Filed: Aug. 10, 2015
Latest Update: Mar. 02, 2020
Summary: Case: 14-31192 Document: 00513148606 Page: 1 Date Filed: 08/10/2015 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 14-31192 August 10, 2015 Lyle W. Cayce Clerk INTERNATIONAL MARINE, L.L.C.; INTERNATIONAL OFFSHORE SERVICES, L.L.C., Plaintiffs - Appellants v. FDT, L.L.C., formerly known as Delta Towing, L.L.C., Defendant - Appellee Appeal from the United States District Court for the Eastern District of Louisiana USDC No. 2:10-CV-
Summary: Case: 14-31192 Document: 00513148606 Page: 1 Date Filed: 08/10/2015 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 14-31192 August 10, 2015 Lyle W. Cayce Clerk INTERNATIONAL MARINE, L.L.C.; INTERNATIONAL OFFSHORE SERVICES, L.L.C., Plaintiffs - Appellants v. FDT, L.L.C., formerly known as Delta Towing, L.L.C., Defendant - Appellee Appeal from the United States District Court for the Eastern District of Louisiana USDC No. 2:10-CV-4..
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Case: 14-31192 Document: 00513148606 Page: 1 Date Filed: 08/10/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 14-31192 August 10, 2015
Lyle W. Cayce
Clerk
INTERNATIONAL MARINE, L.L.C.; INTERNATIONAL OFFSHORE
SERVICES, L.L.C.,
Plaintiffs - Appellants
v.
FDT, L.L.C., formerly known as Delta Towing, L.L.C.,
Defendant - Appellee
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:10-CV-44
Before HIGGINBOTHAM, DENNIS, and HAYNES, Circuit Judges.
PER CURIAM:*
International Marine, L.L.C., and International Offshore Services,
L.L.C. (collectively, “International”) appeal the district court’s October 14,
2014, Judgment (“2014 Judgment”), which adjudged International liable for
thirty-three breaches of a Vessel Sales Agreement (“the Agreement”) and
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 14-31192
assessed liquidated damages of $8.25 million, plus prejudgment interest at the
rate of 5.5% per annum. For the reasons that follow, we AFFIRM in part,
VACATE in part, and REMAND for further proceedings.
I. Background
In 2006, International purchased two tugboats (the TEAM and
SKIPPER) from Delta Towing, L.L.C. (“Delta”) for $4 million, ostensibly for
use in internal operations. International’s president, Stephen Williams, and
counsel, Peter Rouse, negotiated for several months preceding the sale with
the treasurer of Delta’s parent company, Darren Vorst. Delta is in the business
of chartering tugboats in the Gulf of Mexico and was concerned about
competition from International. Therefore, even though the tugboats were
“cold stacked,” or not in use and not likely to be used anytime soon, Delta
hesitated to sell the tugboats. Delta thus insisted on including a noncompete
clause in Paragraph 11F of the Agreement, which imposed certain pre-charter
and post-charter obligations. In particular, Paragraph 11F prohibited
International from chartering the tugboats to third parties without first giving
Delta advance notice and a right of first refusal on any proposed charter. If
Delta accepted the charter, it would operate the charter and pay International
90% of the fee, or charter hire. If Delta did not accept the charter within a
reasonable amount of time, International could operate the charter, but would
be required to remit 10% of the charter hire to Delta within fifteen days of
receiving payment.
The parties negotiated a liquidated damages provision, Paragraph 11G,
which would apply $250,000 in liquidated damages to any breach of the
noncompete clause. In relevant part, Paragraphs 11F and 11G of the
Agreement state:
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Paragraph 11F (“Noncompete Clause”):
Notwithstanding the foregoing, in the event [International] or its
affiliated companies wish to Charter Out either or both of the
Vessels in the Covered Trade during all or part of the Covered
Term, [International] shall be obligated to time charter the
applicable Vessels to [Delta] for [Delta] to enter into Charters Out
with customers acceptable to [Delta] . . . . [C]harter hire payable to
[International] by [Delta] shall be an amount equal to 90% of the
gross charter hire actually received by [Delta] from the [charters
of the Vessels] and shall be due and payable to [International]
within fifteen (15) days after receipt of such charter hire by [Delta].
