Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH , 141 F.3d 1434 ( 1998 )

United States Court of Appeals,
Eleventh Circuit.
Nos. 94-2982, 94-2530.
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. GUTEHOFFNUNGSHÜTTE 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.
May 22, 1998.
Appeals from the United States District Court for the Middle District of Florida. (No. 85-1770-CIV-
T-17), Elizabeth A. Kovachevich, Judge.
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 Company1 appeal from the district
court's denial of their motion to vacate an international commercial arbitration award. On
cross-appeal, respondent M.A.N. Gutehoffnungshütte GmbH ("MAN GHH") challenges the district
*
Honorable John F. Nangle, Senior U.S. District Judge for the Eastern District of Missouri,
sitting by designation.
1
The only interest of American Home Assurance in this appeal is that it is among the parties
against whom costs were imposed by the arbitral panel. As stated infra part I.C, we affirm that
costs award. We omit any further reference to American Home Assurance for clarity's sake.
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-Nürnberg 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-Nürnberg AG. MAN GHH
was responsible for designing, manufacturing, and delivering a functional tail gas expander and for
2
We recite only those facts and prior proceedings necessary to an understanding of the issues
raised on appeal.
3
A tail gas expander is essentially a turbine which generates electricity from waste gasses
given off in the nitric acid manufacturing process.
4
Barnard and Burk Engineers and Constructors, Inc., and ISI, Inc., are both wholly-owned
subsidiaries of Barnard and Burk Group.
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
5
Several other companies were parties to the litigation in the district court in various
capacities, but were not parties to the arbitral proceeding that gives rise to this appeal, and are
consequently not parties to this appeal. We omit reference to them for clarity's sake.
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, 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.
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.
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 proceeded in the
belief that its jurisdiction was grounded in diversity, and that its treatment of the arbitral proceedings
was therefore controlled by Chapter 1 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16(1994), which covers domestic arbitral proceedings. We conclude that the district court was in error,
and hold that the case is controlled by Chapter 2 of the FAA, 9 U.S.C. §§ 201-208, which covers
international arbitral proceedings.
The instant case presents an issue of first impression in this court: Do the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York
Convention"), and thus the provisions of Chapter 2 of the FAA, govern an arbitral award granted
to a foreign corporation by an arbitral panel sitting in the United States and applying American
federal or state law? We hold that they do.
The New York Convention was drafted in 1958 under the auspices of the United Nations.
See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for
signature June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 3. The United States
acceded to the treaty in 1970, and Chapter 2 of the FAA was passed that same year. The purpose
of the New York Convention, and of the United States' accession to the convention, is to "encourage
the recognition and enforcement of international arbitral awards," Bergesen v. Joseph Muller Corp.,
710 F.2d 928, 932 (2d Cir.1983), to "relieve congestion in the courts and to provide parties with an
alternative method for dispute resolution that [is] speedier and less costly than litigation."
Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176, 1179 (11th Cir.1981). See also generally
Leonard V. Quigley, "Accession by the United States to the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards," 70 Yale L.J. 1049 (1961) (recounting
the deliberations of the New York Convention and describing accession's benefits for the U.S.). The
Convention, and American enforcement of it through the FAA, "provide[ ] businesses with a widely
used system through which to obtain domestic enforcement of international commercial arbitration
awards resolving contract and other transactional disputes, subject only to minimal standards of
domestic judicial review for basic fairness and consistency with national public policy." G. Richard
Shell, "Trade Legalism and International Relations Theory: An Analysis of the World Trade
Organization," 44 Duke L.J. 829, 888 (1995).
The New York Convention is incorporated into federal law by the FAA, which governs the
enforcement of arbitration agreements, and of arbitral awards made pursuant to such agreements,
in federal and state courts. See Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 269-73,
115 S.Ct. 834, 837-39, 130 L.Ed.2d 753 (1995). Chapter 2 of the Act, 9 U.S.C. §§ 201-208,
mandates the enforcement of the New York Convention in United States courts. See 9 U.S.C. § 201.
Chapter 2 generally establishes a strong presumption in favor of arbitration of international
commercial disputes, see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,
638-40, 105 S.Ct. 3346, 3359-61, 87 L.Ed.2d 444 (1985), and creates original federal subject-matter
jurisdiction over any action arising under the Convention. See 9 U.S.C. § 203; H.R.Rep. No. 91-
1181, at 2 (1970), reprinted in 1970 U.S.C.C.A.N. 3601, 3602 ("Section 203 gives original
jurisdiction over any action or proceeding falling under the Convention to the district courts of the
United States regardless of the amount in controversy."). As an exercise of the Congress' treaty
power and as federal law, "[t]he Convention must be enforced according to its terms over all prior
inconsistent rules of law." Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l. Oil Co. (Pemex), 767
F.2d 1140, 1145 (5th Cir.1985).
