Fednav International Ltd. v. Continental Insurance

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2650
F EDNAV INTERNATIONAL L TD.,
Plaintiff-Appellant,
v.
C ONTINENTAL INSURANCE C OMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 C 6302—John W. Darrah, Judge.
A RGUED F EBRUARY 12, 2010—D ECIDED N OVEMBER 1, 2010
Before E ASTERBROOK, Chief Judge, H AMILTON, Circuit
Judge, and Springmann, District Judge.Œ
S PRINGMANN, District Judge. Seeking damages for at-
torney’s fees, costs, and expenses incurred in earlier
litigation between the parties, Fednav International
Ltd. (Fednav) sued Continental Insurance Company
Œ
Of the Northern District of Indiana, sitting by designation.
2 No. 08-2650
(Continental) for breach of contract. The district court
dismissed Fednav’s case for failure to state a claim upon
which relief can be granted. We affirm.
I. BACKGROUND
In 2001, three separate vessels carried shipments of steel
from Ghent, Belguim, to Burns Harbor, Indiana. The
steel was damaged in transit. In 2002, Continental, the
subrogee of the owner of the damaged steel, sued Fednav
(the carrier), the vessels, and other defendants in the
United States District Court for the Northern District of
Illinois in three separate cases. Continental sought to
recover damages under the Carriage of Goods by Sea
Act (COGSA), 46 U.S.C. App. §§ 1300 et seq. The bills of
lading designated Burns Harbor as the port of discharge
and specified that the United States District Court
having admiralty jurisdiction at the port of discharge
would be the forum for any action arising out of the
shipment. The bills of lading incorporated the COGSA
statute of limitations of one year from the date of dis-
charge. Instead of transferring the cases to the Northern
District of Indiana, where the bills of lading required
Continental to file its actions, the district court dis-
missed the cases.
Continental appealed, and the three cases were con-
solidated. In 2003, we affirmed the district court’s dis-
missal of Continental’s COGSA claims for improper
venue. Continental Ins. Co. v. M/V Orsula, 354 F.3d 603 (7th
Cir. 2003). Because Continental had made the mistake
of suing Fednav in the wrong court, and because the
No. 08-2650 3
statute of limitations had run, the first phase of litiga-
tion ended in a decisive victory for Fednav and a
stinging loss for Continental. Fednav incurred substantial
litigation-related expenses, including attorney’s fees, in
the process of obtaining the win.
In 2006, Fednav initiated this lawsuit against
Continental in the Northern District of Illinois to recoup
these litigation-related expenses. Fednav predicated the
district court’s subject-matter jurisdiction over its action
on diversity of citizenship, 28 U.S.C. § 1332. It did not
invoke any other basis for subject-matter jurisdiction. In
its complaint, Fednav sought damages for Continental’s
alleged breach of the forum-selection clauses contained
in the bills of lading for the goods shipped. It claimed
that Continental breached by filing its earlier lawsuits
in the Northern District of Illinois, the wrong forum.
Fednav alleged that, as a result of the breach, it suffered
damages in the form of the attorney’s fees, costs, and
expenses it incurred defending against the lawsuits
brought by Continental.
Continental moved the district court to dismiss
Fednav’s lawsuit on three grounds: (1) Fednav’s lawsuit
is an impermissible attempt to collect attorney’s fees
and expenses incurred in the earlier litigation; (2) Fednav
may not sue Continental for breach of contract because
there is no privity of contract between Fednav and Conti-
nental; and (3) Fednav filed suit in the wrong venue
because the forum-selection clauses in the bills of lading
required Fednav to bring this lawsuit in the Northern
District of Indiana. In response, Fednav characterized
4 No. 08-2650
its lawsuit as an action for common law breach of con-
tract and asserted that the American Rule does not bar
its action, that Continental became a party to the
relevant contracts, and that Fednav’s lawsuit is in the
proper forum. The district court granted Continental’s
motion to dismiss on the first ground offered by Con-
tinental. The district court found that the American
Rule, which had been adopted in Illinois law, barred
Fednav’s lawsuit to collect attorney’s fees and that no
exception to the rule applied.
II. DISCUSSION
We review de novo a district court’s dismissal for
failure to state a claim upon which relief can be granted.
