UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
June 17, 1986
NEPERA CHEMICAL, INC., APPELLANT
SEA-LAND SERVICE, INC., ET AL. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (CIVIL ACTION NO. 79-03022) 1986.CDC.198
Before ROBINSON, Chief Judge, WALD, Circuit Judge, and LUMBARD,* Senior Circuit Judge. Opinion of the Court filed by Chief Judge ROBINSON.
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE ROBINSON I. BACKGROUND
The controversy had its inception in an agreement of sorts between Nepera, a manufacturer and distributor of chemicals, and Sea-Land, an ocean-going common carrier operating in foreign commerce, and as such subject to the Shipping Act of 1916. *fn1 Prior to 1978, Sea-Land's published tariff specified a rate of $6.85 per hundred-weight for overseas transportation of picolines, a liquid chemical manufactured by Nepera and used in the production of nicotine acid. *fn2 In anticipation of a new tariff soon to be become effective, *fn3 Sea-Land informed Nepera that it would maintain in that tariff a rate equivalent to $6.85 per hundredweight for carriage of picolines. *fn4 Despite this affirmative assurance, however, Sea-Land's new tariff, when later published, did not include any reference to that chemical. *fn5 As a result, when, in 1978, Nepera shipped three containers of picolines from the United States to Spain, Sea-Land was legally required to calculate its freight charges on the tariff rate reserved for liquid commodities "not otherwise specified." *fn6 That rate was $631.25 per weight-ton -- more than four times the old rate for picolines. *fn7
Sea-Land subsequently informed Nepera, however, that it would correct the overcharge *fn8 by resorting to Section 18(b)(3) of the Act. *fn9 That section allows a carrier to apply to the Federal Maritime Commission for approval of a refund to a shipper of a portion of charges collected, or a waiver of collection of charges billed, "where it appears that there is an error in a tariff of a clerical or administrative nature" and certain other statutory conditions are met, including the filing of the application for refund or waiver within 180 days from the date of shipment. *fn10 Sea-Land promptly published a new tariff item designating a weight-ton rate for picolines which approximated, but was not identical to, the earlier $6.85 per-hundredweight rate. *fn11 Later, exactly 180 days after Nepera's shipment, Sea-Land applied to the Commission under Section 18(b)(3) for permission to refund and waive the amount by which Sea-Land's actual freight bills exceeded charges based on the corrected tariff rate for picolines. *fn12
The Commission denied Sea-Land's application simply because the corrected rate for picolines was not the perfect counterpart of the old $6.85 per-hundredweight rate. *fn13 In accordance with an established agency policy requiring absolute equivalence of the two figures, the Commission ordered Sea-Land to recoup from Nepera the full amount of freight charges computed at the unspecified-liquids rate, at total of $25,596.51 over the picolines rate in the pre-1978 tariff; *fn14 and, since none of the statutory 180-day filing period remained, the Commission's disposition became administratively final. Thereafter, Sea-Land refused to request review of the Commission's decision by this court, using prompting Nepera to do so. *fn15 We reversed the Commission's denial of Sea-Land's application, holding that relief under Section 18(b)(3) was appropriate despite the minor rate variation attributable to the methodology of conversion. *fn16
In the meantime, Nepera had instituted the present litigation in the District Court. Charging negligence by Sea-Land, Nepera sought compensatory damages, measured by the amount of freight overcharges and the expenses incurred in prosecuting the proceeding in which the Commission's adverse decision was overturned, and punitive damages as well. *fn17 The District Court granted summary judgment to Sea-Land, noting that Nepera had prevailed in this court and thereby had established Sea-Land's duty and authority to cancel the overcharges, and on that basis it dismissed Nepera's claim to relief therefrom as moot. *fn18 Holding further that Nepera's sole remedy lay in the proceeding authorized by Section 18 (b)(3),19 the court rejected Nepera's demands for punitive damages,20 for attorney's fees and other expenses it incurred in the forerunning litigation,21 and for attorney's fees in the case at bar,22 We turn now to consider Nepera's contentions that the last four rulings were in error. II. EXCLUSIVITY OF SECTION 18 (b) (3)
The initial question presented by this appeal is whether the rate-correction procedure furnished by Section 18(b)(3) of the Shipping Act23 exclusive, and thus forbids a common-law action against a carrier for negligence in applying for leave to refund and waive shipping charges, where the carrier voluntarily represented that it would seek a specified rate correction. Persuasive authority leads us to conclude that it is not.
