapata to judgment as a matter of law with respect to those invoices.

In the simplest terms, this is a case of an extreme bad faith refusal to pay, both before and during this litigation, and which continued through the trial itself. Accordingly, Zapata is entitled to recover its attorneys' fees not only as an element of consequential loss under the Convention, but under the Court's inherent power to award attorneys' fees in cases of bad faith; and pursuant to 28 U.S.C.  1927.

ARGUMENT

I. ATTORNEYS' FEES ARE RECOVERABLE UNDER THE CONVENTION WHERE THEY ARE FORESEEABLE CONSEQUENTIAL DAMAGES TO A BREACH OF THE PARTIES' AGREEMENT.

The Convention provides that all foreseeable damages incurred "as a consequence of [a] breach" are recoverable:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." Convention, Art. 74 (emphasis added).

In this case, the attorneys' fees and costs that Zapata incurred in connection with this litigation clearly qualify as recoverable consequential damages under Article 74 of the Convention, particularly given Lenell's stipulation that:

"As of the dates when Lenell issued its purchase orders for the tins described in the invoices attached as Group Exhibit A to Zapata's Complaint in this case, Lenell foresaw or should have foreseen that if Lenell failed to pay for the tins that it ordered, received and accepted, Zapata would incur litigation costs including attorneys fees, to seek payment of the invoices for said tins." Stipulation (attached hereto as Ex. 1).[1]

Based on the plain language of Article 74, the courts and arbitrators of other signatory States have held consistently that attorneys' fees are recoverable as consequential damages under the Convention. See, e.g., Case No. 17 U 146/93 (OLG Düsseldorf Jan. 14, 1994) (attorneys' fees "could be recovered under Article 74 of the [Convention]") (attached hereto as Ex. 3) [see <http://cisgw3.law.pace.edu/cases/940114g1.html>]; Hamburg Arbitration Proceeding (Schiedsgericht der Handelskammer [Arbitration Tribunal] Hamburg, June 21, 1996) (under Article 74 of the Convention "compensation for counsel's fees is indicated") (attached hereto as Ex. 4) [see <http://cisgw3.law.pace.edu/cases/960621g1.html>]; Abstract of Case No. 2 C 22/97 (Germany 13 March 1997) ("damages under Article 74 [of the Convention] include court costs and lawyer's fees") (attached hereto as Ex. 5) [see <http://cisgw3.law.pace.edu/cases/970313g1.html>].

The recoverability of attorneys' fees under Article 74 also is fully consistent with the international norm (at least outside of the United States) that the losing party pays the attorneys' fees of the prevailing party. See John Gotanda, Awarding Costs and Attorneys' Fees In International Commercial Arbitrations, 21 Mich. J.Int'l L. 1, 6 (1999) ("Most jurisdictions allocate costs and fees in litigation according to the principle that the costs follow the event . . . the practice in some countries is to award all allowable costs and fees to the prevailing party. Others allocate them in proportion to a party's success. When a prevailing party's success is total, the costs or fees, or both are borne completely by the unsuccessful party); id. at 142 ("The vast majority of countries follow the principle that 'costs follow the event.' Under this principle, the prevailing party is entitled to all costs incurred in litigating the dispute or a portion of them. The most notable exception to the majority rule is the United States"). It is also worth noting that Mexico is among the many nations that follow the international norm of awarding attorneys' fees to the prevailing party. See id. at 146-173 ("The general practice in most countries is for the losing party to pay for all of the costs and legal fees of the winning party").

Even under domestic law, attorneys' fees are a recognized form of foreseeable consequential damage. For example, in Sorenson v. Fio Rito, 90 Ill. App. 3d 368, 413 N.E.2d 47 (1st Dist. 1980), the court held that:

"The general rule in Illinois is that one who commits an illegal or wrongful act is liable for all of the ordinary and natural consequences of his act. Logically, this would include any attorneys' fees expended in bringing a lawsuit against the wrongdoer." 90 Ill. App. 3d at 371, 413 N.E.2d at 51 (citations omitted).

