Court Opinion

ID: 770297
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:32:54+00
Date Added: 2024-06-11T15:19:00.782175
License: Public Domain

225 F.3d 815 (7th Cir. 2000)
NICHOLAS C. JANNOTTA, individually and as  executor of the ESTATE OF VICTORIA A. JANNOTTA  and CARMEIN D. BLASUCCI, as the executor of  the ESTATE OF VICTORIA A. JANNOTTA, Plaintiffs-Appellees/Cross-Appellants,v.SUBWAY SANDWICH SHOPS, INCORPORATED,  FREDERICK A. DELUCA, PETER H. BUCK, and  DOCTOR'S ASSOCIATES, INC., Defendants-Appellants/Cross-Appellees.
Nos. 99-1975 and 99-2024
In the  United States Court of Appeals  For the Seventh Circuit
Argued April 20, 2000Decided August 29, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division.  No. 94 C 3834--William T. Hart, Judge.
Before CUDAHY, MANION and ROVNER, Circuit Judges.
ROVNER, Circuit Judge.

1
Peter Buck, Frederick  DeLuca and Doctor's Associates, Inc. committed  gross fraud in their dealings with the  plaintiffs, and they do not dispute the jury  finding to that effect. After a retrial on the  issue of punitive damages, they contend that  because the jury penalized them a mere $100,000  for their conduct, the district court should have  found that the plaintiffs were not the prevailing  parties for the purpose of determining their  entitlement to attorneys' fees. We affirm the  district court's judgment that the plaintiffs  were contractually entitled to attorneys' fees as  prevailing parties in the litigation.

I.

2
This is the second time this case has come to  us for review, and we will assume a familiarity  with the facts as presented in our earlier  opinion. See Jannotta v. Subway Sandwich Shops,  Inc., 125 F.3d 503 (7th Cir. 1997). We will  repeat only those facts necessary to an  understanding of the issues presented in this  appeal. Victoria Jannotta owned commercial  property that Subway wished to rent for one of  its stores.1 Nicholas Jannotta, her son,  conducted all of the negotiations with Subway.  When Jannotta was informed that a franchisee  would be the actual renter, he demanded that the  parent company sign the lease. Jannotta also  negotiated a revenue-sharing provision and a  market area restriction that prevented Subway  from opening competing stores in the immediate  geographic area. The leasing agent assured  Jannotta that the parent company would sign the  lease, that the company had significant assets  and personnel at its disposal, and that Subway  would make good on any default by a franchisee.  The agent failed to reveal that the only company  with any assets was Doctor's Associates, Inc.,  and that DAI had set up a number of unfunded  shell corporations to sign leases. The lease for  Jannotta's property was signed by one of these  shell corporations, and when Subway opened six  other stores in the market area, the company took  the position that it was not breaching the market  restriction clause because other shell  corporations had signed the leases for the  competing stores. Subway also refused to pay the  rent when the franchisee eventually defaulted.

3
The original jury found that Subway had  breached the lease contract and had committed  gross fraud in inducing Jannotta to sign the  lease. The jury awarded Jannotta $328,993.99 in  compensatory damages and $10,000,000 in punitive  damages. The district court awarded attorneys'  fees and costs to the plaintiffs in the amount of  $196,325.88 pursuant to a clause in the lease  providing attorneys' fees to the prevailing  party. Subway asked the district court to enter  judgment as a matter of law on the issue of  punitive damages, to grant a new trial on that  issue, or to reduce the amount of the award. The  district court denied Subway's motion in its  entirety, and Subway appealed. We vacated and  remanded the punitive damages award because the  district court had failed to instruct the jury on  the issue of corporate complicity. We affirmed  the judgment in all other respects. Under  Illinois law, a jury may not award punitive  damages against a corporation on a theory of  respondeat superior. Instead, the plaintiff must  show that the responsible employee was acting in  a managerial capacity or that his acts were  authorized or ratified by the corporation. See  Jannotta, 125 F.3d at 513 (and cases cited  therein). Under Illinois law, the failure to  properly instruct the jury on this issue may not  be deemed harmless error, and thus despite the  overwhelming evidence of corporate complicity  presented at trial, we were compelled to vacate  and remand for a retrial on the issue of punitive  damages. See Jannotta, 125 F.3d at 515-17.

