Redondo Construction Corp. v. Puerto Rico Highway & Transportation Authority

United States Court of Appeals
For the First Circuit
No. 12-1326
IN RE: REDONDO CONSTRUCTION CORPORATION,
Debtor.
REDONDO CONSTRUCTION CORPORATION,
Appellee,
v.
PUERTO RICO HIGHWAY AND TRANSPORTATION AUTHORITY,
Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Torruella, Howard and Thompson,
Circuit Judges.
Raúl Castellanos-Malavé, with whom Development & Construction
Law Group, LLC was on brief, for appellant.
Freddie Pérez-González, with whom Freddie Pérez-González &
Assoc., P.S.C. was on brief, for appellee.
November 21, 2012
HOWARD, Circuit Judge. Chapter 11 debtor Redondo
Construction Corporation ("Redondo") brought an adversary
proceeding against the Puerto Rico Highway and Transportation
Authority ("Authority") in the United States Bankruptcy Court for
the District of Puerto Rico, claiming amounts due for work
performed on five construction projects. Following a lengthy
trial, the bankruptcy court awarded Redondo a total of nearly
$10,250,000 in damages, plus interest at 6% per annum from the
"payment due" date for each project. The district court affirmed
the judgment in all respects. The crux of the Authority's claim
before this court concerns the award of interest.
I. PROCEDURAL HISTORY
After filing a voluntary petition for bankruptcy
protection under Chapter 11 of the Bankruptcy Code, Redondo
commenced an adversary proceeding against the Authority to collect
monies that the Authority allegedly owed Redondo for work performed
on five construction projects.1 Redondo claimed that the Authority
failed to compensate it for additional work Redondo had to perform
on each project due to unanticipated problems, including unforeseen
site conditions and flawed design plans. The complaint was tried
before the bankruptcy court.
1
The five projects are: Las Cumbres Avenue, Río Grande de
Loíza Bridge, Ponce-Adjuntas PR-10, Kennedy Avenue, and Third
Millennium Park. Redondo initially made a claim for a sixth
project but voluntarily dismissed the claim before trial.
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In its post-trial brief, Redondo argued that it was
entitled to prejudgment interest under Article 1061 of the Puerto
Rico Civil Code as damages for contractual delay. See P.R. Laws
Ann. tit. 31, § 3025. In the alternative, Redondo sought
prejudgment interest under Rule 44.3(b) of the Puerto Rico Rules of
Civil Procedure on the basis of the Authority's alleged obstinacy
in the course of the litigation. See P.R. Laws Ann. tit. 32, app.
III, R. 44.3(b).
The bankruptcy court entered judgment in Redondo's favor
and awarded interest on all damages at the rate of 6% per annum
from the "payment due" date for each project.2 In its summary of
Redondo's claims, the court noted that Redondo sought interest for
contractual delay pursuant to Article 1061. In awarding interest,
however, the court quoted the language of Rule 44.3(b) and, without
further reasoning, concluded that Redondo was entitled to the
"current legal interest" of 6%.
The Authority challenged the bankruptcy court's decision
in the district court, see 28 U.S.C. 158(a), arguing that the
bankruptcy court erred in awarding Redondo damages on some of the
claims and in assessing interest under Rule 44.3(b). The district
2
The bankruptcy court awarded interest from August 10, 2001
for the Las Cumbres Avenue, Río Grande de Loíza Bridge, and Ponce-
Adjuntas PR-10 projects; from July 18, 1999 for the Kennedy Avenue
project; and from December 3, 2000 for the Third Millennium Park
project. In so doing, the court agreed with Redondo's expert that
interest began to accrue thirty days after the date of final
inspection for each project, when payment became due.
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court affirmed the judgment in all respects, without elaborating
its reasons for affirming the award of interest. This timely
appeal followed.