If [Delta] is unable to secure Charters Out for the Vessels within a
reasonable time of the Vessels becoming available, [International]
may Charter Out either or both of the Vessels at fair market rates
directly to Customer Charterers for use in the Covered Trade
during all or part of the Covered term, but [International] shall
pay to [Delta] as compensation therefore an amount equal to 10%
of the gross charter hire actually received by
[International] . . . [which] shall be due and payable to [Delta]
within fifteen (15) days after receipt of such charter hire by
[International]. The charter hire rate charged and duration of all
Charters Out shall be reasonably agreeable to both [International]
and [Delta].
Paragraph 11G (“Liquidated Damages Clause”):
The consideration for the provisions in paragraph 11F and this
paragraph 11G is that the above Purchase Price is below the fair
market price of the Vessels at the time of the sale and other good
and valuable consideration the receipt and sufficiency of which is
hereby acknowledged and confessed. In the event
[International] . . . violates any of the covenants and agreements
in paragraph 11F, [International] shall pay to [Delta] as liquidated
damages, and not as a penalty . . . the sum of Two Hundred Fifty
Thousand and no/100 Dollars ($250,000.00) per incident or
occurrence . . . . All liquidated damages shall be payable within 30
days of notice of the violation. It is understood that the resultant
damages of any such breach . . . would be difficult to ascertain with
certainty but that the amount stipulated herein is a good faith
reasonable estimate of the damages [Delta] would suffer.
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International purchased the tugboats and, beginning in September 2006,
chartered them out to third parties while awaiting completion of barges on
which it intended to use the tugboats internally. In September and October
2006, International sent emails informing Delta’s Chief Operating Officer,
Barry Matherne, and Delta’s Assistant Operations Manager, Ricky Guy, that
the TEAM and SKIPPER were available for charter. Delta did not respond
with a request to charter the tugboats, then or later. Instead, Guy responded
that International should not “pass up any work,” but should “let [him] know
a start time” and “rate.” Guy testified that from September 2006 until early
2007, he received periodic post-charter emails from International that
described the start time, duration, and rate for the first five charters
International undertook. 1 Once it received payment, International remitted
the 10% fee to Delta for charters it conducted in 2006, although it sometimes
paid late or incompletely. Delta accepted these payments. International
ultimately requested that Delta allow it to pay a 5% commission on charters,
rather than the 10% fee, and Delta refused. Soon after that, from January
2007 onward, International ceased notifying Delta about new charters
undertaken by the tugboats and ceased submitting the 10% payments.
In 2008, Delta twice requested to audit International’s books and records
under the Agreement, suspecting that International was not notifying Delta or
paying as required. International initially failed to respond, but on November
20, 2008, International sent a $52,293.33 payment to Delta, without
documentation of what the payment represented. Delta did not accept the
check; instead, Delta performed a comprehensive audit of International in
1 Although International emailed Delta to report charters through early 2007 as it
received payments, the last charters it reported occurred in November and December of 2006.
4
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early 2009. On February 20, 2009, International submitted another payment
of $37,657, claiming its internal audit had revealed further money due. Delta
again refused to accept the check and sent International a letter on February
20, 2009, claiming International breached the Agreement thirty-six times and
demanding that International pay liquidated damages. International rejected
Delta’s demand and filed suit in 2010 seeking a declaration that International
had not breached the Agreement and that the Liquidated Damages Clause was
an unenforceable penalty. Delta answered and counterclaimed for $9,000,000
in liquidated damages, plus prejudgment interest.