See also Bennett v. Local Union 66, 958 F.2d 1429, 1440 (7th Cir. 1992) ("[T]he [attorneys'] fees are not awarded as a penalty, but rather as proximate consequential damages for the union's failure to provide representation: the expense that [the plaintiff] has incurred in pursuing her contractual grievance against the Company 'is not merely a result of the harm that [the Union] did [her]; it is the harm itself.'") (citation omitted); Saco Steel Co. v. Saco Defense, Inc., 910 F. Supp. 803, 812 (D. Me. 1995) ("'Where the wrongful act of a defendant has involved the plaintiff in litigation with others . . . such costs and expenses, including attorneys' fees, must be treated as the legal consequence of a wrongful action and may be recovered as damages.'") (citation omitted); Saffer v. Willoughby, 670 A.2d 527, 534 (N.J. 1996) ("[A] negligent attorney is responsible for the reasonable legal expenses and attorneys fees incurred by a former client in prosecuting the legal malpractice action. Those are consequential damages that are proximately related to the malpractice."); Home Ins. Co. v. Kresser Nationwide Truckload Servs., Inc., No. 92 C 1035, 1995 WL 263419, at *5 (N.D. Ill. May 2, 1995) (stating that attorneys' fees incurred as result of breach of parties' agreement were consequential damages under that agreement) (attached hereto as Ex. 7).

The only reason attorneys' fees sometimes are not recoverable under domestic law, although they qualify as foreseeable consequential damages, is because of the so-called "American rule" which excludes them from recovery absent, among other things, a contractual or statutory right or a bad faith refusal to pay (which, as discussed in Section II below, is certainly present here). See Sorenson, 90 Ill. App. 3d at 371, 413 N.E.2d at 51 (noting that the argument that attorneys' fees are not recoverable consequential damages "confuses the general rule with the exception"). The American rule, even if it would preclude a recovery of fees in this case, is distinctly local and is not followed in nearly any other State that has adopted the Convention. See Thomas R. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 Duke L.J. 651 (1982) (The United States "stands in the small minority among the industrialized democracies."). It would be supremely parochial, and perhaps even arrogant, to assume that this uniquely American doctrine governs the interpretation of this multi-lateral Convention. This is especially so since the American rule conflicts with the express language of Article 74 which, without any limitation, allows recovery of "the loss . . . suffered . . . as a consequence of the breach."

Since attorneys' fees fall within the scope of the express language of Article 74, this Court should award such fees as consequential damages in this action, without regard to the American rule. As the Eleventh Circuit explained in refusing to graft the parol evidence rule onto the framework of the Convention:

"One of the primary factors motivating the negotiation and adoption of the [Convention] was to provide parties to international contracts for the sale of goods with some degree of certainty as to the principles of law that would govern potential disputes and remove the previous doubt regarding which party's legal system might otherwise apply. Courts applying the [Convention] cannot, therefore, upset the parties' reliance on the Convention by substituting familiar principles of domestic law when the Convention requires a different result. We may only achieve the directives of good faith and uniformity in contracts under the [Convention] by interpreting and applying the plain language of article 8(3) as written...." MCC-Marble Ceramic Center v. Ceramic Nuova D'Agostino, 144 F.3d 1384, 1391 (11th Cir. 1998).

Likewise here, the broad terms of Article 74 admit of no exception barring the recovery of attorneys' fees even if they otherwise qualify as consequential damages. This Court should give effect to the plain language of Article 74 by finding that Zapata's attorneys' fees are recoverable given that they comfortably fit within its parameters.

Even if the Convention had been silent on the issue of attorneys' fees in ordinary cases (which, as discussed supra, it is not), the general principles on which it is based also lead to the conclusion that attorneys' fees are recoverable. The Convention requires that courts construe it with regard to its "international character" and "the need to promote uniformity in its application and the observance of good faith in international trade." Convention, Art. 7(1). Any question concerning matters not expressly settled by the terms of the Convention are to be resolved, first and foremost, "in conformity with the general principles on which it is based." Convention, Art. 7(2). Only if a question cannot be resolved based on those principles may courts consult the law that would be applicable in the absence of the Convention. Id. The Convention's goal of promoting good faith in international trade clearly indicates that courts ought not artificially limit the recovery by adopting some version of the American rule based on the goal of valuing access to the courts (which is nowhere hinted at in the Convention) over good faith (which is expressly stated as a goal of the Convention).