The Convention by its terms applies to only two sorts of arbitral awards: 1) awards made
in a country other than that in which enforcement of the award is sought, and 2) awards "not
considered as domestic awards in" the country where enforcement of the award is sought. It is
apparent that the arbitral award at issue in the instant case does not fall within the first category. We
hold, however, that it does fall within the second category. Section 202 of the FAA provides that
all arbitral awards arising out of commercial relationships fall under the Convention, except for
those awards that "aris[e] out of ... a [commercial] relationship which is entirely between citizens
of the United States...." 9 U.S.C. § 202.6 We read this provision to define all arbitral awards not
6
The entire section reads:
An arbitration agreement or arbitral award arising out of a legal relationship,
whether contractual or not, which is considered as commercial, including a
transaction, contract, or agreement described in section 2 of this title, falls under
"entirely between citizens of the United States" as "non-domestic" for purposes of Article I of the
Convention. We join the First, Second, Seventh, and Ninth Circuits in holding that arbitration
agreements and awards "not considered as domestic" in the United States are those agreements and
awards
which are subject to the Convention not because [they were] made abroad, but because [they
were] made within the legal framework of another country, e.g., pronounced in accordance
with foreign law or involving parties domiciled or having their principal place of business
outside the enforcing jurisdiction. We prefer this broad[ ] construction because it is more
in line with the intended purpose of the treaty, which was entered into to encourage the
recognition and enforcement of international arbitration awards.
Bergesen, 710 F.2d at 932 (emphasis added) (internal citation omitted); see also Yusuf Ahmed
Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 18-19 (2d Cir.1997); Jain v. de Mere,
51 F.3d 686, 689 (7th Cir.1995) (stating that the New York Convention and § 202 "mandate[ ] that
any commercial arbitral agreement, unless it is between two United States citizens, involves property
located in the United States, and has no reasonable relationship with one or more foreign states, falls
within the Convention"); Ministry of Defense of the Islamic Republic of Iran v. Gould Inc., 887 F.2d
1357, 1362 (9th Cir.1989) (holding that New York Convention applies when arbitral "award (1) ...
arise[s] out of a legal relationship (2) which is commercial in nature and (3) which is not entirely
domestic in scope", and that the award at issue was "obviously not domestic in nature because Iran
[was] one of the parties to the agreement"); Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-87 (1st
the Convention. An agreement or award arising out of such a relationship which
is entirely between citizens of the United States shall be deemed not to fall under
the Convention unless that relationship involves property located abroad,
envisages performance or enforcement abroad, or has some other reasonable
relation with one or more foreign states. For the purpose of this section a
corporation is a citizen of the United States if it is incorporated or has its principal
place of business in the United States.
9 U.S.C. § 202.
Cir.1982) (stating that Chapter 2 mandates enforcement of a written commercial arbitral agreement
when one of the parties to the agreement is not an American citizen). Specifically for purposes of
the case sub judice, we hold that an arbitral award made in the United States, under American law,
falls within the purview of the New York Convention—and is thus governed by Chapter 2 of the
FAA—when one of the parties to the arbitration is domiciled or has its principal place of business
outside of the United States.
MAN GHH is a German corporation. The arbitral award granted to it by the Tampa panel
is therefore non-domestic within the meaning of § 202 of the FAA and article 1 of the New York
Convention.7 We therefore hold federal subject-matter jurisdiction over this appeal.
III.
Having established the source of our jurisdiction, we move to address the appeal on the
merits. The Tampa panel's arbitral award must be confirmed unless appellants can successfully
assert one of the seven defenses against enforcement of the award enumerated in Article V of the
New York Convention.8 See Imperial Ethiopian Gov't v. Baruch-Foster Corp., 535 F.2d 334, 335-
7
The appellants argue that the award at issue does not fall under the Convention because
MAN GHH's American subsidiary was also a party to the arbitration. The presence of the
subsidiary does not, however, take the award out of the purview of the Convention, so long as
the foreign parent was a party to the proceeding.
8
Article V reads:
1. Recognition and enforcement of the award may be refused, at the request of the
party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement ... were, under the law applicable to them,
under some incapacity, or the said agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under the law of
the country where the award was made; or
(b) The party against whom the award is invoked was not given proper
36 (5th Cir.1976);9 see also National Oil Corp. v. Libyan Sun Oil Co., 733 F.Supp. 800, 813
(D.Del.1990). The appellants bear the burden of proving that any of these seven defenses is
applicable. See Imperial Ethiopian Gov't, 535 F.2d at 336.
Only two of the seven enumerated defenses might apply to the instant case. The first is that
notice of the appointment of the arbitrator or of the arbitration proceedings or was
otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can be separated from those not so
submitted, that part of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties, or, failing such agreement,
was not in accordance with the law of the country where the arbitration took
place; or
(e) The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or under the
law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is sought
finds that:
(a) The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the
public policy of that country.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art. 5,
opened for signature June 10, 1958, 21 U.S.T. 2517, 2520, 330 U.N.T.S. 3, reprinted in 9
U.S.C.A. § 201 note (West supp.1997). The New York Convention's enumeration of
defenses against enforcement is exclusive. See part II.C, infra.
9
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc), this court
adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981.
found in Article V(1)(d), which provides that a court may refuse to confirm an international arbitral
award if "the arbitral procedure was not in accordance with the agreement of the parties." The
second is that found in Article V(2)(b), which provides that a court may refuse to enforce an arbitral
award if "the recognition or enforcement of the award would be contrary to the public policy of" the
country where enforcement is sought.
The appellants argue that the procedures of the Tampa panel were not in accordance with
the parties' arbitration agreement,10 and that the award therefore should not have been confirmed.
