FEDNAV INTERNATIONAL v. CONTINENTAL INSURANCE CO. (November 1, 2010)

Three shipments of steel made their way across the Atlantic Ocean in 2001 and were delivered at Burns Harbor, Indiana. Each of the shipments was allegedly arrived damaged. Continental Insurance, the steel owner’s subrogee, brought suits against the carrier, Fednav, under the Carriage of Goods by Sea Act. The carrier agreement had a forum selection clause designating the federal district court with jurisdiction at the port of discharge (i.e., Burns Harbor) as the only available forum. Notwithstanding the forum selection clause, Continental filed the three suits in Illinois federal court. The court dismissed for improper venue. The Seventh Circuit affirmed. By that time, the statute of limitations had run and the cases were not refiled. Several years later, Fednav brought suit against Continental on a breach of contract theory. It alleged that Continentals’ breach of the forum selection clause allowed it to recover the costs and attorneys' fees it incurred in the earlier litigation. Judge Darrah (N.D. Ill.) dismissed the complaint as an impermissible attempt to recover attorneys' fees. Fednav appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Hamilton, and District Judge Springmann affirmed. The Court first discussed choice of law. As a diversity case, state law governs substantive issues -- federal law governs procedural issues. Fednav's claim of entitlement to fees is a substantive issue and is therefore governed by state law. Since neither party raised a conflict of law issue, the Court applied the law of Illinois as the law of the state in which it sat. Illinois law generally adheres to the American Rule, under which a litigant bears her own fees and costs unless otherwise provided for by a contract or statute. The Court stated that Fednav cited no such contractual or statutory provision. Therefore, Fednav is not entitled to recover those fees in a breach of contract case. The Court also addressed Fednav’s argument that federal common law permitted recovery of attorneys' fees. It rejected the argument, both because Fednav waived it and because federal common law also recognizes the American Rule.