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

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.