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Vendetti v. Compass Environmental

April 16, 2008

RONALD VENDETTI, PLAINTIFF,
v.
COMPASS ENVIRONMENTAL, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Marvin E. Aspen

MEMORANDUM ORDER AND OPINION

On November 26, 2007, we granted Ronald Vendetti's ("Vendetti") motion for summary judgment and awarded him twelve months severance pay pursuant to his employment contract ("Agreement"), prejudgment interest, and attorneys' fees. On January 24, 2008, we granted Compass Environmental, Inc.'s ("Defendant") motion for reconsideration allowing the parties to specifically brief whether Vendetti is entitled to attorneys' fees under the Illinois Attorneys' Fees in Wages Actions Act, 705 Ill. Comp. Stat. 225/1 (2007) ("Fee Act").*fn1 For the reasons set forth below, we reaffirm our November 26, 2007 ruling and find that Vendetti is entitled to attorneys' fees under the Fee Act.

ANALYSIS

Defendant presents three arguments against awarding attorneys' fees in this case: (1) the Fee Act should not apply in federal diversity cases; (2) Vendetti is not an "employee" covered by the Fee Act; and (3) the severance awarded here does not qualify as "wages earned" under the Fee Act. We address each of these arguments below.

A. Choice of Law

In diversity cases, we must apply federal procedural law and Illinois substantive law. Van Diest Supply Co. v. Shelby Cty State Bank, 425 F.3d 437, 439 (7th Cir. 2005) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938)). While "there is no clear criterion for deciding whether a particular state rule is 'substantive,'" the Seventh Circuit has recognized "two classes of pretty clear cases." S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 60 F.3d 305, 310 (7th Cir. 1995). First, if the state and federal rules are in "actual conflict," then we apply the federal rule under the Supremacy Clause. Id. Second, if "the state procedural rule, though undeniably 'procedural' in the ordinary sense of the term, is limited to a particular substantive area, such as contract law," then we will apply state law. Id. As explained below, the second situation applies here.

1. No Direct Conflict

First, the Fee Act*fn2 is not in direct conflict with Federal Rule 54(d) or 28 U.S.C. § 1920.

An actual conflict exists where "enforcing the state rule would knock out the federal rule." S.A. Healy Co., 60 F.3d at 310. Rule 54(d)(1) permits a "prevailing party" to recover its "costs other than attorneys' fees." Fed. R. Civ. P. 54(d)(1). Rule 54(d)(2) then specifically addresses attorneys' fees and states that they are permissible if provided for in a judgment, statute, or rule. Fed. R. Civ. P. 54(d)(2). Here, the Fee Act constitutes just such a statute because it permits an employee, after making a proper demand upon his employer, to recover "a reasonable attorney fee." 705 ILCS 225/1. Thus, the Fee Act does not conflict with either provision of Rule 54(d) because it fits within the Rule 54(d)(2) statutory exception.

The Fee Act also does not conflict with 28 U.S.C. § 1920. Section 1920 lists the costs that are recoverable under Rule 54(d)(1).*fn3 If a cost is not listed in 28 U.S.C. § 1920, then there is no conflict if a state rule provides for reimbursement of that cost. Abrams v. Lightolier Inc., 50 F.3d 1204, 1233-34 (3d Cir. 1995) ("There is . . . no federal statute or rule providing the rule of decision when a federal court is asked to award litigation expenses other than those enumerated at section 1920 costs."). The federal statute does not prohibit recovery for other costs. Therefore, Defendant's argument that there is a conflict because attorneys' fees are not listed in 28 U.S.C. § 1920 is unconvincing.

Defendant argues, however, that there is an actual conflict because the Fee Act provides that attorneys' fees should "be taxed as costs of the action." 705 ILCS 225/1. Defendant claims that the Fee Act's characterization of attorney's fees as "costs of the action," conflicts with the fact that attorneys' fees are not included as "costs" in Rule 54(d)(1) or in 28 U.S.C. § 1920. We disagree. The Fee Act's characterization of attorney's fees as "costs" does not conflict with the wording of Rule 54(d).*fn4 In fact, Rule 54(d)(1) actually characterizes attorneys' fees as a type of "costs" by stating that it applies to "costs other than attorney's fees."*fn5 In addition, the Advisory Committee Notes to the 1993 Amendments of Rule 54(d)(2) indicate that it provides the procedure for "presenting claims for attorneys' fees, whether or not denominated as 'costs'" in the applicable statute. Fed. R. Civ. P. 54(d)(2) note. This note clarifies that even if a statute characterizes attorneys' fees as "costs," the applicability of Rule 54(d)(2) is not limited by this characterization. Thus, the Fee Act's characterization of attorneys' fees as "costs" under the Fee Act does not conflict with the federal rule.*fn6

In addition, Defendant's reliance upon the Seventh Circuit's nonprecedential disposition in Hockett is unconvincing because, unlike in that case, the rules here are not in conflict. The issue in Hockett was whether attorneys' fees were recoverable as part of the "costs and damages" caused by a wrongfully-entered injunction. Minn. Power & Light Co. v. Hockett, 14 Fed. App'x 703, 705-09 (7th Cir. 2001). While both the Indiana rule and Federal Rule 65(c) provide for the recovery of "costs and damages" in such a case, Indiana courts have interpreted "costs and damages" to include attorneys' fees, whereas federal courts have held that "costs and damages" do not include attorneys' fees. Id. at 708. Thus, the Seventh Circuit held that these two rules conflicted and applied the federal rule. Id. Unlike the rules in Hockett, however, the Fee Act and Rule 54(d) are not in direct conflict. Instead, as explained above, they can be harmonized because Rule 54(d)(2) specifically permits attorneys' fees when authorized by statute, as the Fee Act does here.

2. Procedural v. Substantive

Given that there is no direct conflict, our second inquiry is whether the Fee Act is a substantive or procedural provision, and we hold that it is substantive. The Supreme Court has held that in diversity cases, a "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." Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 259 (1975) (internal citations omitted); see also Taco Bell Corp. v. Cont'l Cas. Co. v. Zurich Am. Ins. Co., 388 F.3d 1069, 1077 (7th Cir. 2004) ("Whether to shift attorneys' fees . . . falls on the substantive side of the substantive-procedural divide created by Erie and subsequent decisions if . . . the decision to shift or not shift is based on a substantive state policy."); Jackman v. WMAC Inv. Corp., 809 F.2d 377, 383 (7th Cir. 1987) ("In diversity cases, state law governs the granting of attorney's fees."). In addition, where a state rule "is limited to a particular ...


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