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S.A., a Mexican corporation,      )     
     Plaintiff,      )     
   v.         )      No. 99 C 4040
HEARTHSIDE BAKING CO., INC., d/b/a      )      Judge Milton I. Shadur
     Defendant.      )     


Plaintiff Zapata Hermanos Sucesores, S.A. ("Zapata"), for its reply in support of its entitlement to recovery of its attorneys' fees from Defendant Hearthside Baking Co., Inc., d/b/a Maurice Lenell Cooky Company ("Lenell"), states as follows:[1]


In its effort to avoid the plain language of Article 74 of the United Nations Convention for the International Sale of Goods ("Convention"), Lenell: (1) makes meaningless distinctions of case law while ignoring the relevant principles for which they plainly stand; (2) invents an imaginary redundancy in the Convention as a springboard to an absurd obliteration of Article 74 in its entirety; (3) ignores controlling precedent holding that attorneys' fees shifting rules in the applicable law, such as Article 74, are substantive such that they must be followed in federal question cases like this one. Zapata shows below that not one of Lenell's arguments has any merit at all.

In its effort to avoid an exercise of the Court's inherent power, Lenell seems to suggest that its own obligation to act in good faith somehow dissolved at the courthouse steps and that everything from that point on is attributable solely to its lawyers (who, ironically, argue precisely the opposite when they claim they could not control their client). To support this blame-shifting, Lenell argues extensively that only its conduct in the litigation is relevant. Not only is Lenell wrong on the law, but this is a distinction without a difference. Lenell plainly continued its obdurate refusal to acknowledge that which could not be denied into the courthouse and right up through the trial. Once the Court saw the evidence exposed to the light of day, it was clear that Lenell had no colorable basis to deny liability as to most of Zapata's claims. Yet Lenell persisted in every possible effort to blur the line between that which was an arguably legitimate dispute and that which was not. Lenell goes to great lengths to factually distinguish the case law Zapata cited, proving little more than that this case, like every other case, is "different." But none of the differences are material to the relevant legal principles or to the obvious fact that Lenell defended this case in bad faith.

Zapata should recover attorneys' fees under the Convention and the Court's inherent power.


A. The Convention Expressly Provides for the Recovery of Consequential Damages, Which Includes Attorneys' Fees.

The Convention expressly provides that all foreseeable damages incurred "as a consequence of [a] breach" are recoverable. Convention, Art. 74. Lenell has stipulated that Zapata's attorneys' fees were a foreseeable consequence of Lenell's breach, thereby satisfying each of the requirements of Article 74. See Stipulation (Ex. 1 to Zapata's Opening Brief). Nevertheless, Lenell takes the position that the Convention is silent on the issue of attorneys' and that attorneys' fees thus are not consequential damages. Dfdt. Resp., at 2-3.[2] As we demonstrate, this argument is fundamentally flawed.

In support of this misconceived notion, Lenell labors to distinguish (on factually meaningless grounds) the numerous cases Zapata cited at pages 5-6 of its opening brief for the proposition that, even under domestic law, it is well established that attorneys' fees are foreseeable consequential damages, although they often are not recoverable. Lenell tries to distinguish those cases on the ground that they did not award attorneys' fees to the prevailing litigant, and that instead the fees were awarded as direct damages. Lenell misses the point, of course. It makes no difference which categories of attorneys' fees are recoverable and which are not under domestic law. What is important about those cases is their acknowledgment that attorneys' fees incurred by a prevailing litigant clearly qualify as consequential damages. Lenell notably cites no authority to the contrary.

Lenell also fails in its effort to distinguish the international authorities Zapata cites at page 4 of its opening brief (and attached thereto as Exhibits 3-5) in support of the proposition that attorneys' fees are recoverable consequential damages under the Convention. OLG Düsseldorf (Opening Brief, Ex. 3) [see <http://cisgw3.law.pace.edu/cases/940114g1.html>] plainly holds that "fees in general could be recovered under Article 74 CISG." It makes no difference that the court refused to allow a double recovery because the prevailing party there already had recovered its fees. Nor does it matter that the court awarded the seller interest according to the seller's cost of capital. The Convention is deliberately silent on the rate of interest to be awarded. Uniform Sales Law -- The UN-Convention on Contracts for the International Sale of Goods, Univ. Prof. Dr. Peter Schlechtriem, Manz Vienna 1986, pp. 98-99 ("Uniform Sales Law") (excerpt attached hereto as Exhibit 1) <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>.[3] By contrast, the Convention is not silent as to the recoverability of attorneys' fees, which fall within the express language of Article 74. Indeed, this is precisely the holding of OLG Düsseldorf (Opening Brief, Ex. 3).