II. ANALYSIS
The Authority presents three claims of error. First, the
Authority argues that, to the extent that the 6% interest award
represents postjudgment interest, the rate instead should be 0.11%
in accordance with 28 U.S.C. § 1961. Second, it argues that no
prejudgment interest was owed because the court did not make a
finding that the Authority had engaged in obstinate conduct in the
course of the litigation, as Rule 44.3(b) of the Puerto Rico Rules
of Civil Procedure requires. Finally, it argues that the court
erroneously awarded Redondo an excess amount for its patent and
excise taxes claim for one project.
We review the bankruptcy court's findings of fact for
clear error and its rulings of law de novo. In re Advanced
Cellular Sys., Inc., 483 F.3d 7, 10 (1st Cir. 2007). In so doing,
we provide "no particular deference" to the district court's
conclusions. Id. (internal quotation marks omitted).
A. Postjudgment Interest
The parties agree that 28 U.S.C. § 1961 governs any
postjudgment interest award in this case. See Cummings v. Standard
Register Co., 265 F.3d 56, 68 (1st Cir. 2001) (federal law governs
postjudgment interest on a federal court judgment even in an action
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otherwise governed by state law). Section 1961 provides that
"[i]nterest shall be allowed on any money judgment in a civil case
recovered in a district court" and is to be calculated "from the
date of the entry of the judgment" at a rate fixed in the statute.
28 U.S.C. § 1961; Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494
U.S. 827, 835 (1990). Postjudgment interest is mandatory and the
prevailing party is entitled to it even if the district court made
no provision for its payment. Cordero v. De Jesus-Mendez, 922 F.2d
11, 15 (1st Cir. 1990).
The interest awarded in this case was not intended to be
postjudgment interest. The judgment provides that interest at 6%
per annum began to accrue from specified dates when the Authority
was required to pay Redondo's claims for each project, well before
the entry of judgment in Redondo's favor. Although the judgment
does not specify the end date for the accrual of interest, there is
nothing to suggest that it would extend beyond the date of entry of
the judgment.
The issue of postjudgment interest nonetheless remains.
The Authority deposited the amount of the judgment with the clerk
of the district court on February 17, 2012, stalling the accrual of
postjudgment interest as of that date. See Cordero, 922 F.2d at
18-19 (postjudgment interest ceases to accrue as of the date of
deposit of funds with the court). Because the judgment had been
entered on September 30, 2011, Redondo is entitled to postjudgment
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interest for the period between the entry of judgment and the date
of deposit. The Authority suggests that the amount that it
deposited includes interest at a rate of 6% for that time period,
rather than the lower statutory rate. Accordingly, we remand for
assessment of postjudgment interest from September 30, 2011 to
February 17, 2012 at the rate provided in Section 1961.
B. Prejudgment Interest
"When state-law claims (such as the contract claims at
issue here) are adjudicated by a federal court, prejudgment
interest is normally a matter of state law." In re Redondo Constr.
Corp., 678 F.3d 115, 125 (1st Cir. 2012). Here, the law of Puerto
Rico supplies the rule of decision concerning prejudgment interest.
See id.The bankruptcy court awarded Redondo prejudgment interest
on all damages at the rate of 6% per annum from the payment due
date for each project. The parties disagree whether the interest
was assessed as a sanction under Rule 44.3(b) of the Puerto Rico
Rules of Civil Procedure or as damages for contractual delay under
Article 1061 of the Puerto Rico Civil Code. The Authority
maintains that prejudgment interest was awarded pursuant to Rule
44.3(b) but erroneously so because the court failed to make the
requisite finding that the Authority was obstinate in litigating
the case. Redondo concedes that the lack of a finding of obstinacy
precludes assessment of interest pursuant to Rule 44.3, but argues
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that the court awarded interest pursuant to Article 1061, not
pursuant to Rule 44.3.
Rule 44.3(b) provides for prejudgment interest at a
specified rate when the court determines that the losing party was
obstinate in the course of the litigation.3 P.R. Laws Ann. tit.