Accordingly, the Court should hold that attorneys' fees are available as damages under the Convention as a matter of course to prevailing litigants. The Convention expressly allows for recovery of all foreseeable consequential damages, which by their nature necessarily include attorneys' fees. The Convention does not hint at any exception, which the American rule would be. To the contrary, the Convention's stated goal of promoting good faith reinforces the conclusion that Article 74 is meant to provide a full recovery to a prevailing litigant.[2] In this case, Zapata can only achieve a full recovery and be made whole if it is awarded the attorneys' fees that Lenell intentionally caused Zapata to incur as an obstacle to collection.

II. ATTORNEYS' FEES SHOULD BE AWARDED PURSUANT TO THIS COURT'S INHERENT POWER.

In addition to the fact that attorneys' fees are recoverable as consequential damages under the Convention, attorneys' fees also are properly awardable here under the domestic law of the United States because Zapata's fees and costs in this litigation were incurred as a direct and foreseeable result of Lenell's bad faith refusal to pay any of the debt to Zapata that Lenell undeniably owed. It is well established that, in the exercise of its inherent power, it is within the discretion of the trial court to award attorneys' fees when a party has "'acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" See, e.g., Alyeska Pipeline Serv. Co. v. Wilderness Soc., 421 U.S. 240, 258-59, 95 S. Ct. 1612, 1622 (1975) (quoting F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129, 94 S. Ct. 2157, 2165 (1974). See also Chambers v. NASCO, 501 U.S. 32, 45-46, 111 S. Ct. 2123, 2133 (1991); Hutto v. Finney, 437 U.S. 678, 689 n.14, 98 S. Ct. 2565, 2573, n.14 (1978); United States v. Fidelity & Deposit Co. of Md., 986 F.2d 1110, 1120 (7th Cir. 1993).

In Fidelity, the Seventh Circuit explained that although "attorneys' fees are ordinarily not recoverable in the absence of a statute or contract provision stating otherwise ... [i]t has been well-settled, as a general proposition, that it is within the discretion of the trial court to award attorneys' fees to a successful litigant when 'his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Fidelity, 986 F.2d at 1120. Accord Oliveri v. Thompson, 803 F.2d 1265, 1272 (2nd Cir. 1986). In cases of bad faith, attorneys' fees may be assessed against the party acting in bad faith, the party's attorneys, or both. Chambers, 501 U.S. at 53; Fidelity, 986 F.2d at 1120; Oliveri, 803 F.2d at 1273.

Fees and costs may be assessed on this basis either because of acts of bad faith leading up to the litigation, or because of the way in which a party conducts itself in the lawsuit. Hutto, 437 U.S. at 689 n.14, 98 S. Ct. 2565, 2573 n.14 (attorneys' fees may be assessed against responsible party when it "shows bad faith by delaying or disrupting the litigation"); Hall v. Cole, 412 U.S. 1, 15, 93 S. Ct. 1943, 1951 (1973) ("'[B]ad faith' may be found, not only in the actions that led to the lawsuit, but also in the conduct of the litigation."). A district court's imposition of attorneys' fees on this basis lies within the discretion of the district court, and is thus reviewable only for abuse of discretion. Chambers, 501 U.S. at 55, 111 S. Ct. at 2138.

In this case, the evidence that Zapata's attorneys' fees and expenses were necessitated by multiple acts of bad faith on the part of Lenell is truly overwhelming. We heard from Terry Cohen himself that Zapata became a "low priority" in terms of payment as soon as Zapata decided not to accept any new orders from Lenell. It is also uncontested that Lenell has not paid Zapata a red cent since January 1999 for hundreds of thousands of tins that Lenell received and used in its business dating back as far as 1997 - more than four years ago. And it is now a stipulated fact that Lenell was fully aware (or should have been aware) from the very outset that Lenell's refusal to pay for those tins would force Zapata to incur attorneys' fees to recover the price of the tins that Lenell kept.

