Amicus Curiae Brief — Zapata Hermanos Sucesores, S. A. v. Hearthside Baking Co., Inc., Dba Maurice Lenell Cooky Co

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Supreme Court, U.S.

FILED

OCT 2 2 2003

OFFICE OF THE CLERK

No. 02-1318

In the Supreme Court of the Gnited States

ZAPATA HERMANOS SUCESORES, 8.A., PETITIONER

Vv.

HEARTHSIDE BAKING COMPANY, D/B/A MAURICE

LENELL CoOKY COMPANY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

THEODORE B. OLSON

Solicitor General

Counsel of Record

PETER D. KEISLER

Assistant Attorney General

PAUL D. CLEMENT

Deputy Solicitor General

WILLIAM H. TAFT, IV

Legal Adviser

JEFFREY D. KOVAR

Assistant Legal Adviser

Department of State DAN HIMMELFARB es

Washington, D.C. 20520 Assistant to the Solicitor

General

MARK B. STERN

CHARLES W. SCARBOROUGH

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTIONS PRESENTED

1. Whether attorneys’ fees and litigation expenses are a

recoverable form of “loss” under Article 74 of the United

Nations Convention on Contracts for the International Sale

of Goods.

2. Whether a district court may award attorneys’ fees

-under its inherent authority as a sanction for the conduct

giving rise to the litigation or for conduct during the

litigation that is sanctionable under a statute or rule.

(I)

TABLE OF CONTENTS

Page

Statement ; ; 1

Discussion ‘ 5

A. The court of appeals correctly held that

attorneys’ fees are not a form of “loss” under

Article 74 of the Convention and its decision does

not conflict with the decision of any other court

Be IIIT cihticisianiiabdurncieinanmpgntndineiantiinansinnrininnietinnennccseees 5

B. The court of appeals correctly held that a court

may not use its inherent authority to impose

a sanction for pre-litigation conduct or for litiga-

tion conduct sanctionable under a statute or

rule and its decision does not squarely conflict

with the decision of any other court of appeals ......... 12

C. The interlocutory posture of the case is an

additional reason to deny certiorari ...........csseseceseeeees 18

Conclusion stalls acahdeitimiebiniidlepliiaaanienibieinaiianinigcianstiisimstinnsesian 19

TABLE OF AUTHORITIES

Cases:

Air France v. Saks, 470 U.S. 392 (1985) ........... Seaneeianrenanees 8, 10

Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421

U.S. 240 (1975) saliaiteainabsiiaetnsinapaetiiabedaipniniintesnenes 6

Association of Flight Attendants v. Horizon Air

Indus., Inc., 976 F.2d 541 (9th Cir. 1992) .......esececeeeeees 14

Chambers v. NASCO, Inc., 501 U.S. 32 (1991) ............ 12, 13,

15, 16, 17, 18

Chan v. Korean Air Lines, Ltd., 490 U.S. 122

ITI aiidiuisicida tet usiennabtinsasenbiabenssinstaanondutesesivsisassedblontpetesenesesentonsess 10

Choctaw Nation of Indians v. United States, 318 US.

EN ITI inescatasirehanphcnocunpienneesovsiveetamnesnrntoanseenes ~" Ae 10

DLC Mgmt. Corp. v. Town of Hyde Park, 163

EY a, IUD .suvideernpudeannsincenoinnnnnactivenainntanssisebemnenies 16

(IIT)

Cases—Continued: Page

El Al Israel Airlines, Ltd. v. Tsui Yuan Tseng,

525 U.S. 155 (1999) 10

Fink v. Gomez, 239 F.3d 989 (9th Cir. 2001) ........csessseevees 17

First Bank of Marietta v. Hartford Underwriters

Ins. Co., 307 F.3d 501 (6th Cir. 2002) splniinntandens 17

Hamilton-Brown Shoe Co. v. Wolf Bros & Co.,

EA CD eetintenninininienanienatipniinineannicoeionn 19

Kerin v. United States Postal Serv., 218 F.3d 185

CBE Cit, BIG): ccensessescencsercncsovesusnnndiocenncnecnesnensenensensenssscossboosesns 13

Key Tronic Corp. v. United States, 511 U.S. 809

CODED sstvtininntininctiinsctiindinicionndien sanecsevcoceres 6-7

Lamb Eng’g & Constr. Co. v. Nebraska Pub. Power

Dist., 108 F.3d 1422 (8th Cir. 1997) 13-14, 15

Landgraf v. USI Film Prods., 511 U.S. 244 (1994) ......... 6

MCC-Marble Ceramic Ctr., Inc. v. Ceramic Nuova

D’ Agostino, S.P.A., 144 F.3d 1384 (11th Cir. 1998),

cert. denied, 526 U.S. 1087 (1999) .........sscsssssscesesccssesserees 12

Mroz, In re, 65 F.3d 1567 (11th Cir. 1995) ...........ccscsscesseees 17

Nick v. Morgan’s Foods, Inc., 270 F.3d 590 (8th

CD secsccotlacinenssinseteealinipceicaeiiiinnianiiaiiinaaaiiisintaiiunntioniinen 16

Pickholtz v. Rainbow Techs., Inc., 284 F.3d 1365

a Se tea siniltdibiinnieainiiniiattiiinnantinniane 16

Resolution Trust Corp. v. Dabney, 73 F.3d 262

Cay UI sraisedchiteeicisinsthtnrtleminsichinsnetccprncsnibisiniitidniiaiaiahlintesiics 17

