Opinion ID: 528419
Heading Depth: 2
Heading Rank: 4

Heading: Plaintiffs' Motion For Fees and Costs

Text: 57 Following oral argument, the plaintiffs moved for an award of costs and attorneys fees for their defense against Lincoln's appeal. Without citing any cases in support of their motion, the plaintiffs claim that an award is appropriate under ILL.REV.STAT. ch. 73, para. 767(1) (1986), and 28 U.S.C. Secs. 1920, 1924. In response, Lincoln cited no cases and no statutory provisions and stated only that if its conduct in denying the plaintiffs' claim was not unreasonable or vexatious, the plaintiffs should not be awarded costs and fees for the appeal. 58 Under Fed.R.App.P. 39, costs for an appeal are generally awarded to an appellee if the judgment is affirmed. Lincoln has advanced no grounds for us not to impose costs and we believe that an award of costs under Rule 39 is appropriate in this case. In fact, costs would have been imposed without the plaintiffs' motion. Counsel for the plaintiffs shall submit to the clerk an itemized and verified bill of costs within fourteen days after the entry of judgment and objections may be filed within ten days thereafter. See Rule 39(d). 59 Under Fed.R.App.P. 38, damages, including reasonable attorney's fees, may be awarded to the appellee if an appeal is frivolous. See Bailey v. Bicknell Minerals, Inc., 819 F.2d 690, 693 (7th Cir.1987) (the imposition of sanctions under Rule 38 is based on an objective standard of conduct); Autorama Corp. v. Stewart, 802 F.2d 1284, 1288 (10th Cir.1986) (An appeal is termed frivolous if the result is obvious, or the arguments of error are wholly without merit). See also Glick v. Gutbrod, 782 F.2d 754, 757 & n. 3 (7th Cir.1986) (the court awarded sanctions for a frivolous appeal under Rule 38 and noted that it would have been appropriate for the district court to impose sanctions under Fed.R.Civ.P. 11). 60 Neither party has discussed the question of whether or not an award for fees and costs on appeal should be based on the state or federal standard, although the plaintiffs have indicated that they believe costs and fees are appropriate pursuant to both. In Meier v. Aetna Life & Casualty Standard Fire Insurance Company, 149 Ill.App.3d 932, 103 Ill.Dec. 25, 500 N.E.2d 1096 (1986), a trial court's award of fees and penalties pursuant to ILL.REV.STAT. ch. 73, para. 767(1) (1986) was upheld and the appellate court imposed costs and fees for the appeal. The court held that: 61 [t]o interpret section 155 [of the Illinois Insurance Code] to apply only to the trial court proceedings would be to allow an insurer whose financial resources are grossly disproportionate to those of the insured to escape the statute's protections by appealing and punish the insured by whittling away at his judgment with further litigation. Such a result cannot be countenanced under the policy section 155 is designed to further. 62 Id. at 1103. Meier was a case brought in state court. We have found no federal cases based on diversity jurisdiction in which an award of fees was made to an insured for a frivolous appeal by the insurer following a trial during which the insurer's conduct was deemed to be unreasonable and vexatious under section 155 of the Illinois Insurance Code. 63 In Offshore Logistics v. Arkwright-Boston Manufacturers Mutual Insurance Company, 639 F.2d 1142, 1146 (5th Cir.1981) (reh'g en banc), the Fifth Circuit upheld the lower court's award of fees against an insurer pursuant to Louisiana's statutory penalty based on a finding that the insurer's refusal to honor its policy was unreasonable, arbitrary and capricious. Id. at 1145. In addition, the court imposed fees for the appeal. In so doing, the court concluded that [s]ince we hold that imposition of the statutory penalty and attorney's fees is appropriate, it is also appropriate to award attorney's fees to [appellee] for its attorney's work in this appeal. Id. at 1146. Jurisdiction in Offshore Logistics was based on diversity and the court awarded fees for the appeal pursuant to state law, rather than Fed.R.App.P. 38, which was in force at that time. See, e.g., Exhibitors Poster Exch., Inc. v. Nat'l Screen Serv. Corp., 543 F.2d 1106 (5th Cir.1976), cert. denied, 431 U.S. 938, 97 S.Ct. 2651, 53 L.Ed.2d 256 (1977). 64 We have based our decisions whether or not to award attorney's fees for an appeal in diversity cases under Fed.R.App.P. 38. See, e.g., Turnock v. Cope, 816 F.2d 332 (7th Cir.1987) and Reis v. Morrison, 807 F.2d 112 (7th Cir.1986). See also Guevara v. Dorsey Laboratories, Div. of Sandoz, Inc., 845 F.2d 364 (1st Cir.1988). The plaintiffs here have not suggested any reason why a state standard should apply to the award of attorney's fees and/or costs for an appeal in federal court. However, we find the court's decision in Meier to be persuasive authority for the proposition that an award of fees for an appeal by an insurance company which has already been sanctioned for unreasonable and vexatious conduct is consistent with Sec. 155 of the Illinois Insurance Code, and we look to the purpose of the Illinois statute to help determine whether an award in this case is appropriate. 65 The distinction that must be made, however, is that while an insurance company can engage in unreasonable and vexatious conduct in denying or refusing to settle a claim, it still enjoys the right to bring an appeal and may be able to bring a good faith appeal. Indeed, there could be several good faith grounds to appeal a district court's judgment or rulings during trial which would be unrelated to the insurer's previous unreasonable and vexatious conduct. 