See Fed. R. Civ. P. 12(b)(6); Tamayo v. Blagojevich, 526
F.3d 1074, 1081 (7th Cir. 2008). When analyzing the suffi-
ciency of a complaint, we construe it in the light most
favorable to the nonmoving party, accept well-pleaded
facts as true, and draw all inferences in the nonmoving
party’s favor. Id. Fednav has stated a claim only if it
has alleged enough facts to render the claim facially
plausible, not just conceivable. Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007).
A. Subject-Matter Jurisdiction
Before addressing the district court’s ruling on Con-
tinental’s motion to dismiss, we must consider the issue
of subject-matter jurisdiction. Because federal courts “have
No. 08-2650 5
only the power that is authorized by Article III of
the Constitution and the statutes enacted by Congress
pursuant thereto,” Bender v. Williamsport Area Sch. Dist.,
475 U.S. 534, 541 (1986), “we are bound to evaluate our
own jurisdiction, as well as the jurisdiction of the court
below, sua sponte if necessary,” Int’l Union of Operating
Eng’rs, Local 150 v. Ward, 563 F.3d 276, 282 (7th Cir. 2009).
In its complaint, Fednav stated that it is a Barbadian
corporation with its principal place of business in Mon-
treal, Quebec, Canada. However, in its appellate sub-
mission, Fednav asserted that it is a Canadian corpora-
tion with its principal place of business in Montreal,
Quebec, Canada, and that Continental is a New Hamp-
shire corporation with its principal place of business
in New York. At oral argument, we asked Fednav’s
counsel whether Fednav is incorporated under the laws
of Canada or the laws of Barbados, and whether Fednav
is a corporation limited by shares, an organization
limited by guarantee, or an organization akin to a part-
nership, in which case we would need to know the identity
of each investor. We ordered Fednav to supplement its
submission with information regarding its citizenship.
Fednav’s supplemental submission shows that it is
organized under the laws of Barbados and that it is a
company limited by shares. No issue exists regarding
Continental’s citizenship or the amount in contro-
versy. Consequently, the district court had, and we have,
subject-matter jurisdiction over Fednav’s claim under
28 U.S.C. § 1332(a)(2).
6 No. 08-2650
B. Fednav’s Breach of Contract Claim and the American
Rule
On appeal, Fednav relies on several grounds in chal-
lenging the district court’s dismissal of its case against
Continental. We begin with the ground addressed by
the district court in dismissing Fednav’s common law
breach of contract claim.1 The district court determined
1
Fednav proceeded in the district court on this state-law
theory, and this theory provided the basis for the district court’s
ruling. However, Fednav’s theory of recovery raises issues
under at least two federal statutes. In the 2002-2003 litiga-
tion, Fednav did not invoke the power of the district court or
this court to award sanctions under 28 U.S.C. § 1927, which
provides that a lawyer “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.”
See also Riddle & Assocs. v. Kelly, 414 F.3d 832, 835 (7th Cir. 2005)
(“The purpose of § 1927 is to deter frivolous litigation and
abusive practices by attorneys and to ensure that those who
create unnecessary costs also bear them.”) (quotation marks
and citation omitted). In this appeal, Fednav argues that
Continental litigated in bad faith, but it did not so argue in the
earlier litigation (perhaps because it was apparent that Con-
tinental’s counsel was not acting in bad faith, but rather made
a very costly mistake). See Continental Ins. Co., 354 F.3d at 608(stating that “filing in the Northern District of Illinois was
an obvious mistake made by a sophisticated party with repre-
sentation”). Additionally, Fednav’s breach of contract claim
may implicate the preemption regime of the COGSA, 46 U.S.C.
(continued...)
No. 08-2650 7
that the American Rule barred Fednav’s claim seeking
litigation expenses and attorney’s fees as damages based
upon Continental’s alleged breach of the forum-selection
clauses in the bills of lading. Fednav argues that the
district court erred in applying Illinois law and the Ameri-
can Rule.
In a case such as this one, in which federal court juris-
diction is premised on diversity of citizenship, state law
applies to substantive issues. RLI Ins. Co. v. Conseco, Inc.,
543 F.3d 384, 390 (7th Cir. 2008). “When neither party
raises a conflict of law issue in a diversity case, the ap-
plicable law is that of the state in which the federal court
sits.” Id. In a diversity case, federal law governs pro-
cedure. Thorogood v. Sears, Roebuck & Co., 547 F.3d 742,
746 (7th Cir. 2008).
