Jannotta, Nicholas v. Subway Sandwich Shop ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 99-1975 and 99-2024
NICHOLAS C. JANNOTTA, individually and as
executor of the ESTATE OF VICTORIA A. JANNOTTA
and CARMEIN D. BLASUCCI, as the executor of
the ESTATE OF VICTORIA A. JANNOTTA,
Plaintiffs-Appellees/Cross-Appellants,
v.
SUBWAY SANDWICH SHOPS, INCORPORATED,
FREDERICK A. DELUCA, PETER H. BUCK, and
DOCTOR’S ASSOCIATES, INC.,
Defendants-Appellants/Cross-Appellees.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 94 C 3834--William T. Hart, Judge.
Argued April 20, 2000--Decided August 29, 2000
Before CUDAHY, MANION and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. Peter Buck, Frederick
DeLuca and Doctor’s Associates, Inc. committed
gross fraud in their dealings with the
plaintiffs, and they do not dispute the jury
finding to that effect. After a retrial on the
issue of punitive damages, they contend that
because the jury penalized them a mere $100,000
for their conduct, the district court should have
found that the plaintiffs were not the prevailing
parties for the purpose of determining their
entitlement to attorneys’ fees. We affirm the
district court’s judgment that the plaintiffs
were contractually entitled to attorneys’ fees as
prevailing parties in the litigation.
I.
This is the second time this case has come to
us for review, and we will assume a familiarity
with the facts as presented in our earlier
opinion. See Jannotta v. Subway Sandwich Shops,
Inc., 125 F.3d 503 (7th Cir. 1997). We will
repeat only those facts necessary to an
understanding of the issues presented in this
appeal. Victoria Jannotta owned commercial
property that Subway wished to rent for one of
its stores./1 Nicholas Jannotta, her son,
conducted all of the negotiations with Subway.
When Jannotta was informed that a franchisee
would be the actual renter, he demanded that the
parent company sign the lease. Jannotta also
negotiated a revenue-sharing provision and a
market area restriction that prevented Subway
from opening competing stores in the immediate
geographic area. The leasing agent assured
Jannotta that the parent company would sign the
lease, that the company had significant assets
and personnel at its disposal, and that Subway
would make good on any default by a franchisee.
The agent failed to reveal that the only company
with any assets was Doctor’s Associates, Inc.,
and that DAI had set up a number of unfunded
shell corporations to sign leases. The lease for
Jannotta’s property was signed by one of these
shell corporations, and when Subway opened six
other stores in the market area, the company took
the position that it was not breaching the market
restriction clause because other shell
corporations had signed the leases for the
competing stores. Subway also refused to pay the
rent when the franchisee eventually defaulted.
The original jury found that Subway had
breached the lease contract and had committed
gross fraud in inducing Jannotta to sign the
lease. The jury awarded Jannotta $328,993.99 in
compensatory damages and $10,000,000 in punitive
damages. The district court awarded attorneys’
fees and costs to the plaintiffs in the amount of
$196,325.88 pursuant to a clause in the lease
providing attorneys’ fees to the prevailing
party. Subway asked the district court to enter
judgment as a matter of law on the issue of
punitive damages, to grant a new trial on that
issue, or to reduce the amount of the award. The
district court denied Subway’s motion in its
entirety, and Subway appealed. We vacated and
remanded the punitive damages award because the
district court had failed to instruct the jury on
the issue of corporate complicity. We affirmed
the judgment in all other respects. Under
Illinois law, a jury may not award punitive
damages against a corporation on a theory of
respondeat superior. Instead, the plaintiff must
show that the responsible employee was acting in
a managerial capacity or that his acts were
authorized or ratified by the corporation. See
Jannotta, 125 F.3d at 513 (and cases cited
therein). Under Illinois law, the failure to
properly instruct the jury on this issue may not
be deemed harmless error, and thus despite the
overwhelming evidence of corporate complicity
presented at trial, we were compelled to vacate
and remand for a retrial on the issue of punitive
damages. See Jannotta, 125 F.3d at 515-17.
The punitive damages issue was retried and the
second jury, having been properly instructed on
corporate complicity, also found that the
defendants committed gross fraud in inducing
Jannotta to sign the lease. The jury awarded
punitive damages in the amount of $100,000./2
The court considered Jannotta’s request for
attorneys’ fees under a provision of the lease
and awarded $132,795.72 in attorneys’ fees,
expenses and district court costs. The court
declined to award an additional amount for fees
expended in defending against Subway’s appeal on
the issue of punitive damages. The court reasoned
that Jannotta was not the prevailing party in
that stage of the litigation, and therefore was
not entitled to fees under a strict reading of
the lease. Having been found guilty of gross
fraud but not having to pay much for it, Subway
appeals the district court’s award of fees spent
in litigating the punitive damages issue at the
second trial. Jannotta cross appeals for fees
expended in defending against Subway’s first
appeal, and also requests that we grant fees to
the plaintiffs for defending against the present
appeal.