They argue that the panel should not have considered the contents of a technical report on the
wrecks provided by the German technical institute Rheinisch-Westfälischer Technischer
Ùberwachung Verein (the "TÙV report"), because that report was provided to the appellants at a
relatively late date, very shortly before the proceedings began. In considering that report, the
appellants argue, the arbitration panel violated the rules of the American Arbitration Association,
which were the agreed-upon rules of procedure for the arbitration. The appellants also assert that
the panel should not have heard the testimony of Donald Hansen, a piping expert who had
previously been retained by Respondent IRI to inspect the tail gas expander onsite at the Tampa
plant after the first wreck and who was directly involved in the redesign of the expander before the
second wreck. Allowing this testimony, the appellants argue, violated "the well-established public
10
The appellants make this assertion in support of their argument that the arbitration
proceedings did not conform to the requirements of Chapter 1 the FAA. The nonconformity of
arbitral procedures to the agreement of the parties "is a defense under both the [FAA] and the
New York Convention. The wording is slightly different but there is no reason to think the
meaning different." Lander Co. v. MMP Invs., Inc., 107 F.3d 476, 481 (7th Cir.1997) (internal
citation omitted). We therefore treat the appellants' argument that the nonconformity of the
arbitral procedures to the agreement of the parties violated Chapter 1 of the FAA as an argument
that that nonconformity was a violation of the New York Convention and Chapter 2. Likewise,
we treat the appellants' argument that the admission of Hansen's testimony was a violation of
public policy warranting vacatur of the award under Chapter 1 as an argument for vacatur under
Chapter 2.
policy protecting ... fundamental principles of fairness and professional conduct." The appellants
also assert a defense that is not enumerated by the New York Convention: that the arbitral award
should be vacated on the ground that it is "arbitrary and capricious."
We review de novo the district court's determinations that the procedures observed by the
arbitrators were in accordance with the agreement of the parties, that the admission of Hansen's
testimony was not violative of public policy, and that the award was not "arbitrary and capricious."
See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-49, 115 S.Ct. 1920, 1926, 131
L.Ed.2d 985 (1995) (requiring de novo review of questions of law involved in a district court's
refusal to vacate an arbitral award). We hold that the admission of the TÙV report was in
accordance with the AAA rules and therefore with the agreement of the parties. We also hold that
the admission of Hansen's testimony was not a violation of public policy of the sort required to
sustain a defense under the New York Convention. We further hold that no defense against
enforcement of an international arbitral award under Chapter 2 of the FAA is available on the
ground that the award is "arbitrary and capricious," or on any other grounds not specified by the
Convention.
A.
Rule 3 of the AAA's Supplementary Procedures for International Commercial Arbitration
provides that
[a]t the request of any party, the AAA will make arrangements for the exchange of
documentary evidence or lists of witnesses between the parties. In international cases, it is
important that parties be able to anticipate what will transpire at the hearing. By cooperating
in an exchange of relevant information, the parties can avoid unnecessary delays.
The TÜV report was provided to the appellants on Jan. 8, 1993—the Friday before the Monday
when the arbitration proceedings began—and was not admitted into evidence by the arbitrators until
March 26, 1993. The appellants objected to its admission at that time and were allowed to
cross-examine Hansen about the institute's report and about his conclusions based on it. The
appellants also rebutted Hansen's testimony with testimony from experts of their own.
MAN GHH did produce the TÙV report very shortly before the commencement of the
arbitration proceedings. But arbitration proceedings "need not follow all the "niceties' of the federal
courts; [they] need provide only a fundamentally fair hearing."11 Grovner v. Georgia-Pacific, 625
F.2d 1289, 1290 (5th Cir. Unit B 1980).12 "An arbitrator enjoys wide latitude in conducting an
arbitration hearing. Arbitration proceedings are not constrained by formal rules of procedure or
evidence." Robbins v. Day, 954 F.2d 679, 685 (11th Cir.1992), overruled on other grounds, Kaplan,
514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985. Arbitration rules, such as those of the AAA, are
intentionally written loosely, in order to allow arbitrators to resolve disputes without the many
procedural requirements of litigation.
The AAA's Rule 3 is a prime example. It does not require parties to provide all documents
by any certain deadline; rather, it notes the importance of predictability in the proceedings and of
11
The appellants rely on this language from Grovner as an independent ground for their
argument that the arbitral award should not be enforced: they argue that, because the TÙV
report was admitted into the arbitral proceedings on such short notice, and because Hansen's
testimony was admitted, the proceedings were fundamentally unfair, and the awards arising from
that proceeding should be vacated. As a threshold matter, we note that this argument assumes
that a defense against enforcement of an international arbitral award is available on the ground
that the arbitral proceeding is "fundamentally unfair." This is an open question. See infra part
I.C (discussing exclusivity of the New York Convention's enumeration of defenses against
enforcement). We need not decide this question, however, because it is apparent that the
admission of Hansen's testimony and the relatively late provision of the TÙV report did not
render the proceedings fundamentally unfair. The appellants had ample opportunity to rebut the
report and Hansen's testimony, and in fact did so with expert witnesses of their own. Any undue
prejudice caused by the admission of Hansen's testimony and of the TÙV report was therefore
cured sufficiently to ensure that the proceedings were not rendered fundamentally unfair by the
admission of these materials.