Fednav filed this case in a federal district court in
Illinois, and the parties did not raise any conflict of law
issue. Fednav’s claim of entitlement to litigation-related
expenses and attorney’s fees as damages under a breach
of contract theory is a substantive issue. Accordingly,
we look to Illinois law in evaluating Fednav’s common
1
(...continued)
App. §§ 1300 et seq. In the earlier litigation, Continental sued
in federal court under the federal COGSA, and at oral argument
in this case, Fednav’s counsel conceded that Fednav is not
relying on any contract term or the COGSA to shift the fees.
Because the § 1927 and COGSA preemption issues were not
put before the district court or addressed by the parties in
their briefs on appeal, we will not address them.
8 No. 08-2650
law breach of contract claim and the availability of such
damages.2
To state a colorable breach of contract claim under
Illinois law, a plaintiff must allege “ ‘(1) the existence of
a valid and enforceable contract; (2) substantial perfor-
mance by the plaintiff; (3) a breach by the defendant;
and (4) the resultant damages.’ ” Reger Dev., L.L.C. v. Nat’l
City Bank, 592 F.3d 759, 764 (7th Cir. 2010) (quoting
W.W. Vincent & Co. v. First Colony Life Ins. Co., 814 N.E.2d
960, 967 (Ill. App. Ct. 2004)). In its motion to dismiss,
Continental challenged Fednav’s claim by attacking the
first and fourth elements and argued that the forum-
selection clauses, which doomed Continental’s earlier
lawsuit against Fednav, also doomed Fednav’s lawsuit
because Fednav chose to bring this case in the wrong
court. Like the district court, we find the fourth element
regarding damages determinative.
Illinois generally recognizes the American Rule that,
“absent a statute or contractual provision, a successful
2
Although Fednav on appeal is making an argument that
has a conflict-of-law quality, in the district court it did not
argue that any law other than Illinois law applied. Indeed, in
its opposition to Continental’s motion to dismiss, Fednav relied
expressly upon Illinois law for the elements of a breach of
contract claim and for its argument that the general rule
regarding damages, and not the American Rule, applied.
Additionally, in arguing that its case was not filed in the
wrong forum, Fednav advocated the application of Illinois
law because Illinois was the state with the most significant
relationship to Continental’s breach.
No. 08-2650 9
litigant must bear the burden of his or her own at-
torney’s fees.” Champion Parts, Inc. v. Oppenheimer & Co.,
878 F.2d 1003, 1006 (7th Cir. 1989) (citing Kerns v. Engelke,
390 N.E.2d 859, 865 (Ill. 1979); Ritter v. Ritter, 46 N.E.2d
41, 43 (Ill. 1943)); see also In re Weinschneider, 395 F.3d
401, 404 (7th Cir. 2005) (stating that “Illinois follows the
American rule, under which attorney fees are not avail-
able unless the parties have agreed to them or a
statute provides for them”); Taylor v. Pekin Ins. Co., 899
N.E.2d 251, 256 (Ill. 2008). In Ritter, the Supreme Court of
Illinois observed that “[t]he cases all confirm the rule
that attorneys fees and expenses of litigation can not [sic]
be recovered in a subsequent suit as damages by a suc-
cessful plaintiff who has been forced into litigation by
reason of the defendant’s wrongful conduct.” Ritter, 46
N.E.2d at 45 (citing cases); see also Child v. Lincoln Enters.,
Inc., 200 N.E.2d 751, 754 (Ill. App. Ct. 1964) (disallowing
attorney’s fees and the ordinary expenses of litigation
as damages for breach of a covenant not to sue).
Fednav has not identified any contractual provision or
statute showing an entitlement to recover litigation
expenses and attorney’s fees incurred in the earlier litiga-
tion with Continental. Furthermore, the COGSA, under
which Continental brought its earlier lawsuits, does not
authorize an award of attorney’s fees to a party
prevailing in a suit under the act. See APL Co. Pte. Ltd. v.