Lenell's discussion of Hamberg Arbitration Proceeding (Opening Brief, Ex. 4) [see <http://cisgw3.law.pace.edu/cases/960621g1.html>] and Case No. 2 C 22/97 (Opening Brief, Ex. 5) [see <http://cisgw3.law.pace.edu/cases/970313g1.html>] is also beside the point. In the former case, the arbitrator's discussion of domestic (German) law is of no help to Lenell. The arbitrator expressly held that "independent" of that law, attorneys' fees are recoverable damages under "Art. 61(1) in connection with Art. 74 CISG." (Opening Brief, Ex. 4, p. 7.) The latter case plainly holds that "damages under Article 74 CISG include court and lawyer fees." Undistracted by the applicable ruling, Lenell engages in an irrelevant and inaccurate discussion about the recoverability of pre-litigation collection costs that the court found to be unnecessary and wasteful. That issue, plainly, is not relevant here.

Lenell also cites several cases that Lenell claims awarded fees under the forum law instead of the Convention. Since Lenell fails to attach them or provide internet links, Zapata cannot effectively assess the accuracy of Lenell's description of their holdings. But even if Lenell's description is accurate, little significance can be attributed to such cases. The issue likely received little attention from the parties or the courts since the result is the same either way; fees are recoverable. Where the choice of law makes no difference, lack of precision may be excused. In almost the only place where it does make a difference, the United States, such lack of precision would ignore the fact that this nation signed an international treaty that preempts its local law under the Supremacy Clause. That treaty, the Convention, expressly admonishes the courts to interpret the treaty in accordance with its "international character" so as to "promote uniformity in its application."

According to Lenell, this Court should violate the letter and spirit of the Convention by creating a dichotomy in which citizens of every other signatory state must pay the winner's fees (because such fees are traditionally recoverable under their local laws), but in which United States citizens need not. Not surprisingly, Lenell has cited nothing at all to justify such an unprecedented holding. Nor has it presented any persuasive justification for taking that unprecedented step under the egregious facts of this case.

After sifting through Lenell's efforts to confuse the issues raised by Zapata's motion, it remains clear that the Convention expressly provides for the recovery of consequential damages, and that the attorneys' fees sought by Zapata meet each and every one of the elements of consequential damages under Article 74. Lenell cites no authority to the contrary, and cannot meaningfully distinguish any of Zapata's cases.[4] Zapata's request for fees thus should be granted.

B. Article 78's Specific Treatment of Prejudgment Interest Cannot Reasonably Be Read to Nullify Article 74.

Lenell seeks to avoid the plain language of Article 74, which permits recovery of all consequential damages, by asserting that Articles 74 and 78 are redundant with respect to prejudgment interest since each provides for their recovery. To avoid this supposed redundancy, Lenell apparently proposes to interpret Article 74 to exclude interest and, in its effort to rewrite the Convention, suggests that attorneys' fees also should be excluded. Lenell's argument fails for two reasons.

First, Articles 74 and 78 are not redundant. The drafters intended both Articles 74 and 78 to allow for the recovery of prejudgment interest, but Article 78 applies where Article 74 may not. As a leading commentator on the drafting history of the Convention has explained, the prejudgment "interest question provoked extraordinary difficulties at the Conference." Uniform Sales Law, pp. 98-99 [see <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]. Indeed, some drafters suggested that Article 78 was unnecessary since interest would be recoverable under Article 74. Id. But the view prevailed that interest also should be provided for in Article 78 so that it would be recoverable not only as damages in appropriate cases, but as a matter of right even where an exemption to damages applies:

"The goal of the delegations that believed that a special interest provision was necessary was precisely to prevent interest from being considered as damages and thereby to maintain the obligation to pay interest in case of exemptions under Article 79.

