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Attorney's fees as damages under CISG article 74:
Petition for Certiorari (Reply Brief)

[A U.S. Federal District Court (Court of First Instance) upheld an award of attorneys' fees on two counts: (i) as damages under CISG article 74; and (ii) under the otherwise applicable domestic law. The Federal Circuit Court of Appeals reversed on both counts. A Petition for a Writ of Certiorari, an Amicus Brief in support of the Petition, a Brief in Opposition to the Petition, and a Reply Brief were filed with the U.S. Supreme Court. The portion of the Reply Brief that pertains to count (i) is reproduced below.]

No. 02-1318

In the Supreme Court of the United States

ZAPATA HERMANOS SUCESORES, S.A., PETITIONER

v.

HEARTHSIDE BAKING CO. D/B/A MAURICE LENELL COOKY CO. D/B/A RESPONDENT

On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Seventh Circuit

REPLY BRIEF FOR THE PETITIONER


                                     
 
JAVIER H. RUBINSTEIN, Counsel of Record
THOMAS A. LIDBURY
MICHAEL A. SCODRO
WILLIAM HUBBARD
Mayer, Brown, Rowe & Maw
190 South LaSalle Street Chicago, Illinois 60603
(312) 782-0600

Counsel for Petitioner

[...]

TABLE OF AUTHORITIES

[...]

Delchi Carrier S.p.A. v. Rotorex Corp. 71 F.3d 1024 (2d Cir. 1995) [also available at <http://cisgw3.law.pace.edu/cases/951206u1.html>]

[...]

Summit Valley Indus., Inc. v. United Bhd. of Carpenters, 456 U.S. 717 (1982)

[...]

Decision of Court of Appeal of Germany in Case No. 17 U 146/193 (OLG Düsseldorf Jan. 14, 1994} (available at <http://cisgw3.1aw,pace.edu/cases/940114g1.html>

Decision of Supreme Court of Austria in Case No. l Ob 292/99v (Apr. 28, 2000) [available at <http://cisgw3.1aw.pace.edu/cases/000428a3.html>]

Treaties, Statutes, and Rules:

United Nations Convention on Contracts for the International Sale of Goods, 15 U.S.C.A. App.:

Article 7
Article 7(1)
Article 7(2)
Article 74

[...]

Miscellaneous:

Flechtner, Recovering Attorneys' Fees as Damages Under the U.N. Sales Convention, 22 Nw. J. Int'l L. & Bus. (2002) [also available at <http://cisgw3.law.pace.edu/cisg/biblio/flechtner4.html>]

Lookofsky, Zapata Hermanos v. Hearthside Baking, 6 Vindobona J. Int'l Comm. L. & Arb. 27 (2002) [also available at <http://cisgw3.law.pace.edu/cisg/biblio/lookofsky5.html>]

Vanto, Attorneys' Fees as Damages in International Commercial Litigation, to be published in 15 Pace Int'l L. Rev. (Spring 2003) (available at <http://cisgw3.law.pace.edu/cisg/biblio/vanto1.html>)

REPLY BRIEF FOR THE PETITIONER

Lenell virtually concedes the certworthiness of this case, which it acknowledges to squarely raise each of the questions presented. Lenell devotes the majority of its opposition to arguing the merits while offering nothing to cast doubt on any of the compelling grounds that warrant Supreme Court review.

A. 1. Lenell makes a half-hearted attempt to deny that the Seventh Circuit has created an international split of authority over the recoverability of attorneys' fees under Article 74, insinuating (at 17) that there are only a "handful" of decisions outside the U.S. awarding such fees under Article 74. That is flatly wrong. The Petition cited at least seven decisions holding that "fees in general could be recovered under Article 74" (Pet. 10-11), and the brief of Amici Curiae (at 15-17) catalogues over a dozen more decisions reaching the same conclusion.

Even Lenell's own authorities acknowledge that non-U.S. decisions "appear to award a prevailing litigant compensation for attorneys' fees incurred in the course of the dispute, and they do so not on the basis of a 'loser pays' principle in the tribunal's own domestic law, but rather on the authority of the damages provisions of the CISG itself." Flechtner, 22 Nw. J. Int'l & Bus. 121 [1] See also Lookofsky, 6 Vindobona J. Int'l Comm. L. & Arb. 27 (same). Lenell is also poorly positioned to challenge this consistent line of international authority since Lenell fails to cite a single decision anywhere in the world that adopts the Seventh Circuit's contrary view.