12
In Stein v. Reynolds Securities, Inc., 667 F.2d 33 (11th Cir.1982), this court adopted as
binding precedent all decisions of Unit B of the former Fifth Circuit handed down after
September 30, 1981.
the efficient exchange of relevant information, and provides only that "the AAA will make
arrangements for the exchange of documentary evidence." There is thus no notice requirement in
Rule 3 that MAN GHH could have violated; instead, arbitrators are left wide discretion to require
the exchange of evidence, and to admit or exclude evidence, how and when they see fit. This is the
rule to which the parties agreed, and we therefore cannot say that the relatively late provision of the
TÙV report, and its admission by the panel, constituted a failure of the panel to adhere to the parties'
agreement.13
B.
The appellants also argue that the award should be vacated on the ground that the arbitration
panel improperly heard testimony from Hansen, a piping expert who was retained by appellant IRI
to inspect the tail gas expander casing onsite at the Tampa plant after the first wreck and who was
directly involved in the redesign of the expander casing before the second wreck. The arbitration
panel called Hansen to testify sua sponte, after the appellants objected to MAN GHH's attempt to
call him.
The appellants assert that "[f]ederal and Florida cases uniformly prohibit "side-switching,'
13
Respondents also argue that the admission of the TÙV report at a relatively late date
violated the panel's own prehearing order. That order provided that
[e]ach side shall submit its expert witnesses' reports, witness depositions, or
excerpts, to be relied upon, and expert witness summaries/affidavits, which shall
include the experts' backgrounds and history, in quadruplicate, to the Association,
for transmittal to the Arbitrators, by June 12, 1992.
The admission of such documents after June 12, 1992, in contravention of the panel's
order, might or might not violate the agreement of the parties. We need not reach that
question, however, because the TÙV report was an exhibit, not an "expert witness[ ]'
report[ ], witness deposition[ ] ... excerpt[ ] ... expert witness summar[y,][or] affidavit[ ]."
Its production was therefore not required by the prehearing order, and that order was not
violated by its late production.
" that is, testimony against a party's interest by an expert witness formerly retained by that party.14
Such testimony, they argue, violates "the well-established public policy protecting ... fundamental
principles of fairness and professional conduct." The appellants cite no rule of procedure or of
evidence, and not a single case, establishing the purported "rule against side-switching." Rather, the
appellants cite cases prohibiting attorneys from, or disqualifying attorneys for, contacting
counterparties' experts in violation of: 1) Fed.R.Civ.P. 26,15 see Durflinger v. Artiles, 727 F.2d 888(10th Cir.1984); 2) attorney-client privilege, see Rentclub, Inc. v. Transamerica Rental Fin. Corp.,
811 F.Supp. 651 (M.D.Fla.1992); or 3) the confidentiality of work product or litigation strategy,
see MMR/Wallace Power & Indus., Inc. v. Thames Assocs., 764 F.Supp. 712 (D.Conn.1991);
Geralnes B.V. v. City of Greenwood Village, 609 F.Supp. 191 (D.Colo.1985). The effect of these
rules, taken together, is that parties will rarely be able to avail themselves of the services of the other
side's expert witnesses—but that is merely the effect of these rules and not a rule unto itself. In the
14
As an initial matter, we doubt whether Hansen was in fact an "expert witness" for IRI, and
not merely a professional consultant who in this case happened to be a fact witness. Hansen
never had an exclusivity or confidentiality agreement with IRI and was never asked to serve as
an expert witness in the litigation in district court. These facts alone suffice to distinguish the
instant case from the Middle District of Florida's holding in Rentclub, Inc. v. Transamerica
Rental Fin. Corp., 811 F.Supp. 651 (M.D.Fla.1992), upon which the appellants rely. Most
important, however, Hansen directly observed the redesign and reconstruction of the expander
after the first wreck, and consulted with the parties during that process; in this regard his status
in the arbitration proceeding was much the same as that of a consulting physician in a medical
malpractice case. Nevertheless, we assume arguendo that Hansen's consulting work for IRI
qualifies him as IRI's "expert witness" for purposes of this discussion.
15
Rule 26(b)(4)(B) provides:
A party may, through interrogatories or by deposition, discover facts known or
opinions held by an expert who has been retained or specially employed by
another party in anticipation of litigation or preparation for trial and who is not
expected to be called as a witness at trial, only as provided in Rule 35(b) or upon
a showing of exceptional circumstances under which it is impracticable for the
party seeking discovery to obtain facts or opinions on the same subject by other
means.
absence of any precedent, we decline to recognize any blanket rule or policy against
"side-switching."
Moreover, none of the concerns in the cases cited by respondents are implicated by the
arbitration panel's admission of Hansen's testimony. Rule 26 does not independently apply to
arbitration proceedings, and attorney-client privilege is not a concern because there is no allegation
that Hansen divulged any information properly protected by the privilege. Concerns about the
confidentiality of work product and litigation strategy are not implicated because Hansen was called
by the panel, not by MAN GHH, and because his testimony before the panel neither relied upon any
confidential work product of IRI's attorneys nor included any information about the respondents'
litigation strategy.