The Supreme Court has on two occasions been confronted by strikingly similar issues of exclusively of federal statutory provisions. In Hewitt-Robins, Inc. v. Eastern Freight-Ways, Inc.,24 a shipper challenged a motor carrier's practice of directing intrastate shipments over interstate routes in an effort to obtain the higher interstate rate, and sought to recover the resulting difference in the carrier's charges. In holding that the common-law action for refund of freight overcharges that survived passage of the Motor Carrier Act,25 the Court discussed five considerations significant to the case at bar. First, the shipper did not question the reasonableness of the tariff rates, but rather the carrier's response to its common-law duty to transport over the least expensive available route.26 Second, the Motro Carrier Act provided no procedure by which routing practices, as opposed to rates, could be contested prior to shipment.27 Third, allowance of an action for damages suffered as a consequence of misrouting would not jeopardize the stability of either tariffs or routes, and thus would not hamper the efficient administration of the Act.28 Fourth, continued recognition of such an action would have a "healthy deterrent effect" upon motor carriers.29 And "finally, and not to be overlooked," said the Court, "the absence of any judicial remedy places the shipper entirely at the mercy of the carrier, contrary to the overriding purpose of the Act. The allowance of such actions would, on the contrary, give neither an unfair advantage."30
The factors that led the Court to sustain the common-law action in Hewitt-Robins are equally apposite and decisive here. Nepera directs its attack, not at the reasonableness of any rate, but at Sea-Land's alleged subpart performance of its assumed duty to apply for a correction utilizing a rate equivalent to the $6.85 per hundred-weight rate that Sea-Land had previously represented it would maintain.31 The Shipping Act supplies no procedure by which a shipper can challenge a carrier's activities in this connection prior to shipment. Nepera's negligence action poses no threat to the sanctity of tariffs or the efficient administration of the Shipping Act; on the contrary, by deterring carriers from carelessness in discharging voluntarily assumed duties,32 lawsuits of that nature would assist in achieving important purposes of Section 18(b)(3) -- "prevent[ion of] injustice in situations where it would be inequitable to charge the filed rate,"33 and avoidance of discriminatory treatment of shippers.34 Lastly, "and not to be overlooked,"35 Section 18(b)(3) authorizes the carrier alone to apply to the Commission for authority to refund or waive transportation charges,36 and thus places the shipper "entirely at the mercy of the carrier."37 We believe the overall remedial objectives of the Shipping Act easily tolerate recognition of common-law tort liability for a carrier's negligent acts or omissions in filing a Section 18(b)(3) application where the carrier has taken on responsibility for seeking a refund or waiver based on a specified rate.
Moreover, in Nader v. Allegheny Airlines, Inc.,38 the Supreme Court again found nonexclusivity when it held that the Federal Aviation Act, despite its addressal of "deceptive practices," did not foreclose common-law fraudulent-misrepresentation actions against carriers subject to its provisions.39 The Court declared that, as a general rule, "a common-law right, even absent a saving clause,
Important to our holding today is an accurate understanding of what Nepera assails in this case. The District Court apparently believed that Nepera's target was the higher tariff rate for its shipments of picolines.42 As we read the record, however, Nepera's aim is wholly different. Nowhere does Nepera assert that either the rate Sea-Land assured or the rate it charged in unreasonable -- a grievance that could be remedied only under the terms of the Shipping Act. Nepera's sole claim is that Sea-Land's negligence in handling the application for refund and waiver led to automatic statutory imposition of a rate that was much higher than it should have been. That contention calls into question the course of conduct by which the higher rate became binding, not the validity of any rate designated for any commodity. No injury suffered as a result of the negligence averred can be redressed by resort to the statutory procedure for protesting rates as unjust now that the time limit for filing such a protest has expired.43 We hold that Section 18(b)(3) does not bar Nepera's negligence suit. III. PRIOR-LITIGATION EXPENSES
The District Court held that Nepera could not recover excessive overcharges in its lawsuit against Sea-Land because the latter was required to correct them in a Section 18(b)(3) proceeding.44 Since Nepera does not seek review of that ruling,45 we need not consider whether the Shipping Act precludes relief of that sort in a common-law action. Nepera continues, however, to press the remainder of its demand for compensatory damages -- for attorneys' fees and other expenses incurred in obtaining reversal of the Commission's order denying the application for refund and waiver.46 The District Court treated this effort as a run-of-the-mill request for reimbursement of those items and deemed them nonrecoverable as a matter of law.47 We conclude that the court erred in doing so.