It is truly difficult to imagine a more obvious example of a bad faith refusal to pay. In many ways, this case is strikingly similar to Hudson Motors Partnership v. Crest Leasing Enterprises, Inc., 845 F. Supp. 969 (E.D.N.Y. 1994), where the court found an award of fees pursuant to its inherent power appropriate.[3] In Hudson, the plaintiff alleged that it sold a car to the defendants for which the defendants never paid. Based on the plaintiff's contention that the defendants might "sell, transfer, conceal or otherwise dispose of the car," the court issued an ex parte order of seizure. Defendants evaded the U.S. Marshall who attempted to enforce seizure, and then filed a motion to quash the ex parte order. Upon resolution of the case in the plaintiff's favor, the court found that the defendants' motion to quash was without any legal basis, in large part because the defendants never raised any legitimate defense:

"Defendants have not brought to the court's attention any evidence which would call into doubt the veracity of plaintiff's claim that the car in question was sold to Defendants; that Defendants took possession of the car; that Defendants then refused to pay for the car; and that the car was sold to a third person in blatant disregard of plaintiff's contractual rights." Hudson, 845 F. Supp. at 979.

Noting that the defendants had conceded at the summary judgment stage that all of the above was true, the court posed the following question:

"If Defendants and [their] Counsel now know that the automobile was sold and yet never paid for, how is it they could not have known that in December of 1993 when Defendants moved to quash the ex parte order? Counsel's bad faith in moving to quash the Order is also evidenced by his admission that Defendants were holding the car hostage irrespective of the court's Order." Id.

Based on these facts, the Hudson court found that the defendants' denial of their contractual obligations for no other reason than to punish the seller was "entirely without color" and sanctionable under its inherent power. Hudson, 845 F. Supp. at 983; see also NASCO v. Calcasieu Television & Radio, Inc., 124 F.R.D. 120, 143 (W.D. La. 1989) (awarding attorneys' fees where defendant "arbitrarily and without legal cause refused to perform" on contract, forcing the plaintiff to file suit).

Similarly, Lenell knew before and throughout this litigation that it had received and used the tins and that Lenell had not paid for them (with only a small portion of the overall amount being in dispute). Terry Cohen and Ken Hanrath both admitted that Lenell acquired no new facts relating to the credits and chargebacks it was seeking after March 1999. They also both admitted that all the information necessary to determine how much Lenell owed was entirely within Lenell's control and possession. As in Hudson, Lenell clearly knew before and during this litigation everything it knew at the conclusion of this litigation concerning the fact that Zapata was entitled to payment as a matter of law for the overwhelming majority of tins for which Zapata was seeking payment. Like the defendants in Hudson, Lenell sought to punish Zapata for daring to insist on full payment of Lenell's past due balance before accepting new orders.

Lenell's bad faith in its dealings with Zapata provides the perfect example of the type of conduct that this Court's inherent power to award fees is designed to deter and remedy. Lenell refused to pay for tins it was only too happy to accept and use in its business, but nevertheless forced Zapata to litigate all the way through trial and enforcement of the judgment to collect even one red cent of the hundreds of thousands of dollars its own records show it acknowledged to be owed.

By generally denying all liability to Zapata throughout this litigation, Lenell continued its course of bad faith conduct all the way through the trial itself. As this Court previously held, federal law does not permit a party to obtain "partial" summary judgment on a portion of a claim or on an issue comprising a larger claim. See Biggins v. Oltmer Iron Works, 154 F.2d 214 (7th Cir. 1946). Accordingly, by Lenell's frivolous general denials of liability, Zapata was prevented from narrowing the issues for trial by obtaining summary judgment on those invoices that Lenell recognized as due and owing. Zapata thus was forced to waste its time and that of the Court and the jury arguing about invoices that Lenell never had any basis for contesting. Indeed, the magnitude of Lenell's bad faith, and the scope of its needless infliction of attorneys' fees and expenses, is graphically demonstrated by the fact that this Court entered judgment as a matter of law with respect to 91.8% of the amount that Zapata sought to recover.

Because Lenell acted in bad faith to force Zapata to incur legal fees in order to collect even the undisputed amount of the claim, this case cries out for an award of attorneys' fees to Zapata pursuant to the Court's inherent power, regardless of whether such fees also are awardable as consequential damages under the Convention. See Vaughan v. Atkinson, 369 U.S. 527, 530-31, 82 S. Ct. 997, 999-1000 (1962) (upholding award of attorneys' fees as consequential damages based on defendants' callous attitude and recalcitrance in neither admitting nor denying plaintiff's pre-litigation claim, thereby forcing plaintiff to hire an attorney to recover what was plainly owed to him); United States v. Fidelity & Deposit Co. of Md., 986 F.2d 1110, 1120 (7th Cir. 1993) (upholding district court's award of attorneys' fees based on determination that defendant had attempted to escape financial liability by "imposition of groundless back charges and unrealistic estimates for incomplete work").

