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In World Sav. & Loan Ass'n. v. Fed. Home Loan Bank of San Francisco, 2002 WL 1941155, at *3 (N.D. Cal. Aug. 19, 2002), the court was satisfied that it had jurisdiction over an underlying contract dispute which provided that federal common law governed.
Summary of this case from Laul v. Los Alamos Nat'l Sec., LLCOpinion
No. 00-4749 MMC
August 19, 2002
ORDER DENYING PETITION FOR APPEAL OF ARBITRATION AWARD (Docket No. 9)
Before the Court is defendant Federal Home Loan Bank of San Francisco's ("the Bank") Petition for Appeal of the arbitration award. The matter came on regularly for hearing on December 7, 2001. Robert Gooding of Howrey Simon Arnold White, LLP appeared on behalf of the Bank. Barry Hovis of Musick, Peller Garrett LLP appeared on behalf of World Savings and Loan Association ("World"). Having considered the papers filed in support of and in opposition to the motions, supplemental briefing, and the argument of counsel, the Court rules as follows.
BACKGROUND
World is a federally-chartered savings and loan association and member/shareholder of the Bank. The Bank is one of the twelve regional Home Loan Banks created by Congress is 1932 to provide advances to its member financial institutions. The issue in this case is whether prepayment fees are owed on fourteen (14) advances made by the Bank to World, the advances totaling $1,405,000,000.00. Each of the fourteen advances were issued for ten years, scheduled to mature in early 2003. For each of the advances, known as "convertible advances," the method for calculating interest and other payments changed after 5 years. (See Bank Opening Brief App. A; World Mem. at 1, 3).
These convertible advances were issued "almost exclusively" to World. (See World Mot. at 1.)
Each of the advances was made pursuant to three integrated contract documents: (1) a master contract titled "Advances and Security Agreement," (2) a "Guide to Credit Program," and (3) a "Confirmation of Advance" ("Confirmation") with the attachments thereto. Each Confirmation contains two columns setting forth the individual characteristics of the advance, such as the amount of the advance, the funding date, the maturity date, the interest rate index, and the "spread to the index" on which the interest rate was based. (See Bank Opening Brief App. B.) Typically, attached to the Confirmation were two forms, each titled "Confirmation of Advance: Open Maturity Renewal and Prepayment Provisions" ("Prepayment Form"), one form for the first five-year period and a second form for the second five-year period. At the top of each Prepayment Form was typed "Effective from [date] through [date]" to indicate which five-year period was covered under the prepayment provisions. (See, e.g., World Mem. Ex. A.) The two Prepayment Forms contained different terms with respect to how prepayment fees were to be calculated based on the applicable index.
For two of the fourteen advances, only one Prepayment form was attached. (See J.A. V.1 Ex. 3-4.) The Arbitrator did not treat these advances differently, concluding that the difference was "apparently a documentation error on the part of the Bank." (See Final Arbitration Award ("FAA") at 4.) The Arbitrator's finding was consistent with the Bank's position that the "fundamental contract interpretation issues in dispute are basically the same with respect to all 14 advances." (See J.A. Ex. 98 at 1474.) Because the Bank argued before the arbitrator that all of the advances should be treated in the same manner, the Bank cannot, before this Court, rely on differences in their documentation. Cf. Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1489 (9th Cir. 1995) (holding argument not raised before trial court cannot be asserted on appeal). The Court, therefore, will not distinguish between the two advances and the other advances for the purposes of the Court's analysis.
Eleven of the Fourteen advances were adjustable rate credit advances, meaning that the interest rate fluctuated based on changes in an underlying index. For these loans, the interest rate for the first five years was linked to the Cost of Funds Index ("COFI"). COFI is "the Bank's published monthly index of the weighted average cost of funds for all thrift institutions in California, Arizona, and Nevada that are members of the bank." (Bank Opening Brief, at 4.) After the first five years, the loans converted to another index, the Federal Home Loan Bank Discount Note Index ("DN"). "DNs are debt obligations issued by the Federal Home Loan Bank System in the global financial markets to raise money for the Home Loan Banks." Id. The remaining three advances started as fixed interest rate loans and, after five years, converted to adjustable rate loans based on the DN index. See id. Regardless of the differences between the advances, the parties agree that no prepayment fees are owed if the terms provided on the first Prepayment Form, covering the first five-year period, determine the prepayment fee owed on the entire advance. (See FAA at 5; the Bank Mem. at 8.) If, however, the terms of the second Prepayment Form apply to all or part of the advance period, the parties agree that a prepayment fee would be owed. (See Bank Mem. at 8; World Mem. at 5.)
