Todd Shipyards Corp. v. Cunard Line, Ltd.

• Decision Date: 27 August 1991
• Docket Number: Nos. 89-16607,89-16610,s. 89-16607
• Citation: 943 F.2d 1056
• Parties: TODD SHIPYARDS CORPORATION, Plaintiff-Appellee, v. CUNARD LINE, LTD., and M.V. SAGAFJORD, her engines, boilers, etc., Defendant-Appellant. CUNARD LINE, LTD., and M.V. SAGAFJORD, her engines, boilers, etc., Plaintiff-Appellant, v. TODD SHIPYARDS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1056

943 F.2d 1056

1992 A.M.C. 328

TODD SHIPYARDS CORPORATION, Plaintiff-Appellee, v. CUNARD LINE, LTD., and M.V. SAGAFJORD, her engines, boilers,

etc., Defendant-Appellant.

CUNARD LINE, LTD., and M.V. SAGAFJORD, her engines, boilers, etc., Plaintiff-Appellant, v. TODD SHIPYARDS CORPORATION, Defendant-Appellee.

Nos. 89-16607, 89-16610.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 11, 1990.

Decided Aug. 27, 1991.

Grant B. Hering, Cadwalader, Wickersham & Taft, New York City, for Cunard Line, Ltd.

Allan J. Joseph (argued), and Mark A. White, Rogers, Joseph, O'Donnell & Quinn, San Francisco, Cal., for Todd Shipyards Corp.

Appeal from the United States District Court for the Northern District of California.

Before HUG, BEEZER and BRUNETTI, Circuit Judges.

BRUNETTI, Circuit Judge:

Cunard Line Limited ("Cunard") appeals from a district court order confirming an arbitration award in the matter of Todd Shipyards Corporation and Cunard Line Limited, American Arbitration Association ("AAA"), Case No. 13-110-0658-84, and confirming the denial of Cunard's counterclaim. We have jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

I. FACTS

In September 1983, Todd Shipyards Corporation ("Todd") and Cunard entered into a contract for the repair and refit of a passenger cruise ship, the M.V. Sagafjord. The work was undertaken at Todd's San Francisco shipyard for a fixed price of $4.5 million. The project was extensive and included repairs to the body and interior of the ship, the upgrade and conversion of existing cabins and common areas, and the addition of a two-level module structure housing twenty cabins and a nightclub. The contract contemplated the work would be completed by December 20, 1983.

Section 1 of the contract between Todd and Cunard states: "Drawings and Specifications pertinent to this Contract are attached hereto as Exhibits A and B respectively, and made a part hereof." Neither drawings nor specifications were attached, in fact, and as a result the contract was incomplete in various respects. The parties disagree about the nature and extent of issues left open by the contract, and about terms and understandings outside the written agreement.

The arbitration panel declined to make specific findings of fact. Because this court must accept the facts as decided by the arbitration panel, see infra, III. Standard of Review, the description that follows relies on findings implicit in the arbitration award.

a. Plans and Specifications

The contract contemplated these would be part of the agreement. No plans or specifications were attached to the contract, however, and the arbitration panel decided, despite Cunard's assertion that the parties had agreed to utilize drawings and descriptions contained in two loose-leaf binders, that no such agreement was made. As such, the panel held that in order to determine the intent of the parties with regard to the project, "evidence extrinsic to [the contract] must be used to determine" the nature of the agreement.

b. Construction Engineering and Working Drawings

Todd's bid for the contract included the cost of retaining engineers to inspect the ship and prepare detailed working drawings for the project. In the course of negotiations Cunard informed Todd it would engage an outside firm, Hapag-Lloyd ("Hapag"), to perform this work and provide these materials to Todd. The contract price was reduced by $235,000 to reflect this deletion from the agreement. Todd asserted, and the panel apparently agreed, Cunard's failure to provide adequate drawings caused Todd enormous overtime expense.

c. Supply of Construction Materials, Fixtures and Furnishings

The contract reflected Cunard's desire to provide a variety of construction materials fixtures and furnishings, rather than leave the purchase of these materials to Todd. The panel found Cunard breached this part of the agreement by failing to provide various materials and sufficient installation instructions, and by failing to sufficiently pre-customize certain of the fixtures.

d. Open Items

A number of design decisions left open by the agreement were essential to the completion of the project. The panel found that delay with regard to these decisions by Cunard, and Cunard's "design as you go" approach to the project as a whole led to a large increase in the cost of the project to Todd.