UK Aerosols Ltd., 582 F.3d 947, 957 (9th Cir. 2009) (citing
Noritake Co. v. M/V Hellenic Champion, 672 F.2d 724, 730 (5th
Cir. 1980)); Marcial Ucin, S.A. v. SS Galicia, 723 F.2d 994,
1002 (1st Cir. 1983) (citing cases). Consequently, Illinois
law and the American Rule require Fednav to bear the
10 No. 08-2650
burden of its own litigation expenses and attorney’s
fees, unless some exception to the rule applies.
Under Illinois law, an exception to the American Rule
exists “where the wrongful acts of a defendant involve
the plaintiff in litigation with third parties or place him
in such relation with others as to make it necessary to
incur expenses to protect his interest.” Ritter, 46 N.E.2d
at 44. We have noted that the “theory behind this excep-
tion is that a tortfeasor should be held responsible for all
of the natural and proximate consequences of his ac-
tions.” Champion Parts, Inc., 878 F.2d at 1006 (citing
Sorenson v. Fio Rito, 413 N.E.2d 47, 52 (Ill. App. Ct. 1980)).
We added:
If one consequence of the tortfeasor’s actions is to
involve a person in litigation with others, the expenses
incurred in that litigation are held to be damages no
less compensible than any other element of damage
resulting from the tort. . . . [T]he exception does not
remove the plaintiff’s obligation to show that he or
she has a cause of action against the defendant; the
exception only adds an element of damages to that
preexisting cause of action.
Id. (citing Nat’l Wrecking Co. v. Coleman, 487 N.E.2d 1164,
1167 (Ill. App. Ct. 1985); Nalivaika v. Murphy, 458 N.E.2d
995, 996 (Ill. App. Ct. 1983); Sorenson, 413 N.E.2d at 52).3
3
Fednav has argued that the traditional standard of damages,
which allows recovery of all ordinary and natural consequences
of a wrongdoer’s conduct, applies and that its litigation ex-
(continued...)
No. 08-2650 11
Fednav’s complaint is devoid of any allegations sug-
gesting that wrongful acts of Continental involved Fednav
3
(...continued)
penses and attorney’s fees are recoverable as damages. In the
district court, Fednav cited Sorenson, 413 N.E.2d at 51-52, and on
appeal, it cites Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145
(1854). In resolving this issue, we rely upon how Illinois
courts have reconciled the American Rule with the traditional
rule of damages, rather than looking to the rule of Hadley v.
Baxendale. The Appellate Court of Illinois has explained:
Care must be taken to distinguish between the rule pro-
hibiting the recovery of attorney fees from the losing
party by the prevailing party in litigation and the rule
allowing the recovery of attorney fees incurred in litiga-
tion with third parties necessitated by defendants’ wrongful
act. The rule against allowance of attorney fees only
forbids recovery of such fees incurred in litigation with
the tortfeasor himself. Where the attorney fees sought by
the plaintiff are those incurred in actions with third
parties brought about by a defendant’s misconduct, the
litigation expenses are merely a form of damages and are
accordingly recoverable from the defendant.
Nalivaika, 458 N.E.2d at 997 (quotation marks, citations, and
ellipsis omitted). Furthermore, the situation in Sorenson was
very different from the situation here. Sorenson involved a
plaintiff who was permitted to recover attorney’s fees incur-
red in obtaining refunds of tax penalties that were assessed as
a result of the defendant’s negligence. Id., 413 N.E.2d at 53;
see also Goldstein v. DABS Asset Manager, Inc., 886 N.E.2d 1117,
1121-22 (Ill. App. Ct. 2008) (discussing Sorenson and distin-
guishing between attorney’s fees incurred defending in a law-
suit and attorney’s fees recovered as refunds of tax penalties).
12 No. 08-2650
in litigation with third parties or placed Fednav in such
a relation with others that Fednav incurred expenses
protecting its interest. To the contrary, Fednav’s com-
plaint alleges that its damages (i.e., attorney’s fees, costs,
and litigation-related expenses) resulted from its defense
against Continental’s subrogation actions for damage
Fednav allegedly caused. Consequently, Fednav’s breach
of contract claim in this action does not fall within this
exception to the American Rule, and Fednav has failed
to state a claim for common law breach of contract
under Illinois law.
C. Waiver
Fednav contends that federal common law permits
recovery of attorney’s fees for Continental’s breach and
that it may recover the litigation-related expenses and
attorney’s fees because Continental acted in bad faith.