66 In any event, we conclude that Lincoln's appeal in this case is both frivolous as defined by federal law, see Indianapolis Colts v. Mayor and City Council of Baltimore, 775 F.2d 177, 184 (7th Cir.1985), and unreasonable and vexatious as defined under Illinois law. Mohr, 97 Ill.Dec. at 838, 493 N.E.2d at 645. In addition to finding Lincoln's appeal frivolous, we conclude that this is a case where fees should be awarded under Rule 38. See Spiegel v. Continental Ill. Nat'l Bank, 790 F.2d 638, 650 (7th Cir.), cert. denied, 479 U.S. 987, 107 S.Ct. 579, 93 L.Ed.2d 582 (1986). 67 Lincoln's arguments on appeal are essentially that the result in Wallace v. Prudential Insurance Company of America, 12 Ill.App.3d 623, 299 N.E.2d 344 (1973) should control this case as a matter of law and that the district court's rulings denied Lincoln a fair trial. As previously discussed, the court's decision in Wallace turned on the substantially different facts of that case, which the court distinguished from the more similar facts in Colontuono v. State Farm Insurance Company, 8 Ill.App.3d 84, 289 N.E.2d 235 (1972) and the facts here. Moreover, the Wallace court recognized that an insurance company's written policy conditions can be waived, as they may have been in Colontuono and were here. Obviously, waiver is a question of fact for (in this case) the jury to decide. Since the testimony at trial resulted in a credibility dispute, i.e., there were contradictory claims that Lincoln's agents did or did not waive the conditions, the resolution of the credibility dispute was for the jury to make and one which was supported by the evidence. Lincoln's statement that it is entitled to judgment as a matter of law ignores that this case turned on questions of fact and that the jury's verdict is consistent with both Wallace and Colontuono. 68 In addition, although we are well aware of the standards of review on appeal, Lincoln failed to recite any of the several standards which might apply in this case and, accordingly, ignored its heavy burden on appeal. Had Lincoln bothered to square its arguments with our standard of review it might have realized that an appeal in this particular case was frivolous and the result a foregone conclusion. 69 Similarly, Lincoln's appeal on the issue of vexatious and unreasonable conduct is wholly without merit. The jury's finding and the district court's entry of judgment and imposition of costs, fees and a penalty was well supported by the evidence. Moreover, the question of whether or not Lincoln's conduct was unreasonable and vexatious is also a question of fact. Lincoln's statement that it is entitled to judgment as a matter of law, without discussing its burden on appeal, is also frivolous. 70 We also find Lincoln's arguments with respect to the district court's evidentiary rulings and denial of its motion for a new trial to be frivolous. They represent nothing more than an attempt to raise more issues on appeal, none of which have any merit. Finally, as discussed previously, Lincoln's argument on appeal with respect to its tendered jury instructions is obviously without merit given the facts of this case. 71 Sanctions are appropriate for a frivolous appeal if the appeal was prosecuted with no reasonable expectation of altering the district court's judgment and for purposes of delay or harassment or out of sheer obstinacy. Reid v. United States, 715 F.2d 1148, 1155 (7th Cir.1983). The purpose of [Rule 38] is twofold. First, it operates to compensate winners of judgments in the district court for the expense and delay of defending against meritless arguments in the court of appeals. Second, it seeks to deter such appeals and thus to preserve the appellate court calendar for cases worthy of consideration. Ruderer v. Fines, 614 F.2d 1128, 1132 (7th Cir.1980). 72 Even if, giving Lincoln the benefit of substantial doubt, its appeal were not frivolous, the Rosenburgs are entitled to attorney's fees under section 155 of the Illinois Insurance Code, ILL.REV.STAT. ch. 73, para. 767(1) (1986). That section provides that a party prevailing against an insurer is entitled to reasonable attorney fees in cases where the insurer's conduct is vexatious and without reasonable cause. Not only did the Rosenburgs prevail here, but, as previously indicated, the jury found Lincoln's conduct vexatious and unreasonable. 73 Section 155 covers both trials and appeals. Meier v. Aetna Life & Casualty Co., 149 Ill.App.3d 932, 103 Ill.Dec. 25, 500 N.E.2d 1096 (1986). This is identical to the rule used by federal courts in Sec. 1988 cases. E.g., Ustrak v. Fairman, 851 F.2d 983 (7th Cir.1988). Awarding fees for both trial and appeal is also the rule, in this circuit at least, for fees awarded under Fed.R.Civ.P. 11. Mars Steel Corp. v. Continental Bank N.A., 880 F.2d 928, 939 (7th Cir.1989) (en banc). The objective, of course, is to ensure that the prevailing party recovers full costs. 74 Accordingly, if section 155 is deemed to create a substantive entitlement for the prevailing party once the jury finds, as it did here, that the insurer's refusal to pay was vexatious and unreasonable, as we have concluded, then it is not a problem for a federal court to award appellate attorney's fees under state law in situations like this one, where the appeal is equally unreasonable and vexatious, if not frivolous.