The Convention's interest provision will probably have practical impact only in the exceptional case where the debtor can claim an exemption under Article 79 for his default, such as when some impediment ... temporarily relieves the debtor of his duty to pay ... Otherwise, it will generally be easier and more promising for the creditor ... to claim the lost use of capital as damages in the amount of his own costs of credit according to Article 74 ..." Id.

Obviously, Articles 74 and 78 are not redundant -- even with respect to prejudgment interest. Article 78 simply applies where Article 74 would not.

Second, in its misguided effort to avoid a claimed (but not real) redundancy in Articles 74 and 78, Lenell would render Article 74 entirely void. For if Article 78's express provision for the recovery of one type of consequential damage suggests that other types of consequential damages, such as attorneys' fees, are not included in Article 74, there would be no reason to stop at attorneys' fees. Taken to its logical conclusion, Lenell's argument would exclude the recovery of all consequential damages not expressly provided for in Article 78. The entirety of Article 74, which clearly is meant to provide precisely the opposite result, would become a nullity. Such a ridiculous interpretation cannot stand. See, e.g., O'Kane v. Apfel, 224 F.3d 686, 689 (7th Cir. 2000) (applying the principle that courts "should interpret statutes so as to 'give effect, if possible, to every clause and word,' and rejecting a statutory interpretation that "would create more superfluous language" than the alternative statutory reading).

C. Recoverability of Attorneys' Fees Is a Substantive Right Under the Convention, Not a Matter Governed by Local Procedural Rules.

Lenell finally contends that the Court should apply its own procedural rules regardless of the governing substantive law, and that the "American" rule is a procedural rule that this Court is bound to apply regardless of the substantive governing law. Lenell relies on Midwest Grain Products v. Productization, 228 F.3d 784 (7th Cir. 2000). Lenell's reliance is misplaced because Midwest Grain was a diversity case in which the court was obliged to apply Illinois choice of law rules. This case, on the other hand, is a federal question case governed by substantive international law that, under the Supremacy Clause, must be applied regardless of any conflicting local law.

Because Midwest Grain was a federal diversity case in Illinois, the court applied Illinois' choice of law rules. Midwest Grain, 228 F.3d at 787. In diversity cases, a "two step[]" analysis is required to determine whether a feature of the applicable law is substantive such that it must be followed in the federal court: (1) is the rule substantive for purposes of federal choice of law analysis; and, if so, (2) is it substantive for purposes of the choice of law rules of the state in which the federal court sits. McMahan v. Toto, __ F.3d __, 2001 WL 769599 (11th Cir. 2001) (attached hereto as Exhibit 2). As the Seventh Circuit explained, the answer to these two questions may be different:

"[E]ven though attorney's fees are substantive for diversity purposes, they are not thereby necessarily substantive under [the forum state's] choice-of-law rules." Midwest Grain, 228 F.3d at 791 (citation omitted).

Midwest Grain held that an Oklahoma fee shifting statute was substantive under federal choice of law rules, but that, under Illinois choice of law rules, the statute is more likely to be considered procedural and thus governed by Illinois law. Midwest Grain, 228 F.3d at 791-92.