Because of Cunard's failure to provide specifications, drawings, materials and design support during the project, Todd was not able to complete the repair and conversion of the Sagafjord in the fifty days allotted. More significantly, Todd incurred a large additional expense due to overtime worked in an effort to complete the project despite Cunard's intransigence. Cunard refused to pay even the fixed contract price ($4.5 million) because Todd failed to complete the entire project within the contract period.

II. PROCEEDINGS BELOW

Todd filed suit against Cunard, and in rem against the Sagafjord, alleging breach of contract, quantum merit, breach of duty of good faith and fair dealing, and fraud. Todd filed a demand for arbitration pursuant to a comprehensive arbitration clause in the contract. The arbitration commenced in March 1985. ¹

The arbitration was dominated at once by the question whether the written agreement dated September 22, 1983, was the entire contract between the parties. Cunard filed a motion in the District Court of New Jersey seeking determination under 9 U.S.C. § 4 whether it was within the authority of the arbitration panel to decide the scope of the written agreement. The action was transferred to the Northern District of California where Judge Williams held that the arbitration clause contained in the contract contemplated arbitration of "any and every dispute," which included the question whether the written contract was a complete representation of the parties' agreement.

In August 1986 the arbitration panel issued an interim ruling on "Contract Composition." The panel determined: (a) the contract referred to exhibits which purportedly described the nature of the "repairs" contemplated by the agreement; (b) such exhibits were not attached to the contract; (c) the contract did not contain the complete understanding of the parties; (d) extrinsic evidence was necessary to arrive at something approaching the parties' understanding; and (e) various amendments and additions to the agreement occurred after the parties signed the written contract. As a result of these findings the panel invalidated the contract's integration section (§ 19) which, as Cunard avers, "emasculated the parties' fixed price contract."

After an extensive arbitration over more than two years the panel issued an award in favor of Todd for $11.4 million, including compensatory damages, punitive damages, attorneys' fees, and costs. The panel also denied Cunard's counterclaim for Todd's alleged failure to perform the contract within the period allotted.

Cunard filed a motion in the District Court of New Jersey to vacate the award, while Todd asked the District Court for the Northern District of California to confirm the award. The entire matter was considered by the latter court which confirmed the award in its entirety. See Todd Shipyards Corp. v. Cunard Lines Ltd., 735 F.Supp. 1463 (N.D.Cal.1989).

III. STANDARD OF REVIEW

The Federal Arbitration Act, 9 U.S.C. at § 10, sets out the grounds upon which a federal court may vacate the decision of an arbitration panel. The statute addresses decisions influenced by corruption or undue influence, and cases in which arbitrators exceed their power under the terms of an agreement to arbitrate. Courts have interpreted this section narrowly, in light of Supreme Court authority strictly limiting federal court review of arbitration decisions. It is generally held that an arbitration award will not be set aside unless it evidences a "manifest disregard for law." See "Steelworkers Trilogy": United Steelworkers v. American Manufacturing Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); United Steelworkers v. Enterprise Wheel & Car Co., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960).

We said in San Martine Compania De Navegacion v. Saguenay Terminals Ltd., 293 F.2d 796, 800 (9th Cir.1961):

[A]n award such as this, which is one within the terms of the submission, will not be set aside by a court for error in law or fact.... "Arbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal. As a mode of settling disputes, it should receive every encouragement from courts.... If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court ... will not set it aside for error, either in law or fact." (quoting Burchell v. Marsh, 58 U.S. (17 How.) 344, 349, 15 L.Ed. 96 (1854))

More recently we have reemphasized the stringent standard set out in these early cases. In French v. Merrill Lynch, 784 F.2d 902, 906 (9th Cir.1986), we stated: "We review the Panel's award mindful that confirmation is required even in the face of 'erroneous ... misinterpretations of law.' ... It is not even enough that the Panel may have failed to understand or apply the law.... An arbitrator's decision must be upheld unless it is 'completely irrational,' or it constitutes a 'manifest disregard of law.' " (citations and notes omitted); accord Coast Trading Co., Inc. v. Pacific Molasses Co., 681 F.2d 1195 (9th Cir.1982).

IV. COMPENSATORY DAMAGES

The arbitration panel awarded Todd more than $6 million for work it performed beyond that contemplated by the contract. Cunard argues the arbitration panel exceeded its power and acted in manifest disregard of law by ignoring, indeed by excising portions of the contract which, in its view, limit Todd's right to recover...