## Facts

- A Mexican manufacturer sold cookie tins to a U.S. baking company for use in packaging cookies.
- The parties agreed their international sales contract was governed by the U.N. Convention on Contracts for the International Sale of Goods (CISG).
- The seller sued for unpaid amounts on 110 invoices (about $900,000) and sought prejudgment interest and attorney’s fees, asserting fees were recoverable as “loss” under CISG Article 74.
- The district court entered judgment as a matter of law for the seller on 93 invoices (about $850,000); the buyer prevailed on the remaining invoices.
- The jury awarded the seller $350,000 in prejudgment interest.
- Post-trial, the district court awarded the seller $550,000 in attorney’s fees, treating fees as CISG damages and alternatively relying on inherent-power sanctions for alleged bad faith.
- The buyer appealed only the attorney’s-fees award.

## Issues

1. Whether litigation attorney’s fees are recoverable as “loss” (damages) under CISG Article 74.
2. Whether a federal court may shift all attorney’s fees under its inherent power based on a party’s alleged pre-litigation bad faith related to the underlying contract dispute.

## Decision

- The court reversed the $550,000 attorney’s-fees award and remanded.
- The court held CISG Article 74 does not include litigation attorney’s fees within “loss.”
- The court held the district court lacked authority to shift fees under inherent power based on pre-litigation conduct and could not use inherent power to bypass the American rule.
- The damages judgment on the invoices and the prejudgment interest award were left undisturbed.
- The case was remanded for further proceedings before a different district judge.

## Legal Principles

- The CISG governs substantive remedies for breach of an international sales contract, but it does not allocate the costs of litigation unless it expressly addresses the subject.
- “Loss” under CISG Article 74 refers to damages caused by breach (including lost profits), not a prevailing party’s litigation attorney’s fees.
- Matters not expressly settled by the CISG are resolved by the applicable domestic law through private-international-law rules; in U.S. federal court this generally leaves attorney’s-fee allocation to the American rule absent statute, contract, or a recognized exception.
- A court’s inherent power to award attorney’s fees as a sanction is limited and generally tied to misconduct in the litigation itself; it does not extend to fee shifting based solely on pre-suit conduct underlying a contract claim.

## Conclusion

The Seventh Circuit held that the CISG does not authorize recovery of litigation attorney’s fees as damages under Article 74 and that inherent-power sanctions cannot be used to shift fees based on pre-litigation bad faith, reinstating domestic fee-allocation rules while leaving the contract damages and prejudgment interest intact.


Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385 (7th Cir. 2002)