Unlike Midwest Grain, this is a federal question case in which Illinois law has no application. Lenell concedes that this case is governed by the substantive law of the Convention, a treaty between the United States and other nations, so the basis of the Court's jurisdiction is a federal question.[5] 28 U.S.C. §1331. When a federal court exercises federal question jurisdiction, it resolves any choice of law issues based on federal choice of law principles; not those of the forum state. Resolution Trust Corporation v. Chapman, 29 F.3d 1120, 1123-24 (7th Cir. 1994) (refusing to apply Illinois choice of law rules because "[t]his is not a diversity case, where Erie would require the forum court to apply the whole law of the state, including its choice of law principles."). Accordingly, in this case the Court only uses the first step of the analysis. And, as Midwest Grain held, it is well settled that federal choice of law rules consider fee shifting rules to be substantive where, as with Article 74 of the Convention, the rule is not based on the litigants' conduct in the litigation (as would be the case with the Court's inherent power or 28 U.S.C. §1927). Alyeska Pipeline Service v. Wilderness Society, 421 U.S. 240, 259 n. 31, 95 S. Ct. 1612, 1622 n. 31 (1975) ("state law ... giving a right [to attorneys' fees], which reflects a substantive policy of the state, should be followed" in federal court); Chambers v. NASCO, 501 U.S. 32, 53, 111 S. Ct. 2123, 2137 (1991) (unlike fee shifting rules that are substantive, those that are based on the conduct of the party in the litigation are procedural and thus governed by federal law even in a diversity case); Larry's Apartment v. Carmel, 249 F.3d 832 (9th Cir. 2001) (same). Lenell's claim that Article 74 should be treated as merely procedural in this federal question case thus is foreclosed by controlling Supreme Court precedent.

In short, Lenell's attempts to avoid a straightforward application of Article 74's plain language should be rejected. Given the factual record presented here, Zapata's attorneys' fees clearly qualify as consequential damages under Article 74, and should be assessed against Lenell accordingly.


Lenell does not deny that this Court has the inherent power to award attorneys' fees based on a party's bad-faith conduct. Rather, Lenell's argument consists largely of trying to distinguish the cases cited by Zapata on meaningless factual grounds.[6] Significantly, Zapata relied on virtually all of the cases discussed by Lenell not for their application of the law to any particular set of facts, but for the undeniable principles of law that they articulated. Lenell's efforts to distinguish those cases on factual grounds are therefore unavailing. Indeed, on the ultimate issue here -- whether or not Lenell acted in bad faith and whether that bad faith supports the award of attorneys' fees that Zapata is seeking -- Lenell's brief is notably silent.

Lenell first argues that its pre-litigation conduct should not form the basis of a fee award. See Dfdt. Resp., at 9-10. That argument hinges, however, on distinguishing otherwise unambiguous language in the Supreme Court's decision in Hall v. Cole, 412 U.S. 1, 93 S. Ct. 1943 (1978), and in other cases. In Hall, the Supreme Court stated that "'bad faith' may be found, not only in the actions that led to the lawsuit, but also in the conduct of the litigation." Id. at 15, 93 S. Ct. at 1951.[7] Nowhere did the Court require that an award of attorneys' fees under a court's inherent power be limited only to conduct occurring after litigation was initiated. Indeed, the Supreme Court itself has since cited Hall for the very proposition for which it was cited by Zapata. See Roadway Exp., Inc. v. Piper, 447 U.S. 752, 766, 100 S. Ct. 2455, 2464 (1980) ("The bad-faith exception for the award of attorney's fees is not restricted to cases where the action is filed in bad faith. '"[B]ad faith" may be found, not only in the actions that led to the lawsuit, but also in the conduct of the litigation.'") (quoting Hall).

Other courts also have relied, at least in part, on pre-litigation conduct in imposing attorneys' fees under their inherent power. For example, in NASCO v. Calcasieu Television & Radio, Inc., 124 F.R.D. 120 (W.D. La. 1989), the court awarded attorneys' fees where the defendant had "arbitrarily and without legal cause refused to perform" on a contract. Id. at 143. Based in part on the fact that this refusal forced the plaintiff to file suit (just as the parties have stipulated it did in this case as well), the court awarded attorneys' fees pursuant to its inherent power. Id. Lenell tries to distinguish NASCO by noting that, in addition to the defendant's pre-litigation conduct, the NASCO court also relied on "a litany of acts committed in the course of litigation" as a basis for sanctions. Dfdt. Mtn., at 13. This argument, however, merely confirms Zapata's general point that a defendant's conduct both before and during litigation can support an award of attorneys' fees.