II.
Subway contends that the fee recovery clause in
the lease did not contemplate fees incurred in a
trial solely resolving the issue of punitive
damages. Alternatively, Subway argues that
Jannotta’s recovery was de minimis and thus did
not justify an award of fees because the
plaintiffs did not really prevail. Subway
complains that the amount of the award was small
in relation to the damages Jannotta sought, and
that it was unjust to require Subway to subsidize
the retrial when Subway had suggested a proper
instruction regarding corporate complicity and
the district court had rejected Subway’s
suggestion. In his cross-appeal, Jannotta argues
that the district court erred in denying fees for
defending against Subway’s first appeal. Because
Jannotta prevailed in the litigation overall,
receiving in excess of $400,000 in compensatory
and punitive damages, he maintains that the fee
clause in the lease entitled him to fees for all
aspects of the litigation, including those parts
where he did not prevail.
A.
We begin by examining the paragraph of the
lease giving rise to the attorneys’ fees issue:
In the event of litigation between Lessor and
Lessee relative to the rights, obligations and
duties of either party under this lease,
attorneys’ fees and costs shall be paid by the
non-prevailing party.
R. 197, Ex. 1, at para. 40. Subway states that
Illinois law requires courts to strictly construe
fee shifting provisions, that the district court
was not strict in its construction, and that a
proper reading of the provision would not allow
recovery of fees for work performed in a punitive
damages retrial. Subway maintains that an action
to recover punitive damages for gross fraud does
not arise "under the lease," but rather arises
from equitable principles. Moreover, Subway
contends, an action for fraudulent inducement is
not "relative to the rights, obligations and
duties of either party under this lease."
Subway is correct that Illinois courts strictly
construe contractual fee shifting provisions. See
Pennsylvania Truck Lines, Inc. v. Solar Equity
Corp., 882 F.2d 221, 227 (7th Cir. 1989) (citing
Wheeling Trust & Sav. Bank v. Citizens Nat’l Bank
of Downers Grove, 491 N.E.2d 866, 870 (Ill. App.
2 Dist. 1986)). The question here is whether an
action to recover punitive damages for gross
fraud is an action relative to the rights,
obligations and duties of either party under the
lease. We agree with the district court that
Subway provides an unnecessarily cramped reading
of this phrase, and that a more natural reading
encompasses Jannotta’s second trial for punitive
damages. "Relative to" is a broad phrase meaning
"with regard to" or "in connection with."
Webster’s Ninth New Collegiate Dictionary. See
also Wisconsin Winnebago Bus. Comm. v.
Koberstein, 762 F.2d 613, 618 (7th Cir. 1985)
(characterizing the phrase "relative to" in a
statute as "broad language"). To require that the
action arise under the lease is to render a
nullity the words "relative to." An action for
fraudulent inducement is certainly relative to
the rights and obligations of the parties. After
all, a party is under no obligation to comply
with the terms of a fraudulently induced
contract. Subway complains that the fraud had
already been determined in the first trial, and
that the second trial determined only whether the
fraud was gross. Again, Subway ignores the broad
language of the lease. The degree of fraud is
certainly connected to the rights, duties and
obligations of the parties to the lease. That is
all that is required by the express language of
the lease.
Subway’s argument regarding the de minimis
nature of the punitive damages recovery is even
less persuasive. Subway contends that the
district court abused its discretion in this case
because the size of the award was small in
comparison to the damages that Jannotta sought,
because the amount of the fees for the punitive
damages trial exceeded the $100,000 award, and
because Subway had suggested a correct
instruction and was forced to a second trial only
through the error of the district court. "[T]he
decision to award costs and attorney fees
pursuant to a contractual agreement lies within
the sound discretion of the district court."
Pennsylvania Truck, 882 F.2d at 227. True, when
damages are tiny in relation to the claim, a
court has the discretion to withhold fees
entirely. Fletcher v. City of Fort Wayne, Ind.,
162 F.3d 975, 976 (7th Cir. 1998), cert. denied,
526 U.S. 1136 (1999). "In other words, for
trivial recoveries the only reasonable award of
fees is zero." Id. Subway cites a number of cases
in which plaintiffs who recovered only nominal
damages were found not entitled to attorneys’
fees even though they had technically prevailed
in the litigation.
