Nitram, Inc. v. Industrial Risk ( 1998 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 94-2982
D.C. Docket No. 85-1770-CIV-T-17
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,
versus
M.A.N. GUTEHOFFNUNGSHÜTTE GmbH,
Third-Party-Defendant--Appellee--Cross-Appellant.
No. 94-2530
D.C. Docket No. 85-1770-CIV-T-17
HOLLAND & KNIGHT, MARK E. GRANTHAM,
Appellants,
versus
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.
Appeals from the United States District Court
for the Middle District of Florida
(May 22, 1998)
Before TJOFLAT and EDMONDSON, Circuit Judges, and NANGLE*, Senior
District Judge.
_____________________________________________
*Honorable John F. Nangle, Senior U.S. District Judge for the
Eastern District of Missouri, sitting by designation.
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
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
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.
2
We recite only those facts and prior proceedings
necessary to an understanding of the issues raised on appeal.
3
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 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
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.
4
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
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.
5
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, 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.
6
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
7
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 prinicipal 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
8
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.
I.
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
9
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
10
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).
11
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 “entirely between
citizens of the United States” as “non-domestic” for purposes of
Article I of the Convention. We join the First, Second, Seventh,
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 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.
12
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 Méré,
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
Cir. 1982) (stating that Chapter 2 mandates enforcement of a
13
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.
II.
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
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
14
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 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.
15
Imperial Ethiopian Gov't v. Baruch-Foster Corp., 535 F.2d 334,
335-36 (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 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
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.
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
16
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
Überwachung Verein (the “TÜV 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 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
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.
17
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 TÜV 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.
18
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 TÜV 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
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 TÜV 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 TÜV 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 TÜV report was
therefore cured sufficiently to ensure that the proceedings were
not rendered fundamentally unfair by the admission of these
materials.
19
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 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 TÜV report, and its
admission by the panel, constituted a failure of the panel to
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.
20
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,'” that is, testimony against
a party's interest by an expert witness formerly retained by that
13
Respondents also argue that the admission of the TÜV 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 TÜV 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.
21
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.,
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.
22
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 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
23
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. 217 2183, 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
24
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
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.”
25
2) that 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
Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775, 781 (11th
Cir. 1993).
26
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 conversion
rate compensation.
II.
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
27
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,
28
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-arbitral-
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).
29
award, prejudgment 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.
III.
In a separate appeal, MAN GHH’s counsel challenge the
district court’s imposition of Rule 11 sanctions.19 The decision
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. Perchon, 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. Perchon 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
30
whether to impose Rule 11 sanctions is left to the district
court’s sound 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. Zwiefel, 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).
(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 firms, or
parties that have violated subdivision (b) or are
responsible for the violation.
Fed. R. Civ. P. 11.
31
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 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
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 3) provided a spare rotor to Nitram under a
fourth contract. We refer to these latter three contracts as
32
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
“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).
33
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
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).
34
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 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
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 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.
35
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 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
36
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
37
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
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.
38
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 sanctions against MAN GHH’s
counsel. SO ORDERED.
39