Fee-Shifting

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7^th Circuit Court of Appeals

Case Name: Hyatt Franchising, LLC., v. Shen Zhen New World I, LLC, et al.

Case No.: 17-2071

Officials: EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges.

Focus: Fee-Shifting

In September 2012 Hyatt and Shen Zhen New World I entered into an agreement providing that Shen Zhen would renovate a hotel in Los Angeles and operate it using Hyatt’s business methods and trademarks. Two years later Hyatt declared that Shen Zhen had not kept its promises. An arbitrator concluded that Shen Zhen owes Hyatt about $7.7 million in damages plus about $1.3 million in attorneys’ fees and costs. Hyatt filed this suit under the diversity jurisdiction and asked a district court to enforce the award. The court did just that. 2017 U.S. Dist. LEXIS 59455 (N.D. Ill. Apr. 19, 2017). Shen Zhen appeals. Shen Zhen’s principal arguments concern the arbitrator’s rulings with respect to Lynn Cadwalader, who represented it during the negotiations that led to the contract with Hyatt. Shen Zhen asked the arbitrator to issue a subpoena that would have required Cadwalader to give a deposition; the arbitrator said no. The arbitrator stated that Cadwalader lacked any information bearing on the parties’ contractual dispute, which arose two years after she had stopped working for Shen Zhen. The arbitrator also declined to disqualify Hyatt’s law firm, DLA Piper, which Cadwalader joined in July 2015, about three years after the contract was signed. Cadwalader had not represented Shen Zhen since October 2012. The arbitrator concluded that DLA Piper’s ethics screen ensured that no confidential information would reach the lawyers representing Hyatt in 2015 and 2016. Shen Zhen maintains that it is entitled to relief under 9 U.S.C. §10(a)(3), which provides that a judge may set aside an arbitrator’s award “where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced”. Like the district court, we do not see how either branch of Shen Zhen’s argument comes within this language.

More than 25 years ago, this court held that commercial parties that have agreed to final resolution by an arbitrator, yet go right on litigating, must pay their adversaries’ attorneys’ fees. See Continental Can Co. v. Chicago Truck Drivers Pension Fund, 921 F.2d 126, 128 (7th Cir. 1990). The American Rule requires each side to bear its legal fees in an initial round, but an entity that insists on multiplying the litigation must make the other side whole for rounds after the first. Cf. 28 U.S.C. §1927. Section 14.4 of the contract between Hyatt and Shen Zhen includes a fee-shifting clause, so it is unnecessary to make a separate fee-shifting order under Continental Can, but if the parties cannot agree on how much Shen Zhen owes for pointlessly extending this dispute through the district court and the court of appeals, Hyatt should apply for an appropriate order.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.