Fednav did not present these arguments to the district
court.
It is well-settled that a party may not raise an issue
for the first time on appeal. Pole v. Randolph, 570 F.3d 922,
937 (7th Cir. 2009). Consequently, a party who fails to
adequately present an issue to the district court has
waived the issue for purposes of appeal. Kunz v. DeFelice,
538 F.3d 667, 681 (7th Cir. 2009). Furthermore, a party
has waived the ability to make a specific argument for
the first time on appeal when the party failed to present
that specific argument to the district court, even though
the issue may have been before the district court in
No. 08-2650 13
more general terms. Domka v. Portage County, Wis., 523
F.3d 776, 783 (7th Cir. 2008).
A liberal reading of Fednav’s complaint and argument
in the district court yields no signs of these arguments
Fednav is now presenting. Fednav did not present
federal common law as a source of its claimed entitle-
ment to recover its litigation-related expenses and attor-
ney’s fees. Likewise, Fednav did not argue in the district
court that it was entitled to such damages because of
Continental’s bad faith conduct in the earlier litigation.
Accordingly, Fednav waived these arguments.
Even if Fednav had not waived these arguments,
they would not succeed. To the extent that Fednav sug-
gests that the American Rule is not part of federal law,
it is mistaken. See Alyeska Pipeline Serv. Co. v. Wilderness
Soc’y, 421 U.S. 240 (1975) (reaffirming the “American
Rule”); id. at 247 (“In the United States, the prevailing
litigant is ordinarily not entitled to collect a rea-
sonable attorneys’ fee from the loser. We are asked to
fashion a far-reaching exception to this ‘American Rule’;
but having considered its origin and development, we
are convinced that it would be inappropriate for the
Judiciary, without legislative guidance, to reallocate the
burdens of litigation in the manner or to the extent [pro-
posed].”). Fednav cites Omron Healthcare, Inc. v. Maclaren
Exports Ltd., 28 F.3d 600 (7th Cir. 1994), as support for
its argument that federal common law allows recovery
of attorney’s fees by the victim of a breach of a forum-
selection clause. Fednav highlights the following lan-
guage from the Omron Healthcare opinion:
14 No. 08-2650
Omron signed a contract promising to litigate in
the High Court of Justice, or not at all. It broke that
promise. Instead of seeking damages for breach of
contract, Maclaren is content with specific perfor-
mance. The district court properly dismissed the suit.
Id. at 604. Fednav misconceives this statement and our
opinion in Omron Healthcare, which did not address the
recovery of attorney’s fees under federal common law.
Similarly, its reliance on Northwestern National Insurance
Co. v. Donovan, 916 F.2d 372 (7th Cir. 1990), is misplaced.
In Donovan, we addressed the validity and enforceability
of a forum-selection clause and the permissibility of a
venue change for the convenience of parties and wit-
nesses under 28 U.S.C. § 1404(a), but we did not address
the availability of attorney’s fees under federal law. Id.
at 377-78. The parties in this case have not made the
validity of the forum-selection clauses an issue, and
there appears to be no dispute about their validity. Cf.
Continental Ins. Co., 354 F.3d at 607-08 (enforcing
Fednav’s forum-selection clauses and noting that Conti-
nental did not contest the validity of the clauses).
Additionally, Fednav asserts, without reference to
relevant authority and without developed argument, that
Continental’s filing of its earlier lawsuits in the wrong
court “must constitute litigation in bad faith[,] one of
the recognized exceptions to the American Rule.” Br. of
Pl./Appellant 14. In making this argument, Fednav fails
to comply with Federal Rule of Appellate Procedure
28(a)(9)(A), which requires the appellant’s argument to
contain “contentions and the reasons for them, with
No. 08-2650 15
citations to the authorities and parts of the record on
which the appellant relies.” We will not fill this void by
crafting arguments and performing the necessary legal
research. See Anderson v. Hardman, 241 F.3d 544, 545
(7th Cir. 2001).
III. CONCLUSION
The district court properly found that, under Illinois
law, the American Rule bars Fednav’s breach of contract
claim seeking to collect litigation expenses and attorney’s
fees. Therefore, its grant of Continental’s motion to
dismiss is A FFIRMED.
11-1-10