Sun Ship, Inc. v. Matson Navigation Co.

• Citation: 785 F.2d 59
• Decision Date: 04 March 1986
• Docket Number: Nos. 85-1280,85-1292,s. 85-1280
• Parties: SUN SHIP, INC., Appellant and Cross-Appellee, v. MATSON NAVIGATION CO., Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 59

785 F.2d 59

1987 A.M.C. 23

SUN SHIP, INC., Appellant and Cross-Appellee, v. MATSON NAVIGATION CO., Appellee and Cross-Appellant.

Nos. 85-1280, 85-1292.

United States Court of Appeals, Third Circuit.

Argued Jan. 17, 1986.

Decided March 4, 1986.

Jeffery C. Hayes (argued), Michael T. Scott, Richard W. Foltz, Jr., James J. Ferrelli, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for Sun Ship, Inc.

David P. Bruton (argued), Alfred W. Putnam, Jr., Drinker Biddle & Reath, Philadelphia, Pa., for Matson Navigation Co.

Before SEITZ and GIBBONS, Circuit Judges, and GERRY, District Judge. ^*

OPINION OF THE COURT

GIBBONS, Circuit Judge:

Sun Ship, Inc. (Sun) appeals, and Matson Navigation Co. (Matson) cross-appeals from a final judgment affirming an arbitration award. Sun contends that the district court should not have confirmed the award because the arbitrators resolved a dispute they had no authority to consider and because they included in the award interest to the date of the awards at the prime rate instead of the Pennsylvania statutory rate. Matson contends that the district court erred in refusing to include in the judgment interest from the date of the award to the date of the judgment and in refusing to award legal fees. Matson also contends that it should be awarded fees, pursuant to Rule 38 of the Federal Rules of Appellate Procedure, for resisting Sun's appeal in this court. We affirm in Sun's appeal, reverse in Matson's appeal, and remand for the determination of a proper award of interest and attorneys' fees.

I.

District Court Proceedings

Sun is a shipbuilder. Matson owns and operates vessels. The parties entered into a contract under which Sun agreed to reconstruct one of Matson's vessels to make it suitable for carrying containerized cargo. This reconstruction involved cutting the vessel in half and inserting an additional center section. The contract price was $30,624,500, but it allowed Matson to make changes in the work to be performed. A redelivery date of December 31, 1981 was specified but because Matson could make changes in the work to be performed the contract provided for increases in price and extensions of the redelivery date. The contract also provided that, if Sun and Matson could not agree as to the effect of a specification change, Matson would make progress payments in accordance with Sun's estimate leaving the final price to be determined by arbitration. The arbitration clause also covered disputes over adjustment of the redelivery date. That date was significant because the contract required Sun to pay Matson $10,000 per day in liquidated damages for every day of unexcused delay. The arbitration clause provides in relevant part,

In the event of any dispute or difference as to any matter or thing between Matson and Shipbuilder arising out of or relating to the Contract or any stipulation in the Contract which cannot be settled by Matson and Shipbuilder, Matson and Shipbuilder shall submit the matter in dispute to arbitration. Any such arbitration shall be conducted in accordance with the procedure set forth in the Federal Arbitration Act, 9 U.S.C. section 1 et seq. ... The decision of the three arbitrators ... shall be final, conclusive, and binding upon Matson and Shipbuilder.

Joint Appendix at 44-45 (emphasis supplied).

Matson made a number of specification changes. Disputes over three of these changes required resolution by arbitration and gave rise to the present appeal. Following an intensely contested arbitration, a three-member arbitration panel found that Matson had overpaid Sun $1,794,157 for the cost of the contract changes and that Sun had been 145 days late in redelivering the vessel. Joint Appendix at 25-26. The arbitrators therefore awarded Matson $1,794,157 plus interest at the prime rate from the time of Matson's overpayment of progress payments and $1,450,000 plus interest at the prime rate from thirty days after June 11, 1982--the redelivery date. Joint Appendix at 26-27.

Sun petitioned the district court to vacate the arbitration award, arguing that the arbitrators had exceeded their authority in several respects. Matson cross-petitioned seeking enforcement of the award, an award of prejudgment interest, and an award of counsel fees incurred at the district court proceedings. The district court enforced the award but denied both Matson's request for legal fees and its request for prejudgment interest for the period of time between the award and the judgment enforcing it. See Sun Ship, Inc. v. Matson Navigation Co., 604 F.Supp. 1223 (E.D.Pa.1985). This appeal and cross-appeal followed.