Finally, even if such concerns were implicated by the admission of Hansen's testimony, we
could not consider vacatur of the district court's order confirming the award unless that admission
fell within one of the New York Convention's seven grounds for refusal to enforce an award. See
M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 (6th Cir.1996) ("[T]he Convention
lists the exclusive grounds justifying refusal to recognize an [international] arbitral award."). Even
if the purported "rule against side-switching" did exist, for instance, it would not control arbitration
proceedings unless the parties agreed to be controlled by it. See Szuts v. Dean Witter Reynolds, Inc.,
931 F.2d 830, 831 (11th Cir.1991) (noting that power and authority of arbitrator at arbitration
proceeding is dependent upon the provisions of the arbitration agreement under which he was
appointed). Nor have the appellants established that the admission of Hansen's testimony was a
violation of public policy of the sort required to sustain a defense under article V(b)(2) of the New
York Convention. We have held that domestic arbitral awards are unenforceable on grounds that
they are violative of public policy only when the award violates some "explicit public policy" that
is "well-defined and dominant ... [and is] ascertained "by reference to the laws and legal precedents
and not from general consideration of supposed public interests.' " Drummond Coal Co. v. United
Mine Workers, District 20, 748 F.2d 1495, 1499 (11th Cir.1984) (quoting W.R. Grace & Co. v.
Local Union 759, Int'l Union of the United Rubber, Cork, Linoleum & Plastic Workers, 461 U.S.
757, 766, 103 S.Ct. 2177, 2183, 76 L.Ed.2d 298 (1983)). We believe that rule applies with equal
force in the context of international arbitral awards. See Parsons & Whittemore Overseas Co., Inc.
v. Societe Generale de L'Industrie du Papier (RAKTA), 508 F.2d 969, 974 (2d Cir.1974) (holding
that "the Convention's public policy defense should be construed narrowly"). The appellants cite
no laws or precedents in support of their invocation of "the well-established public policy protecting
... fundamental principles of fairness and professional conduct." We therefore hold that the
appellants have not established a violation of public policy sufficiently to sustain a defense under
article V(b)(2) of the New York Convention.
C.
Finally, the appellants also argue that the arbitral award should be vacated on the ground
that it is "arbitrary and capricious." See, e.g., Ainsworth v. Skurnick, 960 F.2d 939, 941 (11th
Cir.1992), cert. denied, 507 U.S. 915, 113 S.Ct. 1269, 122 L.Ed.2d 665 (1993). We reject this
argument as well. Under the law of this circuit, domestic arbitral awards may be vacated for six
different reasons; four are enumerated by the FAA and two are non-statutory defenses against
enforcement, derived by the courts from the statutory list. See Raiford v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 903 F.2d 1410, 1412 (11th Cir.1990). The two non-statutory defenses against
enforcement of a domestic award are 1) that the award is "arbitrary and capricious"16 and 2) that
16
A domestic arbitral award may be vacated as "arbitrary and capricious" if it "exhibits a
wholesale departure from the law [or] if the reasoning is so palpably faulty that no judge, or
group of judges, could ever conceivably have made such a ruling." Brown v. Rauscher Pierce
enforcement of the award would be contrary to public policy. See Montes v. Shearson Lehman
Bros., Inc., 128 F.3d 1456, 1458 (11th Cir.1997).
As discussed supra, the seven defenses against enforcement of an international arbitral award
that are enumerated in the New York Convention include a public policy defense. The Convention
does not, however, include a defense against enforcement of an award on the ground that the award
is "arbitrary and capricious." The omission is decisive. Section 207 of Chapter 2 of the FAA
explicitly requires that a federal court "shall confirm [an international arbitral] award unless it finds
one of the grounds for refusal or deferral of ... enforcement of the award specified in the [New York]
Convention." 9 U.S.C. § 207 (1997 supp.). The Convention itself provides that "enforcement of
[an] award may be refused, at the request of the party against whom it is invoked, only if that party
furnishes ... proof that" one of the enumerated defenses is applicable. Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21
U.S.T. 2517, 2520, T.I.A.S. No. 6997, 330 U.N.T.S. 3 (reprinted in 9 U.S.C.A. § 201 note (West
supp.1997)) (emphasis added). In short, the Convention's enumeration of defenses is exclusive. See
Yusuf Ahmed Alghanim & Sons, 126 F.3d at 20 (holding that "the grounds for relief enumerated in
Article V of the Convention are the only grounds available for setting aside an arbitral award"); M
& C Corp. v. Erwin Behr, 87 F.3d 844, 851 (6th Cir.1996) (same). We therefore hold that no
defense against enforcement of an international arbitral award under Chapter 2 of the FAA is
available on the ground that the award is "arbitrary and capricious," or on any other grounds not
specified by the Convention. The appellants' attempt to invoke such a defense thus fails.
We therefore decline to vacate the arbitral award granted to MAN GHH by the Tampa panel.
Because we affirm the award, we also decline to vacate the derivative awards of costs and
Refsnes, Inc., 994 F.2d 775, 781 (11th Cir.1993).
conversion rate compensation.
IV.
On cross-appeal, MAN GHH complains of the district court's refusal to award to MAN GHH
post-arbitral-award, prejudgment interest. MAN GHH moved the court to enter judgment on the
arbitral award and to grant prejudgment interest from the date the last arbitral award was made
through the date of the Court's entry of the amended final judgment. The court entered judgment
on the award but declined to award such interest. The court held that its jurisdiction was grounded
in diversity, and that state law therefore would control the award of prejudgment interest. The court
then concluded that Florida law does not authorize the granting of post-arbitral-award, prejudgment
interest. Because we hold that the district court held federal question jurisdiction over the case
pursuant to Chapter 2 of the FAA, see part I, supra, and that federal law allows awards of
post-arbitral-award, prejudgment interest, we remand for a determination whether, in the court's
discretion, the circumstances of the instant case warrant such an award.
