Fednav Int'l Ltd v. Cont'l Ins. Co.

Citation624 F.3d 834
Decision Date01 November 2010
Docket NumberNo. 08-2650.,08-2650.
PartiesFEDNAV INTERNATIONAL LTD., Plaintiff-Appellant, v. CONTINENTAL INSURANCE COMPANY, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

OPINION TEXT STARTS HERE

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Timothy S. McGovern, Attorney, Michael A. Snyder, Attorney (argued), Snyder McGovern, Palos Heights, IL, for Plaintiff-Appellant.

Hugh S. Balsam, Attorney (argued), Locke Lord Bissell & Liddell LLP, Chicago, IL, for Defendant-Appellee.

Before EASTERBROOK, Chief Judge, HAMILTON, Circuit Judge, and SPRINGMANN, District Judge. *

SPRINGMANN, District Judge.

Seeking damages for attorney's fees, costs, and expenses incurred in earlier litigation between the parties, Fednav International Ltd. (Fednav) sued Continental Insurance Company (Continental) for breach of contract. The district court dismissed Fednav's case for failure to state a claim upon which relief can be granted. We affirm.

I. BACKGROUND

In 2001, three separate vessels carried shipments of steel from Ghent, Belgium, to Burns Harbor, Indiana. The steel was damaged in transit. In 2002, Continental, the subrogee of the owner of the damaged steel, sued Fednav (the carrier), the vessels, and other defendants in the United States District Court for the Northern District of Illinois in three separate cases. Continental sought to recover damages under the Carriage of Goods by Sea Act (COGSA), 46 U.S.C.App. § 1300 et seq. The bills of lading designated Burns Harbor as the port of discharge and specified that the United States District Court having admiralty jurisdiction at the port of discharge would be the forum for any action arising out of the shipment. The bills of lading incorporated the COGSA statute of limitations of one year from the date of discharge. Instead of transferring the cases to the Northern District of Indiana, where the bills of lading required Continental to file its actions, the district court dismissed the cases.

Continental appealed, and the three cases were consolidated. In 2003, we affirmed the district court's dismissal of Continental's COGSA claims for improper venue. Continental Ins. Co. v. M/V Orsula, 354 F.3d 603 (7th Cir.2003). Because Continental had made the mistake of suing Fednav in the wrong court, and because the statute of limitations had run, the first phase of litigation ended in a decisive victory for Fednav and a stinging loss for Continental. Fednav incurred substantial litigation-related expenses, including attorney's fees, in the process of obtaining the win.

In 2006, Fednav initiated this lawsuit against Continental in the Northern District of Illinois to recoup these litigation-related expenses. Fednav predicated the district court's subject-matter jurisdiction over its action on diversity of citizenship, 28 U.S.C. § 1332. It did not invoke any other basis for subject-matter jurisdiction. In its complaint, Fednav sought damages for Continental's alleged breach of the forum-selection clauses contained in the bills of lading for the goods shipped. It claimed that Continental breached by filing its earlier lawsuits in the Northern District of Illinois, the wrong forum. Fednav alleged that, as a result of the breach, it suffered damages in the form of the attorney's fees, costs, and expenses it incurred defending against the lawsuits brought by Continental.

Continental moved the district court to dismiss Fednav's lawsuit on three grounds: (1) Fednav's lawsuit is an impermissible attempt to collect attorney's fees and expenses incurred in the earlier litigation; (2) Fednav may not sue Continental for breach of contract because there is no privity of contract between Fednav and Continental; and (3) Fednav filed suit in the wrong venue because the forum-selection clauses in the bills of lading required Fednav to bring this lawsuit in the Northern District of Indiana. In response, Fednav characterized its lawsuit as an action for common law breach of contract and asserted that the American Rule does not bar its action, that Continental became a party to the relevant contracts, and that Fednav's lawsuit is in the proper forum. The district court granted Continental's motion to dismiss on the first ground offered by Continental. The district court found that the American Rule, which had been adopted in Illinois law, barred Fednav's lawsuit to collect attorney's fees and that no exception to the rule applied.