On cross motions for summary judgment, the district court concluded
that the Liquidated Damages Clause was valid and enforceable. 2 On
International’s motion for reconsideration, the court again held that the
Liquidated Damages Clause was enforceable and certified the enforceability
question to this court on a Federal Rule of Civil Procedure 54(b) Judgment
(“2013 Judgment”). Reviewing the 2013 Judgment on appeal, a panel of this
court held International had failed to prove that the Liquidated Damages
Clause was an unenforceable penalty, as the Liquidated Damages Clause was
formed from the parties’ reasonable attempts to anticipate damages that would
be difficult to quantify in advance. See Int’l Marine, L.L.C. v. Delta Towing,
L.L.C. (International Marine I), 704 F.3d 350, 355–56 (5th Cir. 2013).
The case proceeded to a bench trial on the issues of breach and damages.
After the trial, the district court issued Findings of Fact and Conclusions of
Law, determining that International breached the Agreement’s pre- and post-
2The case was reassigned after the original district judge retired, and International
filed a motion for reconsideration based in part on the changed deposition testimony of
Matherne, Delta’s Assistant Operations Manager. The court did not reconsider the order
granting Delta summary judgment except to analyze the effect of Matherne’s new testimony.
5
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charter obligations thirty-three times. It awarded Delta $250,000 in liquidated
damages for each breach, for a total of $8.25 million, plus prejudgment interest
at 5.5% per annum starting thirty days after February 20, 2009. On October
14, 2014, the district court issued its 2014 Judgment. It separated the issues
of breach and damages from issues of attorney’s fees and costs and third-party
liability that remained pending before the district court. International timely
appealed the 2014 Judgment to this court, and the issues of breach and
damages are now before us.
II. Discussion
On appeal from a bench trial, we review findings of fact for clear error
and legal issues de novo. See One Beacon Ins. Co. v. Crowley Marine Servs.,
Inc., 648 F.3d 258, 262 (5th Cir. 2011). Interpreting the terms of a maritime
contract is an issue of law that we review de novo.
Id. Finally, we review for
clear error “the district court’s factual findings as to whether the parties
fulfilled their duties under the [Agreement].” See Ergon-W. Va., Inc. v. Dynegy
Mktg. & Trade,
706 F.3d 419, 424 (5th Cir. 2013); cf. Automated Med. Labs.,
Inc. v. Armour Pharm. Co.,
629 F.2d 1118, 1123–24 (5th Cir. 1980).
Appealing from the 2014 Judgment, International claims the district
court erred by: (1) misinterpreting International’s obligations under the
Noncompete Clause of the Agreement, because properly interpreted,
International complied with that Clause; (2) failing to conclude that the
“extreme case” doctrine bars the award of liquidated damages because Delta
suffered no actual damages; (3) improperly awarding liquidated damages for
payments made by International to Delta that were solely late or for less than
the agreed amount; (4) inflating the number of “incidents or occurrences” under
the Agreement and thus over-counting the number of times International
breached the Agreement; and (5) improperly awarding prejudgment interest
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on the liquidated damages award. In addition to defending the district court’s
determinations, Delta argues that many of International’s arguments are
foreclosed by the law of the case doctrine due to their resolution on the
interlocutory appeal in International Marine I.
“Under the law of the case doctrine, an issue of fact or law decided on
appeal may not be reexamined either by the district court on remand or by the
appellate court on a subsequent appeal.” United States v. Matthews, 312 F.3d
652, 657 (5th Cir. 2002) (citation and internal quotation marks omitted). “The
law of the case doctrine applies to matters decided on interlocutory appeals,”
Gene & Gene, L.L.C. v. BioPay, L.L.C.,
624 F.3d 698, 702 (5th Cir. 2010)
(citation omitted), and “applies regardless of whether the issue was decided
explicitly or by necessary implication,” Crowe v. Smith,
261 F.3d 558, 562 (5th
Cir. 2001). Delta raised law-of-the-case arguments on nearly every issue before
us, which we address as we consider each issue raised by International.