Lenell's effort to distinguish Vaughan v. Atkinson, 369 U.S. 527, 82 S. Ct. 997 (1962), is equally unavailing. Lenell argues that the Vaughan Court's award of attorneys' fees was based not on the Court's "equitable 'inherent power,'" but on the holding that admiralty law included attorneys' fees as damages. See Dfdt. Mtn., at 14. As with Hall, however, Lenell overlooks the fact that the Supreme Court itself has echoed Zapata's reading of Vaughn. For example, in F. D. Rich Co., Inc. v. United States for Use of Indus. Lumber Co., Inc., 417 U.S. 116, 94 S. Ct. 2157 (1974), the Supreme Court cited Vaughan for the proposition that attorneys' fees may be awarded under a court's inherent power "to a successful party when his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Id. at 129 & n.17, 94 S. Ct. at 2165 & n.17 (citing Vaughan); see also id. at 129-30 & nn.18-19, 94 S. Ct. at 2165 & nn.18-19 (also citing "common fund" and "private attorney general" exceptions to "American Rule").

In any event, Lenell's reading of Vaughan presents a distinction without a difference. The Vaughan Court found that the defendant's attempt to escape financial liability by "impos[ing] groundless back charges and unrealistic estimates for incomplete work" had caused the plaintiff to file suit to recover what was otherwise due and owing. The Court held that the plaintiff was entitled to attorneys' fees incurred as a result of the defendant's action. No matter what the basis of Vaughan's recovery was, the principle remains the same -- where the defendant's bad faith conduct requires the plaintiff to initiate litigation (which it undeniably did in this case), it is within a court's power to award attorneys' fees. See also Kreager v. Solomon & Flanagan, P.A., 775 F.2d 1541, 1543 (11th Cir. 1985) ("The bad faith exception to the American Rule . . . . encompasses bad faith acts preceding and during litigation.").

Lenell does not deny that, but for its refusal to pay what it knew to be due and owing to Zapata, this litigation would never have occurred. In fact, Lenell has stipulated that it knew or should have known that its refusal to pay Zapata would force Zapata to file suit to recover the price of the tins that Lenell had ordered, accepted, and used. It would defy common sense for Lenell now to argue that such knowledge on its part is not indicative of bad faith.

But even assuming, arguendo, that Lenell's bad faith refusal to pay Zapata prior to the initiation of this litigation could not serve as a basis for an award of attorneys' fees under the Court's inherent power, Lenell ignores the fact that Zapata also is seeking attorneys' fees against Lenell for its bad faith conduct during the course of this litigation. Lenell has largely failed to address this argument.[8] Any such attempt would have been unavailing in any event.

The cases cited by Zapata where courts have awarded attorneys' fees based on the defendant's conduct in the litigation are clearly on point and support such an award in this case. For example, Zapata compared Lenell's conduct during this litigation with that of the defendants in Hudson Motors Partnership v. Crest Leasing Enterprises, Inc., 845 F. Supp. 969 (E.D.N.Y. 1994). The Hudson court found that the defendants' denial of their contractual obligations for no other reason than to punish the plaintiff was "entirely without color" and sanctionable under the Court's inherent power. Hudson, 845 F. Supp. at 983. Hudson clearly stands for the principle that an award of attorneys' fees is appropriate when a defendant falsely denies liability or wrongfully frustrates the conduct of the litigation, or both.

Lenell's "Who? Me?" attempt to deny the striking similarity of its conduct with that of the defendants in Hudson is disingenuous at best. See  Dfdt. Resp., at 11-12. Lenell tries to re-cast its conduct by claiming that it "simply asserted that it did not owe the amount of money that Zapata claimed" and that it "felt that it was entitled to the return of the artwork that Zapata had in its possession." Dfdt. Mtn., at 12. This revisionist history does not withstand scrutiny.

Lenell's quibbling with the exact amount of money it owed to Zapata prior to the litigation does not immunize it from the baseless denials to this Court that it owed any money at all to Zapata when this litigation began. As Zapata noted in its original brief, Lenell did not pay Zapata a penny since January 1999. Lenell's answers to Zapata's requests for admission were so inadequate that Zapata had to bring a motion to compel. Even if Lenell's counsel is correct in saying that it took Lenell a number of months to identify the invoices as to which it could assert no defense, Lenell continued to deny liability for those invoices even after that point.[9] Contrary to the representations made by Lenell's counsel in their brief, Lenell did not "admit[] the undisputed invoices in the final pre-trial order." G&C Resp., at 7. As this Court is well aware, Lenell never admitted at any point during the trial that it owed Zapata any particular amount, and it tried the case in just that fashion. Instead of focusing on what was truly in dispute -- i.e., whether certain deliveries were short or never made and whether Lenell was entitled to recover on its counterclaim -- Lenell's evidence focused on the general "psychic trauma" that doing business with Zapata had caused it. If not for that conduct, the issues in this case would have been infinitely narrower.