II. DISCUSSION

We review de novo a district court's dismissal for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6); Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008). When analyzing the sufficiency of a complaint, we construe it in the light most favorable to the nonmoving party, accept well-pleaded facts as true, and draw all inferences in the nonmoving party's favor. Id. Fednav has stated a claim only if it has alleged enough facts to render the claim facially plausible, not just conceivable. Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

A. Subject-Matter Jurisdiction

Before addressing the district court's ruling on Continental's motion to dismiss, we must consider the issue of subject-matter jurisdiction. Because federal courts “have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto,” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986), we are bound to evaluate our own jurisdiction, as well as the jurisdiction of the court below, sua sponte if necessary,” Int'l Union of Operating Eng'rs, Local 150 v. Ward, 563 F.3d 276, 282 (7th Cir.2009).

In its complaint, Fednav stated that it is a Barbadian corporation with its principal place of business in Montreal, Quebec, Canada. However, in its appellate submission, Fednav asserted that it is a Canadian corporation with its principal place of business in Montreal, Quebec, Canada, and that Continental is a New Hampshire corporation with its principal place of business in New York. At oral argument, we asked Fednav's counsel whether Fednav is incorporated under the laws of Canada or the laws of Barbados, and whether Fednav is a corporation limited by shares, an organization limited by guarantee, or an organization akin to a partnership, in which case we would need to know the identity of each investor. We ordered Fednav to supplement its submission with information regarding its citizenship.

Fednav's supplemental submission shows that it is organized under the laws of Barbados and that it is a company limited by shares. No issue exists regarding Continental's citizenship or the amount in controversy. Consequently, the district court had, and we have, subject-matter jurisdiction over Fednav's claim under 28 U.S.C. § 1332(a)(2).

B. Fednav's Breach of Contract Claim and the American Rule

On appeal, Fednav relies on several grounds in challenging the district court's dismissal of its case against Continental. We begin with the ground addressed by the district court in dismissing Fednav's common law breach of contract claim. 1 The district court determined that the American Rule barred Fednav's claim seeking litigation expenses and attorney's fees as damages based upon Continental's alleged breach of the forum-selection clauses in the bills of lading. Fednav argues that the district court erred in applying Illinois law and the American Rule.

In a case such as this one, in which federal court jurisdiction is premised on diversity of citizenship, state law applies to substantive issues. RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir.2008). “When neither party raises a conflict of law issue in a diversity case, the applicable law is that of the state in which the federal court sits.” Id. In a diversity case, federal law governs procedure. Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 746 (7th Cir.2008).

Fednav filed this case in a federal district court in Illinois, and the parties did not raise any conflict of law issue. Fednav's claim of entitlement to litigation-related expenses and attorney's fees as damages under a breach of contract theory is a substantive issue. Accordingly, we look to Illinois law in evaluating Fednav's common law breach of contract claim and the availability of such damages. 2

To state a colorable breach of contract claim under Illinois law, a plaintiff must allege (1) the existence of a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) a breach by the defendant; and (4) the resultant damages.’ Reger Dev., L.L.C. v. Nat'l City Bank, 592 F.3d 759, 764 (7th Cir.2010) (quoting W.W. Vincent & Co. v. First Colony Life Ins. Co., 351 Ill.App.3d 752, 286 Ill.Dec. 734, 814 N.E.2d 960, 967 (2004)). In its motion to dismiss, Continental challenged Fednav's claim by attacking the first and fourth elements and argued that the forum-selection clauses, which doomed Continental's earlier lawsuit against Fednav, also doomed Fednav's lawsuit because Fednav chose to bring this case in the wrong court. Like the district court, we find the fourth element regarding damages determinative.

Illinois generally recognizes the American Rule that, “absent a statute or contractual provision, a successful litigant must bear the burden of his or her own attorney's fees.” Champion Parts, Inc. v. Oppenheimer & Co., 878 F.2d 1003, 1006 (7th Cir.1989) (citing Kerns v. Engelke, 76 Ill.2d 154, 28 Ill.Dec. 500, 390 N.E.2d 859, 865 (1979); Ritter v. Ritter, 381 Ill. 549, 46 N.E.2d 41, 43 (1943)); see also In re Weinschneider, 395 F.3d 401, 404 (7th Cir.2005) (stating that “Illinois follows the American rule, under which attorney fees are not available unless the parties have agreed to them or a statute provides for them”); Taylor v. Pekin Ins. Co., 231 Ill.2d 390, 326 Ill.Dec. 34, 899 N.E.2d 251, 256...

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