A. Breach of the Agreement
International first argues the district court misinterpreted the
Agreement, and that International was not obligated to give Delta advance
notice or a right of first refusal before each charter of the tugboats. We
conclude that the district court correctly interpreted the Agreement in
accordance with binding law of the case. 3 Under this interpretation, the
3 International Marine I interpreted the precise obligations imposed by the
Agreement, and the intent behind those obligations, to determine whether The Liquidated
Damages Clause was a reasonable, enforceable provision. See generally In re Felt, 255 F.3d
220, 225–26 (5th Cir. 2001) (“[T]hough not expressly addressed in an initial appeal, those
matters that were fully briefed to the appellate court and were necessary predicates to the
ability to address the issue or issues specifically discussed are deemed to have been decided
tacitly or implicitly, and their disposition is law of the case.”). Thus, when International
Marine I found that “[International] was first obligated to notify Delta and give [Delta] the
option of operating charters itself” before chartering out the tugboats, Int’l Marine
I, 704 F.3d
at 352, that decision bound the district court and now binds this court.
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Noncompete Clause of the Agreement requires International to consult with
Delta before chartering out the TEAM or SKIPPER to third parties and to give
Delta a right of first refusal. See Int’l Marine I, 704 F.3d at 352. The
Noncompete Clause additionally imposes post-charter obligations requiring
International to pay Delta a 10% fee within fifteen days of a charter hire’s
payment.
1. Number of Breaches
The district court explicitly found that International entered into thirty-
three separate time charters with third parties by the Agreement’s terms, each
of which constituted a breach of the Agreement. International does not contest
that it failed to notify Delta in advance of almost all of the charters, nor that it
failed to pay the 10% fees due to Delta for every breach found by the district
court, whether it wholly failed to pay the fees in advance of Delta’s audit or
simply failed to pay the fees on time or in the correct amount. Instead,
International asserts that the district court over-counted the number of
breaches by counting each invoice International issued as a separate time
charter and breach. Contrary to the district court’s findings, International
contends that it sometimes issued multiple invoices for singular charters.
Therefore, it argues that each invoice should not count as an “incident or
occurrence,” or separate breach, under the contract.
The district court did not clearly err in parsing how many times
International chartered out the vessels in breach of the Agreement, sometimes
equating singular invoices with singular charters and sometimes aggregating
multiple invoices into just one charter and one breach. Although International
contests several of the charters counted by the district court as separate
breaches, it provided no direct evidence that those specific invoices represented
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only one charter. 4 Evidence from the bench trial supports the district court’s
determinations. Accordingly, we find no clear error in the district court’s
conclusion that Delta breached the Agreement thirty-three times. 5 See Ergon,
706 F.3d at 424.
2. Course of Conduct
International argues that the course of conduct between International
and Delta proves the Agreement did not require International to give Delta
advance notice and a right of first refusal. This course of conduct involved
Ricky Guy’s email to International and International’s unchallenged practice,
from September 2006 until early 2007, of informing Delta about the details of
charters after they occurred. Accordingly, this court must determine the
import, if any, of the parties’ conduct while International communicated with
Delta about charters of the TEAM and SKIPPER from September 2006 until
early 2007. This period of communication coincides with the first five breaches
4 International contests breaches for which United Tugs leased the SKIPPER from
11 a.m. on June 15, 2007, through 10:30 p.m. on June 16, 2007, continuously, for three
separate time periods. Each incident was denoted by a unique job number and invoice.
International offers no evidence to prove that these three trips were a single charter, and we
find no clear error in the district court’s conclusion that these were each separate charters.
International also attempts to aggregate Smith Marine’s charters of the SKIPPER from 4:30
a.m. on December 31, 2006, until January 8, 2007, plus a charter on January 10, 2007.
International does not explain why distinct job numbers and invoices were issued for each
time period of this job or why that does not suggest these were separate, hourly charters.
Also, nothing supports International’s claim that Smith Marine’s charter ending on January
8 actually continued on January 10, despite the gap, because the crew “took a day off.”
Finally, International argues the district court erroneously double-counted three invoices for
charters that took place while United Tugs had hired “both vessels.” But Matherne testified
that despite having a master charter agreement with a company, a charterer would also have
individual time charter agreements for specific tasks and time periods. It is not erroneous to
count separate voyages from December 5–6, 2006, December 8–18, 2006, and December 16–
29, 2006, as separate time charters and breaches of the Agreement.