Subway faults the district court for not
considering whether fees were appropriate at all
given the "Pyrrhic" nature of Jannotta’s
recovery. We see no abuse of discretion here in
the district court’s analysis. There was no need
for the court to consider whether the award was
"nominal" when $100,000 is not nominal by any
standard. Indeed, Subway brought this appeal in
an effort to avoid paying only slightly more than
that amount in attorneys’ fees, and so the amount
must not be so trifling to Subway as it would
have this Court believe. Most of the cases
involving nominal damages involve awards of $1.
The district court did not make a separate
finding on whether the amount was nominal because
it is unreasonable to consider a $100,000
punitive damages award nominal in a case where
compensatory damages were approximately three
times that amount.
The fact that Jannotta sought a much greater
amount than he recovered is relevant but does not
require the district court to deny fees. See
Northbrook Excess & Surplus Ins. Co. v. Proctor
& Gamble Co., 924 F.2d 633, 641-42 (7th Cir.
1991); Tuf Racing Products, Inc. v. American
Suzuki Motor Corp., 2000 WL 1022649, *5 (July 24,
2000). Likewise, that the amount of the fees
slightly exceeded the amount of the award is
relevant to the district court’s exercise of
discretion, but it is not determinative. See
Fletcher, 162 F.3d at 976. We will reverse the
district court’s discretionary award only if no
reasonable district court would have granted fees
under these circumstances. There is no indication
that Jannotta was anything other than a
prevailing party who made a substantial recovery.
Thus, Jannotta is contractually entitled to
attorneys’ fees. We affirm the district court’s
grant of fees in favor of Jannotta on the
punitive damages retrial.
B.
The district court’s discretion goes both ways,
and we find no abuse of discretion in the
district court’s denial of fees to Jannotta for
the defense of the first appeal. The district
court determined that Jannotta did not prevail in
that appeal, and we are hard pressed to disagree.
The first appeal resulted in the reversal of a
$10,000,000 punitive damages award in Jannotta’s
favor based on a faulty jury instruction. See
Grossinger Motorcorp. Inc. v. American Nat’l Bank
and Trust Co., 607 N.E.2d 1337, 1348 (Ill. App.
1 Dist. 1992). Jannotta contends that the
prevailing party cannot be determined until the
litigation is concluded, and that he ultimately
prevailed on every issue in the case, including
numerous significant issues in the first appeal.
That may well be true, but the district court was
within its discretion in declining to award fees
for the first appeal because Jannotta failed to
prevail on the most significant issue on that
appeal. See Raffel v. Medallion Kitchens of
Minn., Inc., 139 F.3d 1142, 1146-47 (7th Cir.
1998). We thus affirm the district court’s
decision to deny Jannotta fees for the first
appeal.
C.
Jannotta has prevailed in this appeal, however,
and we are inclined to award fees for the work
done in defending this appeal. A petition on
entitlement to attorneys’ fees for appellate work
may be filed in either the district court or the
court of appeals. Ekanem v. Health & Hospital
Corp. of Marion County, Ind., 778 F.2d 1254, 1257
(7th Cir. 1985). Jannotta incurred $26,089.05 in
defending this appeal, and provided a properly
supported petition to this Court documenting
those fees and costs. In response, Subway does
not object to the amount of fees and costs
claimed by Jannotta. Rather, Subway merely claims
that Jannotta is not entitled to fees in this
appeal for the same reasons Jannotta was not
entitled to fees in the first appeal. Of course,
Jannotta prevailed in this appeal in its entirety
and we therefore award Jannotta $26,089.05 in
fees for the defense of this appeal.
III.
In conclusion, we affirm the district court’s
award of fees to Jannotta for the prosecution of
the second punitive damages trial, we affirm the
district court’s decision to deny fees to
Jannotta for defense of the first appeal, and we
award Jannotta fees in the amount of $26,089.05
for the defense of the instant appeal.
AFFIRMED.
/1 We will refer to the defendants collectively as
"Subway" and to the plaintiffs as "Jannotta" for
the sake of clarity.
/2 The jury apportioned the award as follows:
$25,000 against Frederick DeLuca, $25,000 against
Peter Buck, and $50,000 against Doctor’s
Associates, Inc. Judgment was entered in favor of
Subway Sandwich Shops, Inc. on the punitive
damages claim.