Synchronies v. Realworld

Opinion

Synchronies v. Realworld CV-94-489-M 11/16/95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Synchronies, Inc., Plaintiff,

v. Civil No. 94-489-M

Realworld Corporation, Defendant.

O R D E R

Synchronies, Inc. ("Synchronies") moves to have the judgment

confirming its arbitration award amended to add pre-judgment and

post-judgment interest and to define the court reporting costs to

be shared by the parties. Realworld Corp. ("RWC") opposes the

motion to amend judgment.

I. BACKGROUND

The arbitrator's award sets forth detailed findings of fact,

citations to the record and exhibits, and also makes clear the

arbitrator's view as to the credibility of the parties'

respective witnesses. Among other things, the arbitrator found

that: (1) Synchronies substantially performed all of its

obligations under the Settlement Agreement until RWC, acting in

bad faith, cut off the good faith negotiations reguired by that

Agreement; (2) "under a number of basic contract doctrines including detrimental reliance, [RWC was] barred from benefiting

from the fruits of its bad faith performance, non-performance,

and refusals to continue negotiations under the Settlement

Agreement"; (3) the RWC "recall" letter of October 15, 1993, was

particularly egregious in that, in violation of the Settlement

Agreement, it reguired Synchronies to effectively recall and

redevelop much of its product software; (4) the credibility of

past RWC management and technical personnel, all produced by

Synchronies, was more reliable than the "inflammatory evidence"

presented by RWC; (5) Synchronies did not owe RWC royalties on

so-called "replacement programs"1; (6) after the Settlement

Agreement was entered into, the parties reached an agreement

which had the effect of carving out an exception to language in

the Settlement Agreement regarding Synchronies' distribution of

generic RWC software; and (7) RWC acted in bad faith when it

originally refused to submit the dispute to arbitration pursuant

to the terms of the Settlement Agreement.

Based upon his findings, the arbitrator awarded, inter alia,

the following relief: (1) RWC was ordered to pay Synchronies

1 The term "replacement program" refers to those portions of the Synchronies software code which mirror RWC code and exist solely to allow the companies' respective software products to operate together.

2 $82,732 in actual damages and $100,000 in attorneys' fees; (2)

the monetary award to Synchronies was offset by $6474.81 in

damages which the arbitrator found Synchronies owed RWC; and (3)

the parties were ordered to "share the cost of all court

reporting." The award is silent as to interest due on the

damages awarded Synchronies. In addition, the award does not

precisely identify the court reporting costs to be shared by the

parties.

On September 8, 1995, this court confirmed the arbitrator's

award under the Federal Arbitration Act. 9 U.S.C. § 9;

Synchronies, Inc. v. Realworld Corp., No. C-94-489-M, slip op.

(D.N.H. Sept. 8, 1995). Judgment was entered on September 11,

1995. Synchronies reguests that the confirmed award include:

(1) a determination that RWC owes Synchronies pre-judgment and

post-judgment interest on the damages awarded; and (2) a

determination that RWC and Synchronies share the cost of all

court reporting, including reporting associated with the

litigation before the United States District Court for the

Western District of Tennessee and the depositions of several RWC

witnesses and employees. Having considered the parties'

respective arguments, the court grants Synchronies' motion to

amend the judgment in both respects.

3 II. DISCUSSION

A. Interest Due on the Award

Synchronies' primary contention in its motion to amend

judgment is that RWC owes Synchronies interest on the confirmed

arbitration award. Synchronies claims that interest should be

found to have accrued on the award during the period between the

arbitrator's decision and this court's confirmation of his award

("pre-judgment interest") and during the period between the

confirmation of the award and satisfaction of the award by RWC

("post-judgment interest"). Synchronies argues that pre-judgment

interest should be awarded and calculated pursuant to New

Hampshire law, which prescribes a rate of 10%. N.H. Rev. Stat.

Ann. § 336:1 (1984). Post-judgment interest. Synchronies

maintains, should be awarded and calculated according to federal

law, which applies a lower, floating statutory rate. 28 U.S.C. §

1961(a). RWC counters that under New Hampshire law Synchronies

is not entitled to pre-judgment interest, and any interest due

Synchronies must, instead, be predicated on federal law and

calculated using the lower federal rate. 1. Pre-Judgment Interest

A federal district court sitting in diversity should apply

the law of the forum state when determining whether to award pre-

4 judgment interest and the rate at which such interest accrues.

Newell P.R. v. Rubbermaid, Inc., 20 F.3d 15, 24 (1st Cir. 1994);

Loft v. Lapidus, 936 F.2d 633, 639 (1st Cir. 1991); Weitz Co. v.

Mo-Kan Carpet, Inc., 723 F.2d 1382, 1385-87 (8th Cir. 1983).

Synchronies requested this court to confirm the award of the

arbitrator pursuant to the Federal Arbitration Act, 9 U.S.C. § 1

et seg. ("FAA"). While the FAA creates federal substantive law

requiring parties to honor arbitration agreements, it does not

confer federal question subject matter jurisdiction over actions

brought pursuant to it. Southland Corp. v. Keating, 465 U.S. 1,

15 n.9 (1984); Weststar Assoc., Inc. v. Tin Metals Co., 752 F.2d

5, 7 (1st Cir. 1985); Rodriquez v. Prudential-Bache Sec., 882 F.