5Delta argues it is law of the case that International breached the Agreement twenty-
seven times. See, e.g., Int’l Marine I, 704 F.3d at 356 n.6. We need not decide this issue
because we find no clear error in the district court’s conclusion, based on the evidence
submitted at the bench trial, that International breached the Agreement thirty-three times.
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of the Agreement. 6 As we addressed earlier, the fact that the Agreement
required International to provide advance notice and a right of first refusal
was determined by the panel in International Marine I and binds this court.
704 F.3d at 352. In International Marine I, the panel found that the
Noncompete Clause and pre-charter obligations were pivotal to the Agreement,
but did not explicitly determine whether the Agreement required International
to “notify Delta and give it the option of operating charters itself” before each
charter, or only one time at the beginning of the chartering process.
Id.
We review the interpretation of a maritime contract de novo. One
Beacon, 648 F.3d at 262; see also Int’l Marine
I, 704 F.3d at 354. When
interpreting a maritime contract, general principles of contract law apply from
federal admiralty law, rather than from state law. See Har-Win, Inc. v. Consol.
Grain & Barge Co.,
794 F.2d 985, 986–87 (5th Cir. 1986); Int’l Marine
I, 704
F.3d at 354. Federal maritime law “stems from the maritime jurisprudence of
the federal courts, and is an amalgam of traditional common law rules,
modifications of those rules, and newly created rules drawn from state and
federal sources.” One
Beacon, 648 F.3d at 262 (citations and internal quotation
marks omitted). “Applying federal law in the contract context includes looking
to ‘principles of general contract law’ that can be found in treatises or
restatements of the law.” Univ. of Tex. Sys. v. United States,
759 F.3d 437, 443
(5th Cir. 2014) (quoting Franconia Assocs. v. United States,
536 U.S. 129, 141–
42 (2002)), cert. denied,
135 S. Ct. 1894 (2015).
Under federal maritime law, “a court may not look beyond the written
language of [a contract] to determine the intent of the parties unless the
6 There is no dispute that International failed to pay Delta the 10% fee on time or in
the correct amount for these first five instances. These constitute breaches of the Agreement
in any case.
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disputed contract provision is ambiguous.” Corbitt v. Diamond M. Drilling Co.,
654 F.2d 329, 332–33 (5th Cir. Unit A Aug. 1981). The district court concluded
that the Noncompete and Liquidated Damages Clauses are unambiguous. It
interpreted the Noncompete Clause to require that Delta receive advance
notification and the option of first refusal before each charter and determined
that any violation of the Noncompete Clause triggered an award of liquidated
damages.
We conclude that the Noncompete Clause unambiguously required
International to consult with Delta about each individual charter in advance.
As the panel in International Marine I implicitly concluded, preventing and
anticipating harm from competition formed the core purposes behind the
Noncompete and Liquidated Damages Clauses. Int’l Marine I, 704 F.3d at 352,
355–56. Many of the provisions meant to protect Delta from competition would
be ineffective if the Agreement did not require International to consult with
Delta before each individual charter. For example, the parties could not easily
determine whether Delta would be able to secure charters out for the tugboats
within a reasonable time of their availability if Delta was not apprised of the
tugboats’ availability. Neither could the parties easily come to a “reasonabl[e]
agree[ment]” about “[t]he charter hire rate charged and duration of all
Charters Out” if they did not consult before each charter or have a larger,
overarching agreement. If Delta was not informed in advance of each proposed
charter, Delta could not prevent International from endearing itself and its
tugboat crew to one of Delta’s customers or potential customers. By contrast,
if Delta was informed in advance, it could head off this competition by
exercising its right to operate the charter itself.