In the end, it was up to this Court to enter judgment as a matter of law on 91.8% of the amount Zapata sought to recover. Lenell's recalcitrance in denying all liability throughout this litigation and at trial is disturbingly indicative of its bad faith. See United States v. Fidelity & Deposit Co. of Md., 986 F.2d 1110 (7th Cir. 1993) (upholding fee award based on determination that defendant attempted to escape financial liability by "imposition of groundless back charges and unrealistic estimates for incomplete work" during course of litigation); Lipsig v. National Student Marketing Corp., 663 F.2d 178, 181 (D.C. Cir. 1980) ("[A]dvocacy simply for the sake of burdening an opponent with unnecessary expenditures of time and effort clearly warrants recompense for the extra outlays attributable thereto."). Indeed, if there were ever a case that cried out for the award of attorneys' fees pursuant to the Court's inherent power based on bad faith conduct, this is it.

Finally, Lenell relies on its "artwork" claim as an excuse for its litigation conduct. As this Court is well aware, however, Lenell never asserted that it was entitled to the return of the artwork as a defense to Zapata's lawsuit until the close of discovery.[10] Accordingly, Lenell cannot point to its "claim" for return of artwork as a reason to excuse its denial of all liability during the first ten months of this lawsuit. Moreover, after Lenell filed its Second Amended Counterclaim, the Court found that Lenell's belatedly asserted artwork claim had to be brought in another lawsuit. Thus, even after Lenell made Zapata and the Court aware of the artwork issue, such a claim still could not serve as a defense to payment in the instant lawsuit. Indeed, Lenell's counsel has indicated that Lenell was informed of this fact, but that Lenell refused to heed counsel's advice that it could not rely on Zapata's failure to return artwork as a defense to liability. See G&C Resp., Centracchio Aff., ¶¶ 58 & 64.[11]

In short, Lenell has offered absolutely nothing to cast any doubt on this Court's inherent power to award Zapata its attorneys' fees in connection with this litigation, or on the fact that the strikingly egregious facts of this case justify the invocation of that power to ensure that Lenell is not allowed to reap the benefits of its outrageous pre- and post-litigation conduct.


For the foregoing reasons, Zapata requests that the Court grant Zapata's motion and declare Zapata's entitlement to recover its reasonable attorneys' fees and expenses in this litigation.

Dated: August 23, 2001            Respectfully submitted,


Javier H. Rubinstein
Thomas A. Lidbury
Kyle F. Waldinger
190 South LaSalle Street
Chicago, IL 60603
(312) 782-0600
By: ________________________________
     One of its Attorneys


1. In light of the Court's Order of August 22, 2001, Zapata here addresses its entitlement to attorneys' fees from Lenell and not from Lenell's counsel. Per the Court's Order, Zapata will separately present its position as to Lenell's counsel.

2. The page references are to Lenell's "corrected" response, filed on August 20, 2001.

3. The method for determining the rate of interest is, therefore, subject to debate. Not surprisingly, therefore, Lenell cites a series of cases that Lenell claims assess interest in various ways. Zapata is unable to comment on those cases since Lenell has not attached copies or provided internet links. Zapata notes, however, that the method of setting the interest rate may depend on whether interest is awarded under Article 74 or Article 78. Uniform Sales Law, p. 99 [see <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>].

4. It bears note that while Lenell argues that the Convention is silent and thus the issue of attorneys' fees ought to be decided pursuant to Article 7(2), Lenell makes no effort to identify which choice of law rules apply, which law those rules would choose, or what that law is. Since Mexican law would allow for recovery of attorneys' fees, these are important issues that Lenell improperly skips over. Given Lenell's failure to address these crucial issues, despite the several extensions of time Lenell has obtained, it is inappropriate to expect Zapata or the Court to take the time to delve into them. United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("A skeletal ‘argument', really nothing more than an assertion, does not preserve a claim.").