Unlike most other countries, the United States has no federal statute governing awards of
prejudgment interest on international arbitral awards. See John Y. Gotanda, "Awarding Interest in
International Arbitration," 90 Am. J. Int'l L. 40, 45 (1996). Instead, awards of prejudgment interest
are equitable remedies, to be awarded or not awarded in the district court's sound discretion. See
Osterneck v. E.T. Barwick Ind., Inc., 825 F.2d 1521, 1536 (11th Cir.1987); Waterside Ocean
Navigation Co. v. International Navigation Ltd., 737 F.2d 150, 153 (2d Cir.1984). Under the law
of this circuit, "[p]re-judgment interest is not a penalty, but compensation to the plaintiff for the use
of funds that were rightfully his," see Insurance Co. of N. Am. v. M/V Ocean Lynx, 901 F.2d 934,
942 (11th Cir.1990), and absent any reason to the contrary, it should normally be awarded when
damages have been liquidated by an international arbitral award. See Waterside Ocean Navigation,
737 F.2d at 153-54 ("Absent persuasive reasons to the contrary, we do not see why pre-judgment
interest should not be available in actions brought under the [New York] Convention."); see also
Fort Hill Builders, Inc. v. National Grange Mut. Ins. Co., 866 F.2d 11, 14 (1st Cir.1989) (holding
that, under either federal or Rhode Island law, post-award, prejudgment interest should be awarded
on domestic arbitral award); Sun Ship, Inc. v. Matson Navigation Co., 785 F.2d 59 (3d Cir.1986)
(holding that confirmed domestic arbitral award bears interest from date of award, not from date of
judgment confirming award).17
In the absence of a controlling statute, federal courts' choice of a rate at which to determine
the amount of prejudgment interest to be awarded is also a matter for their discretion. That choice
is usually guided by principles of reasonableness and fairness, by relevant state law, and by the
relevant fifty-two week United States Treasury bond rate, which is the rate that federal courts must
use in awarding post-judgment interest. See 28 U.S.C. § 1961; Gotanda, supra, at 45 and n. 63
(citing cases).
Because the district court below held federal subject-matter jurisdiction under 9 U.S.C. §
203, the decision whether to grant prejudgment interest was a matter for the court's discretion and
was not controlled by state law. The district court declined to award post-arbitral-award,
prejudgment interest on the grounds that it held only diversity jurisdiction, that state law therefore
controlled, and that Florida law prohibited such an award under the circumstances. Because we hold
that federal law controls both the entitlement to and the rate of post-arbitralaward, prejudgment
17
We note that international arbitrators often award post-arbitral-award interest. See, e.g.,
Bergesen v. Joseph Muller Corp., 548 F.Supp. 650, 651 (S.D.N.Y.1982); Laminoirs-Trefileries-
Cableries De Lens, S.A. v. Southwire Co., 484 F.Supp. 1063, 1069 (N.D.Ga.1980).
interest, we find that the district court failed to exercise its discretion.18 We therefore remand for
a determination whether, under the circumstances, MAN GHH is entitled to post-arbitral-award,
prejudgment interest.
V.
In a separate appeal, MAN GHH's counsel challenge the district court's imposition of Rule
11 sanctions.19 The decision whether to impose Rule 11 sanctions is left to the district court's sound
18
We also note that, while the district court may choose to be guided by Florida law in
determining whether to grant post-award, prejudgment interest, it appears to have misread
Pharmacy Management Servs., Inc. v. Perschon, 622 So.2d 75 (Fla.2d Dist.Ct.App.1993). That
case held that a court may not grant pre-award interest on a final arbitral award that states that it
is in full settlement of all claims. Perschon did not hold that a court may not grant post-award,
pre-judgment interest on such an award.
19
Rule 11 provides in relevant part:
(b) Representations to Court. By presenting to the court (whether by signing,
filing, submitting, or later advocating) a pleading, written motion, or other paper,
an attorney or unrepresented party is certifying that to the best of the person's
knowledge, information, and belief, formed after an inquiry reasonable under the
circumstances—
(1) it is not being presented for any improper purpose, such as to harass or
to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted
by existing law or by a nonfrivolous argument for the extension,
modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support
or, if specifically so identified, are likely to have evidentiary support after
a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on a lack of information or
belief.
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court
determines that subdivision (b) has been violated, the court may, subject to the
conditions stated below, impose an appropriate sanction upon the attorneys, law
discretion. See Worldwide Primates, Inc. v. McGreal, 87 F.3d 1252, 1254 (11th Cir.1996). An
abuse of discretion occurs when the court makes a clear error of law or fact in determining whether
to impose sanctions. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447,
2461, 110 L.Ed.2d 359 (1990).
Sanctions may be imposed under Rule 11 for filings that are presented to the court "for any
improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost
of litigation." Fed.R.Civ.P. 11(b)(1); see also Pelletier v. Zweifel, 921 F.2d 1465, 1514 (11th
Cir.1991). "Improper purpose may be shown by excessive persistence in pursuing a claim or
defense in the face of repeated adverse rulings.... Rule 11 is intended to reduce frivolous claims and
to deter costly meritless maneuvers, thereby eliminating delay, and reducing the cost of litigation."