According to the plain language of the Agreement and the binding import
attributed to it by a prior panel of this court, International was required to give
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advance notice and the option of first refusal to Delta before each charter. See
generally Int’l Marine I, 704 F.3d at 355–56 (holding the most important
damage anticipated from a breach of the Noncompete Clause “was Delta’s
inability to prevent competition, leading to the potential loss of customers,
business opportunities and market share due to International’s failure to
notify Delta of its intent to compete”). Therefore, we need not assess the
extrinsic conduct of the parties to attempt to determine the meaning they
attributed to these provisions. See
Corbitt, 654 F.2d at 332–33.
However, the course of conduct between the parties makes liquidated
damages inapplicable to the first five breaches of the agreement. International
paid Delta late or in an incomplete amount for each of these breaches and
emailed Delta details about each charter only after the fact. Yet, Delta
accepted each check and correspondence and did not provide International
with notice that International had breached the contract or that it would
enforce the Liquidated Damages Clause for the late or incomplete payments.
RESTATEMENT (SECOND) OF CONTRACTS § 278 & cmt. a & illus. 1 (1981) (“If an
obligee accepts in satisfaction of the obligor’s duty a performance offered by the
obligor that differs from what is due, the duty is discharged.”); see also id. cmt.
c & illus. 3 (“[P]art performance by an obligor of a duty that is liquidated and
undisputed is not consideration for a discharge of that duty in full, even if the
obligee so accepts it.” (emphasis added)). This contrasts with Delta’s conduct
for the other twenty-eight breaches. In mid-January 2007, International
stopped informing Delta about charters, and the district court found that in
February 2007, International falsely represented to Delta that it had chartered
neither tugboat during early January. In November 2008, Delta did not accept
the check when International attempted to submit late payment of the 10%
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fees it had failed to pay Delta since January 2007. Neither did Delta accept
the second check International sent for overdue payments in February 2009.
Accordingly the parties’ course of conduct shows that liquidated damages
cannot result from International’s first five breaches. The parties
corresponded about these charters via email and Delta accepted the
nonconforming payments. From this, we know the extent of the damage Delta
suffered from each of these breaches—namely, the amount of the 10% fee Delta
failed to receive when it was due. See generally RESTATEMENT (SECOND) OF
CONTRACTS § 278 cmt. a & illus. 1 (1981) (noting that if an obligor chooses to
accept “a performance that differs from what is due,” “the obligor is discharged
in accordance with the terms of the offer”); see also id. cmt. c & illus. 3. As
explained below, liquidated damages cannot issue when we can measure the
extent of damages Delta suffered from these first five breaches using interest.
B. Liquidated Damages for Late or Incomplete Payments
The district court awarded liquidated damages for each breach of the
Noncompete Clause’s requirements. International argues the district court
erred when it granted Delta liquidated damages for breaches that it contends
involved only late or incomplete payments, because liquidated damages
generally may not be assessed for defaulting on an obligation to pay money. 7
7 Delta contends that law of the case governs this issue, but the panel in International
Marine I did not decide this issue. International Marine I resulted from the appeal of the
district court’s 2013 Federal Rule of Civil Procedure 54(b) Judgment and addressed the
certified issue of whether the Liquidated Damages Clause was enforceable on its face. Int’l
Marine I, 704 F.3d at 351, 353, 356. The record indicates the parties, district court, and panel
in International Marine I understood that the issues of breach and damages remained
pending before the district court and were not before this court in International Marine I.
Accordingly, the issue of whether Delta accepted International’s deficient performance for
the first five breaches and the propriety of awarding liquidated damages for those breaches
was not decided by the panel in International Marine I. Cf. Gochicoa v. Johnson,
238 F.3d
278, 291–92 (5th Cir. 2000); Liberty Mut. Ins. Co. v. Gunderson, 387 F. App’x 480, 484–85
(5th Cir. 2010) (unpublished); FED. R. CIV. P. 54(b).
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See generally 11 JOSEPH M. PERILLO, CORBIN ON CONTRACTS § 58.13 at 477–82
& n.1 (rev. ed. 2005) (collecting cases).