Apparently unconvinced by its own position, Lenell (at 3) resorts to asking this Court to simply disregard the decisions of foreign courts because "the Supreme Court has no authority over foreign tribunals." Lenell thus invites the court to repeat [page 1] the very error committed by the court of appeals by disregarding the clear command of CISG Article 7, which requires courts to consider the decisions of other signatory nations to foster the legal uniformity for which the CISG was created. Pet. 9. In short, the international conflict created by the court of appeals is undeniable, and the need to address it equally compelling.

2. Lenell also repeatedly mischaracterizes the question presented as whether Article 74 should be construed as a fee-shifting statute where the "loser" automatically pays. But that is not what the district court held; it merely ruled that attorneys' fees may be recovered under Article 74 where, as here, those fees qualify as "foreseen consequential damages." Pet. App. 16a. Incredibly, Lenell ignores this foreseeability component of the question presented (and of Article 74) completely. Lenell thus would have the Court believe that reversal would result in attorneys' fees being automatically awarded in every case. That is simply not so.

As the petition makes clear (at 17), Article 74 is not a fee-shifting statute. The question here is whether attorneys' fees may be recovered as damages when Article 74's foreseeability requirements are met, just like any other form of consequential loss. In this case, that recovery is compelled by the plain language of Article 74 because it is undisputed that Zapata's attorneys' fees meet the foreseeability requirements of Article 74. Lenell stipulated to precisely that. Pet. App. 16a.

Article 74 broadly provides for recovery of all "loss[es] which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract *** as a possible consequence of the breach of contract." Pet. App. 36a. It is also undisputed that Article 74 contains no exclusion of attorneys' fees or any other form of loss from its scope. As the Austrian Supreme Court has held, "a claim for damages [under Article 74] is only limited by the foreseeability of the loss for the party in breach." Pet. 15. Accord, Delchi, 71 F.3d at 1030. As such, the recoverability of any loss under Article 74 depends entirely on [page 2] its foreseeability. Moreover, as the Second Circuit held in Delchi, Article 74 requires placing "the aggrieved party in as good a position as if the other party had properly performed the contract." 71 F.3d at 1029. As the district court below properly held, "that result is assured only by freeing [a] damages recovery from the burden of attorneys' fees." Pet. App. 17a. Lenell does not deny that.

Lenell points (at 13) to the absence of any reference in the CISG legislative history to the recovery of attorneys' fees. That silence, however, fatally undermines Lenell's reading of Article 74 because it confirms that the framers of the CISG never intended to carve out of Article74 (as the Seventh Circuit now has) an exception precluding the recovery of attorneys' fees as damages regardless of their foreseeability.

3. In the petition, Zapata also demonstrated that the Seventh Circuit disregarded the clear requirements of CISG Article 7. Lenell notably does not contest this. In fact, Lenell never even attempts to argue that the Seventh Circuit complied with Article 7. Article 7(1) requires signatory courts to interpret the CISG with regard for "its international character and *** the need to promote uniformity in its application and the observance of good faith in international trade." Article 7(2) also requires that any questions "not expressly settled" by the CISG "are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." It is undisputed that the Seventh Circuit did none of these things. It never cited to any CISG decision abroad, and it completely ignored the general principles of the CISG. This was reversible error, particularly because, as the district court held, the general principles of the CISG strongly support the recovery of attorneys' fees in cases such as this to provide the plaintiff with a full recovery. Pet. App.; 16a-17a. See also Pet. 18-19; Br. Amicus Curiae 14-18. Lenell does not contend otherwise. [page 3]

It is also apparent that the Seventh Circuit violated Article 7 by construing Article 74 according to principles of domestic law, i.e., the "American rule" of attorneys' fees. Lenell tries to deny (at 11) that the Seventh Circuit "was construing CISG by using domestic law." But it is obvious that the court of appeals did exactly that by interpreting the meaning of "loss" in Article74 solely on the basis of domestic cases to hold that " 'loss' does not include attorneys' fees incurred in the litigation of a suit for breach of contract." Pet. App. 2a. Even Lenell now relies on domestic law when it argues that attorneys' fees should not be recoverable under Article 74 because they are not available under the U.S. version of the UCC. Lenell forgets that the only reason attorneys' fees are not recoverable under the UCC is that the American rule forbids their recovery absent express statutory authority and disavows "the need to provide full compensation." Summit Valley Indus., Inc. v. United Bhd. of Carpenters, 456 U.S. 717, 725 (1982). The American rule thus irreconcilably conflicts with the general principles of the CISG.

