Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH

• Decision Date: 22 May 1998
• Docket Number: Nos. 94-2982,94-2530,s. 94-2982
• Citation: 141 F.3d 1434
• Parties: , 11 Fla. L. Weekly Fed. C 1432 INDUSTRIAL RISK INSURERS, Barnard & Burk Group, Inc., Barnard and Burk Engineers and Constructors, Inc., ISI, Inc., American Home Assurance Co., Defendants-Third-Party- Plaintiffs-Appellants, v. M.A.N. GUTEHOFFNUNGSHUTTE GmbH, Third-Party-Defendant-Appellee-Cross-Appellant. HOLLAND & KNIGHT, Mark E. Grantham, Appellants, v. INDUSTRIAL RISK INSURERS, Barnard & Burk Group, Inc., Barnard and Burk Engineers and Constructors, Inc., ISI, Inc., American Home Assurance Co., Defendants-Third-Party- Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1434

141 F.3d 1434

67 USLW 3425, 11 Fla. L. Weekly Fed. C 1432

INDUSTRIAL RISK INSURERS, Barnard & Burk Group, Inc.,

Barnard and Burk Engineers and Constructors, Inc., ISI, Inc., American Home Assurance Co., Defendants-Third-Party- Plaintiffs-Appellants, v. M.A.N. GUTEHOFFNUNGSHUTTE GmbH,

Third-Party-Defendant-Appellee-Cross-Appellant.

HOLLAND & KNIGHT, Mark E. Grantham, Appellants, v. INDUSTRIAL RISK INSURERS, Barnard & Burk Group, Inc.,

Barnard and Burk Engineers and Constructors, Inc.,

ISI, Inc., American Home Assurance Co.,

Defendants-Third-Party-

Plaintiffs-Appellees.

Nos. 94-2982, 94-2530.

United States Court of Appeals, Eleventh Circuit.

May 22, 1998.

Robert S. Hoofman, Thomas B. DeWolf, DeWolf, Ward, O'Donnell & Hoofman, P.A., Orlando, FL, for Industrial Risk Insurers, Barnard & Burk Group, Inc., Barnard and Burk Engineers and Constructors, Inc., ISI, Inc., American Home Assurance Co.

Steven L. Brannock, Frederick J. Grady, Stacy D. Blank, Mark E. Grantham, Holland & Knight, Tampa, FL, for M.A.N. Gutehoffnungshutte, GmbH, and Appellants.

Appeals from the United States District Court for the Middle District of Florida.

Before TJOFLAT and EDMONDSON, Circuit Judges, and NANGLE ^*, Senior District Judge.

TJOFLAT, Circuit Judge:

Industrial Risk Insurers, Barnard and Burk Group, Inc., Barnard and Burk Engineers and Constructors, Inc., ISI, Inc., and American Home Assurance Company ¹ appeal from the district court's denial of their motion to vacate an international commercial arbitration award. On cross-appeal, respondent M.A.N. Gutehoffnungshutte GmbH ("MAN GHH") challenges the district court's denial of pre-judgment interest. In a separate appeal, MAN GHH challenges the district court's imposition of sanctions under Federal Rule of Civil Procedure 11. We affirm the district court's denial of the motion to vacate the award. We vacate the district court's denial of prejudgment interest, however, and remand for reconsideration of that issue. We also reverse the district court's imposition of Rule 11 sanctions.

I.

This complex commercial litigation began over a decade ago, in 1985. ² Nitram, Inc., a Florida nitric acid manufacturer, contracted with Barnard and Burk Group, Inc., a Texas corporation, for the provision and installation of a tail gas expander in Nitram's Tampa, Florida nitric acid manufacturing plant. ³

                Barnard and Burk Group then engaged Barnard and Burk Engineers and Constructors, Inc., a Louisiana corporation, to perform the design engineering work for the installation, and engaged ISI, a Louisiana corporation, to perform the construction work. 4  (We refer hereinafter to the Barnard and Burk Group, Barnard and Burk Engineers and Constructors, and ISI, collectively, as "Barnard and Burk").  Barnard and Burk Group in turn contracted to purchase the tail gas expander from M.A.N. Maschinenfabrik Augsburg-Nurnberg AG, a German turbine manufacturer.  MAN GHH, the Appellee/Cross-Appellant in this appeal, is a spin-off corporation of, and the successor-in-interest to, M.A.N. Maschinenfabrik Augsburg-Nurnberg AG.  MAN GHH was responsible for designing, manufacturing, and delivering a functional tail gas expander and for providing technical guidance regarding its installation;  Barnard and Burk was responsible for the piping required to put the expander into service
                

The tail gas expander was installed in the Tampa plant in late 1984 and early 1985. On January 16, 1985, during start-up procedures, moving and stationary components of the expander came in contact with each other. This caused a "wreck" of the machine, deforming its rotor, scarring its stator casing and destroying seals. Parts of the expander were returned to Germany for repair and the piping was modified. On March 23, 1985, during a second attempt to start the turbine, the expander suffered a second wreck. See Nitram, Inc. v. Industrial Risk Insurers et al., 848 F.Supp. 162, 164 (M.D.Fla.1994). The machine was rebuilt again and after further piping modifications, it ran successfully; the two wrecks, however, had resulted in months of down time and millions of dollars in damages.