For over a century, courts have refused to award liquidated damages for
contractual breaches solely involving default on payment obligations. See
generally Wrenn v. Univ. Land Co., 133 P. 627, 629 (Or. 1913). This follows
logically from the fact that the damage caused by late or incomplete payment
may be easily measured and remedied through an award of interest, meaning
that any higher liquidated damages award would likely be punitive. See, e.g.,
Checkers Eight Ltd. P’ship v. Hawkins,
241 F.3d 558, 562 (7th Cir. 2001)
(interpreting Illinois law, holding that liquidated damages of $150,000
assessed for late installment payments were “unreasonable and excessive,”
especially since interest rates could estimate the actual damage incurred);
Semico, Inc. v. Pipefitters Local No. 195,
538 S.W.2d 273, 274 (Tex. App.—
Beaumont 1976, writ refused n.r.e.) (holding a clause imposing liquidated
damages of 15% per month on overdue labor union fees was an unenforceable
penalty (quoting 5 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 1065 at 373
(1964)). 8
As applied to the first five breaches, the Liquidated Damages Clause
would impose an unreasonable penalty, because due to the parties’ conduct, we
know the extent of damages Delta suffered from each of these breaches.
Therefore, we VACATE the district court’s order insofar as it granted $1.25
million in liquidated damages for International’s first five breaches of the
Agreement. This reduces the total liquidated damages award from $8.25
million to $7 million. However, on remand, Delta should be awarded interest
8See also Fellows v. Nat’l Can Co., 257 F. 970, 971–72 (6th Cir. 1919); Bilz v. Powell,
117 P. 344, 345–46 (Colo. 1911); Condon v. Kemper,
27 P. 829, 831 (Kan. 1891).
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on the amount of the payments International failed to timely make related to
its first five breaches, accruing for each payment from the date on which the
payment became overdue until final judgment on October 14, 2014. See Probo
II London v. Isla Santay MV, 92 F.3d 361, 363 (5th Cir. 1996) (observing that
courts award prejudgment interest in admiralty beginning on the date on
which the claim accrues and extending until the date of judgment).
C. Extreme Case
International argues that the district court erred by assessing liquidated
damages for each breach of the Agreement, because the “extreme case”
doctrine 9 should apply to preclude an assessment of liquidated damages in
these circumstances. Delta contends that the panel in International Marine I
foreclosed the application of the “extreme case” doctrine here, providing
binding law of the case. This court has not explicitly adopted the “extreme
case” doctrine and need not address whether to do so here because we agree
with Delta that this argument is governed by law of the case. See Matthews,
312 F.3d at 657.
In International Marine I, both parties briefed the “extreme case” issue,
and a different panel of this court determined that the record contained
insufficient evidence for the court to determine whether the “extreme case”
doctrine applied. Int’l Marine I, 704 F.3d at 356 n.6 (citation omitted); cf.
Massman Constr. Co. v. City Council of Greenville, Miss.,
147 F.2d 925, 927
9 The “extreme case” doctrine posits that a liquidated damages clause “fixing a
substantial sum as damages is unenforceable” as a penalty “[i]f, to take an extreme case, it
is clear that no loss at all has occurred.” RESTATEMENT (SECOND) OF CONTRACTS § 356
cmt. b (1981). To illustrate an “extreme case” involving a clear lack of loss, the Restatement
includes the following example: a liquidated damages clause fixed damages at $1000 per day
for each day’s delay in completing a race track; the race track’s completion was delayed by 10
days, but the permit for opening the race track was delayed for one month; thus, the delay in
construction did not delay the race track’s opening and caused no loss. Id. at cmt. b. illus. 4.
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(5th Cir. 1945) (refusing to award liquidated damages that were to accrue for
delay in the completion of a bridge because sufficient evidence showed “[t]here
were no losses caused to the City by the delay . . .[;] the bridge was completed
in its entirety 30 or more days before there was a road to the bridge on the
Arkansas side”). The panel ultimately found that the Liquidated Damages
Clause reasonably estimated damages that would be difficult to anticipate and
did not operate as an unenforceable penalty. Int’l Marine I, 704 F.3d at 355–
56. This conclusion is binding law of the case absent any “substantially
different” evidence presented at the bench trial. See
Matthews, 312 F.3d at
657 (noting the law of the case doctrine does not apply if “[t]he evidence at a
subsequent trial is substantially different”). The evidence presented before the
district court at the bench trial was substantially the same as the evidence
presented before the International Marine I panel; therefore, the decision in
International Marine I binds us to decline to determine whether the “extreme
case” doctrine applies here.
