Go to Database Directory || Go to Bibliography || Go to Annotated Text of CISG Article 74


NY State Bar Association New York International Chapter News, Vol. 7 No.1 (Spring 2002) 21-23.
Reproduced with the permission of the author.

Attorney's Fees: Is the "American Rule" Applicable to International Sales Law Cases?

Vikki M. Rogers,[*] Frankfurt/New York

A party that files a claim in a U.S. state or federal court is reasonably assured that a judge will not order it to pay the other party's costs in the event that it does not prevail. This so-called American Rule provides that parties involved in litigation will generally only bear their own expenses, including attorney's fees. This rule is contrary to the applicable law in many other jurisdictions around the world, which embodies a standard that costs ought to be apportioned between the parties, resulting in circumstances in which a loser can be ordered to bear all of the prevailing parties' costs, including attorney's fees.[1] In international commercial arbitration it is also very common that a tribunal will order the loser to pay the "successful" party a large percent of the winner's costs, if not all of them.[2] Given the money that can be expended by the parties in a lawsuit, the allocation of costs in most domestic courts and international commercial arbitrations is not an ancillary aspect of the proceeding, but rather an important, and often neglected, part of the legal process.

The recent decision issued by the U.S. District Court for the Northern District of lllinois, Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., etc.,[3] appears at first sight to abandon the "American Rule" in international sales law cases and carves an exception that is generally in accordance with international practice. In Zapata, the court ordered the loser (the buyer) to pay all of the winner's (the seller's) attorney's fees. The court derived its authority to issue the award from Article 74 of the UN Convention on the International Sale of Goods (CISG),[4] the applicable substantive law in the case. Although the court rightfully ruled that the buyer to pay the seller's costs, Zapata should not be used as precedent for similar propositions in international sales law cases in U.S. courts. [page 21]

In Zapata, a jury ordered a U.S. buyer to pay a Mexican seller $857,796.90 to compensate the seller for tins that it delivered to, and were used by, the buyer.[5] The award also included an additional amount for interest that accrued on the buyer's indebtedness, totaling $355,560.91. After the jury rendered its decision, the seller moved for an award of attorney's fees on three alternative grounds. Two of the three grounds were advanced directly against the buyer.[6] The third ground was addressed against buyer's counsel.

With regard to fees claimed against the buyer's counsel, the court refrained from providing a final conclusion until it received the seller's final reply memorandum relating to its claim against the buyer.[7] The court did definitively order, however, in a separate Memorandum and Order of August 28, 2001, that the buyer bear all of the seller's attorney's fees.

The seller, in support of its request to be reimbursed for fees, relied upon the exception built into the "American Rule" This exception provides that attorney's fees are not ordinarily recoverable unless there is a statute or enforceable contract providing thereof.[8] The court was persuaded that the "American Rule" could not shield the buyer from liability in this case, and that the seller was entitled to attorney's fees as an exception under the CISG. The court drew its conclusion from an analysis of the two stipulations that the parties had agreed to. Specifically:

a. The parties entered into a stipulation that provided in relevant part:

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

"2. The Court shall determine if attorney's fees are recoverable as a matter of law.

"3. The amount of litigation costs, including attorney's fees, to be assessed as consequential damages in this case, if any, will be for the Court to determine on a fee petition, rather than for the jury to decide."

b. The parties also agreed that their claims and counterclaims were governed by the CISG.

With regard to the second stipulation, the court drew attention to the controlling provision in this case, CISG Article 74. It states:

"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."

The court reasoned that these two stipulations read in conjunction with each other do form a valid basis for its conclusion. It stated that attorney's fees could be awarded as foreseeable consequential damages because, by virtue of the stipulations, the parties intended to include litigation costs in the purview of CISG Article 74.

Although this court has apparently taken great strides to present a universal interpretation of the CISG, resisting temptation to be lured in by domestic law connotations, Judge Shadur does give some impression that the underlying rationale of the decision could extend beyond the confines of the facts of this case and be applicable to international sales law cases in U.S. courts generally. This impression is given through the court's inclusion of rhetoric that suggests that despite the party's stipulations, the "American Rule" should not be applied in any international sales law case, as it does not coincide with international practice. The court cites MCC Marble Ceramic Ctr., Inc. v. Ceramica Nuova D'Agostino, S.F.A.,[9] which supports the proposition that courts should not apply familiar domestic law when the CISG clearly requires a different result. In this case, the CISG requires a different result only by virtue of the stipulations. Accordingly, the abandonment of the "American Rule" in international sales law cases generally in an attempt to achieve international uniformity with regard to the award of costs would be misplaced. These elucidations by the court should remain in their proper place - as supportive verbiage for the conclusion emanated from the specific facts. Of course, autonomous interpretations of the CISG that are not drawn from domestic law preconceptions are desired and necessary to obtain transnational uniformity in interpretation. However, in my view, CISG Article 74 should not be used as an authority to extrapolate the principle that in international sales law cases in the U.S., costs follow the event and consequently, in instances where the above stipulations have not been made, a loser can still be ordered to pay the attorney's fees pursuant to the CISG. [page 22]

Applicable Interest Rate under the CISG

In addition to the seller's motion to be reimbursed attorney's fees, the buyer filed a motion under the Federal Rules of Civil Procedure Rule 50, for judgment as a matter of law, and under Rule 59, for a new trial. The court did not ultimately disturb the jury's decision on the merits in light of these two motions; however, it did make a slight modification to the jury's award of interest.

