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Signorile v. Quaker Oats Co.

decided: July 8, 1974.

EUGENE R. SIGNORILE, PLAINTIFF-APPELLEE,
v.
QUAKER OATS COMPANY, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 71 C 2845 FRANK J. MCGARR, Judge.

Swygert, Chief Judge, Stevens and Sprecher, Circuit Judges.

Author: Swygert

SWYGERT, Chief Judge.

Defendant-appellant Quaker Oats Company appeals from a judgment awarding attorney's fees to plaintiff-appellee Eugene Signorile after the dismissal of his action. Signorile sought damages for the misappropriation of a trade secret. The district court dismissed the action for lack of diversity. The only issue is whether the court properly ordered the defendant to pay plaintiff his attorney's fees incurred during the pendency of the aborted lawsuit.

The plaintiff based federal court jurisdiction in an allegation that he was an Illinois resident and that the defendant was a New Jersey corporation with its principal place of business in that state. Quaker Oats admitted in its answer that it was a corporation organized under the laws of New Jersey and that its principal place of business was in that state. Some ten months after the answer was filed an attorney different than the one originally assigned but from the same law firm that represented Quaker Oats looked at the case. Upon investigation, this new attorney became aware that the principal place of business of the company was in Illinois not New Jersey and concluded correctly that there was no federal jurisdiction under section 1332, 28 United States Code. The attorney then informed Signorile's counsel of this fact and moved in the district court to dismiss the complaint for lack of jurisdiction. In doing so he offered to stipulate that all discovery in the federal court could be used in a state court proceeding.*fn1 The plaintiff opposed the motion, arguing that Quaker Oats was estopped after discovery had proceeded from refuting that its principal place of business was in New Jersey and that in any event the defendant had failed to show that its principal business was in Illinois. Alternatively, plaintiff requested that if jurisdiction was absent, he was entitled to an award of costs because of the "substantial prejudice" caused him by the defendant's faulty admission.

The district judge, after finding that defendant's principal place of business was in Chicago and rejecting plaintiff's estoppel argument, dismissed the action. (See Rule 12(h) (3), Fed. R. Civ. P., and Page v. Wright, 116 F.2d 449 (7th Cir. 1940).) In his dismissal order the judge indicated that plaintiff should recover a portion of his costs "by reason of defendant's culpable delay in filing its motion [to dismiss]." After receiving memoranda and conferring with counsel representing the parties, the court entered judgment for Signorile in the amount of $3,548.88. Included in that sum was $3000 representing attorney's fees which was, according to the judge, "the result of defendant's culpable negligence in filing a false answer."

I

Defendant contends that because this is a diversity case, Illinois law governs and according to Illinois court decisions, recovery of attorney's fees is not permitted, unless statutorily authorized, citing House of Vision, Inc. v. Hiyane, 42 Ill. 2d 45, 245 N.E. 2d 468, 472 (1969). The only statute arguably applicable according to the defendant is a provision in the Illinois Civil Code, Ill. Rev. Stat. 1971, ch. 110 § 41, which deals with false allegations and denials in pleadings. Defendant argues that under the facts here that section is inapplicable. We would be inclined to agree if we were to reach the issue. But we are of the view that Illinois law, decisional or statutory, does not govern. Since diversity was lacking, jurisdiction never attached in the federal court. Factually, of course, there was an action, but one not stemming from diversity.

II

Turning to the authority to award costs, upon the dismissal of action filed in a federal court an early Supreme Court case dealt with the question. In McIver v. Wattles, 22 U.S. (9 Wheat.) 650, 6 L. Ed. 182 (1824), Chief Justice Marshall, speaking for the Court, said that "in all cases where the cause is dismissed for want of jurisdiction, no costs are allowed." Since the Court said no costs were allowable perforce that holding covered attorney's fees. The inability of the federal courts to award costs upon dismissal as announced in McIver was subsequently later remedied by statute. The present statute, 28 U.S.C. § 1919 provides:

Whenever any action or suit is dismissed in any district court for want of jurisdiction, such court may order the payment of just costs.

The immediate predecessor of section 1919 was 28 U.S.C. § 80, 1940 ed. (Act of March 3, 1911, ch. 231, § 37, 36 Stat. 1098). That statute provided in relevant part that the courts "shall make such order as to costs as shall be just." The change from "costs as shall be just" to "just costs" was one of phraseology and not of substance. H.R. Report No. 308, 80th Cong., 1st Sess. 162 (1947). With the current statute in mind, we must decide whether the word "costs" was meant to include attorney's fees.

Apparently the only reported case to discuss the precise question we posit is Hylte Bruks Aktiebolag v. Babcock & Wilcox Co., 305 F. Supp. 803, 810 (S.D.N.Y. 1969). There Judge Cooper, the district judge, said that the permitting of the taxing of "just costs" under section 1919 may be seen as enhancing the district court's "discretion to tax extraordinary items of costs, such as attorney's fees."*fn2

In Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 18 L. Ed. 2d 475, 87 S. Ct. 1404 (1967), the word "costs" was interpreted in an analogous ...


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