United States v. 2007-04-16 | 05-35468 | SEA HAWK VEXXON CORP. | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 In re: THE EXXON VALDEZ,
SEA HAWK SEAFOODS, INC.,
Plaintiff-Appellant, No. 05-35468
v. D.C. No.
 EXXON CORPORATION and EXXON CV-89-00095-HRH
SHIPPING COMPANY, OPINION
Defendants-Appellees,
and
UNITED STATES OF AMERICA,
Intervenor-Appellee. 
Appeal from the United States District Court
for the District of Alaska
H. Russel Holland, Chief District Judge, Presiding
Argued and Submitted
February 7, 2007—Seattle, Washington
Filed April 16, 2007
Before: Susan P. Graber, Richard A. Paez, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Graber
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COUNSEL
Michael T. Shein, Reed Longyear Malnati Ahrens & West,
PLLC, Seattle, Washington; John G. Young, Young deNor-
mandie, Seattle, Washington; and Kevin P. Sullivan, Sullivan
& Thoreson, Seattle, Washington, for the plaintiff-appellant.
John F. Daum and Victor H. Jih, O’Melveny & Myers LLP,
Los Angeles, California, for the defendants-appellees.
Eric Fleisig-Greene, U.S. Department of Justice, Washington,
D.C., for the intervenor-appellee.
OPINION
GRABER, Circuit Judge:
Plaintiff Sea Hawk Seafoods, Inc., operates a seafood pro-
cessing business on Prince William Sound in Valdez, Alaska.
Plaintiff sued Defendants, Exxon/Mobil Corp. and Exxon
Shipping Co., under Alaska state law for business losses
resulting from the Exxon Valdez oil spill. The district court
dismissed Plaintiff’s claims as preempted by federal admiralty
law. We reversed the dismissal of Plaintiff’s state law claims.
Baker v. Hazelwood (In re Exxon Valdez), 270 F.3d 1215,
1253 (9th Cir. 2001). On remand, the parties settled all
remaining issues except for one: a prejudgment interest rate.
The district court determined prejudgment interest rates under
federal law. On de novo review, McCalla v. Royal MacCa-
bees Life Ins. Co., 369 F.3d 1128, 1129 (9th Cir. 2004), we
reverse. As we explain below, state law supplies the rate of
prejudgment interest.
This case arises out of the Exxon Valdez oil spill. On
March 24, 1989, Defendants’ oil tanker ran into Bligh Reef
off Valdez, Alaska, and discharged 11 million gallons of oil
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into Prince William Sound. In re Exxon Valdez, 270 F.3d at
1223. On March 31, 1989, Plaintiff sued Defendants in
Alaska state court for damages to its business from the oil
spill, under Alaska Statutes section 46.03.822, which imposes
strict liability for releasing a hazardous substance.1 On April
4, 1990, the parties reached a settlement agreement for losses
suffered by Plaintiff in 1989.
On November 21, 1991, the district court removed Plain-
tiff’s remaining state law claims, for years other than 1989, to
federal court.2 On June 3, 1992, the district court denied
Plaintiff’s motion to remand. We affirmed, holding that the
district court had removed the claims properly under 28
U.S.C. § 1441(c). Eyak Native Vill., 25 F.3d at 781.
On January 24, 2004, the district court entered summary
judgment against Plaintiff on the basis that, under Robins Dry
Dock & Repair Co. v. Flint, 275 U.S. 303 (1927), federal
admiralty law preempted Plaintiff’s claims. We reversed in
part and remanded, holding that federal maritime law did not
preempt Plaintiff’s Alaska state law claims. In re Exxon
Valdez, 270 F.3d at 1253. On September 27, 2004, the parties
settled Plaintiff’s remaining state law claims with the excep-
tion of one issue: what rate of prejudgment interest to apply
to the principle amount of the settlement. The parties agreed
to submit this question to the district court.
The district court, relying on Columbia Brick Works, Inc.
v. Royal Insurance Co. of America, 768 F.2d 1066 (9th Cir.
1985), calculated prejudgment interest rates under federal
law. The parties had agreed on two loss dates, one for 1992
1Plaintiff also joined in an amended and consolidated class action in
federal district court. Plaintiff voluntarily dismissed its federal claims on
September 24, 1992.
2The district court also removed more than 160 other state law cases
relating to the oil spill. Eyak Native Vill. v. Exxon Corp., 25 F.3d 773, 774
(9th Cir. 1994).
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and one for 1993, and the district court used those dates as the
relevant ones from which to calculate interest. Pursuant to the
federal law established by Western Pacific Fisheries, Inc. v.
SS President Grant, 730 F.2d 1280 (9th Cir. 1984), the district
court used the Treasury rate prescribed by 28 U.S.C.