4
The punitive damages issue was retried and the  second jury, having been properly instructed on  corporate complicity, also found that the  defendants committed gross fraud in inducing  Jannotta to sign the lease. The jury awarded  punitive damages in the amount of $100,000.2  The court considered Jannotta's request for  attorneys' fees under a provision of the lease  and awarded $132,795.72 in attorneys' fees,  expenses and district court costs. The court  declined to award an additional amount for fees  expended in defending against Subway's appeal on  the issue of punitive damages. The court reasoned  that Jannotta was not the prevailing party in  that stage of the litigation, and therefore was  not entitled to fees under a strict reading of  the lease. Having been found guilty of gross  fraud but not having to pay much for it, Subway  appeals the district court's award of fees spent  in litigating the punitive damages issue at the  second trial. Jannotta cross appeals for fees  expended in defending against Subway's first  appeal, and also requests that we grant fees to  the plaintiffs for defending against the present  appeal.

II.

5
Subway contends that the fee recovery clause in  the lease did not contemplate fees incurred in a  trial solely resolving the issue of punitive  damages. Alternatively, Subway argues that  Jannotta's recovery was de minimis and thus did  not justify an award of fees because the  plaintiffs did not really prevail. Subway  complains that the amount of the award was small  in relation to the damages Jannotta sought, and  that it was unjust to require Subway to subsidize  the retrial when Subway had suggested a proper  instruction regarding corporate complicity and  the district court had rejected Subway's  suggestion. In his cross-appeal, Jannotta argues  that the district court erred in denying fees for  defending against Subway's first appeal. Because  Jannotta prevailed in the litigation overall,  receiving in excess of $400,000 in compensatory  and punitive damages, he maintains that the fee  clause in the lease entitled him to fees for all  aspects of the litigation, including those parts  where he did not prevail.

A.

6
We begin by examining the paragraph of the  lease giving rise to the attorneys' fees issue:

7
In the event of litigation between Lessor and  Lessee relative to the rights, obligations and  duties of either party under this lease,  attorneys' fees and costs shall be paid by the  non-prevailing party.

8
R. 197, Ex. 1, at para. 40. Subway states that  Illinois law requires courts to strictly construe  fee shifting provisions, that the district court  was not strict in its construction, and that a  proper reading of the provision would not allow  recovery of fees for work performed in a punitive  damages retrial. Subway maintains that an action  to recover punitive damages for gross fraud does  not arise "under the lease," but rather arises  from equitable principles. Moreover, Subway  contends, an action for fraudulent inducement is  not "relative to the rights, obligations and  duties of either party under this lease."

9
Subway is correct that Illinois courts strictly  construe contractual fee shifting provisions. See  Pennsylvania Truck Lines, Inc. v. Solar Equity  Corp., 882 F.2d 221, 227 (7th Cir. 1989) (citing  Wheeling Trust & Sav. Bank v. Citizens Nat'l Bank  of Downers Grove, 491 N.E.2d 866, 870 (Ill. App.  2 Dist. 1986)). The question here is whether an  action to recover punitive damages for gross  fraud is an action relative to the rights,  obligations and duties of either party under the  lease. We agree with the district court that  Subway provides an unnecessarily cramped reading  of this phrase, and that a more natural reading  encompasses Jannotta's second trial for punitive  damages. "Relative to" is a broad phrase meaning  "with regard to" or "in connection with."  Webster's Ninth New Collegiate Dictionary. See  also Wisconsin Winnebago Bus. Comm. v.  Koberstein, 762 F.2d 613, 618 (7th Cir. 1985)  (characterizing the phrase "relative to" in a  statute as "broad language"). To require that the  action arise under the lease is to render a  nullity the words "relative to." An action for  fraudulent inducement is certainly relative to  the rights and obligations of the parties. After  all, a party is under no obligation to comply  with the terms of a fraudulently induced  contract. Subway complains that the fraud had  already been determined in the first trial, and  that the second trial determined only whether the  fraud was gross. Again, Subway ignores the broad  language of the lease. The degree of fraud is  certainly connected to the rights, duties and  obligations of the parties to the lease. That is  all that is required by the express language of  the lease.

10
Subway's argument regarding the de minimis  nature of the punitive damages recovery is even  less persuasive. Subway contends that the  district court abused its discretion in this case  because the size of the award was small in  comparison to the damages that Jannotta sought,  because the amount of the fees for the punitive  damages trial exceeded the $100,000 award, and  because Subway had suggested a correct  instruction and was forced to a second trial only  through the error of the district court. "[T]he  decision to award costs and attorney fees  pursuant to a contractual agreement lies within  the sound discretion of the district court."  Pennsylvania Truck, 882 F.2d at 227. True, when  damages are tiny in relation to the claim, a  court has the discretion to withhold fees  entirely. Fletcher v. City of Fort Wayne, Ind.,  162 F.3d 975, 976 (7th Cir. 1998), cert. denied,  526 U.S. 1136 (1999). "In other words, for  trivial recoveries the only reasonable award of  fees is zero." Id. Subway cites a number of cases  in which plaintiffs who recovered only nominal  damages were found not entitled to attorneys'  fees even though they had technically prevailed  in the litigation.