Sanchez v. Rowe, 870 F.2d 291 (5th Cir. 1989) ........5....... 14

Shimman v. International Union of Operating Eng’rs

Local 18, 744 F.2d 1226 (6th Cir. 1984), cert. denied,

a ie RE. tireetninteninieiesinntaintnbcinianiihiniinndnain 14

Sun Oil Co. v. Wortman, 486 U.S. 71'7(1988) ..........00 6

Thomas v. Tenneco Packaging Co., 293 F.3d 1306

(11th Cir. 2002) nn ees 17

Towerridge, Inc. v. T.A.0., Inc., 111 F.2d 758

(10th Cir. 1997) ....... 13, 14

Cases—Continued: Page

Travelers Ins. Co. v. St. Jude Hosp., Inc., 38 F.3d

DERE Geis Cae, BOO stenticisnisccerapieseneiecititeititnilanosnntanrinaninnieii 16

United States ex rel. Yonker Constr. Co. v.

Western Contracting Corp., 935 F.2d 936 (8th

COUN DED ‘si shcessconduciicentinisiioacaoatineepichctlicsithateasbechaastiamscdihiibidiiiehdinnas 14

Virginia Military Inst. v. United States, 508 U.S.

SEE icictnnseiticnterneuietinsinigmesnnensncinnneinninmencinnieninan 18

Weiss, In re, 111 F.3d 1159 (4th Cir.), sank. denied,

Ce OF SO CE . wicrnntsenncinnnseviatinitentatiitnninicaianes 17

White v. New Hampshire Dep’t of Employment Sec.,

EE. Ge einicetinittnneiniitnititetinntiniciininpiinres 6

Woods v. Barnett Bank of Fort Lauderdale, 765

Fae FORGE Cae BOD witteciriennsicatssesscaennisincnaninssintinniionn 14

Treaty, statute and rules:

United Nations Convention on Contracts for the

International Sale of Goods, Apr. 11, 1980, S. Treaty

Doc. No. 9, 98th Cong., Ist Sess. (1983) «0... nieioaien 1

Ben TR) ccccsntrrerrissnernenanensninennananisinstniininneninansicneuitnan 8, 10, 11

Ba Te iicciesasiteaticivinintaiesendeicnichiiensilsncgliainsiniadabdiabnamebibiiieen 6

FL, ESR teen OC eae ao NE ee nF PON passim

MN TE \sisbacicisictaviintcisnicelitaeiliahinietileiubiaiapildectaedadaiabiin 7

BEA UT sencssstsiessiinniiincinicninseinitasiincieneciiannibataiatinntiniitodintad 17

SI Tei, SOIA sesiccsdtionnihdiccenisecieeeliacaniteascsinibateliieatiapennntaaamalinn 17

Fed. R. Civ. P.:

BRNO BD. sicsnssnercceniessernesseenestiinintinnnettionnensnnsteieasenanesnmannnsitetiiien 5,17

SE UEE siieinsnenatenennineinampintnietaiiinimaiimnimaeniaii - §

Miscellaneous:

Harry M. Flechtner, Recovering Attorney’s Fees as

Damages Under the U.N. Sales Convention (CISG):

P The Role of Case Law in the New International Com-

mercial Practice, with Comments on Zapata Her-

manos v. Hearthside Baking, 22 Nw. J. Int’l. L.

Miscellaneous—Continued: Page

Harry M. Flechtner & Joseph Lookofsky, Viva Zapata!

American Procedure and CISG Substance in a

U.S. Circuit Court of Appeal, 7 Vindobona J.

EET, Comme, Bs. Ee es GRIT ecnecssstcsentnnstninnsininenisaiinevcnsacinen 10

Joseph Lookofsky, Commentary: Zapata Hermanos

v. Hearthside Baking, 6 Vindobona J. Int’l. Com. L.

1 GD. Ee GUD vievicipasiinsticsieinnctsiaiaieitaiaiaiaiaaiin 6

In the Supreme Court of the Gnited States

No. 02-1318

ZAPATA HERMANOS SUCESORES, S.A., PETITIONER

Vv.

HEARTHSIDE BAKING COMPANY, D/B/A MAURICE

LENELL Cooky COMPANY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the order of this

Court inviting the Solicitor General to express the views of

the United States. Because the court of appeals’ decision is

correct, consistent with the decisions of this Court and other

courts of appeals, and interlocutory, the position of the

United States is that the petition for certiorari should be

denied.

STATEMENT

1. Petitioner Zapata Hermanos Sucesores (Zapata), a

Mexican company, supplied cookie tins to respondent

Maurice Lenell Cooky Company (Lenell), an American com-

pany. Petitioner sued respondent for breach of contract

under the United Nations Convention on Contracts for the

International Sale of Goods (Convention), Apr. 11, 1980, S.

Treaty Doc. No. 9, 98th Cong., Ist Sess. (1983). After a jury

(1)

trial in the United States District Court for the Northern

District of Illinois, a judgment of approximately $1.2 million

was entered in petitioner’s favor. Pet. App. la-2a.