§ 1961(a). Consequently, the district court determined the pre-
judgment interest rates to be 4.11% and 3.54% for 1992 and
1993, respectively. Plaintiff timely appealed.
[1] Under Erie Railroad Co. v. Tompkins, 304 U.S. 64
(1938), “ ‘federal courts sitting in diversity jurisdiction apply
state substantive law and federal procedural law.’ ” Freund v.
Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003) (quot-
ing Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427
(1996)). “The Erie principles apply equally in the context of
pendent jurisdiction.” Mangold v. Cal. Pub. Utils. Comm’n,
67 F.3d 1470, 1478 (9th Cir. 1995) (citing United Mine Work-
ers v. Gibbs, 383 U.S. 715 (1966)). Before today, we have not
had the occasion to determine whether Erie principles apply
when federal courts exercise jurisdiction over state law claims
pursuant to 28 U.S.C. § 1441(c). However, the basis of a fed-
eral court’s jurisdiction over a state law claim is irrelevant for
Erie purposes. “Where state law supplies the rule of decision,
it is the duty of federal courts to ascertain and apply that law.”
Witzman v. Gross, 148 F.3d 988, 990 (8th Cir. 1998) (internal
quotation marks omitted). Thus, Erie principles apply equally
when federal courts exercise jurisdiction under § 1441(c).
[2] It is well settled that prejudgment interest is a substan-
tive aspect of a plaintiff’s claim, rather than a merely proce-
dural mechanism. See Mutuelles Unies v. Kroll & Linstrom,
957 F.2d 707, 714 (9th Cir. 1992) (“In diversity jurisdiction,
state law governs all awards of pre-judgment interest.”); see
also Emmenegger v. Bull Moose Tube Co., 324 F.3d 616, 624
(8th Cir. 2003) (stating that “the question of prejudgment
interest is a substantive one”); Webco Indus., Inc. v. Therma-
tool Corp., 278 F.3d 1120, 1134 (10th Cir. 2002)
(“Prejudgment interest in a diversity action is thus a substan-
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tive matter governed by state law.”); Perceptron, Inc. v. Sen-
sor Adaptive Machs., Inc., 221 F.3d 913, 922 (6th Cir. 2000)
(“Prejudgment interest is a substantive element of damage
. . . .” ); Commercial Union Ins. Co. v. Walbrook Ins. Co., 41
F.3d 764, 774 (1st Cir. 1994) (stating that “prejudgment inter-
est is substantive law”); In re Oil Spill by the Amoco Cadiz,
954 F.2d 1279, 1333 (7th Cir. 1992) (per curiam) (“[F]ederal
courts look to state law to determine the availability of (and
rules for computing) prejudgment interest.”); Jarvis v. John-
son, 668 F.2d 740, 746 (3d Cir. 1982) (holding that “federal
courts in diversity cases should apply state law with respect
to prejudgment interest”); cf. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 497 (1941) (determining prejudgment
interest of a state claim in federal court without even consid-
ering the application of federal law, considering instead
whether the law of the place where the contract was made or
the law of the forum state applied). “[M]oney has a time
value, and prejudgment interest is therefore necessary in the
ordinary case to compensate a plaintiff fully for a loss suf-
fered at time t and not compensated until t + 1 . . . .” Hopi
Tribe v. Navajo Tribe, 46 F.3d 908, 922 (9th Cir. 1995) (inter-
nal quotation marks omitted). “The purpose of awarding pre-
judgment interest is to ‘compensate [a] plaintiff for the loss of
use of the money from the date of injury until the date of
judgment.’ ” Alderman v. Iditarod Props., Inc., 104 P.3d 136,
145 (Alaska 2004) (alteration in original) (quoting Liimatta v.
Vest, 45 P.3d 310, 321 (Alaska 2002)). Thus, state law applies
to Plaintiff’s claim for prejudgment interest under state law
unless federal law preempts it. See United States v. 4,432
Mastercases of Cigarettes, 448 F.3d 1168, 1189 (9th Cir.
2006) (“Federal law may preempt state law under the
Supremacy Clause of the Constitution.” (citing U.S. Const.
art. VI, cl. 2)).
[3] Federal admiralty law preempts state law only if the
state law “ ‘contravene[s] any acts of Congress, . . . work[s]
any prejudice to the characteristic features of the maritime
law, [ ]or interfere[s] with its proper harmony and uniformity
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in its international and interstate relations.’ ” Askew v. Am.