Nitram had purchased business risk insurance from Industrial Risk Insurers ("IRI"), a Hartford, Connecticut, consortium of insurance companies that provides business risk insurance to certain large manufacturing, processing, and industrial concerns. ⁵ IRI refused to pay Nitram for the losses caused by the first wreck under Nitram's business risk policy with IRI, arguing that the wrecks were caused by Barnard and Burk's poor design and defective piping, and that the losses due to the wrecks therefore were not covered by the policy. IRI acknowledged that the policy did cover some of the losses due to the March wreck and made payment for those losses under the policy. In October of 1985, Nitram sued both IRI and Barnard and Burk in Florida state court, arguing inter alia that one of them had to pay for the remaining losses: if Barnard and Burk was at fault for the wrecks, Nitram argued, then Barnard and Burk was liable; if Barnard and Burk was not at fault, then the loss due the wrecks was covered by Nitram's policy with IRI. IRI, as Nitram's subrogee, cross-claimed against Barnard and Burk for the amount of the partial payment IRI had made to Nitram under its policy. Defendants IRI and Barnard and Burk then removed the case to the district court on grounds of diversity, and Barnard and Burk counterclaimed against Nitram, alleging various breaches of contract by Nitram.

Barnard and Burk proceeded to file a third-party claim against MAN GHH, asserting that MAN GHH's faulty expander, and not Barnard and Burk's design or piping, caused the two wrecks, and that MAN GHH was therefore required to indemnify Barnard and Burk for various costs and for lost business. Nitram then settled with IRI, and its claims against IRI were dismissed. As a result, IRI was subrogated to Nitram's claims against Barnard and Burk.

In April of 1987, MAN GHH moved to compel arbitration of Barnard and Burk's third-party claim against it, pursuant to an arbitration provision in its contract with Barnard and Burk for the design, manufacture, and purchase of the expander. That provision In December of 1987, Nitram amended its complaint to state claims directly against MAN GHH. Nitram brought tort and breach-of-warranty claims alleging that the expander was defectively designed and manufactured by MAN GHH, and demanding indemnification in case Nitram was held liable to Barnard and Burk. IRI, as Nitram's subrogee, added a cross-claim against MAN GHH for good measure. In August of 1988, MAN GHH moved for, and the district court ordered, arbitration of these claims as well.

as amended, provided for binding arbitration in Tampa under the rules of the American Arbitration Association and under Florida law. The district court ordered arbitration pursuant to this provision in July of 1987.

Barnard and Burk then settled with Nitram, and with IRI, leaving the arbitrators to determine:

1. Barnard and Burk's third-party complaint against MAN GHH;

2. Nitram's complaint against MAN GHH; and

3. IRI's cross-claim against MAN GHH as Nitram's subrogee.

All of these claims turned on whether the two wrecks were caused by MAN GHH's expander or by Barnard and Burk's design and piping. The arbitration panel heard testimony in January and March of 1993.

Also in March of 1993, while the arbitration proceedings were pending, Barnard and Burk moved for Rule 11 sanctions against MAN GHH, arguing that MAN GHH had improperly attempted to relitigate the issue of the arbitral venue, which had already been decided by the district court. The district court agreed and imposed sanctions upon MAN GHH's counsel in July of 1993. See Nitram, Inc. v. Industrial Risk Insurers, 149 F.R.D. 662 (M.D.Fla.1993).

In May of 1993, the arbitrators returned an award in favor of MAN GHH, concluding that Barnard and Burk's design and piping, not MAN GHH's tail gas expander, had caused the two wrecks. The panel also awarded MAN GHH costs and conversion rate compensation.

Barnard and Burk then moved the district court to vacate the arbitration awards, on grounds that the principal arbitral award was "arbitrary and capricious" and that the arbitration panel improperly and prejudicially admitted certain testimony and evidence, and that the costs award and conversion rate compensation award should be vacated along with the principal award. The district court denied the motion and confirmed the panel's awards. See Nitram, 848 F.Supp. 162. Barnard and Burk now appeals the denial of that motion, asking four questions:

1. Whether the arbitrators' failure to conduct the arbitration in strict conformity with the agreement of the parties required the district court to vacate the principal arbitral award;

2. Whether the award should be vacated because of the panel's admission of 1) a technical report that was proffered at a relatively late date in the proceedings, and 2) the testimony of an expert who had been previously retained by IRI and who provided opinions against Barnard and Burk's interests;

3. Whether the district court abused its discretion in determining that the arbitration awards were not "arbitrary and capricious;" and

4. Whether the conversion rate and costs awards should be vacated along with the principal award.

On cross-appeal, MAN GHH challenges the district court's refusal to award to MAN GHH prejudgment interest from the date of the last arbitral award through the date of the district court's judgment confirming the arbitral award. MAN GHH also brings a separate appeal challenging the district court's imposition of Rule 11 sanctions.

II.

As a threshold matter, we must determine the source of our jurisdiction. We must inquire sua sponte into the source of our jurisdiction whenever it might be in question. See Miscott Corp. v. Zaremba Walden Co., 848 F.2d 1190, 1192 (11th Cir.1988). The district court...