III. ATTORNEYS' FEES SHOULD BE AWARDED UNDER 28 U.S.C.  1927.

Federal law also provides that attorneys may be liable for the attorneys' fees incurred by their opposing party if they engage in misconduct:

"Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C.  1927.

Section 1927's purpose is to "deter unnecessary delays in litigation." Overnite Transp. Co. v. Chicago Indus. Tire Co., 697 F.2d 789, 790 (7th Cir. 1983). Similar to the discretion under the Court's inherent power, imposition of sanctions under  1927 requires a showing of "bad faith" on the part of the attorney. Oliveri, 803 F.2d at 1273. As this Court previously has explained, such bad faith may be shown through either subjective or objective means:

"[a]lthough our Court of Appeals had earlier treated violations of [ 1927] as limited to situations involving subjective bad faith on the part of the offending lawyer, more recent and controlling authority teaches that objective bad faith (even akin to the "empty head, pure heart" notion) will create lawyer liability as well. Although ordinary negligence alone does not suffice, substantially less than subjective bad faith in the sense of malicious intent (see In re TCI Ltd., 769 F.2d 441, 445 (7th Cir. 1985)) will do so ..." Fox Valley Laborers Fringe Ben. Funds v. Pride of Fox Masonry and Expert Restorations, No. 94 C 4289, 1996 WL 137654, at *9 (N.D. Ill. Mar. 25, 1996) (Shadur, J.) (attached hereto as Ex. 8).

See also Kotsilieris v. Chalmers, 966 F.2d 1181, 1184-85 (7th Cir. 1992) ("the fact that ordinary negligence fails to meet the bad faith test does not mean that extraordinary or extreme negligence also fails"); In re TCI, 769 F.2d at 445 ("A lawyer's reckless indifference to the law may impose substantial costs on the adverse party. Section 1927 permits a court to insist that the attorney bear the costs of his own lack of care.").

In this case, the prerequisites to an award of attorneys' fees under  1927 -- multiplication of the proceedings in an unreasonable and vexatious manner -- are plainly met. From the outset of this litigation, Lenell had absolutely no defense or claimed offset to the great majority of Zapata's claim. Indeed, Lenell's defenses and counterclaims totaled only $318,632.67, leaving more than $600,000 for which Lenell had no conceivable defense against payment at all. Lenell also submitted answers to Zapata's requests to admit at the outset of this litigation admitting that Lenell received, accepted and used virtually all of the tins for which Zapata was seeking payment. See Fourth Amended Answers to Req. to Admit (attached as Ex. 9 hereto). Nevertheless, Lenell's counsel filed an answer generally denying "any" liability Zapata -- an answer which it never amended.[4] Lenell thus chose to hold even the uncontested amount of its liability to Zapata hostage until the bitter end. It was not until opening statements in this case that counsel finally acknowledged that Lenell "probably" owed "some" money to Zapata. Counsel attempted to retract even this acknowledgment when they submitted proposed jury instructions during the trial (and even thereafter), the thrust of which was to deny any and all liability. As this Court noted last year when it denied Zapata's motion for partial summary judgment, Lenell's counsel became "willing handmaiden[s]" to Lenell's misconduct and Lenell's abuse of the court system.

Again, Hudson is on point. The Hudson court found that the defendants' and their counsel's denial of defendants' obligation to pay for an automobile that had been sold to, delivered to, and then re-sold by the defendants was sanctionable. As here, there was nothing that the defendants or their counsel discovered regarding the defendants' obligation to pay for the car at the end of the litigation that they did not know already at the outset of the litigation. For this reason, the court held that counsel for the defendants should be liable for the fees incurred in relation to the motion to quash the court's ex parte order regarding seizure of the car. Here too, counsel should be liable for all costs associated with their general denial of liability for "any damages" because of the effect that this general denial had in dramatically and needlessly expanding the scope of this litigation.