Supp. 1202, 1207 (D.P.R. 1995). Rather, the FAA applies only

when there is an independent basis for federal subject matter

jurisdiction. Rodriquez, 882 F. Supp. at 1207.

Synchronies is a citizen of Tennessee, and RWC is a citizen

of Delaware and New Hampshire. Based upon the complete diversity

of citizenship between the parties, this court exercised subject

matter jurisdiction in confirming the arbitration award. See 28

U.S.C. § 1332. Because the court was exercising its diversity

jurisdiction when it entered judgment confirming the award. New

Hampshire law governs the accrual of pre-judgment interest.

5 Synchronies argues that New Hampshire law requires RWC to

pay interest on the arbitrator's award, at a rate of 10%, from

the date the award was given to the date this court entered

judgment confirming it. RWC, on the other hand, maintains that

New Hampshire law no longer provides for pre-judgment interest on

confirmed arbitration awards. It is understandable that the

parties should disagree as to what New Hampshire law requires

because the applicable precedent is not easily reconciled.

In 1970, the New Hampshire Supreme Court stated that pre­

judgment interest accrues to an arbitration award from the date

the award is announced. Hackman v. American Mutual Liab. Ins.

C o ., 261 A.2d 433, 438 (N.H. 1970). In reaching that conclusion,

the court appeared to rely on N.H. Rev. Stat. Ann. § 524:1, which

read, "[I]n rendering judgments for the debt or damages found by

verdict, report of an auditor or otherwise, interest shall be

added from the time of such finding to the rendition of

judgment." Id.; Leach v. O'Neill, 568 A.2d 1189, 1191 (N.H.

1990). Section 524:1, however, had been repealed by the New

Hampshire legislature seven years earlier, a fact that created

ensuing confusion over the precedential value of Hackman.

In Ellis v. Roval Ins. Co., 530 A.2d 303 (N.H. 1987), the

court, relying on Hackman, held that a party is "entitled to

6 interest . . . from the date of the [arbitration] award." Id. at

312 (citing Hackman) . However, three years later, in Leach, 568

A.2d at 1191, the New Hampshire Supreme Court implicitly

questioned the Hackman rule on pre-judgment interest by noting

that the statute upon which Hackman seemed to rely was no longer

in force. The Leach court did not comment on the fact that

section 524:1 was not in effect when Hackman was handed down

either, nor did the court expressly overrule either Hackman or

Ellis. The New Hampshire Supreme Court's most recent

pronouncement on the issue seems to reaffirm the vitality of the

Hackman rule. In Metropolitan Property & Liab. Ins. Co. v.

Ralph, 640 A.2d 763 (N.H. 1994), the court stated, "[T]he general

rule [is] that interest runs from the date of an arbitration

award." Id. at 766 (citing Hackman) .

A federal court called upon to apply state law must "take

state law as it finds it: 'not as it might conceivably be, some

day; nor even as it should be . 1" Kassel v. Gannett Co., 875 F.2d

935, 950 (1st Cir. 1989) (quoting Plummer v. Abbott Laboratories,

568 F. Supp 920, 927 (D.R.I. 1983)). When state law has been

authoritatively interpreted by the state's highest court, this

court should apply that law according to its tenor. Kassel, 875

F.2d at 950. Where the signposts are blurred, the federal court

7 may assume that the state court would adopt an interpretation of

state law that is consistent with logic and supported by reasoned

authority. Moores v. Greenberg, 834 F.2d 1105, 1107 n.3 (1st

Cir. 1987) .

New Hampshire's law relative to pre-judgment interest on

arbitration awards is, viewed as a whole, somewhat blurred.

Nevertheless, Metropolitan, the court's most recent articulation

of the state's pre-judgment interest rule, unambiguously

declares: "[T]he general rule [is] that interest runs from the

date of an arbitration award." Metropolitan, 640 A.2d at 766.

It would seem apparent that in the absence of a controlling

statute, the New Hampshire Supreme Court has recognized a common

law basis upon which to award pre-judgment interest on confirmed

arbitration awards. Therefore, under New Hampshire law interest

does accrue on an arbitration award from the date the award is

handed down by the arbitrator until the date judgment is entered

confirming the award. Such interest accrues at New Hampshire's

statutory rate of 10% per year. N.H. Rev. Stat. Ann. § 336:1.

Accordingly, the judgment shall be amended to include in the

confirmed award interest from the date of the award until the

date of confirmation. 2. Post-Judgment Interest

In contrast to pre-judgment interest, post-judgment interest

in a diversity case is governed by federal law, 28 U.S.C.

1961(a). Mobil Exploration & Producing N. Am. v. Graham Royalty

Ltd., 910 F.2d 504 (8th Cir. 1990); Adams-Araoahoe Joint Sch.