The buyer argued throughout the proceeding that interest should not be awarded because the parties' course of dealings demonstrated that there was never a "sum in arrears" pursuant to CI5G Article 78.[10] The court did not analyze the buyer's reasons for claiming that interest was not due; rather it only questioned the jury's quantification of the interest awarded.

The jury based its calculation on the interest rate specified in seller's invoices as applied to the entire amount that seller had claimed, including invoices that the jury ultimately rejected. The buyer did not present the jury with an alternative proposal for the calculation of interest, but only asked the court in the later motion to take judicial notice of the Illinois statutory 5% per annum prejudgment interest rate [11] and the U.S. Treasury bill rate, which was pegged at 3.78% per annum. The court concluded that it "understood" why the jury made the decision it did; i.e., the buyer did not give it another alternative. The court did, however, modify the interest due pursuant to seller's revised calculation, which reduced the amount to $319,893.30. Although it is not expressly stated, it can be assumed the reduction reflects a subtraction of the invoices that were ultimately rejected by the jury.[12] [page 23]


FOOTNOTES

* Vikki M. Rogers is admitted to practice in New York and Connecticut. An Associate at Shearman & Sterling's Frankfurt office, she is a Fellow of the Institute of International Commercial Law at the Pace University School of Law, New York.

1. For discussion on varying rules in different countries see John Gotonda, Awarding Costs and attorney's Fees in International Commercial Arbitrations, 21 Mich. J. Int'l (1997).

2. See generally, Fouchard Gaillard Goldman, On International Commercial Arbitration, 1255 (1999); Klaus Peter Berger, International Economic Arbitration, Studies in Transnational Economic Law, vol 9, pp. 615-20 (1993).

3. 2001 U.S. Dist. LEXIS 15191. Also available at 2001 WL 1000927 (ND.Ill); <http://cisgw3.law.pace.edu/cases/010828ul.html>. (This URL provides the August 28, 2001, Memorandum Opinion and Order. Under the Case History section, links are provided to get to the other parts of this proceeding. See infra, notes 6 and 7).

4. For the full text of the OSG, legislative history, scholarly commentaries and case law, an excellent source is the Institute of International Commercial Law's Web site at <http:/ /www.cisg.law.pace.edu>.

5. Subsequent to the jury's verdict on June 19, 2001, the court issued a number of Memorandum Opinions and Orders. On July 18, 2001, it issued a Memorandum and Judgment Order, denying buyer's alternative Rule 50 and Rule 59 motions. This Order was followed by a July 19, 2001 Supplement to Memorandum Opinion and Judgment Order. On August 15, 2001, a Memorandum Opinion and Order was issued denying buyer's revised Rule 59 motion that sought to attack the revised judgment. See infra, note 7 for information on the August 22, 2001 Memorandum Opinion and Order issued by the court. Lastly, the court issued a Memorandum Opinion and Order on August 28,2001, regarding an award on costs discussed within this article.

6. The second of the two grounds, which will not be analyzed in this article, concerned the seller's entitlement to recover its attorney's fees because of bad-faith conduct by the buyer. The court also determined that the seller was entitled to its fees based on this ground, citing Chambers v. NASCO, 501 U.S. 32, 45-46, 111 S. Ct. 2123, 2133 (1991), to support its conclusion.

7. Memorandum and Order of August 22, 2001. Seller sought to collect attorney's fees directly from buyer's counsel pursuant to 28 U.S.C. 1927, which applies when an attorney "multiplies the proceedings in any case unreasonably and vexatiously" and consequently requires "to satisfy personally the excess cost, expenses, and attorney's fees reasonably incurred because of such conduct." Zapata at 1.

8. The court cites Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 257 (1975) as support for this exception.

9. 144 F.3d 1384, 1391 (11th Cir. 1998),

10. Article 78 provides: "If a party fails to pay the price or any sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

The court makes reference to a Mexican banker that charged nothing for the extension of a line of credit. No further facts, however, are provided to assess buyer's argument as to why the sum was not in arrears.

11. These are the statutory rates that cover liquidated obligations or situations where a debtor engaged in unreasonable and vexatious delay,

12. The court also issued post-judgment interest to cover the gap between the jury verdict and the actual final judgment day.


Pace Law School Institute of International Commercial Law - Last updated May 28, 2002
Go to Database Directory || Go to Bibliography || Go to Annotated Text of CISG Article 74

Comments/Contributions