11
Subway faults the district court for not  considering whether fees were appropriate at all  given the "Pyrrhic" nature of Jannotta's  recovery. We see no abuse of discretion here in  the district court's analysis. There was no need  for the court to consider whether the award was  "nominal" when $100,000 is not nominal by any  standard. Indeed, Subway brought this appeal in  an effort to avoid paying only slightly more than  that amount in attorneys' fees, and so the amount  must not be so trifling to Subway as it would  have this Court believe. Most of the cases  involving nominal damages involve awards of $1.  The district court did not make a separate  finding on whether the amount was nominal because  it is unreasonable to consider a $100,000  punitive damages award nominal in a case where  compensatory damages were approximately three  times that amount.

12
The fact that Jannotta sought a much greater  amount than he recovered is relevant but does not  require the district court to deny fees. See  Northbrook Excess & Surplus Ins. Co. v. Proctor  & Gamble Co., 924 F.2d 633, 641-42 (7th Cir.  1991); Tuf Racing Products, Inc. v. American  Suzuki Motor Corp., 2000 WL 1022649, *5 (July 24,  2000). Likewise, that the amount of the fees  slightly exceeded the amount of the award is  relevant to the district court's exercise of  discretion, but it is not determinative. See  Fletcher, 162 F.3d at 976. We will reverse the  district court's discretionary award only if no  reasonable district court would have granted fees  under these circumstances. There is no indication  that Jannotta was anything other than a  prevailing party who made a substantial recovery.  Thus, Jannotta is contractually entitled to  attorneys' fees. We affirm the district court's  grant of fees in favor of Jannotta on the  punitive damages retrial.

B.

13
The district court's discretion goes both ways,  and we find no abuse of discretion in the  district court's denial of fees to Jannotta for  the defense of the first appeal. The district  court determined that Jannotta did not prevail in  that appeal, and we are hard pressed to disagree.  The first appeal resulted in the reversal of a  $10,000,000 punitive damages award in Jannotta's  favor based on a faulty jury instruction. See  Grossinger Motorcorp. Inc. v. American Nat'l Bank  and Trust Co., 607 N.E.2d 1337, 1348 (Ill. App.  1 Dist. 1992). Jannotta contends that the  prevailing party cannot be determined until the  litigation is concluded, and that he ultimately  prevailed on every issue in the case, including  numerous significant issues in the first appeal.  That may well be true, but the district court was  within its discretion in declining to award fees  for the first appeal because Jannotta failed to  prevail on the most significant issue on that  appeal. See Raffel v. Medallion Kitchens of  Minn., Inc., 139 F.3d 1142, 1146-47 (7th Cir.  1998). We thus affirm the district court's  decision to deny Jannotta fees for the first  appeal.

C.

14
Jannotta has prevailed in this appeal, however,  and we are inclined to award fees for the work  done in defending this appeal. A petition on  entitlement to attorneys' fees for appellate work  may be filed in either the district court or the  court of appeals. Ekanem v. Health & Hospital  Corp. of Marion County, Ind., 778 F.2d 1254, 1257  (7th Cir. 1985). Jannotta incurred $26,089.05 in  defending this appeal, and provided a properly  supported petition to this Court documenting  those fees and costs. In response, Subway does  not object to the amount of fees and costs  claimed by Jannotta. Rather, Subway merely claims  that Jannotta is not entitled to fees in this  appeal for the same reasons Jannotta was not  entitled to fees in the first appeal. Of course,  Jannotta prevailed in this appeal in its entirety  and we therefore award Jannotta $26,089.05 in  fees for the defense of this appeal.

III.

15
In conclusion, we affirm the district court's  award of fees to Jannotta for the prosecution of  the second punitive damages trial, we affirm the  district court's decision to deny fees to  Jannotta for defense of the first appeal, and we  award Jannotta fees in the amount of $26,089.05  for the defense of the instant appeal.

16
AFFIRMED.

Notes:

1
 We will refer to the defendants collectively as  "Subway" and to the plaintiffs as "Jannotta" for  the sake of clarity.

2
 The jury apportioned the award as follows
$25,000 against Frederick DeLuca, $25,000 against  Peter Buck, and $50,000 against Doctor's  Associates, Inc. Judgment was entered in favor of  Subway Sandwich Shops, Inc. on the punitive  damages claim.