The district court also awarded petitioner approximately

$537,000 in attorneys’ fees and litigation expenses. Pet. App.

lla-22a, 23a-32a. In making this award, the court relied

primarily (id. at 1la-18a) upon Article 74 of the Convention,

which provides that “(djamages for breach of contract by one

party consist of a sum equal to the loss, inciuding loss of

profit, suffered by the other party as a consequence of the

breach,” and that “[s]Juch 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.” Based on a

stipulation between the parties, the court found that it was

foreseeable to respondent that petitioner would incur litiga-

tion costs, including attorneys’ fees, in pursuing a breach-of-

contract action. Pet. App. 18a. The court reasoned that

those costs were recoverable as part of the “loss” under

Article 74. Jd. at 18a. As an alternative basis for the award

of attorneys’ fees, the district court relied on its inherent

authority to impose sanctions (id. at 18a-20a), finding that

respondent’s conduct “both leading up to and during the

litigation” supported such an award (id. at 19a).

2. The court of appeals affirmed the liability judgment

but reversed the award of attorneys’ fees and remanded for

further proceedings. Pet. App. la-10a.

a. The court of appeals first held that the term “loss” in

Article 74 of the Convention does not include attorneys’ fees.

Pet. App. 2a-4a. The court began its analysis (id. at 2a) by

quoting Article 7(2) of the Convention, which provides that

“questions concerning matters governed by th[e] Convention

which are not expressly settled in it” are to be settled, if

possible, “in conformity with the general principles on which

it is based.” The court went on to say that “(t]he Convention

is about contracts, not about procedure,” and that “principles

for determining when a losing party must reimburse the

winner for the latter’s expense of litigation” are “usually not

a part of a substantive body of law, such as contract law.”

Pet. App. 3a. The court noted that, although there are

“numerous exceptions to the principle that provisions

regarding attorneys’ fees are part of general procedure law,”

Article 74 is not one of them. bid. “[NJot only is the ques-

tion of attorneys’ fees not ‘expressly settled’ in the Conven-

tion,” the court said, “it is not even mentioned.” Jbid. Nor,

the court added, are there any “‘principles’ that can be

drawn out of the provisions of the Convention” for deter-

mining whether “loss” includes attorneys’ fees. Jbid. The

court thus concluded that, “by the terms of the Convention

itself,” the availability of such fees “must be left to domestic

law”—in this case, the American rule under which litigants

bear their own costs. Ibid.

The court of appeals also believed that interpreting the

term “loss” in Article 74 to include attorneys’ fees “would

produce anomalies.” Pet. App. 4a. While, under petitioner’s

interpretation of Article 74, foreseeable fees are part of the

prevailing plaintiff’s “loss,” the court questioned what effect

that interpretation would have on a prevailing defendant’s

ability to invoke domestic procedural law to recover fees and

whether a prevailing plaintiff could opt to be compensated

for unforeseeable fees under a domestic law that is more

generous than Article 74. Ibid. The court also questioned

whether the United States would have signed the Conven-

tion if it had thought it was abandoning the American rule,

and whether the countries that routinely award fees to

prevailing parties would have “thought about the question at

all.” Ibid.

b. The court of appeals also reversed the award of attor-

neys’ fees insofar as it was based on a court’s inherent

authority to impose sanctions for bad-faith conduct, Pet.

App. 4a-9a. The court began its analysis by observing that

the award of fees was based, in part, on the district court’s

“indignation at Lenell’s having failed to pay money conceded

to be owed by Zapata.” Id. at 4a. While it is true, the court

said, that punitive damages are sometimes awarded “for

breach of contract in bad faith,” petitioner “did not ask for

punitive damages,” and a court may not circumvent their

unavailability “by renaming punitive damages ‘attorneys’

fees.’” Id. at 6a-7a. The inherent authority of federal courts

to punish misconduct, the court held, “is not a grant of

authority to do good, rectify [perceived] shortcomings of the

common law * * * , or undermine the American rule on the

award of attorneys’ fees to the prevailing party in the

absence of statute.” Jd. at 7a. Instead, the court said, it is “a

residual authority, to be exercised sparingly,” for the punish-

ment of misconduct “(1) occurring in the litigation itself, not

in the events giving rise to the litigation,” and “(2) not

adequately dealt with by other rules, most pertinently here

Rules 11 and 37 of the Federal Rules of Civil Procedure,

which Lenell has not been accused of violating.” Jd. at 7a-8a.

Having concluded that the district court had no authority

to sanction respondent for its pre-litigation conduct, the

court of appeals turned to the question whether the sanction

was permissible on the basis of “Lenell’s behavior in the

litigation itself.” Pet. App. 8a. Observing that the district

court had “punished Lenell for having failed to acknowledge

liability and spare Zapata and the judge and the jury and the

witnesses and so on the burden of a trial,” the court found

that “the fault here was in no small measure the judge’s,” be-

cause petitioner should have been granted partial summary

judgment based on respondent’s acknowledgment of liability

“for $858,000 of the $890,000 sought in the complaint.” bid.

Since it was reversing the award of attorneys’ fees, the court

did not “pick through the record to see whether some of the

counterclaims or other moves by Lenell during the trial were

sanctionable apart from Rule 11 and Rule 37.” Id. at 9a. To

“guid{e] further proceedings on remand,” however, the court

pointed out that, to the extent that Rules 11 aid 37 “place

limits on the award of sanctions under them,” the limitations

“are equally limitations on inherent authority, which may not

be used to amend the rules.” Ibid.

