Zapata v Hearthside PARTY PZapata, Mexican corp. supplies cookie tins HIST DHearthside, American corp.

Baker

P sued D for breach, won, awarded 550k attorney fees under provision of CISG and inherent authority of the courts to punish the conduct of litigation in bad faith, D appeals (Convention on Contracts for the Internatl Sales of Goods) CISG provides remedies for breach of internatl sale of goods. P brought suit for money from 110 invoices for 900k + prejudgment interest + attorney fees (P said they were Losses under CISG therefore automatically awarded to the plaintiff who prevails under CISG) Court below awarded 93 invoices for 850k + 350k prejudgment interest + attorney fees (entire amount for all of litigation)

FACT

ISSUE Whether a plaintiff suing for breach of contract under CISG is entitled to attorney fees as damages when provisions of the CISG govern only contract law? RULE
Article 74 of the Convention provides that "damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach," provided the consequence was foreseeable at the time the contract was made. Article 7(2) provides that "questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law [i.e., conflicts of law rules]." There is no suggestion in the background of the Convention or the cases under it that "loss" was intended to include attorneys' fees, but no suggestion to the contrary either. Nevertheless it seems apparent that "loss" does not include attorneys' fees incurred in the litigation of a suit for breach of contract, though certain pre-litigation legal expenditures, for example expenditures designed to mitigate the plaintiff's damages, would probably be covered as "incidental" damages. R2K 347, cmt c

A/C

The convention is about contracts not procedure. Determining when a losing party must reimburse a winning party for cost of litigation is procedural law.
AMERICAN RULE MIN. winner must bear his own litigation expenses ENGLISH RULE MAJ. winner entitled to reimbursement (both rules of gen. applicability) Both rules of general applicability Neither is field specific Numerous exceptions to rule that provisions regarding attny fees are procedural law o Fed antidiscrimination, antitrust, copyright, pension, securities law all contain fieldspecific provisions modifying AMERICAN rule (as do many other Statutes) CISG could do the same

Question of attorney fees is not even mentioned in CISG. No principals to determine if loss includes attorney fees, so CISG demands the issue must be left to domestic law. There is a difference between AMERICAN (fee shifting) law and FRENCH (loser pays) law concerning attorney fees, but it is a procedural difference not a contract law difference. If ct follows P rational, it produces anomalies, in this case P gets fees, but if D wins is U.S. law applied? If so could D waive CISG rights for more favorable U.S. law rights? Loss in article 74 does not include attorneys fees. ISSUE Whether a federal court has inherent authority to punish litigants under common law of Illinois via ERIE doctrine, when breach of contract is done in bad faith but considered a non-tortious act? RULE A federal judge may only punish misconduct occurring in the litigation itself and not adequately dealt with by other rules and common law of Illinois does not regard a breach of contract as a wrong because it is not tortous or criminal by itself.

The inherent authority of federal courts to punish misconduct before them is not a grant of authority to do good, rectify shortcomings of the common law (as by using an award of attorneys' fees to make up for an absence that the judge may deem regrettable of punitive damages for certain breaches of contract), or undermine the American rule on the award of attorneys' fees to the prevailing party in the absence of statute. It is a residual authority, to be exercised sparingly, to punish misconduct (1) occurring in the litigation itself, not in the events giving rise to the litigation (for then the punishment would be a product of substantive law--designed, for example, to deter breaches of contract), 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.

A/C

Common law of Illinois (the law that choice of law principals makes applicable to any issues not covered in express terms by CISG) Breach of contract is not considered wrong, when you sign a contract you bind yourself to either perform or pay damages, so a breach is an exercise of a right. Most breaches are involuntary and deliberate breaches may improve economic efficiency

Common law courts do sometimes award punitive damages for breach in bad faith, but outside insurance, where refusals in bad faith to indemnify or defend have long been punishable by punitive awards, P must show that the breach involved a tortious misconduct, such as duress or fraud or abuse of fiduciary relationship. D did not try to do so, and did not ask for punative damages. ALSO fault was also the judges, pretrial Ps attorneys moved for summary judgment claiming that Ds acknowledged liability for 853k of the 890k sought. Judge denied b/c to grant would give rise to an appealable judgment. Erlich v Menedes ISSUE whether a plaintiff can recover damages for emotional distress under CLaw of contracts when the breach caused economic injury and property damage? RULE Generally, outside the insurance context, "a tortious breach of contract . . . may be found when 1. the breach is accompanied by a traditional common law tort, such as fraud or conversion; 2. the means used to breach the contract are tortious, involving deceit or undue coercion or; 3. one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages"
Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. If every negligent breach of a contract gives rise to tort damages the limitation would be meaningless, as would the statutory distinction between tort and contract remedies.

A/C

In this case, the jury concluded Menezes did not act intentionally; nor was he guilty of fraud or misrepresentation and the proximate cause of Ps injury was the stress of undertaking the building of a house which aggravated a pre-exsisting health condition.

If every negligent breach of a contract gives rise to tort damages the limitation would be meaningless, as would the statutory distinction between tort and contract remedies. This is a claim for negligent breach of a contract, which is not sufficient to support tortious damages for violation of an independent tort duty. More than mere negligence has been involved in each case where tort damages have been permitted