Pierce v. Commercial Warehouse, 142 F.R.D. 687, 690-91 (M.D.Fla.1992). In order for sanctions
to be appropriate, however, the filing for which sanctions are imposed must be frivolous, that is, it
must enjoy no factual and legal support in the record. See Davis v. Carl, 906 F.2d 533, 538 (11th
Cir.1990) ("Rule 11 is intended to deter claims with no factual or legal basis at all; creative claims,
coupled even with ambiguous or inconsequential facts, may merit dismissal, but not punishment."
(emphasis in original)). In order for sanctions to be imposed for excessive relitigation of an issue
already decided by the court, the disputed issue must have been clearly decided by the court's earlier
orders, and counsel's relitigation of the issue must clearly offer no meritorious new arguments. See,
e.g., Mariani v. Doctors Assoc's, Inc., 983 F.2d 5, 8 (1st Cir.1993) (imposing sanctions for "virtually
verbatim " reargumentation of an issue—dismissal of the action—clearly already decided by the
firms, or parties that have violated subdivision (b) or are responsible for the
violation.
Fed.R.Civ.P. 11.
court) (emphasis in original).
The facts underlying the instant sanctions order are as follows. MAN GHH provided the
expander and various services to Barnard and Burk pursuant to one contract for the design,
manufacture, and sale of the expander ("the design contract") and one service contract; MAN GHH
also provided spare parts and services to Nitram under two separate service contracts.20 The
transactions between MAN GHH, Nitram, and Barnard and Burk that were the subject of the arbitral
proceeding thus arose out of four separate contracts. In the district court, MAN GHH first moved
for arbitration of the third-party claims asserted against it by Barnard and Burk, and later, after
Nitram and IRI had filed tort and breach-of-warranty claims against MAN GHH, moved for
arbitration of those claims as well.21 At the time that MAN GHH moved for arbitration of Nitram's
and IRI's claims against it, only one contract—the design contract—had been entered into the record
below. Nitram and IRI were not parties to this contract and argued that they therefore ought not to
be ordered to submit their claims to the arbitrators. MAN GHH contended—and the district court
concluded—that all of the claims involved in the case at that time were so closely related that they
all should be submitted to the Tampa panel. The district court referred to the arbitration clause in
the design contract and ordered arbitration, in Tampa, of Nitram's and IRI's claims against MAN
20
Specifically, MAN GHH 1) provided the expander to Barnard and Burk Group under the
design contract; 2) provided engineering services to Barnard and Burk Engineers and
Constructors under a second contract; 3) provided engineering services to Nitram under a third
contract; and 4) provided a spare rotor to Nitram under a fourth contract. We refer to these
latter three contracts as "the service contracts" for brevity's sake.
21
As the district court noted, Nitram's and IRI's claims against MAN GHH were arbitrable
even though they were cast as tort and breach-of-warranty claims, rather than contract claims.
See Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 846 (2d Cir.1987) (holding that, in
determining whether particular claim falls within scope of arbitration agreement, court focuses
on factual allegations in complaint rather than legal causes of action asserted, and if allegations
underlying claims "touch matters" covered by parties' arbitration agreement, then claims must be
arbitrated, whatever legal labels are attached to them).
GHH, along with those of Barnard and Burk.22
Before the Tampa arbitration began, MAN GHH returned to the district court and moved
for 1) a preliminary injunction limiting the scope of the Tampa arbitration and, in the alternative,
2) an order compelling arbitration, in Europe, of some claims that Nitram and Barnard and Burk
intended to raise in the Tampa arbitral proceeding.23 MAN GHH argued that Barnard and Burk and
Nitram were raising new contract claims before the Tampa panel, claims arising from the three
service contracts not referred to by the district court in its earlier orders compelling arbitration.
These new claims, MAN GHH argued, were due to be arbitrated in Paris and Zurich pursuant to
arbitration clauses in the service contracts. Barnard and Burk and Nitram contended that they had
made clear to the court that claims under those contracts might well arise during the arbitral
proceedings, and that the court, in anticipation, included those potential claims in its orders
compelling arbitration in Tampa. The district court agreed, and held that its earlier orders
compelling arbitration had considered the venue of claims arising under the three service contracts
and had mandated that arbitration of those claims proceed in Tampa.24 The court therefore denied
22
In 1990, while the arbitral proceedings were still pending, the district judge who had
presided over the case, the Hon. George C. Carr, passed away. All subsequent district court
proceedings referred to in this opinion were presided over by the Hon. Elizabeth A.
Kovachevich.
23
This motion was legally proper; the district court had the power to enjoin the arbitration of
the newly-asserted contract claims. See Kelly v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
985 F.2d 1067, 1068-69 (11th Cir.1993) (holding that federal courts have power to enjoin
arbitration of state common law claims in cases in federal court); see also Societe Generale de
Surveillance, S.A. v. Raytheon European Management and Sys. Co., 643 F.2d 863, 868 (1st
Cir.1981) ("To allow a federal court to enjoin an arbitration proceeding which is not called for
by the contract interferes with neither the letter nor the spirit of this law. Rather, to enjoin a
party from arbitrating where an agreement to arbitrate is absent is the concomitant of the power
to compel arbitration where it is present.") (emphasis in original).
24
The district court's order denying the preliminary injunction merely stated that a preliminary
injunction would be "inappropriate" under the facts of the case; it also incorporated by
the preliminary injunction.
Barnard and Burk then moved for sanctions pursuant to Rule 11, arguing that MAN GHH's
motion for preliminary injunction constituted an improper attempt to relitigate an issue—the venue
of the arbitral proceeding—already decided by the court. The court agreed, and awarded sanctions.