DISCUSSION

The petition for certiorari should be denied. The court of

appeals correctly held that the term “loss” in Article 74 of

the Convention does not include attorneys’ fees and cor-

rectly held that a federal court may not use its inherent

authority to award attorneys’ fees as a sanction for the

conduct giving rise to the litigation or for conduct during the

litigation that is sanctionable under a statute or rule. These

holdings, moreover, do not conflict’ with any decision of this

Court or any other court of appeals. Review is particularly

unwarranted because the court of appeals’ decision is

interlocutory and the district court might impose the same

sanctions on remand under the correct legal standards.

A. The Court Of Appeals Correctly Held That Attorneys’

Fees Are Not A Form Of “Loss” Under Article 74 Of

The Convention And Its Decision Does Not Conflict

With The Decision Of Any Other Court Of Appeals

1. Under Article 74 of the Convention, damages for

breach of contract consist of the foreseeable “loss” from the

breach, but neither Article 74 nor any other provision of the

Convention makes any reference to attorneys’ fees. Indeed,

as Harry M. Flechtner, one of the leading academic authori-

ties on the Convention, has observed, it appears “from the

formal records of the [treaty’s] history” that “the subject of

recovering attorneys’ fees never arose during [its] drafting

and negotiation.” Harry M. Flechtner, Recovering Attor-

ney’s Fees as Damages Under the U.N. Sales Convention

(CISG): The Role of Case Law in the New International

Commercial Practice, with Comments on Zapata Hermanos

v. Hearthside Baking, 22 Nw. J. Int’] L. & Bus. 121, 151

(2002). Petitioner nevertheless contends that, because Arti-

cle 74 “broadly provides for the recovery of all foreseeable

‘loss[es}’” (Pet. 15), the availability of attorneys’ fees is, in

the language of Article 7(2), “expressly settled” in the Con-

vention. The court of appeals correctly held otherwise.

Many of the countries that are parties to the Convention

have a procedural rule of general applicability concerning a

prevailing party’s entitlement to an award of attorneys’ fees.

In some of those countries prevailing parties have such a

right. See, e.g., Flechtner, supra, 22 Nw. J. Int'l L. & Bus. at

154 n.87 (Germany, France, Italy, Sweden); Joseph Lookof-

sky, Commentary: Zapata Hermanos v. Hearthside Baking,

6 Vindobona J. Int’] Com. L. & Arb. 27, 28 n.10 (2002)

(Denmark). In at least one other—the United States—they

do not. See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y,

421 U.S. 240, 247 (1975). Interpreting the term “loss” in

Article 74 to include attorneys’ fees would thus make what is

otherwise an issue of procedure an issue of substantive

contract law.’ Adopting that interpretation would also mean

that Article 74 is an exception to the American rule and that

it might displace the more general loser-pays rules, and the

corresponding bodies of law, that apply in other countries.

Because of these far-reaching consequences, it is appropriate

to require explicit language addressing attorneys’ fees be-

fore such an interpretation is adopted. Cf. Key Tronic Corp.

1 While there may be some debate about whether attorneys’ fees are

properly construed as procedural or substantive, see, ¢.g., Landgraf v.

USI Film Prods., 511 U.S. 244, 292 (1994) (Scalia, J., concurring in the

judgment), and indeed the proper characterization may depend on context,

see, ¢.g., Sun Oil Co. v. Wortman, 486 U.S. 717, 726 (1988), there is little

question that attorneys’ fees are an ancillary matter that is distinct from

the underlying substantive law of contracts, see, e.g., Landgraf, 511 U.S.

at 277; White v. New Hampshire Dep’t of Employment Sec., 455 U.S. 445,

451-452 (1982).

v. United States, 511 U.S. 809, 819 (1994) (noting “general

practice of not awarding fees to a prevailing party absent

explicit statutory authority”). And because there is no such

explicit language in the Convention, the proper construction

of the term “loss” in Article 74 is that it does not include

attorneys’ fees, but rather leaves that issue to domestic

procedural law. Cf. id. at 814-819 (provisions of CERCLA

allowing recovery of “necessary costs of response” and “en-

forcement activities” do not allow recovery of attorneys’

fees).

Petitioner’s interpretation would also raise difficult ques-

tions concerning the relationship between Article 74 and the

general attorneys’-fees rules in loser-pays jurisdictions. If

foreseeable attorneys’ fees were necessarily part of a pre-

vailing plaintiff's “loss,” courts in those countries would have

to decide whether prevailing defendants could recover attor-

neys’ fees and whether prevailing plaintiffs could recover

unforeseeable attorneys’ fees that would not constitute a loss

under Article 74. As the court of appeals recognized, the

availability of an interpretation that avoids these difficulties

is “another reason to reject [petitioner’s] interpretation.”

Pet. App. 4a.

Petitioner relies (Pet. 9) on the principle that a treaty

should be given “a meaning consistent with the shared ex-

2 Article 77 of the Convention, which appears in the same section as

Article 74 and requires plaintiffs to “mitigate the loss * * * resulting

from the breach,” lends further support to this view. If “loss” included at-

torneys’ fees, a defendant would be entitled to a determination of whether

the plaintiff had mitigated his attorneys’ fees. But the idea of mitigating

attorneys’ fees is either a non sequitur or would require a detailed inquiry

into the necessity and reasonableness of the fees, issues presently ad-

dressed by domestic law in countries with a loser-pays rule. That the

Convention provides no guidance on this matter suggests that the term

“loss,” in Article 74, encompasses only pre-litigation losses for which

mitigation is a workable and established concept.

pectations of the contracting parties,” Air France v. Saks,

470 U.S. 392, 399 (1985), but points to no reason to believe

that any party to the Convention expected that a plaintiff's

“Joss” would include its attorneys’ fees, let alone that there

was such a “shared” expectation. As the court of appeals

correctly observed, “the question whether ‘loss’ includes

attorneys’ fees would have held little interest” to the vast

majority of the parties, and there is therefore “no reason to

suppose they thought about that question at all.” Pet. App.

