Opinion ID: 4649278
Heading Depth: 1
Heading Rank: 6

Heading: Pre‐judgment Interest Under the Agreement

Text: The district court held that the Sellers were entitled to the two million dollars in escrow but were not entitled to pre‐ judgment interest on the funds. Sterling II, 2019 WL 5085715, at . We must set aside the ruling that the Sellers are entitled to the escrow funds, but the issue of pre‐judgment interest is likely to arise on remand. Those funds will eventually need to be distributed to someone. We agree with the district court that, under the terms of the parties’ Agreement, pre‐judgment interest is not available. As a general matter, in a contract dispute like this one, pre‐ judgment interest may be awarded under state law as a matter of statute or contract. See Procaccio Painting, 794 F.3d at 680 (turning to state law); Kouzoukas v. Retirement Board of Police‐ men’s Annuity & Benefit Fund of City of Chicago, 234 Ill. 2d 446, “render” the invoices until after the invoice date. Because the client con‐ tracts did not speak to dating and the only arguably relevant contract lan‐ guage is inapposite, we cannot decide this case based on only the “render” language. Nos. 19‐2300, 19‐3122, & 19‐3235 23 474, 334 Ill. Dec. 924, 940, 917 N.E.2d 999, 1015 (2009) (“As a general rule, prejudgment interest is recoverable only where authorized by the agreement of the parties or by statute.”). The Sellers argue they were entitled to pre‐judgment in‐ terest under the Illinois Interest Act, 815 ILCS 205/2, which authorizes interest awards for “all moneys after they become due on any bond, bill, promissory note, or other instrument of writing” and “money withheld by an unreasonable and vexatious delay of payment.” Sterling counters that the Agreement expressly waived prejudgment interest outside of the indemnification framework and that the Sellers failed to comply with the indemnification procedures in seeking inter‐ est. Several Agreement provisions are relevant. First, Section I identifies “interest” as a form of “Losses.” The Agreement also has an expansive “Exclusive Remedies” provision in which “the parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising from … intentional misconduct …) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the sub‐ ject matter of this Agreement shall be pursuant to the indem‐ nification provisions . . . .” § 8.09 (emphasis added). Likewise, “each party [] waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the sub‐ ject matter of this Agreement it may have against the other parties hereto … except pursuant to the indemnification pro‐ visions.” Id. 24 Nos. 19‐2300, 19‐3122, & 19‐3235 Section 8.03 explains when the Sellers may seek indemni‐ fication: for “any and all Losses incurred or sustained by, or imposed upon the Seller Indemnitees based upon, arising out of, with respect to or by reason of[] … any breach or non‐ful‐ fillment of any covenant, agreement or obligation to be per‐ formed by Buyer pursuant to this Agreement.” The Agreement required that two million dollars be de‐ posited into the escrow account at closing, with one million to be released to the Sellers on December 31, 2015, and the rest to be released eighteen months after closing, in August 2016. § 2.02(b). These funds, however, were not to be released “in the event one or more claims have been asserted by Buyer against Seller” pursuant to the indemnity provisions. Id. In that case, Sterling was to “reasonably estimate the amount of Losses that could reasonably be incurred by [Sterling] if such Asserted Claims were successful (the ‘Reserve’).” Id. In the event Sterling makes a claim, the Reserve may not be released. The parties also signed a separate Escrow Agreement, which included provisions allowing the parties to agree to move the escrow funds to alternate interest‐bearing investment ac‐ counts. See generally Dkt. 20‐2. The Agreement also included a custom‐tailored provision for post‐judgment interest, calling for interest to accrue at 12%, but not starting until five busi‐ ness days after an agreement to pay or a “final, non‐appeala‐ ble adjudication.” § 8.06(a). The Sellers have not shown that they complied with the indemnification procedures described above to demand inter‐ est. They became aware of Sterling’s Direct Claim on Decem‐ ber 11, 2015 and responded by the end of that month, yet it is not clear that they ever provided proper notice of a claim for Nos. 19‐2300, 19‐3122, & 19‐3235 25 interest. The parties had plenty of opportunities to put the es‐ crowed funds in an interest‐bearing account, yet they never did so. Apart from the Sellers’ ironic failure to follow the same