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SUN SHIPBUILDING & DRY DOCK CO. v. UNITED STATES L

October 31, 1977

SUN SHIPBUILDING & DRY DOCK CO.
v.
UNITED STATES LINES, INC.



The opinion of the court was delivered by: CAHN

 CAHN, District Judge.

 I. INTRODUCTION

 Plaintiff Sun Shipbuilding and Dry Dock Company ("Sun") and defendant United States Lines, Inc. ("USL") have filed crossmotions for summary judgment. Plaintiff alleges that it is entitled to $926,617.17 *fn1" in contract damages as well as substantial interest charges dating from January 1, 1966. Defendant contends that as a matter of law it has no further contract liability and that in any event plaintiff is not entitled to recover interest for any period prior to this court's final decision. I have concluded that plaintiff's motion should be granted and defendant's denied.

 II. FACTS

 Plaintiff is a shipbuilding company. In late 1962, plaintiff entered into a tripartite agreement with defendant and the United States Maritime Administration pursuant to the Ship Construction Subsidy Program, 46 U.S.C. ยง 1101 et seq., to construct five cargo vessels. Under the contract, the Maritime Administration obligated the United States Government to pay 48.6 percent of the contract price, and defendant agreed to pay the remaining 51.4 percent. Following a series of legal battles, the Government fully satisfied its obligation; only defendant's share is at issue in this case.

 Under the terms of the contract, USL and the Government were entitled to order changes unilaterally in the construction of the vessels. The contract provided arbitration procedures for determining plaintiff's compensation for increased costs due to such modifications. *fn2"

 Pursuant to these contract terms, USL ordered Sun to undertake two substantial changes in the construction of the ships. Sun diligently performed the necessary work. On November 24, 1965, two months after its delivery of the final vessel, Sun submitted a $5,000,000 claim for additional compensation. On November 13, 1967, the Division of Estimates found plaintiff's actual costs to be $1,700,000. On appeal, the Office of Ship Construction redetermined the costs and found them to be $2,200,000. An appeal by both parties to the Maritime Subsidy Board resulted in an increase of the plaintiff's compensation to $2,798,882.35 on September 24, 1971. Finally, on January 20, 1972, the Secretary of Commerce, upon consideration of another set of challenges by USL and Sun, again modified the award by increasing it to $3,070,547.95. Plaintiff appealed this award to the Court of Claims with respect to the Government's share. The Court of Claims affirmed the Secretary's decision on May 28, 1976.

 During this entire period, Sun still had recovered no compensation from the defendant for the costs of the changes defendant had unilaterally ordered. Furthermore, USL has, to date, not paid its full share of the change costs which it concedes are owed. Upon plaintiff's demand for payment in 1972, USL did offer to pay its share of the administrative award if plaintiff would waive its right to appeal the award of the Maritime Subsidy Board. But at no time after the Secretary of Commerce increased the award did defendant offer to satisfy plaintiff's full claim, along with the interest plaintiff alleged was due.

 III. ISSUES

 Plaintiff's alternative claims raise several issues:

 
1. Is Sun entitled to prejudgment interest from January 1, 1966 -- a reasonable time after it submitted its final estimate of costs -- on the full amount awarded?
 
2. If not, is Sun entitled to prejudgment interest from September 24, 1971 -- the date of the Maritime Subsidy Board's final award -- on the full amount awarded?
 
3. Is Sun at least entitled to prejudgment interest from January 1, 1966, on the amount USL conceded was due?

 Defendant's lengthy reply claims that no interest is recoverable because Sun's claim was not liquidated prior to the Secretary's decision and no prejudgment interest can be recovered on an unliquidated debt. USL also contends that the contract imposes no liability whatsoever on it until all "disputes" with respect to the contract are settled, and thus no interest can be charged prior to this court's final decision.

 USL's cross-motion raises the following procedural issues:

 
1. Did a Court of Claims ruling concerning plaintiff's claims against the United States determine plaintiff's interest claim and thus estop the similar claim in this case? Alternatively, does Sun's presentation of its case to the Court of Claims operate as a waiver of Sun's interest claim in this action?
 
2. Is the United States an indispensable party to this action, such that this court cannot decide the issues before it unless the United States is joined?
 
