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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2003
- **Citation:** 539 U.S. 925

## Text

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)

IV
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.
© I TR GI wrisceennctininiirrenentinnciciveisionnvnnninincen 5-6, 9, 10

VI

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)

2

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

q

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

10

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).

me

11

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

12

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-

13

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-

——

14

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.

15

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.

16

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.

17

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.”).

18

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.

WILLIAM H. TAFT, IV
Legal Adviser

JEFFREY D. KOVAR
Assistant Legal Adviser
Department of State

OCTOBER 2003

THEODORE B. OLSON
Solicitor General

PETER D. KEISLER
Assistant Attorney General
PAUL D. CLEMENT
Deputy Solicitor General
DAN HIMMELFARB
Assistant to the Solicitor
General
MARK B. STERN
CHARLES W. SCARBOROUGH
Attorneys

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1261%3A7. Public record. Not legal advice.