32, app. III, R. 44.3(b); Dopp v. Pritzker, 38 F.3d 1239, 1252 (1st
Cir. 1994). "A finding of obstinacy requires that the court
determine a litigant to have been unreasonably adamant or
stubbornly litigious, beyond the acceptable demands of the
litigation, thereby wasting time and causing the court and the
other litigants unnecessary expense and delay." Dopp, 38 F.3d at
1252 (internal quotation marks omitted). The bankruptcy court
cited Rule 44.3(b) as the basis for the interest award. But the
court made no finding of obstinacy, precluding the assessment of
interest pursuant to Rule 44.3(b). See In re Redondo Constr.
Corp., 678 F.3d at 126 (rejecting the argument that Rule 44.3(b)
provided the basis for prejudgment interest award in a different
adversary proceeding between the same parties "because the court
made no finding regarding the Authority's temerity or obstinance").
To salvage the interest award, Redondo argues that the
bankruptcy court did not mean what it said. Redondo maintains that
3
Although the rule does not apply when the defendant is the
Commonwealth of Puerto Rico or one of its agencies, the exemption
does not extend to public corporations like the Authority.
Rodriguez Cancel v. P.R. Elec. Power Auth., 16 P.R. Offic. Trans.
542 (1985).
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the court in fact awarded interest for contractual delay pursuant
to Article 1061 but instead cited to Rule 44.3(b) either in error
or to indicate its inapplicability.4 We cannot indulge such
speculation. The bankruptcy court did acknowledge that one basis
for Redondo's interest claim was Article 1061. Nothing in the
opinion, however, indicates that the court awarded interest on this
basis.
Nor can we determine from the record before us that
Redondo is entitled to the prejudgment interest award pursuant to
Article 1061.5 Unless parties agree otherwise, when a contract
obliges a party to pay a sum of money, Article 1061 provides for
payment of interest "as an [] indemnity for damages, by way of
penalty, for default in payment." Rivera v. Crescioni, 77 P.R. 43,
51 (1954); accord P.R. & Am. Ins. Co. v. Superior Court of P.R., 84
P.R. 597, 599 (1962). Default in payment occurs "as of the date in
4
Redondo indeed goes further and explains the court's
apparent blunder as "the result of [the judge's] time constraints
in the drafting of his decision[.]" The judge retired on the day
he issued the opinion.
5
Captioned "Interest as indemnity for nonpayment of money,"
Article 1061 provides:
Should the obligation consist in the payment of a sum of
money, and the debtor should be in default, the indemnity
for losses and damages, should there not be a stipulation
to the contrary, shall consist in the payment of the
interest agreed upon, and should there be no agreement,
in that of the legal interest. Until another rate is
fixed by the Government, interest at the rate of six
percent (6%) per annum shall be considered as legal.
P.R. Laws Ann. tit. 31, § 3025.
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which judicial or extrajudicial demand was made for [payment]."
Widow of Vázquez v. Vázquez Cintrón, 85 P.R. 266, 268 (1962)
(citing 31 P.R. Laws Ann. tit. 31, § 3017). We cannot determine
when such demands were made in this case and whether they
correspond to the dates that the bankruptcy court designated for
the accrual of interest.
Because uncertainty surrounds the prejudgment interest
award, we remand the case to the district court with instructions
to vacate that award and return the case to the bankruptcy court
for a determination of whether an award of prejudgment interest is
appropriate, and, if so, the basis for the award, the applicable
rate of interest, and the period of accrual. We take no view as to
the outcome of this further inquiry.
C. Revised Amount for One Claim
The Authority's final claim is that the court erroneously
awarded Redondo an excess amount for its patent and excise taxes
claim for the Ponce-Adjuntas PR-10 project. Specifically, the
court awarded a sum of $1,082,654.56 for the claim despite the fact
that Redondo revised the amount to $818,302 at trial and presented
evidence only as to that amount. Reducing the amount for this
claim requires further modification of the judgment because Redondo
was awarded 15% profit on all its successful claims. Redondo
concedes the error and consents to the modification of the judgment
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as requested by the Authority. Accordingly, we remand for entry of
a revised partial judgment bearing such modifications.
III. CONCLUSION
We vacate the district court's judgment to the extent
necessary to allow for resolution of the aforementioned issues and
remand the case for further proceedings consistent with this
opinion. The parties shall bear their own costs of this appeal.
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