In Fednav Int’l Ltd. v. Continental Ins. Co., No. 08-2650 (7th Cir. 1 Nov. 2010), the Seventh Circuit addressed the question whether a party could turn a forum battle into a breach of the governing contract’s forum selection clause so as to be entitled to recover the attorney’s fees expended to fight the forum battle. 

Continental was a subrogee of an owner of damaged steel that sought to recover damages under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. App. § 1300, et seq.  The operative bills of lading designated the federal court with jurisdiction over Burns Harbor, Indiana as the forum for suit.  Instead of suing there, however, Continental brought related suits in the Northern District of Illinois.  Rather than transfer the suits, the District Court in Illinois dismissed them, and the Seventh Circuit affirmed that ruling in an earlier opinion.

Thereafter, Fednav sued Continental – again in the Northern District of Illinois – for Continental’s breach of the forum-selection clauses contained in the bills of lading.  The District Court rejected the claim as being an attempt to end-run the “American Rule” that parties typically bear their own attorney’s fees in litigation.  The Seventh Circuit ruled:

  1. On the initial subject of which law governs the question, the Court of Appeals held that “when neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits”.
  2. Fednav’s claim failed as a matter of law for failure to claim cognizable damages in the form of the attorneys’ fees expended in the earlier suit, which litigated the question of the improper forum.
  3. Under Illinois law, an exception to the American Rule exists “where the wrongful acts of a defendant involve the plaintiff in litigation with third parties or place him in such relation with others as to make it necessary to incur expenses to protect his interest”.  Nonetheless, the Seventh Circuit found this exception inapplicable.  The Court’s reasoning had to do with Fednav’s failure to allege that it incurred expenses in litigation with third parties or that its incurrence of cost was done in the context of “protecting its interest”.  The Court of Appeals did not accept the argument that of course the fees were incurred in protecting its interests, since (the argument goes) the bills of lading gave it a right to litigate in Indiana, and it was successful in getting the case thrown out of Illinois.  (Why Fednav sued in Illinois and not Indiana is also not discussed.)  Would the result have been different in a jurisdiction, such as New York, which articulates differently the grounds for shifting fees?  E.g., Mighty Midgets, Inc. v. Centennial Insurance Co. 47 N.Y.2d 12, 21 (1979)(insured may recover attorneys’ fees and costs when it “has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations”).
  4. The Court of Appeals was unwilling to find any other basis for the recovery of fees since Fednav had not raised them in the District Court and hence had waived them.