Dist. v. Continental Ins. Co., 891 F.2d 772 (10th Cir. 1989);

Chapman & Cole v. Itel Container Int'l B.V., 865 F.2d 676 (5th

Cir.), cert, denied, 493 U.S. 872 (1989). Under section 1961(a),

interest is added to any civil money judgment recovered in

district court; the statute applies to judgments confirming

arbitration awards under the FAA. See Northrop Corp. v. Triad

Int'l Marketing S.A., 842 F.2d 1154, 1155-56 (9th Cir. 1988).

Section 1961 provides for interest from the date judgment is

entered until the judgment is satisfied. Interest accrues at a

rate egual to the coupon issue yield eguivalent of the average

accepted auction price for the last auction of fifty-two week

United States Treasury bills settled immediately prior to the

date of the judgment. 28 U.S.C. § 1961(a). Award of post­

judgment interest pursuant to section 1961 is mandatory. Cordero

v. DeJesus Mendez, 922 F.2d 11, 15 (1st Cir. 1990). Accordingly,

the judgment is amended to specifically include an award of post- judgment interest, to be calculated consistent with the

provisions of 28 U.S.C. § 1961. B. Reporting Costs

As part of his award, the arbitrator ordered "[e]ach party

. . . [to] share the cost of all court reporting." Award at

5 8(c). Synchronies seeks to amend this court's judgment

confirming the award to specifically include certain reporting

costs among those to be shared by the parties. Synchronies

reguests that the parties be ordered to split the reporting costs

associated with litigation before the United States District

Court for the Western District of Tennessee (the "Tennessee

litigation") and the reporting costs for depositions taken of RWC

witnesses and employees during the arbitration (the "arbitration

depositions"). RWC counters that neither category of reporting

costs is among the costs the arbitrator ordered be shared.

Alternatively, RWC argues that the arbitrator did not have

authority over costs associated with litigation in federal court. 1. Costs the Arbitrator Ordered Shared

RWC first contends that the Commercial Arbitration Rules of

the American Arbitration Association, which governed this

arbitration, narrowly circumscribe the costs of arbitration that

10 are to be shared by the parties. Rule 49 of the Commercial

Arbitration Rules ("Rule 49") states:

All other expenses of the arbitration, including .. . the cost of any proof produced at the direct request of the arbitrator, shall be borne equally by the parties, unless . . . the award assesses such expenses or any part thereof against any specified party or parties.

Rule 49. Rule 49 may be read to establish a default rule that

the expense of producing proof not directly requested by the

arbitrator shall be borne by the party producing such proof.

Rule 49 also states, however, that the arbitrator, in fashioning

his award, may avoid the default by assessing arbitration

expenses against any party or parties. Here, the arbitrator did

just that, stating, "Each party . .. shall sharethecostof all

court reporting . . .." Award 5 8(c). Therefore, both the

Tennessee litigation and the arbitration deposition court

reporting costs claimed by Synchronies in its motion to amend

judgment fall within the court reporting costs the arbitrator

ordered the parties to share. 2. Arbitrator's Authority to Award Costs

RWC next contends that a private arbitrator does not have

authority to assess costs incurred in the course of proceedings

before a United States District Court because such costs are not

11 "expenses of the arbitration." (RWC Opp. to Synchronies' Supp.

Mot. to Amend at 2.) The Settlement Agreement between the

parties provided that all disputes arising under the Agreement

were to be submitted to an arbitrator for resolution. When a

dispute did arise, RWC responded by unilaterally terminating the

VADA between the parties. Synchronies then brought suit in the

Federal District Court for the Western District of Tennessee

seeking to enjoin RWC from terminating the VADA without first

submitting the dispute to an arbitrator. The federal court

enjoined RWC from terminating the VADA pending arbitration, in

accordance with the clear terms of the Settlement Agreement. At

the close of the arbitration, the arbitrator found that RWC had

acted in bad faith when it refused to submit the dispute to

arbitration under the terms of the Settlement Agreement, thereby

reguiring federal court intervention. Award at 5 1(c).

The procedural history of this case strongly supports the

conclusion that the court reporting costs associated with the

Tennessee litigation are "costs of the arbitration." RWC

effectively forced the Tennessee litigation by refusing, absent

court order, to fulfill its obligation to arbitrate under the

terms of the Settlement Agreement. Without the Tennessee

litigation, the arbitration likely would not have taken place at

12 all, and the reporting costs related to the arbitration's subject

matter, or to the arbitrability of the dispute itself.

Accordingly, the judgment is amended to include all reporting

costs Synchronies seeks among those the arbitrator ordered to be

shared by the parties.

III. CONCLUSION

The judgment is hereby amended to include pre-judgment

interest to be calculated according to New Hampshire law and

post-judgment interest to be calculated according to federal law.

In addition, the judgment is amended to include the court

reporting costs associated with the Tennessee litigation and the

arbitration depositions among those the arbitrator ordered to be

SO ORDERED.

Steven J. McAuliffe United States District Judge

November 16, 1995

cc: Daniel A. Laufer, Esg. Michael E. Goldstein, Esg. Richard V. Wiebusch, Esg.