4a. In those countries, which are loser-pays jurisdictions,

attorneys’ fees are available under domestic procedural law.

The question makes a material difference only in an

American-rule jurisdiction, and there is simply no reason to

think that any other countries considered how Article 74

would apply in American courts. Nor, given the absence of

any reference to attorneys’ fees in the Convention or its

negotiating history, is there any reason to suppose that the

United States’ representatives thought about that question

either, or that the Senate did so when it approved the Con-

vention, much less that there was a knowing and willing

decision to abandon the American rule for an entire category

of cases.

2. Article 7(1) of the Convention provides that, in inter-

preting the Convention, “regard is to be had to its interna-

tional character and to the need to promote uniformity in its

application.” Petitioner contends (Pet. 8-14) that the court of

appeals violated this provision by disregarding decisions of

courts in other countries that have interpreted Article 74 to

permit an award of attorneys’ fees and by applying the

American rule instead. This contention is meritless.

a. As an initial matter, petitioner’s contention largely

begs the question. There is no question that the enforce-

ment of the Convention is left to domestic courts, and its

substantive provisions will therefore be enforced through a

variety of procedural means. Accordingly, while uniformity

is important in applying the Convention’s substantive terms,

variation in the procedural rules employed in cases involving

the Convention is inevitable. As a result, foreign decisions

awarding attorneys’ fees to the prevailing party in a contract

action under the Convention pursuant to domestic law, or

without specifically addressing the scope of the treaty term

“loss,” do not implicate the interest in the uniform interpre-

tation of treaty terms.

Petitioner is also mistaken in its suggestion (Pet. 10-11 &

n.5; Reply Br. 1) that there is an international consensus that

attorneys’ fees are recoverable under Article 74. After sur-

veying the foreign decisions in this area, Professor Flechtner

made a number of findings. First, of the seven decisions that

have interpreted Article 74 to permit an award of attorneys’

fees, none was rendered by the country’s highest court and

“most were from low-ranking trial-level tribunals.” Flecht-

ner, supra, 22 Nw. J. Int’] L. & Bus. at 146. Second, those

decisions were rendered by courts and arbitration panels in

only three countries (Germany, Switzerland, and France),

each of which is a “civil law jurisdiction with a loser-pays

approach to attorneys’ fees in its domestic law.” Id. at 147.

Third, none of the decisions cited any authority from outside

its jurisdiction and only one displayed any “awareness that

legal systems elsewhere in the world (such as the U.S.) do

not routinely allow prevailing litigants to recover attorney

costs.” Jd. at 149. Fourth, and most significantly, “probably

the vast majority of European cases” governed by the Con-

vention awarded attorneys’ fees under the forum’s loser-

pays rule, and can therefore be viewed as “counter-prece-

dents” to the decisions that awarded such fees under Article

74. Id. at 148. Those cases at least implicitly recognize that

attorneys’ fees are not a recoverable “loss” under Article 74,

but rather are recoverable under the domestic law that

authorizes the award of fees to prevailing parties. On the

basis of these findings, Professor Flechtner concluded that

the decisions interpreting Article 74 to permit the award of

attorneys’ fees “are due minimal deference as precedents.”

Id. at 150.°

In any event, Article 7(1)’s reference to “the need to pro-

mote uniformity in [the Convention’s] application” is not

appreciably different from the rule that judicial decisions

from other countries interpreting a treaty term are “entitled

to considerable weight.” El Al Israel Airlines, Ltd. v. Tsui,

Yuan Tseng, 525 U.S. 155, 176 (1999) (quoting Air France,

470 U.S. at 404). And that interpretive principle is sub-

ordinate to the most basic ones: that “analysis must begin

* * * with the text of the treaty and the context in which

the written words are used,” Air France, 470 U.S. at 397;

and end there “where the text is clear,” Chan v. Korean Air

Lines, Ltd., 490 U.S. 122, 184 (1989). If, however, the text’s

meaning remains ambiguous, courts “may look beyond the

written words to the history of the treaty, the negotiations,

and the practical construction adopted by the parties.” Air

France, 470 U.S. at 396 (quoting Choctaw Nation of Indians

v. United States, 318 U.S. 423, 481-432 (1943)). Those are the

principles on which the court of appeals relied. See Pet.

App. 3a.

3 In a subsequent article, Professor Flechtner and a co-author sum-

marized his findings as follows: “

The small number of sometimes-ambiguous and ill-reasoned prece-

dents favouring an award of Art. 74 damages to cover attorney fees

* * * fades to virtual insignificance when compared to the vast—nay,

overwhelming—majority of [Convention] decisions in which the

recovery of attorney fees has apparently been treated, without com-

ment by the deciding tribunal, * * * as a matter governed by the

domestic law of the forum. :

Harry Flechtner & Joseph Lookofsky, Viva Zapata! American Procedure

and CISG Substance in a U.S. Circuit Court of Appeal, 7 Vindobona J.

Int’l Com. L. & Arb. 93, 95 (2003).

