Vanessa Menke v. Eric Monchecourt

Citations: 17 F.3d 1007; 28 Fed. R. Serv. 3d 69; 1994 U.S. App. LEXIS 3542Docket: 93-1217

Court: Court of Appeals for the Seventh Circuit; March 1, 1994; Federal Appellate Court

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Vanessa Menke filed a lawsuit to confirm an arbitration award of $67,420 against her broker Eric Monchecourt, who had evaded service of summons. After Menke retained a private process server, the district court confirmed the arbitration award and granted her costs for the service, amounting to $1,018.69. However, the court denied her requests for attorneys' fees related to Monchecourt's evasion and for the confirmation action, stating the Federal Arbitration Act does not allow for such fees. Monchecourt appealed the confirmation, while Menke cross-appealed the denial of her attorneys' fees. The appellate court dismissed Monchecourt's appeal and affirmed the district court's ruling on Menke's cross-appeal. The underlying dispute involved unauthorized trading of Menke’s penny stocks by Monchecourt, leading to the arbitration under NASD rules, which resulted in the initial award including $8,000 for attorneys' fees under the Illinois Consumer Fraud Act.

Monchecourt filed a notice of appeal regarding the district court's confirmation order, which was later followed by Menke's cross-appeal. On March 22, 1993, the court dismissed Monchecourt's appeal under Fed. R. App. P. 42(b), leading to a focus on Menke's cross-appeal. 

The primary issue addressed is whether the district court erred in denying Menke’s request for attorneys' fees incurred in her action for confirmation under the Federal Arbitration Act (FAA). The prevailing rule in federal litigation is that each party bears their own attorneys' fees unless there is statutory or contractual provision to the contrary. The court concurred with the district court's determination that the FAA does not grant attorneys' fees to a successful party seeking confirmation of an arbitration award.

Menke argued that the arbitration panel had awarded her attorneys' fees based on the Illinois Consumer Fraud Act, which allows for additional fees when defending against an appeal. She contended that like an appeal, her confirmation action was a necessary step to recover her arbitration award, warranting additional attorneys' fees.

However, the court clarified that comparing a confirmation proceeding to an appeal overlooks the limited scope of a confirmation action under the FAA. Such actions are deemed summary proceedings, designed to convert the arbitrators' award into a final, enforceable judgment. The district court is mandated to confirm the award unless it finds specific grounds for vacating, modifying, or correcting the award, as outlined in 9 U.S.C. Secs. 10 and 11. Therefore, the court maintained that confirmation under the FAA is a summary process, with attorneys' fees not being recoverable in this context.

Grounds for vacating or modifying an arbitrators' award are strictly limited to instances of fraud, misconduct, miscalculation, issues not submitted to the board, or imperfections in form, as outlined in 9 U.S.C. Sec. 10(a)(1), 5, and 11(a), c. The Federal Arbitration Act does not empower district courts to award additional attorneys' fees beyond confirmation of an arbitrators' award. Evidence regarding attorneys' fees cannot be received, as the Act does not provide for this, referencing Raytheon Co. v. Computer Distrib. Inc. In this context, the district court correctly refused to apply the Illinois Consumer Fraud Act’s attorneys' fees provision to the Federal Arbitration Act. The Fifth Circuit case, Schlobohm v. Pepperidge Farm, Inc., illustrated that a district court may award attorneys' fees under a state statute if the arbitration panel did not address this issue, as it does not modify the arbitrators' award. However, if the arbitration agreement specified that all disputes arising from the contract would be arbitrated, any award of attorneys' fees would fall under the arbitrators' purview, making a court's intervention inappropriate and inconsistent with the Federal Arbitration Act's intent to minimize court involvement in disputes meant for arbitration.

Menke's entire dispute, including the award of attorneys' fees, was submitted to arbitration under Sec. 12(a) of the NASD Code of Arbitration. The arbitrators awarded Menke $59,420 in compensatory and punitive damages, and $8,000 in attorneys' fees based on the Illinois Consumer Fraud Act. The district court confirmed this award without adding any additional attorneys' fees, consistent with the limited review permitted by the Federal Arbitration Act. Menke also challenged the court's decision not to include her attorneys' fees incurred in serving Monchecourt as part of recoverable costs under Fed. R. Civ. P. 4(c)(2)(D). This rule mandates that the court order payment for personal service costs unless good cause is shown otherwise, but it does not explicitly allow for attorneys' fees as part of these costs. Menke referenced two district court decisions and a Third Circuit case suggesting that attorneys' fees could be considered costs of personal service. The Premier Bank case discussed how the legislative history of Rule 4(c)(2)(D) aimed to encourage prompt acknowledgment of service and hold defendants accountable for additional costs caused by their failure to acknowledge service by mail. The court in Premier Bank concluded that attorneys' fees are recoverable under this rule, aimed at improving the efficiency of service by mail, while ensuring that only defendants without good cause for their failure to acknowledge service would incur these fees.

Judicially amending the Federal Rules of Civil Procedure to include attorneys' fees is deemed inappropriate, as Congress has the authority to explicitly provide for such awards when necessary, as evidenced in various rules. The reasoning in *Premier Bank* is criticized for implying that a defendant liable for costs under Rule 4(c)(2)(D) would also automatically be liable for attorneys' fees. A plaintiff can only recover costs for personal service if the defendant fails to show 'good cause' for not acknowledging service; therefore, a defendant found liable for costs cannot simultaneously demonstrate 'good cause' to avoid attorneys' fees. It is suggested that any amendments to Rule 4(c)(2)(D) regarding attorneys' fees should be made by Congress rather than through judicial decisions. Consequently, it is concluded that Rule 4(c)(2)(D) does not authorize attorneys' fees as part of personal service costs, affirming the district court's decision not to award them. Additionally, the Federal Arbitration Act and Rule 4(c)(2)(D) do not provide a basis for awarding additional attorneys' fees to Menke, leading to the affirmation of the district court's judgment.