Court Applies Federal Contracts Dispute Act to Calculate Pre-Judgment Interest; Reduces Amount Sought from $490,000 to $75,000
Shaw Group v. Bechtel Jacobs Co. (In re IT Group, Inc.), 359 B.R. 90 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)
Shaw Group, successor to the Debtors in this case under an Asset Purchase Agreement, prevailed on its Motion for Summary Judgment against contractor Bechtel Jacobs with respect to its breach of contract and unjust enrichment claims against Bechtel, by an order of the Court dated September 21, 2006. Shaw then moved for prejudgment interest, and the Court granted the motion, holding that the Contracts Dispute Act governed this question.
In this motion for an award of prejudgment interest, Shaw sought nearly $500,000, calculated under Tennessee state law. Bechtel objected, arguing that no prejudgment interest could be awarded because the ADR provision in the agreement precluded such an award. Alternatively, Bechtel argued that the federal rate was applicable, potentially reducing any award to approximately $75,000.Examining Bechtel’s first argument, the Court held that the ADR provision was inapplicable because the parties did not choose to use the ADR provision, and instead litigated their dispute in court.
Bechtel further argued that the subcontracts expressly required use of federal law (and, specifically, the CDA) in resolving disputes thereunder. Although Shaw argued that Tennessee state law applied, the terms of the subcontracts required use of state law only in the event that federal law was not dispositive. Shaw argued that the CDA did not apply to subcontractors, citing to cases where the subcontractor was not a party to a government contract. The Court held, however, that the parties’ choice of law provision requires the use of federal law to determine whether prejudgment interest should be awarded, noting that the parties are free to choose the body of law that governs their contracts.
Shaw further argued that the state interest rate, rather than the federal interest rate, applied to this case. The Court disagreed, noting that because the CDA applied to the question of whether prejudgment interest would be awarded, it also provided the applicable interest rate. On that basis, the Court calculated and awarded prejudgment interest to Shaw, but only in the approximate amount of $75,000.
