Key Points

  • The Seventh Circuit affirmed a jury verdict finding that Ashley Energy breached its boiler lease with Indeck Power Equipment but that Indeck proved no damages from the breach.
  • The court held the verdict was not inconsistent because the jury could plausibly have found that Indeck's own flowmeter defects and start-up errors caused any damage, or that the boiler suffered only ordinary wear and tear.
  • Applying Illinois law, the court held that Indeck was not a prevailing party and that the lease's Section 17 fee clause, read with its neighboring terms 'repossession,' 'enforcement' and 'litigation,' does not award fees to a lessor that fails to prove damages.
  • The court held that the lease's Section 13 indemnity provision did not overcome the presumption that only a prevailing party recovers fees, and affirmed denial of Indeck's request for about $1,122,879 in fees and costs.

A federal appeals court ruled on Oct. 27 that a company that leased an industrial boiler to a St. Louis-area energy supplier cannot collect about $1.1 million in attorneys' and experts' fees and costs from its customer, even though a jury found the customer broke the lease, because the jury also found the company had proved no damages.

The U.S. Court of Appeals for the Seventh Circuit affirmed a judgment for Ashley Energy LLC in a suit by Indeck Power Equipment Co., which sought more than $3 million at trial over scale and debris it found in a boiler Ashley returned in 2020. Circuit Judge Ripple wrote the opinion for a panel that also included Judges Easterbrook and Kolar.

The decision holds that a lease clause obligating a tenant to pay the lessor's attorneys' fees "upon a default or breach" does not reach a lessor that proves a breach but no resulting harm. Read alongside the clause's other terms, the court said, the word "breach" describes a lessor enforcing its remedies. "Such vindication is impossible where the lessor fails to prove all elements of its claim," Judge Ripple wrote.

After severe flooding at its plant in 2019, Ashley turned to Indeck to rent boilers. Under a January 2020 lease, Indeck agreed to supply a "like-new" boiler and a new water treatment trailer, which softens the feed water so that minerals do not build up as scale. Ashley agreed to operate the equipment under sound industry practice, follow the guidelines of the American Boiler Manufacturers Association and pay for repairs.

The system's flowmeters, which track how much water enters the equipment, malfunctioned during start-up, and an Indeck salesperson later called the start-up a "fiasco." After Ashley returned the boiler in April 2020, Indeck found a large amount of scale and debris. Its cleaning efforts failed, and it sued after Ashley refused to help.

At a five-day trial before U.S. District Judge LaShonda A. Hunt of the Northern District of Illinois, Indeck sought $3,005,118, including the cost of a replacement boiler and thirty months of continuing rent. Answering written questions, the jury found that Indeck had performed its obligations and that Ashley had breached the lease, but that Indeck had not shown damage caused by the breach. Judge Hunt denied Indeck's motion for a new trial and its petition for about $1,122,879 in attorneys' and experts' fees and costs.

On appeal, Indeck argued that the verdict was inconsistent, because a jury that found Indeck had fully performed could not also blame Indeck's equipment for the damage. Reviewing only for abuse of discretion, the panel noted that "[a]ny plausible explanation for the verdict precludes reversal."

The panel accepted both of Judge Hunt's explanations. Under the first, the jury could have found that Indeck delivered what the lease required while Indeck's "own technical missteps during start-up caused damage to its boiler." A senior Indeck engineer testified that renting the boiler would have been "unethical" had he known of the flowmeter defects. Indeck's own expert said any damage likely occurred early in the lease, when the defects were identified.

That reading fit the breach finding, the court said, because not all of Ashley's seven listed obligations required proof that Ashley damaged the boiler. Ashley could have failed to maintain the association's water guidelines, for example, without harming the equipment. Rejecting Indeck's argument that the case was tried as a binary choice, Judge Ripple wrote that the jury "had to choose among the competing inferences and the one it chose was certainly rational in light of the evidence presented."

Under the second explanation, the jury could have found that the boiler suffered nothing beyond ordinary wear and tear. The president of Wabash Power Equipment Co. testified that a Wabash boiler Ashley rented at the same time, using the same water, was not damaged beyond ordinary wear and tear and was cleaned for a $2,500 inspection fee. An Ashley expert also found "no material change in boiler performance."

The court acknowledged "significant evidence" of greater damage. Ashley's expert estimated a cleaning cost of about $50,000, and Ashley's lawyer told jurors in closing that, if they reached damages, Indeck's total should have been $50,000. The panel still declined to second-guess the jury, quoting precedent that "this court will not reweigh evidence as long as there is a reasonable basis on record to support the jury's verdict."

On fees, Illinois courts follow the American rule, under which each side pays its own lawyers unless a statute or contract provides otherwise. Those courts enforce fee-shifting clauses strictly and, the panel said, where a clause is ambiguous they seem to award fees only to a prevailing party. Indeck had won dismissal of an earlier Ashley suit in Missouri state court and of Ashley's counterclaims. The panel held that Indeck "certainly is not a prevailing party in the traditional sense" because it lost on the merits of its own breach claim.

Indeck argued that Section 17 of the lease awarded fees whenever a breach is proven, and that the clause's separate listing of "litigation" and "breach" meant the two words must differ. The panel found Ashley's reading "more persuasive." The clause allows only "reasonable" fees, and the court cited the Supreme Court's decision in Farrar v. Hobby for the rule that the degree of success obtained is the most critical factor in judging reasonableness. Because "breach" appears in a list with "repossession," "enforcement" and "litigation," the court read all four terms as describing a lessor pursuing remedies against a defaulting tenant.

The court also held that Section 13, an indemnity clause, "simply does not bear the weight that Indeck asks it to bear." Judge Ripple wrote that Indeck had cited "no case law nor any textual provisions which support its remarkable argument that it should be awarded over a million dollars in fees after losing at trial."

The appeal, No. 26-1390, was argued on Sept. 18. The panel affirmed Judge Hunt's judgment in full, leaving the verdict for Ashley and the fee denial in place.