Waterways Operators, Inc., 411 U.S. 325, 339 (1973) (quot-
ing Just v. Chambers, 312 U.S. 383, 389 (1941)). To deter-
mine whether state law interferes with admiralty law, “[t]he
Supreme Court has adopted a balancing test that weighs state
and federal interests on a case-by-case basis.” In re Exxon
Valdez, 270 F.3d at 1251 (citing Yamaha Motor Corp., U.S.A.
v. Calhoun, 516 U.S. 199, 210-15 (1996); see also Ballard
Shipping Co. v. Beach Shellfish, 32 F.3d 623, 628 (1st Cir.
1994)).
[4] In In re Exxon Valdez, 270 F.3d at 1253, we already
held that Plaintiff’s state law claims for economic harm are
not preempted by federal law. No act of Congress prohibits
recovery for purely economic loss; the Robins Dry Dock, 275
U.S. 303, rule against economic recovery did not originate in,
and is not exclusive to, admiralty law; and, although “Con-
gress does not view either expansion of liability to cover
purely economic losses or enactment of comparable state oil
pollution regimes as an excessive burden on maritime com-
merce,” Alaska has a “strong interest in regulating oil pollu-
tion and in providing remedies for damages caused by oil
spills.” In re Exxon Valdez, 270 F.3d at 1251-52 (internal
quotation marks omitted). Consequently, as an aspect of the
Alaska claims for economic harm, Plaintiff’s claims for pre-
judgment interest are not preempted by federal law.
Defendants argue, and the district court held, that Columbia
Brick Works, 768 F.2d 1066, requires us to depart from the
usual rule that prejudgment interest is an aspect of the sub-
stantive state law claim. We disagree.
[5] In Columbia Brick Works, the plaintiff sued under an
insurance policy for goods shipped between Spain and Ore-
gon. The district court had exercised diversity jurisdiction but
awarded the plaintiff prejudgment interest pursuant to federal
law. Id. at 1067. We affirmed. Id. at 1071. But, in so doing,
we did not carve out an exception to the usual rule regarding
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prejudgment interest. The substantive claim itself, under the
marine cargo insurance contract, had to be analyzed under
federal admiralty law. Id. at 1068-69. Therefore, it followed
logically that prejudgment interest in that case was a question
of federal law. “In cases tried under admiralty principles only,
principles of federal law govern a plaintiff’s entitlement to
prejudgment interest even though the plaintiff may have
invoked diversity jurisdiction in his complaint.” Id. at 1071
(emphasis added). Here, by contrast, Plaintiff’s substantive
claim arose under Alaska state law only, so Plaintiff’s claim
for prejudgment interest arises out of, and must be analyzed
under, state law as well. For this reason, Columbia Brick
Works is inapposite.
Defendants also assert that the doctrine of judicial estoppel
bars Plaintiff from seeking to apply state law on appeal
because, before the district court, Plaintiff argued solely for
the application of federal law. See United States v. Miguel,
338 F.3d 995, 1002 n.20 (9th Cir. 2003) (“Judicial estoppel
prevents a party from taking a contrary position ‘where a
party assumes a certain position in a legal proceeding, and
succeeds in maintaining that position.’ ” (quoting New Hamp-
shire v. Maine, 532 U.S. 742, 749 (2001))). The record con-
tradicts Defendants’ premise. Plaintiff did ask that the district
court set an interest rate of 29.32%, 18.34%, or 9.20% using
its discretion under federal law. But Plaintiff also argued, in
the alternative, for an interest rate of 29.32% or 10.5% pursu-
ant to Alaska law. Arguing in the alternative does not invoke
judicial estoppel—it is good lawyering.
[6] We hold that the district court erred by not applying
Alaska law to Plaintiff’s Alaska state law claim for prejudg-
ment interest.3 The parties agree that, under Alaska state law,
3Consequently, we need not reach Plaintiff’s claim that the Extension
of Admiralty Jurisdiction (Admiralty Extension) Act, 46 U.S.C. § 30101,
unconstitutionally invades state sovereignty and that intervening Supreme
Court decisions have impliedly overruled our holding to the contrary in
United States v. Matson Nav. Co., 201 F.2d 610 (9th Cir. 1953).
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the applicable rate of interest in this case is 10.5%. See Alaska
Stat. § 09.30.070(a) (1996) (“The rate of interest on judg-
ments and decrees for the payment of money is 10.5 percent
a year . . . .”), amended by 1997 Alaska Sess. Laws ch 26,
§§ 18, 19. They dispute only whether, under Alaska state law,
the interest should be compound or simple. Thus, on remand,
the district court should limit its inquiry to that determination.
REVERSED and REMANDED with instructions to calcu-
late prejudgment interest under Alaska law using a rate of
10.5%.
In addition, because the district court erred in applying federal law to
Plaintiff’s claim for prejudgment interest, we do not reach the question
whether the district court abused its discretion under federal law in deter-
mining the applicable rates of interest.
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