in‐ demnification notice procedures that they insist Sterling failed to follow, neither the Agreement nor the Illinois Interest Act provides for pre‐judgment interest here. The Agreement acknowledges that interest may be available as a Loss, but it funnels all claims through the indemnification provisions. Those terms allow the Sellers to recoup Losses only for breaches of the Agreement. Here, the Agreement did not re‐ quire the release of funds that “could be reasonably incurred by [Sterling] if such Asserted Claims were successful.” Im‐ portantly, “reasonably” modifies the dollar value of the claims if successful, not the probability of victory on any claims. Sterling’s demand for the entire two million dollars may or may not succeed in the end, but it was not unreasonable as a matter of law for Sterling to make the demand. A forensic accounting firm estimated that Damian overcharged its cli‐ ents by almost $1.3 million, and Wachtell Lipton and the fo‐ rensic accountant billed hundreds of thousands of dollars. The costs of enforcing the indemnification provision were also uncertain. If Sterling did not breach the Agreement by de‐ manding indemnification, the Agreement bars pre‐judgment interest. To avoid this logic, the Sellers cite Katzman v. Helen of Troy Texas Corp., 2013 WL 1496952 (S.D.N.Y. Apr. 11, 2013), in which a district court held that a similarly broad waiver of non‐indemnification remedies did not foreclose statutory in‐ 26 Nos. 19‐2300, 19‐3122, & 19‐3235 terest. The court reasoned that the contract did not “ever an‐ ticipate[] a controversy of this nature” (restraint of funds in an escrow account) so that the contract could not have waived pre‐judgment interest. Id. at . We do not disagree with Katzman, but that case diﬀers from this one in decisive ways. First, this contract is subject to Illinois law, which uses only a presumption of pre‐judgment interest in some cases, while Katzman applied New York law, which generally requires prejudgment interest. Compare, e.g., Santa’s Best Craft, LLC v. Zurich American Ins. Co., 408 Ill. App. 3d 173, 191, 346 Ill. Dec. 733, 941 N.E.2d 291, 307–08 (2010) (trial court’s decision to award pretrial interest is discretion‐ ary and subject to prudential concerns), and Kouzoukas, 234 Ill. 2d at 476, 234 Ill. Dec. at 942, 917 N.E.2d at 1017 (“Statutes permitting the recovery of interest … must be strictly con‐ strued.”), with Katzman, 2013 WL 1496952, at  (“A long line of case law has held that prejudgment interest is mandatory.”) (collecting cases applying New York law). Second, although the waiver provisions in the Agreement here and the Katzman contract are similar, the overall contracts are not. The Agreement here expressly contemplated that funds could be held in escrow past eighteen months if Sterling brought a Direct Claim. That’s exactly what happened. Noth‐ ing in the Agreement suggests that holding funds in escrow because of an ongoing dispute would breach the Agreement. That’s the point of the escrow fund. Thus, unlike in Katzman, the parties here did “anticipate a controversy of this nature” and excluded it from the definition of indemnifiable Losses. The Sellers further argue that the Exclusive Remedies pro‐ vision does not apply here because Sterling’s request for in‐ demnification qualified as “intentional misconduct” in three Nos. 19‐2300, 19‐3122, & 19‐3235 27 ways. None is convincing. First, they claim that it was miscon‐ duct for Sterling to seek indemnification for funds it has not yet paid to former clients. But indemnifiable “Losses” in‐ cludes “liabilities,” an ambiguous word that can refer to a case such as this, where “society is not yet commanding perfor‐ mance, but it will so command if the possessor of the power does some operative act.” Black’s Law Dictionary (11th ed. 2019), quoting William R. Anson, Principles of the Law of Contract 9 (Arthur L. Corbin ed., 3d Am. Ed. 1919). The Sellers’ reading of this provision would also present Sterling with a Catch‐22: the Sellers say both that demanding indem‐ nification for as‐yet unpaid funds is intentional misconduct, but also that paying refunds before an indemnification de‐ mand was a breach that caused the Sellers irrevocable harm. Second, the Sellers claim that Sterling committed inten‐ tional misconduct in seeking attorneys’ fees. The definition of Losses in Section 1 is internally contradictory. It both includes and excludes attorneys’ fees: “Losses means all … out of pocket third party costs or expenses of whatever kind, includ‐ ing reasonable attorneys’ fees … provided, however, that ‘Losses’ shall not include … attorneys’ fees and expenses.” Re‐ gardless of