3. Does Sun's failure to accept USL's payment offer in 1972 preclude any claim for interest?

 USL also raises a number of substantive challenges to the award of the Secretary itself:

 
1. Did the Secretary err as a matter of law in awarding Sun compensation for delay costs?
 
2. Did the Secretary err as a matter of law in awarding Sun compensation for delay costs relating to delay occurring before the final contract due date?
 
3. Did the Secretary err as a matter of law in awarding in excess of three million dollars in view of the fact that USL relied on Sun's lower original estimate of costs?

 IV. INTEREST *fn3"

 A. Should Prejudgment Interest Be Awarded ?

 Ordinarily the issue of whether prejudgment interest should be awarded to a claimant under a contract depends on whether the claim was liquidated or unliquidated at the time it was brought. The time when USL's debt became liquidated in this case -- that is, when it was "finally" ascertained or capable of ascertainment with mathematical precision -- is a matter which the parties have vigorously disputed.

 The two rules for prejudgment interest are similar under Pennsylvania and federal law. If a claim is liquidated, the party whose payment or money has been withheld is entitled to prejudgment interest as a matter of right from the time the money became due or payable. Eazor Express, Inc. v. Int'l Brotherhood of Teamsters, 520 F.2d 951, 973 (3d Cir. 1975), cert. denied, 424 U.S. 935, 96 S. Ct. 1149, 47 L. Ed. 2d 342 (1976); Oxford Manufacturing Co. v. Cliff House Building Corp., 224 Pa. Super. 387, 307 A.2d 343 (1973). If, on the other hand, the claim is not mathematically ascertainable, prejudgment interest is ordinarily not allowed. However, the court, in its discretion, may in a particular case find that the equities of the circumstances demand an award of interest and may grant such an award as it deems proper. Miller v. Robertson, 266 U.S. 243, 258, 45 S. Ct. 73, 69 L. Ed. 265 (1924); Cold Metal Process Co. v. United Engineering & Foundry Co., 235 F.2d 224, 231 (3d Cir. 1956); Prudential Insurance Co. v. City of Philadelphia, No. 73-1109 (E.D.Pa. Oct. 24, 1975), aff'd, 547 F.2d 1163 (3d Cir. 1977); Marrazzo v. Scranton Nehi Bottling Co., Inc., 438 Pa. 72, 74-5, 263 A.2d 336 (1970).

 In this case, I believe that the equities demand an award of prejudgment interest on the entire amount USL owes Sun. Accordingly, I do not need to reach the issue of whether and when Sun's claim was reduced to a liquidated sum. *fn4"

 Under the contract, Sun undertook to provide USL with five vessels. As discussed below, the contract contemplated that Sun be compensated as the work progressed. Streamlined arbitration procedures for disputes were provided so that payment could be made promptly. Sun performed its obligations fully and diligently. Even when substantial mid-construction changes were ordered by USL, work proceeded rapidly and delivery of the vessels was delayed by only a short period. Furthermore, although Sun could have submitted estimates of "change-costs" on a monthly basis and could have reasonably expected prompt progress payments to be made (see Contract, Cl. IV(a) *fn5" ), it chose instead to await completion and delivery of the vessels before demanding payment. The record discloses no substantial complaints by the Government or USL about the quality of plaintiff's products.

 In strict contrast to plaintiff's professional attitude toward the contract and in clear violation of the spirit of the agreement, the Government and USL acted to delay compensating plaintiff for its work. Sun submitted its final estimate of costs to the Maritime Administration's Division of Estimates on November 24, 1965. Despite the contract's clear mandate for a prompt decision, the Division failed to rule for nearly two years. The first internal appeal resulted in another delay of nearly two years. The final internal appeal to the Maritime Subsidy Board was not ruled upon until nearly six years had elapsed from the date of Sun's submission of costs.

 At least three courts of appeals, including the Third Circuit Court of Appeals, have upheld the discretionary right of a district court to award prejudgment interest under the circumstances presented in this case. In United States v. Bethlehem Steel Corp., 113 F.2d 301 (3d Cir. 1940), aff'd, 315 U.S. 289, 62 S. Ct. 581, 86 L. Ed. 855 (1941), a shipbuilder sued to recover compensation from the Government and from a private corporate defendant under a form of "costplus" shipbuilding contract. The amount of compensation, by definition, was determined after completion of construction. The Court of Appeals held that the claim was unliquidated. Nevertheless, it found that under Pennsylvania law "the allowance of interest ...


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