Petitioner does not take the position that foreign decisions

must be followed in this case. Instead, petitioner contends

(Pet. 9; Reply Br. 2) that the court of appeals erred in not

considering the decisions that awarded attorneys’ fees under

Article 74. But there is no reason to believe that it did not

consider them. The court read the parties’ briefs and heard

their oral arguments before it issued an opinion holding that

“loss” under Article 74 does not include attorneys’ fees. In

issuing the opinion, the court necessarily rejected all of peti-

tioner’s arguments for the contrary view, including any

argument based on the decisions of foreign tribunals. See

Pet. 10 (foreign decisions “were cited by Zapata”). As a gen-

eral matter of judicial decisionmaking, a court is not obli-

gated to recite and explicitly address every argument made

by the party against which it rules. And it is implausible

that the parties to the Convention intended to impose such

an obligation for arguments based on foreign decisions by

including general language in Article 7(1) about “the need to

promote uniformity.”

b. Petitioner is also mistaken in its contention (Pet. 8-9,

12-14; Reply Br. 4) that the court of appeals relied on

“domestic law” in holding that petitioner was not entitled to

attorneys’ fees. Contrary to petitioner’s suggestion (Pet. 8,

12; Reply Br. 4), the court did not simply apply the American

rule but construed the term “loss” in Article 74, just as any

court in any country would be required to do if confronted

with the question presented here. In construing Article 74,

moreover, the court applied universally applicable interpre-

tive principles, which are consistent with the principles of

treaty interpretation identified by petitioner’s amicus. See

Amicus Br. 6-7. The court concluded that “‘loss’ does not

include attorneys’ fees” (Pet. App. 2a), because the availabil-

ity of such fees is governed in most countries by “procedural

law” of “general applicability,” and there is nothing in the

text of the Convention reflecting an intention to make

attorneys’ fees part of the substantive law of contracts (id. at

3a); because petitioner’s interpretation “would produce

anomalies” (id. at 4a); and because there is no reason to

believe that the countries with a loser-pays rule thought

about the issue or that the United States would have signed

the Convention if it had thought that Article 74 was sub

stlentio displacing the American rule (zbid.). Whether one

agrees with this analysis or not, it cannot be characterized as

narrowly “domestic,” particularly because the same analysis

would lead to the same interpretation of the term “loss” in a

loser-pays jurisdiction (although the plaintiff might be able

to recover under the general procedural law governing

attorneys’ fees).

Contrary to petitioner’s contention (Pet. 13-14), the court

of appeals’ interpretation of the Convention is entirely

consistent with the Eleventh Circuit’s statement in MCC-

Marble Ceramic Center, Inc. v. Ceramic Nuova D’ Agostino,

S.P.A., 144 F.3d 1384, 1391 (1998), cert. denied, 526 U.S. 1087

(1999), that courts may not “substitut[e] familiar principles

of domestic law when the Convention requires a different

result.” The court of appeals did not substitute the Ameri-

can rule for a different rule required by the Convention; it

applied the American rule after determining that that princi-

ple of domestic law is consistent with the Convention.

B. The Court Of Appeals Correctly Held That A Court

May Not Use Its Inherent Authority To Impose A

Sanction For Pre-Litigation Conduct Or For Litigation

Cenduct Sanctionable Under A Statute Or Rule And

Its Decision Does Not Squarely Conflict With The

Decision Of Any Other Court Of Appeals

In Chambers v. NASCO, Inc., 501 U.S. 32 (1991), this

Court held that the enactment of statutes and rules authoriz-

ing the imposition of sanctions in various circumstances does

not preclude a court from using its inherent authority to

sanction a party for bad-faith conduct. Jd. at 46-51. Peti-

tioner asks the Court (Pet. 22-30) to grant certiorari to

answer two questions that were not explicitly answered in

Chambers: whether a court may use its inherent authority

to impose sanctions for the conduct giving rise to the litiga-

tion; and. whether a court may use its inherent authority to

sanction conduct that occurred during the litigation but is

sanctionable under a statute or rule. As explained below,

review is not warranted on either question.

1. In Chambers, the Court approved an award of attor-

neys’ fees as a sanction for the defendant’s conduct during

the litigation of a breach-of-contract suit. 501 U.S. at 54 &

n.17. It “express[ed] no opinion as to whether the District

Court would have had the inherent power to sanction [the

defendant] for conduct relating to the underlying breach of

contract.” Id. at 54n.16. The four dissenting Justices were

of the view that courts do not have the authority to sanction

a party for pre-litigation conduct (and that the conduct for

which sanctions were imposed in that case was in fact pre-

litigation conduct, such that the award of attorneys’ fees was

inappropriate). Jd. at 60 (Scalia, J., dissenting); id. at 72-76

(Kennedy, J., dissenting). Petitioner contends (Pet. 26-28)

that there is a circuit conflict on the question left open in

Chambers, and that the Court should grant certiorari to

resolve it. Petitioner overstates the extent of the conflict.

In agreement with the Justices who addressed the issue in

Chambers, every court of appeals to consider the question

has held, correctly, that attorneys’ fees may not be awarded

solely as a sanction for the conduct giving rise to the liti-

gation.‘ Like the court of appeals in this case (Pet. App. 7a),

* See Kerin v. United States Postal Serv., 218 F.3d 185, 195 (2d Cir.