Consideration of Nepera's damages claim requires initially an identification of the body of law controlling. Although the parties have argued the issue pro and con as one of general federal law,48 that treatment is the product of faulty analysis. Nepera invoked the jurisdiction of the District Court solely on the ground of diverse citizenship,49 and no other basis of federal-court jurisdiction is apparent. That means that Nepera's claim is to be measured by local rather than federal law. As the Supreme Court has said, in an ordinary diversity case where the state law does not run counter to a valid federal statute or rule of court, and usually it will not, state law denying the right to attorney's fees or giving a right thereto, which reflects a substantial policy of the state, should be followed.50
Moreover, as the Court has made equally plain, local law governs irrespective of whether that law is legislatively or judicially created.51
Our first step, then is to ascertain the jurisdiction whose law is controlling, and for that purpose we must apply the choice-of-law rules of the District of Columbia.52 Those rules call for an evaluation and a balancing of the interests of all jurisdictions having some stake in the litigation, and for selection of the law of the jurisdiction bearing the most significant relationship to the tortious occurrence and the litigants.53 Applying the criteria approved by the District's highest court,54 District law seems the choice properly to be made. We recognize some degree of involvement of the interests of the states in which the present litigants respectively are incorporated, maintain their principal places of business, and normally conduct their operations. But the dominant factor in the case before us is that the acts and omissions of the SeaLand allegedly constituting negligence pertained to a tariff and an application for relief from freight overcharges, both of which were filed in the District of Columbia. Given the facts of this case, the District's interest as the place where the alleged negligence occurred n.55 [footnote omitted] easily surpasses any interest of the states to which the one party or the other bore some other kind of totally unconnected relationship. We thus conclude that the District's substantive law must govern disposition of the tort issues in this case.
District law incorporates the "American Rule," under which a party may not be awarded attorneys' fees "unless a statute or enforceable contract provides for an award of such fees."56 Nepera has not steered us toward any statutory or contractual provision assisting its effort. Instead, Nepera relies upon57 an exception to the American Rule, recognized by many jurisdictions, permitting a plaintiff to recover from the defendant reasonable attorney's fees incurred in prior litigation against a third party where they were a natural consequence of the defendant's wrongful act.58
This exception has been applied both where the defendant breached a contract n.59 [footnote omitted] and where, as alleged here, the defendant committed a tort,60 and thereby compelled the plaintiff to litigate against a third party. Underlying the exception is recognition that the plaintiff's expenditures in the earlier suit are logically indistinguishable from other monetary losses caused by tortious conduct for which compensatory damages will lie.61 The effect of the exception it to put the plaintiff, who found it necessary to litigate with a third party as a result of the defendant's wrong, in the same position he would have occupied had he not been forced to do so. The exception permits the plaintiff to recover all of his losses flowing from the defendant's malfeasance -- except, generally speaking, attorneys' fees accruing in the suit in which the recovery is sought62 -- and treats as a mere fortuity the fact that the plaintiff's damages arose from the prior litigation with the third party.