On January 28, 1998, World gave notice of its intention to prepay the advances. After World gave notice, the Bank determined that World owed $7,879,209.76 in prepayment penalties with respect to the advances in question. When World objected, the Bank asserted that World would be held in "default of all of its borrowings from the Bank" unless it paid the assessed fees. (See World Mem. at 5; J.A. Ex. 29 at 339.) To avoid being held in default, World payed this sum to the Bank under protest.
On December 21, 2000, World filed the instant action, alleging three causes of action: (1) Declaratory Relief; (2) Breach of Contract; and (3) Breach of Good Faith and Fair Dealing. (See Compl. ¶¶ 9-23.) By stipulation, the parties agreed to arbitrate the case before the Honorable Winslow Christian ("Arbitrator"), who issued a Final Arbitration Award on June 20, 2001. The Arbitrator concluded that each advance raised identical issues of contract construction and used Advance No. 54993 along with its Prepayment Forms as an exemplar. With respect to Advance No. 54993, the words "Effective from 3/17/93 through 3/17/98" were typed at the top of first form and "Effective from 3/17/98 through 3/17/2003" were typed at the top of the second form. World repaid this loan in full on March 16, 1998. The arbitrator found, therefore, that "by its own terms" the second pre-payment period fee "never accrued because the whole ten-year advance was prepaid, and the transaction was closed out, before the second prepayment provision could become effective." (FAA at 5.) Based on this finding, the Arbitrator granted summary judgment in favor of World and ordered the Bank to return the $7,879.209.76 in prepayment fees previously paid under protest by World together with interest on that amount at the rate of 6.6 percent and World's costs and attorney's fees in the amounts of $8,884.04 and $190,166.00, respectively.
By the instant motion, the Bank appeals the decision of the Arbitrator, challenging the Arbitrator's (1) interpretation of the loan provisions at issue, (2) award of pre-judgment interest and (3) award of attorney fees. The Bank also asserts that, even if the Arbitrator's rationale is affirmed by the Court, the amount of the award should be reduced because the Arbitrator did not consistently apply his rationale with respect to all 14 advances. (See Bank Mem. at 2.)
By stipulation of the parties, approved by the Court on January 10, 2001, the Court, in reviewing the Arbitration Award, "shall have the authority to vacate, modify, or correct the Decision: (i) based on any of the grounds referred to in the Federal Arbitration Act, (ii) where the Arbitrator's findings of fact are not supported by substantial evidence, and/or (iii) where the Arbitrator's conclusions of law are erroneous. Review of questions of law shall be de novo." (The Bank Pet. Ex. A [Arbitration Agreement], at 3.)
DISCUSSION
A. Jurisdiction
At the hearing on the instant motion, the Court requested supplemental briefing on the question of whether the Court has jurisdiction to resolve the claims in World's complaint, all of which are asserted under state law. After reviewing the supplemental briefing filed by the parties, the Court is satisfied that it has jurisdiction over the instant action. The underlying contract between the parties provides that Federal common law governs disputes arising thereunder. Further, it is undisputed, and the Court so finds, that the United States has a substantial interest in the contract being litigated. See Danis Industries Corp. v. Fernald Environmental Restoration Management Corp., 947 F. Supp. 323, (S.D. Ohio 1996) (holding federal jurisdiction proper where contract selected Federal common law to govern dispute and United States has substantial interest in contract being litigated). In particular, the United States has an interest in the "safety and soundness of the Federal Home Loan Bank system" and "federal law controls many aspects of the relationship between the [Federal Home Loan Banks] and their members." (See Bank Supp. Brief, at 3, 5.)
Accordingly, the Court will proceed to address the merits of the dispute.
B. Prepayment Forms
The Court's analysis necessarily begins with the parties' agreements. In interpreting these agreements, the Court must look first to the plain meaning of the agreements to determine if more than one interpretation is reasonable. "The court must give reasonable meaning to all parts of the contract, and not render any portion meaningless." See Cray Research, Inc. v. United States, 44 Fed. Cl. 327, 330 (1999). Where "only one reasonable interpretation of the contract provisions exists, the court's inquiry ends and the single reasonable interpretation will apply." See Nicholson v. United States, 29 Fed. Cl. 180, 191 (1993). Where an agreement "is susceptible of two different and reasonable interpretations, each of which is found to be consistent with the contract language," the agreement is ambiguous and the court must look beyond the face of the agreement to resolve the ambiguity. See Cray Research, 44 Fed. Cl. at 330.
Here, the parties' dispute focuses on "whether the two prepayment fee formulas attached to the confirmation forms are additive (that is, the total prepayment fee for each advance is derived by adding the fee for the first leg and the fee for the second leg) or are mutually exclusive (that is, only one of the formulas will apply for the entire remaining term of the loan, depending on when notice of prepayment is given)." (See Bank Mem. p. 17.) World asserts that the terms of only one Prepayment Form are in effect at any given time and that the prepayment fee, if any, is to be calculated only under the form then in effect. (See World Mem. at 10.) The Bank, on the other hand, asserts that "the prepayment fee is calculated separately (i) for the remaining term of the first leg of the advances, using the formula checked on the first page of the attachment; and (ii) for the second leg of the advances (the DN leg), using the formula checked on the second page of the attachment — and the two amounts are then added together to determine the full prepayment fee." (See the Bank Mem. at 8.)