2000) (“bad faith fees may not be awarded solely on the basis of pre-

litigation business conduct”); Towerridge, Inc. v. T.A.O., Inc., 111 F.3d

758, 766 (10th Cir. 1997) (“circuits that have squarely addressed this issue”

have held that “bad faith” exception to American rule “does not reach

purely prelitigation * * * conduct”); Lamb Eng’g & Constr. Co. v. Ne-

——

those courts concluded that a contrary rule would enable

district courts to substitute attorneys’ fees for otherwise-

unavailable punitive damages and to circumvent the Ameri-

can rule. Petitioner cites only one decision (Pet. 27) in

which a court of appeals affirmed an award of attorneys’ fees

based on pre-litigation conduct. See United States ex rel.

Yonker Constr. Co. v. Western Contracting Corp., 935 F.2d

936, 942 (8th Cir. 1991) (“Bad faith may occur during either

contract performance or litigation.”). And as the Eighth

Circuit has subsequently made clear, that decision is con-

sistent with the rule that conduct giving rise to the litigation

alone cannot justify an award of attorneys’ fees, because in

that case the defendant “acted in bad faith in performing the

(Jcontract and in initiating its counterclaim,” the latter of

which the Eighth Circuit characterized as “litigation con-

duct.” Lamb, 103 F.3d at 1436.

braska Pub. Power Dist., 103 F.3d 1422, 1487 (8th Cir. 1997) (“the district

court’s inherent power to award attorney fees as a sanction for bad faith

conduct does not extend to pre-litigation conduct”); Association of Flight

Attendants v. Horizon Air Indus., Inc., 976 F.2d 541, 549 (9th Cir. 1992)

(“uniform view among the circuits” is that “it is impermissible to allow a

District Court acting pursuant to its inherent authority to sanction * * *

prelitigation * * * conduct”); Sanchez v. Rowe, 870 F.2d 291, 294 (5th

Cir. 1989) (refusing to extend “bad-faith exception” to American rule to

“the acts giving rise to the substantive claim”); Woods v. Barnett Bank of

Fort Lauderdale, 765 F.2d 1004, 1014 (11th Cir. 1985) (“The bad faith or

vexatious conduct must be part of the litigation process itself.”); Shimman

v. International Union of Operating Eng’rs, Local 18, 744 F.2d 1226, 1233

(6th Cir. 1984) (en banc) (“the bad faith exception to the American Rule

does not allow an award of attorney fees based only on bad faith in the

conduct giving rise to the underlying claim”), cert. denied, 469 U.S. 1215

(1985).

5 See Towerridye, 111 F.3d at 765-766; Lamb Eng’g & Constr. Co., 108

F.3d at 1435; Association of Flight Attendants, 976 F.2d at 550; Sanchez,

870 F.2d at 294; Shimman, 744 F.2d at. 1231, 1232 n.9.

As for the narrower question whether a court may sanc-

tion pre-litigation conduct when there is also “sanctionable

conduct during the litigation” (Reply Br. 10), it is not clear

that that question will have any significance in this case,

because it is not clear how much of the conduct that gave

rise to the fee award is properly classified as pre-litigation

conduct and whether the amount of fees associated with the

litigation conduct alone is materially different from the

amount associated with the litigation and pre-litigation con-

duct together. For example, to the extent that the litigation

misconduct is sufficiently egregious to justify an award of all

the fees incurred by petitioner, any pre-litigation misconduct

could not have any effect on fees. In light of the court of

appeals’ understandable refusal to “pick through the record”

(Pet. App. 9a) and analyze specific fee claims at this inter-

locutory stage, any difference between the Seventh and

Eighth Circuit’s approach might have no effect on the fee

award.®

2. In approving the award of attorneys’ fees in Cham-

bers, the Court stated that, while a court “ordinarily should

rely” on statutes or rules to punish conduct that “could be

adequately sanctioned” under them, a court may rely on its

inherent authority when the statutes and rules are not “up

to the task.” 501 U.S. at 50. The Court then noted an excep-

tion to this general principle, which it applied in the case

® Even if there is a material difference between the approach of the

Seventh Circuit in this case and that of the Eighth Circuit in Yonker, the

difference does not justify this Court’s review. The Eighth Circuit sub-

stantially limited Yonker in Lamb, and also read another Eighth Circuit

case narrowly to conform it to the case law of other circuits. See Lamb,

103 F.8d at 1435-1436. If allowing sanctions for pre-litigation misconduct

when there is also litigation misconduct ever makes a practical difference

in application, Lamb suggests that the Eighth Circuit might further

modify its case law, and in the event it does not, certiorari might then be

appropriate.

before it. When conduct sanctionable under statutes or rules

is “intertwined” with conduct that is not, the Court said, a

court may sanction all of the conduct under its inherent

authority, because a contrary requirement would “serve only

to foster extensive and needless satellite litigation,” which is

“contrary to the aim” of the Federal Rules of Civil Proce-

dure. Jd. at 51. Petitioner contends (Pet. 22-26) that there is

a circuit conflict over the meaning of this passage; that, in

particular, courts of appeals are divided on the question

whether a court may impose sanctions under its inherent

authority if the conduct is sanctionable under a statute or

rule; and that the Court should grant certiorari to resolve

the conflict. Once again, petitioner overstates the conflict.

Petitioner cites no decision (Pet. 24-25; Reply Br. 8-9) that

is inconsistent with Chambers’ teaching that a court should

exercise its inherent authority when statutes and rules are

not “up to the task.” 501 U.S. at 50. In particular, petitioner

cites no decision in which a court of appeals found that all of

the bad-faith conduct in question was sanctionable under a

statute or rule but nevertheless affirmed a sanction imposed

under the district court’s inherent authority. Two of the

decisions cited by petitioner did not address the propriety of

an inherent-authority sanction;’ several did address that

issue but were cases in which the conduct was found (or

assumed) not to be sanctionable under a rule or statute;* and

_..