Lenell also does not deny that the Seventh Circuit's reliance on domestic law conflicts with decisions of other circuits that properly have refused to apply principles of domestic law to interpret the CISG. See Pet. 13-14. Indeed, as the brief of amici curiae confirms (at 3-5), there is pervasive confusion among the federal courts as to the role that domestic law should play in CISG cases. This case can put that controversy to rest.

4. Lenell tries to defend the Seventh Circuit's reliance on domestic law by arguing that the recoverability of attorneys' fees under Article 74 should be treated as a procedural question left by the CISG to domestic law. But that is plainly wrong. As Lenell concedes, resolution of the question presented here turns upon the meaning of terms expressly used in Article 74. Their meaning is necessarily a question of substance that must be governed by the CISG itself. Indeed, Lenell never explains how the meaning of CISG terms could possibly be a procedural question to be governed by 62 different sets of domestic laws. Whether or not attorneys' fees are a recoverable form of "loss" [page 4] under Article 74, there can only be one answer to that question, and it surely cannot be governed by domestic law.

Lenell's insistence on treating the question presented as procedural also reflects a basic misunderstanding of the distinction between the automatic shifting of fees in all cases - a procedural question governed by domestic law - and the recovery of attorneys' fees as damages under Article 74 where their foreseeability must be proven on a case-by-case basis - a substantive question governed by the CISG. As amici explain (at 14), this distinction is firmly grounded in the CISG's jurisprudence. For instance, the decision of the German Court of Appeals in Dusseldorf (discussed at Pet. 10) (which Lenell also features, at 17) awarded the plaintiff certain of its attorneys' fees pursuant to domestic procedural law, but ruled that the remaining attorneys' fees, which were not awardable domestically, were recoverable under Article 74 as damages.

Lenell's complaint that the recovery of attorneys' fees under Article 74 would produce anomalous results is also easily refuted when one considers that attorneys' fees would only be recoverable as damages. It is hardly anomalous that only a plaintiff (or counter-plaintiff) would be able to recover damages. After all, that is how lawsuits work. Likewise, Lenell's concern that it would be procedurally difficult to award fees as damages because they cannot be assessed until the end of the case is illusory because the question of fees can easily be bifurcated, just as occurred below and is routinely done in fee-shifting cases.

5. In short, Lenell casts no doubt on the compelling need for Supreme Court review. If anything, Lenell confirms the international controversy that has surrounded this case. As amici curiae demonstrate, there is a great need for this

Court to clarify the proper methodology for construing the CISG. It is also critically necessary to resolve the meaning of Article 74, which serves as the most important remedial provision in the CISG. As amici explain (at I), the supreme courts of other CISG signatories repeatedly have contributed their guidance to foster a common [page 5] understanding of the CISG. The United States stands as a notable exception. This case provides an important opportunity to remedy that silence.[2] [page 6]

[...]

CONCLUSION

The petition for a write of certiorari should be granted. [page 10]

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FOOTNOTES

1. Lenell claims (at 20) that a recent article by Professor Vanto "agrees that Judge Posner's decision was correct!" Notably, however, Professor Vanto himself is one of the authors of the Brief of Amicus Curiae International Association of Contract and Commercial Managers and the Institute of International Commercial Law of the Pace University School of Law in support of Zapata and in urging this Court to grant the petition.

2. Lenell points to the relatively paucity of federal decisions construing the CISG as a reason to deny certiorari. In fact, as the Pace University CISG database (Pet. 7 n.2) confirms, many CISG cases are decided by international arbitration, which typically does not result in published decisions.


Pace Law School Institute of International Commercial Law - Last updated June 13, 2003
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