See Nitram, Inc. v. Industrial Risk Insurers, 149 F.R.D. 662 (M.D.Fla.1993). Enforcement of the
sanctions order was stayed pending this appeal.
MAN GHH's counsel now argue that the district court clearly erred in holding that there was
no support in the record for MAN GHH's assertion that the claims asserted by Nitram and Barnard
and Burk under the three service contracts were not covered by the district court's earlier orders
compelling arbitration, and that those claims were due to be arbitrated in Europe. Thus, counsel
argue, the district court abused its discretion, and the sanctions order should be vacated. We agree.
The initial suit brought by Nitram against IRI and Barnard and Burk was a suit in contract,
based on the contract between Nitram and Barnard and Burk for the installation of the expander.
Barnard and Burk's third-party complaint against MAN GHH sought indemnification on the basis
of the design contract between MAN GHH and Barnard and Burk. Furthermore, the court's order
compelling arbitration of Barnard and Burk's third-party claims against MAN GHH was wholly
pursuant to the design contract; the order compelling arbitration of those claims mentioned and cited
only the arbitration clause contained in the design contract. Indeed, the three service contracts had
reference, however, the opposition to the motion for preliminary injunction filed by Nitram, IRI,
and Barnard and Burk. That opposition argued that the earlier order compelling arbitration of
Nitram's and IRI's claims against MAN GHH included the claims arising under the three service
contracts. In its later order imposing sanctions, the district court specifically verified its
intention to incorporate that particular argument into the court's denial of the motion for
preliminary injunction. We note in this context that the judge who reviewed the earlier orders
compelling arbitration and, we believe, misread them, was not the same judge who entered those
orders. See supra note 22.
never even been entered into the record at the time that the court entered its orders compelling
arbitration. When the court later ordered arbitration of Nitram's and IRI's tort and
breach-of-warranty claims against MAN GHH, it did so on the ground that those claims were
intertwined with and grounded in the design contract between MAN GHH and Barnard and Burk,
and on the ground that Nitram and IRI were third-party beneficiaries of that contract. In short, the
district court's orders compelling arbitration committed to arbitration only the arbitrable claims that
were before the court at the time: Barnard and Burk's third-party claims against MAN GHH and the
tort and breach-of-warranty claims brought by Nitram and IRI against MAN GHH.
The court could not have done more. There had been no contract claims brought on the
three service contracts; there were thus no arbitration clauses before the court mandating arbitration
of any such claims, and the court therefore had no jurisdiction to compel arbitration of those claims.
Chapter 2 of the FAA, like Chapter 1, "does not require parties to arbitrate when they have not
agreed to do so, ... nor does it prevent parties who do agree to arbitrate from excluding certain claims
from the scope of their arbitration agreement." Volt Info. Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989)
(citations omitted). "It simply requires courts to enforce privately negotiated agreements to arbitrate,
like other contracts, in accordance with their terms." Id. Like other contracts, an agreement to
arbitrate disputes may not be enforced by the courts until the agreement has been brought before the
court by a proper pleading. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404
n. 12, 87 S.Ct. 1801, 1806 n. 12, 18 L.Ed.2d 1270 (1967) (stating that the FAA was designed "to
make arbitration agreements as enforceable as other contracts, but not more so"). In the instant case,
the parties had placed contract claims arising from the three service contracts under the purview of
the arbitration clauses in those contracts25—not under the arbitration clause in the design
contract—and no contract claims arising from the service contracts had been pled to the district
court. The court therefore could not have ordered arbitration of those claims.26
Therefore, when the arbitrators agreed to hear claims arising out of the three collateral
service contracts, they did so outside of their charge by the district court.27 Consequently, MAN
GHH's counsel's motion for a preliminary injunction limiting the scope of the Tampa arbitration and
for an order moving arbitration of these claims to Europe clearly enjoyed support in the record. The
district court's determination that the motion did not enjoy any such support was therefore clearly
erroneous, and its imposition of sanctions was an abuse of discretion. Accordingly, we reverse the
order imposing Rule 11 sanctions upon MAN GHH's counsel.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court's denial of the motion to vacate the
arbitral award, but VACATE the district court's denial of prejudgment interest and REMAND the
case for resolution of that issue. We also REVERSE the district court's imposition of Rule 11
25
Specifically, claims arising under MAN GHH's contract with Barnard and Burk Engineers
and Constructors (see supra note 20) were due to be arbitrated in Zurich, and claims arising
under MAN GHH's spare rotor contract with Nitram were due to be arbitrated in Paris. MAN
GHH's contract with Nitram for engineering services contained no arbitration clause, and the
district court therefore very likely could not properly have compelled arbitration of claims
arising thereunder at all. Consequently, it certainly may not be said that claims arising under
these contracts were clearly due to be arbitrated in Tampa.
26
As noted supra, we conclude that the court's orders compelling arbitration did not purport to
commit to arbitration any contract claims arising out of the three service contracts.
27
It also seems that they did so outside of the agreement of the parties to the arbitration, since
MAN GHH did not agree to have those claims arbitrated in Tampa. As noted supra, however,
MAN GHH prevailed on those claims at arbitration and therefore did not make this argument to
the district court, and does not make this argument on appeal. The appellants do not attempt to
make this argument either. We therefore deem the argument waived.
sanctions against MAN GHH's counsel. SO ORDERED.