how this issue might ultimately be resolved, we cannot see how arguing one side of this “classically ambigu‐ ous” contradiction could be intentional misconduct. See Uni‐ versal Guaranty Life Ins. Co. v. Coughlin, 481 F.3d 458, 464 (7th Cir. 2007). Third, the Sellers claim that even if hypothetical future payments and attorneys’ fees are included, Sterling’s itemized Losses did not add up to two million dollars, so that it was misconduct to ask for more than Sterling would be entitled to. 28 Nos. 19‐2300, 19‐3122, & 19‐3235 But Losses also include “the cost of enforcing any right to in‐ demnification,” which the parties have now been litigating for four years.4 Even if the Agreement did not waive claims to pre‐judg‐ ment interest, it is not clear that the Illinois Interest Act would apply. The Act allows for pre‐judgment interest for “money due on a” document or “vexatious refusal to pay.” Money was not due on the Agreement because it expressly granted Ster‐ ling the right to reserve escrow funds. Although the district court did not directly address the “vexatious” prong, it rightly noted that a “faulty reading” of the Agreement diﬀers from willful misconduct. Sterling II, 2019 WL 5085715, at . Re‐ gardless of who prevails at the end of this lawsuit, it is hard to see on this record how the district court’s refusal to award pre‐judgment interest here could be an abuse of discretion. See Twenhafel v. State Auto Prop. & Casualty Ins. Co., 581 F.3d 625, 630–31 (7th Cir. 2009). The conclusion that pre‐judgment interest is unavailable here is bolstered by the fact that the Agreement explicitly re‐ quires post‐judgment interest in certain circumstances. The parties’ choice to write around the indemnification require‐ ments for one specific exception further underscores that they did not intend to do so for all cases. See Rickher, 535 F.3d at 668 (explaining that Illinois courts use expressio unius canon as an interpretive tool). Finally, we address two remaining issues that may resur‐ face on remand: the district court’s refusal to award post‐ 4We decide here that requesting attorneys’ fees as Losses did not amount to intentional misconduct, but we do not decide here whether at‐ torneys’ fees are in fact Losses. Nos. 19‐2300, 19‐3122, & 19‐3235 29 judgment interest at the higher contractual rate and its award of certain costs for duplicating electronically stored infor‐ mation. A federal statute calls for post‐judgment interest on money judgments at a formula tied to the market for one‐year Treasury bills. 28 U.S.C. § 1961. The Sellers want to collect 12% post‐judgment interest based on a provision in the Agreement imposing that higher rate where the indemnifying party fails to make full payment within five business days of a “final, non‐appealable adjudication.” See § 8.06(a). The dis‐ trict court correctly observed that the Agreement’s 12% inter‐ est rate does not apply until after a judgment becomes final and non‐appealable. Again, that’s what the parties bargained for, and that’s the rule that applies. Regarding costs, the circuits disagree under 28 U.S.C. § 1920(4) about the outer boundary of reimbursable copying costs for electronically stored information. See Colosi v. Jones Lang LaSalle Americas, Inc., 781 F.3d 293, 297–98 (6th Cir. 2015), discussing CBT Flint Partners, LLC v. Return Path, Inc., 737 F.3d 1320 (Fed. Cir. 2013), and Race Tires America, Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012); see also United States ex rel. Long v. GSDMIdea City, LLC, 807 F.3d 125, 131–32 (5th Cir. 2015) (“Courts have not uniformly addressed which electronic discovery costs are recoverable under the most re‐ cent version of § 1920(4).”); but see Hecker v. Deere & Co., 556 F.3d 575, 591 (7th Cir. 2009) (concluding without elaboration that “the costs [] for converting computer data into a readable format … are recoverable under 28 U.S.C. § 1920”). If the par‐ ties wish to press this issue on remand, they may want to pay close attention to these diﬀerences. Some of the requested copying costs here may lie beyond the outer limits of some or 30 Nos. 19‐2300, 19‐3122, & 19‐3235 all of the circuits’ tests. Compare Race Tires, 674 F.3d at 167, citing Hecker, 556 F.3d at 591 (excluding from taxable costs “collecting and preserving ESI; processing and indexing ESI; [and] keyword searching of ESI for responsive and privileged documents”), with Dkt. 176 at  (requesting costs for quality control and communicating with Sellers);  (requesting costs for time spent verifying password). The judgment in favor of the Sellers is REVERSED and this case is REMANDED for further proceedings consistent with this opinion.