Each party contends that the language of the agreements in question unambiguously supports its respective position. World asserts that only its interpretation "gives meaning to the `Effective From ___ through ___'" language printed on the top of the Prepayment Forms. (World Mem. at 10.) According to World, "the `Effective from ___ Through ___' language could not be more clear that the first prepayment attachment is effective and governs prepayments made during the first five-year term and that the second attachment governs prepayments made during the second five-year term." (Id. at 13.) Thus, according to World, if prepayment is made during the first five-year period, the terms governing the second portion of the advance never take effect. World asserts that its interpretation is "consistent with the document as a whole" because "[c]ertain terms are effective for the first five years and different terms [are effective] for the second five years." (World Mem. at 12.) As the Bank notes, however, World's interpretation is not entirely satisfying, as it would require the Court to apply the agreed-upon terms for the first five-year period of the advance to the entire ten-year period for purposes of determining the prepayment fee. This result is in tension with the parties' intent to create convertible advances, the terms of which automatically change after five years.
The Bank's interpretation, however, is no more satisfactory. According to the Bank, because the parties' agreement provides for a ten-year convertible loan, the Bank is entitled to receive interest payments for the first five-years based on the terms applicable to that time period plus the interest for the second five-year period based on the terms that would have been applicable to that time period had World not chosen to prepay its advances. (See the Bank Mem. at 8.) As World notes, however, the "fundamental problem with the Bank's interpretation is that nowhere do the Confirmations say that the prepayment calculation will be based upon an addition of the two separately calculated amounts." (See World Mem. at 13.) Although the Bank asserts that these terms are "implicit," such "implicit" terms would require the simultaneous use of both Prepayment Forms to calculate the prepayment fee, whereas the "Effective from ___ through ___" language can be read to suggest that only one Prepayment Form is effective at any given time.
Under such circumstances, the Court concludes that the agreement in question is subject to two reasonable interpretations and, consequently, that it is ambiguous. To resolve this ambiguity, the Court will proceed with the analysis under the applicable rules for resolving contractual ambiguities. In that regard, the Bank offers extrinsic evidence of what World understood the parties agreement to be, and both parties offer evidence as to the history and purpose of prepayment fees and the doctrine of contra preferentem.
1. World's Conduct
Where an agreement is ambiguous, courts construe the language of the agreement "to effect the parties' intent at the time they executed the [agreement]." See Dureiko v. United States, 209 F.3d 1345, 1356 (Fed. Cir. 2000). Here, there is no extrinsic evidence of the parties intent at the time they executed the agreements in question. Indeed, it is undisputed that World and the Bank did not discuss how prepayments would be calculated for the convertible advances at the time the agreements were entered. (See J.A. Ex. 96 [Conger Decl. ¶ 8] at 1343, 1346; J.A. Ex. 97 [Conway Depo.] at 1369, 1373.)
The Bank argues, however, that World's conduct after the agreements were executed demonstrates that World in fact shared the Bank's current interpretation of the prepayment fees at the time the agreements were entered. In support of this argument, the Bank relies on a memorandum prepared in 1995 by Roberta Conger ("Conger"), World's Treasurer, in which Conger analyzed the convertible loans to determine whether a prepayment penalty would apply. The memorandum does not support the Bank's argument. In the memorandum, Conger begins by noting that, based on the interest rates in existence at that time, no prepayment penalty would be owed under the COFI terms of the advance but a prepayment penalty would be owed under the DN terms of the advance. Conger then states that she does not know how "the prepayment methodology [would] work" for convertible advances and asks whether World should "check in" with the Bank "to understand how the prepayment might work." (J.A. Ex. 94 at 1234). Conger's memorandum does not demonstrate that World shared or even understood the Bank's interpretation of the prepayment fee provisions.
In her declaration, filed in these proceedings, Conger confirms that, at the time she wrote the memorandum, she "had no idea how the Bank would apply prepayment provisions to convertibles." (J.A. Ex. 96 [Conger Decl.] at 1347.)
The Bank next asserts that later in 1995, World did "check in" with the Bank about how it would calculate prepayment fees and the Bank, in response, sent a memorandum to World explaining that prepayment fees would be calculated as the Bank argues herein. It is undisputed that World, after receiving this memorandum, did not object to the Bank's calculations or the Bank's methodology for calculating prepayment fees. According to the Bank, World's failure to respond is evidence that World did not disagree with the Bank's articulated methodology. (Bank Mem. at 25.) World's evidence suggests, however, that the Bank's memorandum was sent to a non-managerial employee and was not seen by anyone at World other than that employee. (See J.A. Ex. 96 (Conger Decl, ¶ 18], at 1347.) Under such circumstances, World's failure to object cannot be taken as an adoption of the Bank's interpretation. As World puts it, "World could hardly object to what it did not know." (World Mem. at 15.)