District law recognizes a cause of action for "wrongful involvement in litigation," which essentially is an analogue of the third-party exception to the American Rule.63 The District allows a plaintiff in a tort action to recover, as damages, reasonable attorneys' fees incurred in earlier litigation with a third person "if the natural and proximate consequences of the defendant's tortious act were to involve the plaintiff in [that] litigation. . . . "64 All that is required is incurrence of the fees in prior litigation with a third party precipitated by the tortious conduct of the present defendant.65
These principles of District of Columbia law enable Nepera to pursue its claim against Sea-land for the attorneys' fees incurred by Nepera in the litigation with the Commission respecting the freight overcharges. Nepera asserts that Sea-Land's conduct -- its refusal to challenge the Commission's adverse decision -- effectively forced Nepera to launch and maintain an ultimately successful proceeding in this court for review and reversal of that decision. Had Sea-Land been willing to assume that burden, Nepera would not have to pay the fees amassed in that proceeding.66 An award to Nepera in the amount of its financial outlay would merely elevate it to the position -- except for expenses generated in the instant case -- that it would have been in had Nepera not been required to litigate against the Commission. Summary judgment on this claim was therefore inappropriate, and Nepera must now be afforded an opportunity to establish its right to recovery.67 IV. PUNITIVE DAMAGES
The District Court granted summary judgment for Sea-Land on Nepera's demand for punitive damages not only in the belief that Section 18(b)(3) of the Shipping Act affords the exclusive remedy for Nepera's grievances, but also in the view that Nepera had not put forth facts sufficient to legally support an award of such damages.68 We have already addressed the court's Section 18(b)(3) theory and found it erroneous.69 We affirm dismissal of the claim for punitive damages, however, on the ground that, as a matter of law, Nepera failed to establish an adequate factual foundation for such an award.70
Punitive damages may be assessed to penalize a defendant for outrageous conduct, and to deter him and others from similar activity in the future.71 Such damages -- also aptly termed "exemplary" damages -- are appropriate when the defendant's misbehavior demonstrates a particularly reckless disregard for the rights of another.72 Under the law of the District of Columbia, which we are duty bound to accept,73 "even gross negligence is insufficient;"74 punitive damages are awardable only where a defendant's conduct is "'willful and outrageous,' constitute[s] 'gross fraud,' or [is] 'aggravated by evil motive, actual malice, deliberate violence or oppression . . .'"75
In taking stock of the District Court's grant of summary judgment, we must determine whether Nepera raised a genuine issue as to any material fact76 and whether the substantive law was correctly applied.77 In determining whether there was such an issue, we must resolve all inferences following reasonably from the evidence in favor of Nepera,78 and we may not affirm unless the propriety of the summary disposition is clear.79 Because an award of summary judgment reflects "a determination of law rather than fact," we do not defer to the District Court's conclusions but consider the matter de novo.80
On this appeal, Nepera insists that Sea-Land promised to "protect" the pre-1978 rate for picolines; that it knowingly submitted a deficient application for leave to waive the overcharges; that, by deliberately filing the application on the last day possible, it foreclosed any chance of correcting it; that it disavowed any responsibility for appealing the Commission's adverse decision; and for this chain of events demonstrated a reckless disregard for the effects of its actions on Nepera.81 In opposing Sea-Land's motion in the District Court, Nepera relied primarily on an affidavit submitted by Edith Sorderberg, its Export Traffic Coordinator,82 to support these characterizations of Sea-Land's behavior. Sorderberg averred that prior to any Commission action on the Section 18(b)(3) application, William Eisenlohr, Sea-Land's Manager for Specific Commodities, told her that Sea-Land was aware that the $162.25 per weight-ton rate that Sea-Land had utilized in connection with the application did not correspond precisely to the earlier $6.85 per hundredweight rate.83 As Sorderberg recalled the conversation, Eisenlohr "said that the difference was 'negligible -- just a few cents per 100 lbs.' and that the difference was probably due to the fact that the rate was now on a weight-ton basis rather than a 100 lbs. basis."84 The affidavit also reported that after the Commission's administrative law judge had denied Sea-Land's rate-correction application,85 Sea-Land representatives conceded that they had "round[ed] up"86 in calculating the new rate, and thus had "made mistakes in [the] handling of this matter before the FMC . . ."87 On the basis of these purported admissions, and the fact that Sea-Land was a party to an earlier Commission proceeding assertedly prohibiting any deviation from a promised rate in a Section 18(b)(3) application, Munoz y Cabrero v. Sea-Land Service, Inc.,88 Nepera contends that there was a genuine issue of fact precluding summary judgment: whether Sea-Land had utilized the disparity in rates in a deliberate attempt to secure an adverse Commission decision enabling it to escape the overcharge relief promised Nepera.89