II. Sun's Appeal

Although Sun objected to the arbitrator's award on several grounds, it pursues only two grounds here. First, it contends that in awarding prejudgment interest at the prime rate the arbitrators exceeded their authority. Prejudgment interest, under Pennsylvania law, Sun urges, is limited to the statutory rate, see Pa.Stat.Ann. tit. 41, Sec. 202 (Purdon Supp.1985), on both the overpayment and the liquidated damages awards. Second, Sun contends that the arbitrators exceeded their authority in awarding any pre-award interest on the overpayments because a refund of the overpayments was not due under the contract until an arbitration award was made.

Both contentions are frivolous. The arbitration clause quoted above is extremely broad. The parties' understanding of the scope of the arbitrators' authority is set forth in a joint letter of instructions from Sun and Matson to the arbitration panel. That letter advised that the arbitrators were to answer a specific set of enclosed questions, but they need not calculate a final award. On interest calculations the letter stated,

Specifically, you will note that the Questions do not require the Panel to compute any interest amounts, but only, in the event the Panel finds that interest is owing, to set forth the bases for any such computations. Thus, the Panel has been asked to "state or describe" the relevant interest rate and the date or dates from which any interest should commence. The rate may be stated as a percentage (e.g., 6%) or, if appropriate, described by reference to an objective standard (e.g., prime plus 2). Similarly, the commencement date may be stated as a single day, or by reference to other events (e.g., dates of payment or the date of redelivery).

Joint Appendix at 116-17. Nine questions were submitted to the arbitrators. Of these, four inquired whether, with respect to elements of its claim, Matson was entitled to interest for any period prior to the entry of the award. All four questions proceed by asking, "If so, state or describe the rate at which such interest should be calculated, and state or describe the date or dates from which such interest should commence prior to entry of the Award." Joint Appendix at 119-20. In the portions of the award about which Sun now complains, the arbitrators did precisely what Sun and Matson instructed them to do. Entirely aside from the arbitration clause in the contract, therefore, Sun and Matson submitted to the arbitrators the very questions that Sun now says should not have been answered. Even assuming the questions went beyond the arbitration provisions of the contract,

once the parties have gone beyond their promise to arbitrate and have supplemented the agreement by defining the issue to be submitted to an arbitrator, courts must look both to the contract and to the submission to determine his authority, see Washington-Baltimore Newspaper Guild, Local 35 v. The Washington Post Co., 442 F.2d 1234, 1236 (D.C.Cir.1971).

Mobil Oil Corp. v. Independent Oil Workers Union, 679 F.2d 299, 302 (3d Cir.1982).

Even if resolution of the issue depended solely upon an interpretation of the contract alone Sun would fare no better. A district court's review of an arbitration award is circumscribed by 9 U.S.C. Sec. 10 (1982). That statutory provision limits the court's role to determining whether the parties received a fair and honest hearing on a matter within the arbitrators' authority. See Swift Industries, Inc. v. Botany Industries, Inc., 466 F.2d 1125, 1129-31 (3d Cir.1972). The court may not take issue with the arbitrators' interpretation of the contract. Bernhardt v. Polygraphic Co., 350 U.S. 198, 203 n. 4, 76 S.Ct. 273, 276 n. 4, 100 L.Ed. 199 (1956). Nor can it consider whether the arbitrators committed an error of law. See Ludwig Honold Manufacturing Co. v. Fletcher, 405 F.2d 1123, 1127-28 (3d Cir.1969).

Thus we find no merit in Sun's appeal. Indeed in light of the submission to the arbitrators we deem it to be so frivolous as to fall within that narrow category of appeals that Rule 38 of the Federal Rules of Appellate Procedure is designed to discourage.

III. Matson's Appeal

A. Interest

The district court confirmed an award to Matson of $4,274,864.88. That award was originally made by the arbitration panel on January 10, 1985. The district court judgment was entered on March 29, 1985. The court refused to include interest on the $4,274,864.88 for the intervening seventy-eight days in the apparent belief that it was bound by the arbitrators' calculation of prejudgment interest. This ruling was a legal error. The arbitrators were concerned with interest to the date of their award. They lacked authority to decide the entirely separate question of prejudgment interest on the amount confirmed by the district court judgment. A confirmed arbitration award made under the Federal Arbitration Act, as this one was, bears interest from the date of the award not from the date of the judgment confirming it. See Marion Manufacturing Co. v. Long, 588 F.2d 538, 542 (6th Cir.1978); see also Lundgren v. Freeman, 307 F.2d 104, 112 (9th Cir.1962) (applying Oregon law).

While interest clearly was due for the disputed seventy-eight day period, the rate of interest that should be applied is somewhat less clear. Matson urges that the floating market rate provided for...