— -

7 See Nick v. Morgan’s Foods, Inc., 270 F.3d 590, 594-595 n.2 (8th Cir.

2001) (“we do not need to rely on the inherent power doctrine because we

hold that the district court was authorized to sanction under Rule 16 and

the local rules”); Travelers Ins. Co. v. St. Jude Hosp., Inc., 38 F.3d 1414,

1418 (5th Cir. 1994) (rejecting claim that “a court must consider Rule 11

before [28 U.S.C.] § 1927”).

8 See Pickholtz v. Rainbow Techs., Inc., 284 F.3d 1365, 1376 (Fed. Cir.

2002) (Fed. R. Civ. P. 37 “[wa]s not a proper basis for awarding attorney

fees”); DLC Mgmt. Corp. v. Town of Hyde Park, 163 F.3d 124, 135 (2d Cir.

1998) (sanctions “could not have been granted pursuant to Fed. R. Civ. P.

one fell within Chambers’ exception for cases in which “the

conduct sanctionable under the Rules was intertwined

within conduct that only the inherent power could address”

(501 U.S. at 51).’ The other two decisions that petitioner

cites are ambiguous. One of them rejected the argument

that the district court should have “consider[ed] sanctions

available under Rule 11 or 28 U.S.C. § 1927” before consider-

ing the use of its inherent authority. Fink v. Gomez, 239

F.3d 989, 994 (9th Cir. 2001). It is not at all clear that that

decision supports petitioner’s position, however, because

there was no finding that the conduct in question was in fact

covered by Rule 11 or Section 1927, and the court of appeals’

response to the argument that they should have been con-

sidered was a paraphrase of Chambers’ statement that a

court may rely on its inherent authority when the statutes

and rules are not “up to the task.” 501 U.S. at 50." In the

other decision, the court said, in a footnote, that the fact that

sanctions “may have been possible” under a statute or rule

“did not negate the district court’s inherent power to levy

sanctions.” Thomas v. Tenneco Packaging Co., 293 F.3d

1306, 1328 -n.32 (11th Cir. 2002). But since there was no

37 * * * or 42 U.S.C. § 1988”); In re Weiss, 111 F.3d 1159, 1172 (4th Cir.)

(conduct “d{id] not technically fall under the auspices of [Bankruptcy]

Rule 9011”), cert. denied, 522 U.S. 950 (1997); Resolution Trust Corp. v.

Dabney, 73 F.3d 262, 267 (10th Cir. 1995) (assuming that “it w[as] error for

the district court to base its sanction [on 28 U.S.C.] § 1927”); In re Mroz,

65 F.3d 1567, 1574 (11th Cir. 1995) (Bankruptcy Rule 9011 did not cover

conduct).

® See First Bank of Marietta v. Hartford Underwriters Ins. Co., 307

F.3d 501, 513, 516-518 (6th Cir. 2002).

10 Compare Fink, 239 F.3d at 994 (“[T]he district court may, in its

informned discretion, rely on inherent power rather than the federal rules

or § 1927. See Chambers, 501 U.S. at 50.”) with Chambers, 501 U.S. at 50

(“{I}f in the informed discretion of the court, neither the statute nor the

Rules are up to the task, the court may safely rely on its inherent

power.”).

finding that all (or even any) of the conduct at issue was

sanctionable under a statute or rule, it is not clear whether

that language should be read to mean that a court may rely

on its inherent authority even when a statute or rule is “up

to the task” (Chambers, 501 U.S. at 50) or only that “the

various sanctioning provisions” of the statutes and rules do

not “reflect a legislative intent to displace the inherent

power” (id. at 42-43).

C. The Interlocutory Posture Of The Case Is An

Additional Reason To Deny Certiorari

The court of appeals held that attorneys’ fees are not a

form of “loss” under Article 74 of the Convention and that a

district court may not use its inherent authority to award

attorneys’ fees as a sanction either for the conduct that gave

rise to the litigation or for conduct during the litigation that

is sanctionable under the Federal Rules of Civil Procedure.

The court did not hold, however, that petitioner was not

entitled to attorneys’ fees. Instead, it remanded the case so

that the district court could decide whether any of respon-

dent’s litigation conduct was sanctionable “apart from Rule

11 and Rule 37.” Pet. App. 9a. This Court will “generally

await final judgment in the lower courts before exercising

[its] certiorari jurisdiction,” Virginia Military Inst. v.

United States, 508 U.S. 946 (1993) (Scalia, J., respecting the

denial of certiorari), and there is good reason to follow that

practice here.

On remand, it is possible that the district court will find

that respondent engaged in bad-faith conduct during the

course of the litigation and that at least some of that conduct

is “not adequately dealt with by other rules.” Pet. App. 7a.

If it makes such a finding, it may be able—and may choose—

to impose the same sanction that was imposed before the

appeal, a result that would render irrelevant the answers to

the questions presented in the petition. Even if the ques-

tions otherwise warranted the exercise of this Court’s certio-

rari jurisdiction, therefore, the interlocutory posture of the

case would “furnish[] sufficient ground” for denial of the

petition. Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240

U.S. 251, 258 (1916).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.