5. The state law, account stated claim, which invoked the Court's diversity and pendent jurisdiction was dropped at the instruction conference and is not the basis for the judgment.

6. In its brief, Lenell suggests that Zapata is seeking attorneys' fees under the Court's inherent power (1) as an alternative to its argument that the Convention allows fee shifting and (2) based only on Lenell's pre-litigation conduct. These misdescriptions of Zapata's argument are not only demonstrably untrue, but unavailing in any event. Zapata is not relying on the Court's inherent power as an alternate method of fee-shifting, but rather as an additional basis for awarding attorneys' fees to Zapata. Zapata is entitled to attorneys' fees both under the Convention and pursuant to the Court's inherent power — albeit for different reasons. Zapata's attorneys' fees are awardable under the Convention because they qualify as foreseeable consequential damages under Article 74 of the Convention. Those fees are also awardable under the Court's inherent power as a sanction for Lenell's glaring bad faith misconduct. Instead of confronting the legal and factual grounds that clearly support Zapata's entitlement to attorneys' fees as a result of the bad faith that necessitated those fees, Lenell simply tries to ignore them. As Zapata's opening memorandum makes clear, this Court possesses the inherent power to award Zapata its attorneys' fees because of Lenell's bad faith conduct both before and during this litigation.

7. Lenell's suggestion that Zapata "misstate[d] Hutto," Dfdt. Resp., at 10, is apparently based on a misreading of Zapata's citations. Zapata cited both Hutto and Hall for the proposition that "fees and costs may be assessed ... [under the Court's inherent power] 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." As noted supra, Hall supports the first part of that proposition. Hutto supports the second.

8. That Lenell could have been confused on this point is difficult to believe, given Zapata's clear statements in its brief that it was complaining both about Lenell's conduct in this litigation and its conduct leading up to the litigation. See, e.g., Pltf. Mem., at 9 ("Fees and costs may be assessed ... because of the way a party conducts itself in the lawsuit."); id. (noting that Lenell has refused to pay Zapata anything in four years); id. at 10 ("Lenell knew before and throughout this litigation that it had received and used the tins and that Lenell had not paid for them ..."); id. at 11 ("Lenell clearly knew before and during this litigation everything it knew at the conclusion of this litigation ..."); id. ("Lenell ... nevertheless forced Zapata to litigate all the way through trial ..."); id. ("By generally denying all liability to Zapata throughout this litigation ...").

9. Lenell's counsel's contention that Lenell had not undertaken an "audit" of the disputed invoices prior to this litigation is simply not believable. See G&C Resp., Centracchio Aff., ¶ 12. As the testimony at trial demonstrated, Lenell had at its disposal prior to the filing of this lawsuit all of the information it needed to determine whether it had received the goods listed on the invoices sent to it by Zapata. The simple fact is that Lenell's May 1999 account statement (showing a balance of over $604,000) reflected every credit and chargeback that Lenell was seeking in this litigation. Despite two years of "auditing" the disputed invoices, Lenell was unable to identify any additional credits and chargebacks or defenses to payment at trial. Clearly, Lenell knew everything it needed to know in May 1999 regarding its liability to Zapata.

10. Although Zapata certainly acknowledges that artwork had been referred to in documents produced in discovery and that issues related to artwork other than Lenell's ownership rights had been the subject of discovery, Lenell made no mention of bringing any counterclaims regarding artwork, nor had it asserted that Zapata's alleged failure to return artwork was a defense to Zapata's claim until the eve of the close of discovery.

11. Lenell also suggests that, because the Court was precluded under Federal Rule of Civil Procedure 56 from granting Zapata partial summary judgment as to the undisputed invoices, Lenell was similarly prevented from paying what it otherwise acknowledged to be due and owing to Zapata or to even admitting its liability as to the undisputed invoices. See Dfdt. Resp., at 12. Of course, Lenell can point to no authority that excuses its denial of all liability when there is no basis for such denial, or which supports the notion that a party is somehow excused from its payment obligations once litigation has commenced.

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