D. Prejudgment Interest
The district court awarded prejudgment interest at a rate of 5.5% per
annum on $8.25 million in liquidated damages in accordance with the
traditional hospitality to prejudgment interest in maritime cases. See Reeled
Tubing, Inc. v. M/V Chad G, 794 F.2d 1026, 1028 (5th Cir. 1986) (“[A]warding
prejudgment interest is the rule rather than the exception . . . .”). Prejudgment
interest on the liquidated damages award began to accrue thirty days after
February 20, 2009, because the Agreement specified that liquidated damages
would be payable thirty days after notice of breach. 10 Delta notified
10Because the first breach arose from an incomplete payment, the interest on that
payment will instead begin to accrue from the date on which the payment became overdue
and will continue to accrue until October 14, 2014. See Probo II, 92 F.3d at 363.
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International on February 20, 2009, that it believed International had
breached the Agreement and owed liquidated damages. 11 International argues
that the district court erroneously awarded prejudgment interest on the
liquidated damages award because this court’s case law does not support
awarding prejudgment interest for awards of liquidated damages, only for
awards of actual damages. Cf. Montelongo v. Meese, 803 F.2d 1341, 1354 (5th
Cir. 1986).
This court has not held that prejudgment interest is barred on all
liquidated damages awards, and Montelongo is distinguishable. See id. In
Montelongo, statutory liquidated damages were awarded partially as a
penalty.
Id. at 1350 (holding that liquidated damages under the Farm Labor
Contractor Registration Act (“FLCRA”) were partially created as a penalty,
and therefore, prejudgment interest was not appropriate). In Calderon v.
Presidio Valley Farmers Association, this court held that Montelongo does not
preclude district courts from acting within their discretion to award
prejudgment interest on statutory, liquidated damages awards that are meant
to approximate actual damages.
863 F.2d 384, 392–93 (5th Cir. 1989) (finding
“no bar to an award of prejudgment interest on actual damages based on
FLCRA”).
International Marine I established that the Liquidated Damages Clause
is enforceable as a reasonable forecast of damages and that International did
not sustain “its burden to prove that the [Liquidated Damages] Provision was
a penalty.” 704 F.3d at 355–56. Accordingly, we hold that the district court
11 Neither party disputes the rate of prejudgment interest awarded (5.5% per annum)
or that the prejudgment interest awarded began 30 days from February 20, 2009. As such,
the parties abandoned any arguments that prejudgment interest should be awarded in a
different rate or from a different date. See Webb, 89 F.3d at 257 n.2.
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acted within its discretion in awarding prejudgment interest under
Montelongo, Calderon, and the maritime presumption favoring prejudgment
interest. See e.g., Reeled Tubing, 794 F.2d at 1028.
III. Conclusion
Except for the first five breaches of the Agreement, we AFFIRM the
district court’s 2014 Judgment and Findings and Conclusions in all respects.
For International’s first five breaches, involving a quantifiable amount of
damages from late payment or underpayment, we conclude that liquidated
damages cannot apply.
Accordingly, we VACATE the liquidated damages awarded for the first
five breaches of the agreement, reducing the total liquidated damages award
to $7 million, plus prejudgment interest of 5.5% per annum, beginning thirty
days after February 20, 2009, and terminating on October 14, 2014, and
REMAND for entry of a judgment consistent with this opinion. Upon remand,
the district court should award the same prejudgment interest on the amounts
International failed to pay Delta in its first five breaches, except interest on
these breaches shall run from the date on which each payment was overdue
and terminate on October 14, 2014.
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