At a minimum,  1927 imposed a duty on Lenell's attorneys to relinquish defenses that were no longer viable. Dahnke v. Teamsters Local 906 F.2d 1192, 1201 n.6 (7th Cir. 1990); Samuels v. Wilder, 906 F.2d 272, 275 (7th Cir. 1990); see also Burda v. M. Ecker Co., 2 F.3d 769, 778 (7th Cir. 1993) (holding that  1927 imposes a continuing duty on counsel to dismiss claims no longer viable). This Lenell and its counsel did not do. As this Court noted in a status hearing a year ago, "good faith on the part of somebody in Lenell's position would call for it to pay what it acknowledges to be owed and fight over the rest. . . . And indeed, I've got to tell you that's the sort of stuff for which Section 1927 and its reference to vexatious delay seems to be brought into play." Trans. of 6/22/00, at 8:4-10 (attached hereto as Ex. 10).[5]

Counsel has an obligation to the system not to follow blindly the instructions of a client that did not wish to play by the rules. In the effort to follow their client's wishes, Lenell's counsel apparently lost sight of their obligations as officers of the Court. This unreasonable and vexatious conduct resulted in the needless multiplication of these proceedings. Under 1927, they must bear the consequences of that unfortunate choice.

CONCLUSION

For the foregoing reasons, Zapata requests that the Court: (1) enter judgment declaring Zapata's entitlement to recover from its reasonable attorneys' fees expenses incurred in connection with this litigation; and (2) set a schedule for compliance with Local Rule 54.3 and any other steps this Court deems necessary for determining the amount of fees and expenses to be awarded.

Respectfully submitted,

ZAPATA HERMANOS SUCESORES, S.A.

 

By: ____________________________________
    One of its Attorneys

    Javier H. Rubinstein
    Thomas A. Lidbury
    Kyle F. Waldinger
    MAYER, BROWN & PLATT
    190 South LaSalle Street
    Chicago, IL 60603
    (312) 782-0600

Dated: July 10, 2001


FOOTNOTES

1. Lenell itself even alleged that this Court should award it attorneys' fees under the Convention if it prevailed in its Counterclaim. See Answer & Counterclaim, at 9 ("Wherefore" clause,  B) (attached hereto as Ex. 2); Am. Counterclaim, at 5 ("Wherefore" clause,  B) (attached hereto as Ex. 6).

2. At a minimum, the Convention's goal of promoting good faith in international trade dictates that no exception can be made to the recoverability of attorneys' fees in cases of bad faith refusal to pay, such as this case. Even the American rule does not go that far (see Section II below).

3. The Hudson court did not award fees under its inherent power, however, because the defendants had already been assessed punitive damages. An award of attorneys' fees, the court held, would give the plaintiff a windfall. Hudson, 845 F. Supp. at 983.

4. The fact that Lenell may have been seeking damages in its own counterclaim related to Zapata's alleged breach of some purchase orders is not a defense to Lenell's obligation to pay for tins that it received pursuant to other purchase orders. See S.A.M. Electronics v. Osaraprasop, 39 F. Supp. 2d 1074, 1086 (N.D. Ill. 1999) ("[T]he price of the goods a buyer accepts pursuant to a purchase order is not susceptible to set-off against damages the buyer sustains as a result of a seller's alleged breach of a related [] agreement.") (relying on U.C.C.  5/2-717); see also Convention, Art. 50 (Convention provision analogous to U.C.C.  5/2-717).

5. Lenell's counsel also unreasonably and vexatiously multiplied the proceedings on numerous other occasions. For example, on the eve of the close of discovery Lenell sought to amend its counterclaim to bring new claims related to intellectual property, breach of fiduciary duty, and entirely new contract damages. The Court struck the "belatedly-asserted counterclaim" noting that it "smacked of bad faith." Order of 7/6/00, at 3 (attached hereto as Ex. 11). Several months later, Lenell moved to reconsider that ruling without even mentioning the oft-cited principles set out in Above the Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99 (D. Va. 1983) (Warriner, J.), let alone setting forth any basis for reconsideration. In disposing of that motion, the Court again found Lenell's position to be "bordering on the frivolous." Trans. of 11/29/00, at 5:3 (attached hereto as Ex. 12). Indeed, the Court noted it was "giving serious consideration, in light of the extended preparation that had to be engaged in opposition, to saying that one of the prices for what is really a bootless motion to reconsider ought to be to bear the other side's expenses incurred in having to respond." Tr. of 11/29/00, at 8:19-23.


Pace Law School Institute of International Commercial Law - Last updated March 11, 2002
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