We reject this tortured attempt to create issues of fact where none exist. It would not be reasonable90 to infer that Sea-Land purposely filed a faulty application from the bare fact that Sea-Land officials acknowledged a "negligible" difference resulting from "rounding up."91 Any such inference would be especially anomalous given the fact that this court itself concluded, after reviewing Sea-Land's computations, that the very difference Nepera complains of did "not reflect a failure to file" the rate that Sea-Land and Nepera had agreed upon.92 We think it would be equally unreasonable to infer an evil motive from Sea-Land's involvement in Munoz y Cabrero.93 Because this court has previously characterized that proceeding as both "legally distinct"94 and "factually different"95 from the one launched by the application submitted on behalf of Nepera, we do not see how it aids Nepera's cause. In the absence of any genuine issue of material fact as to whether the rate incorporated into the Section 18(b)(3) application was the product of malicious or atrocious conduct, any claim for punitive damages predicated upon Sea-Land's last-day filing of the application96 or its refusal to seek reversal of the adverse Commission decision97 must be deemed insufficient as a matter of law.98 Accordingly, we sustain the District Court's determination that summary judgment for Sea-Land on Nepera's punitive-damages claim was warranted. V. ATTORNEYS' FEES IN THIS CASE
One matter remains. Nepera seeks an award of attorneys' fees incurred in litigating the instant case.99 Nepera recognizes that this effort falls squarely within the purview of the American Rule, but argues that Sea-Land's behavior brings it within the "bad faith" exception to the rule. That exception allows an assessment of attorneys' fees when the losing party "has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. . . ."100 Federal Courts have applied this exception both when bad faith occurred in connection with the litigation101 and when it was an aspect of the conduct that gave rise to the lawsuit.102 Nepera bases its request for fees on the latter strand of the bad-faith exception.103
The common law of the District of Columbia embraces these principles. The District of Columbia Court of Appeals has declared that an assessment of attorneys' fees is warranted "'when the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'"104 Circumstances indicative of bad faith, the court has said, are present "'where a party brings or maintains an unfounded suit or withholds action to which the opposing party is patently entitled. . . .'"105 Indeed, there appears to be little or no difference between District of Columbia and federal common law on the subject.
Crucial to evaluation of Nepera's request is the Supreme Court's admonition, which the District of Columbia Court of Appeals has cited with approval,106 that the underlying rationale of fee-shifting upon a showing of bad faith in punishment of the wrongdoer rather than compensation of the victim.107 For that reason, the standard for a finding of bad faith is stringent.108 The cases, both federal109 and District of Columbia,110 hold that attorneys' fees will be awarded only when extraordinary circumstances or dominating reasons of fairness so demand.
The considerations underlying the bad-faith exception do not counsel fee-shifting here. Quite to the contrary, an award of attorneys' fees to Nepera could actually work an injustice. Nepera's bad-faith fee claim rests on the very same behavior111 we have already held to be legally insufficient to permit an award of punitive damages112 -- damages which, like attorneys' fees in the present context, are designed to punish certain kinds of wrongdoing.113 Just as we find, as a matter of law, that the record does not furnish an adequate foundation for punitive damages, we must conclude that it falls short of establishing Nepera's entitlement to recoupment of its attorneys' fees in litigating the case at bar.
We thus end our journey through this appeal. The Shipping Act does not bar Nepera's common-law action for compensatory damages, and those damages permissibly may include attorneys' fees and other expenses incurred by Nepera in its earlier litigation against the Commission. Accordingly, we reverse the District Court's judgment to that extent. We affirm, however, the District Court's holdings that Nepera's claim for punitive damages, and its claim for attorneys' fees incurred in the instant case, are legally unwarranted. The case is remanded to the District Court for further proceedings consistent with this opinion.
APPELLATE PANEL: FOOTNOTES
* Of the United States Court of Appeals for the Second Circuit, sitting by designation pursuant to 28 U.S.C. § 294(d) (1982).