Consequently, the Bank cannot rely on World's conduct to resolve the ambiguity.
2. History and Purpose of Agreement
A contract "must be considered as a whole and interpreted `to effectuate its spirit and purpose' giving `reasonable meaning to all of its parts.'" See Goldsmith v. United States, 42 Fed. Cl. 664, 668 (1999). Here, however, the primary purpose of the prepayment fees cannot be ascertained from the evidence presented.
Each party asserts that the spirit and purpose of the agreements in question is consistent with the interpretation it proffers herein. In support of their respective positions, both parties rely on portions of a document produced by the Federal Housing Finance Board ("Board"), which, in relevant part, states:
The Banks currently are required by Board policy to charge prepayment fees that make them financially indifferent to a borrower's decision to prepay advances. These fees are designed to protect the Banks from interest rate risk and can be considered the price of the member's option to prepay. Since many advances are funded by bank debt with matching maturities and prepayments occur when interest rates fall, the banks can suffer losses if the principal portion of the prepayment advances must be invested in lower yielding assets which continue to be funded by higher cost debt."
(See J.A. Ex. 35 at 363-364.)
The Bank argues that the purpose of prepayment fees is to make lending institutions "financially indifferent" to prepayment. According to the Bank, it would not be financially indifferent to prepayment unless it receives the "benefit of its bargain," which, here, would entitle it to receive prepayment fees based on the terms provided for both portions of the ten-year advance. (See Bank Mem. at 15-16.) World disagrees. According to World, prepayment fees are not designed to ensure that the Bank receives the benefit of its bargain but rather to protect the Bank from "interest rate risk." (World Mem. at 16.) Here, World asserts, the Bank was not exposed to such risk because "[t]he Bank never had to fund the Discount Note portion of the advance with a Discount Note debt issuance." (See World Mem. at 15.) Thus, World asserts, the purpose behind prepayment fees would not be served by requiring World to pay prepayment fees under the facts presented.
The Court finds that the evidence offered by the parties equally supports the parties' respective positions. Hence, no inference can be drawn as to what a reasonable party to the contracts at issue would have understood to be the purpose of the prepayment provisions. The Court, therefore, cannot rely on the spirit and purpose behind prepayment fees to resolve the ambiguity in the parties' agreements.
Consequently, evidence of the history and purpose of prepayment fees does not resolve the ambiguity.
3. Contra Proferentem
World argues that where the Court cannot resolve the ambiguity in the parties agreement through other means, the Court should apply the doctrine of contra proferentem and construe the ambiguity against the Bank, the drafter of the agreements. There is a well-established "common-law rule of contract interpretation that a court should construe ambiguous language against the interest of the party that drafted it." Mastrobuono v. Sherson Lehman, 514 U.S. 52, 62 (1995). In the instant action, it is undisputed that the Bank drafted the agreements in question and that the terms at issue were not subject to negotiation between the parties.
The Bank, relying on Cray Research, Inc. v. United States, 44 Fed. Cl. 327, 330 (1999), asserts that contra proferentem is inapplicable because World did not object to or rely on the purported ambiguity at the time the agreement was made. In Cray, the Court refused to construe a latent ambiguity against the United States because, inter alia, the contractor had not relied on the asserted ambiguity when entering into the agreement. The Bank has not demonstrated, however, that the body of Federal common law that has been developed in cases where the United States is a party is applicable to the instant action. In other contexts, federal courts applying federal common law have not required the non-drafting party to demonstrate reliance before applying the doctrine of contra proferentem. See, e.g., Patterson v. Hughes Aircraft Co., 11 F.3d 948, 950 (9th Cir. 1993) (holding doctrine of contra proferentem requires that ambiguities in ERISA plan be construed against drafter unless plan was product of arms-length bargaining between parties of equal power).
The Bank, relying on Powell v. Central California Federal Savings and Loan Association, 59 Cal.App.3d 540 (1976), also argues that World is not the type of entity that the doctrine of contra proferentem is intended to protect because World is a "sophisticated borrower." (Reply at 7.) In Powell, the court held that the plaintiffs, described by the trial court as "sophisticated borrowers in the field of real estate development," could not rely on contra proferentem because the loan at issue was not the only source of funds available to them and they were free to "shop around for better terms." See id. at 550-551. Powell did not hold, however, that "sophisticated borrowers" cannot rely on contra proferentem. Rather, Powell held that the contracts at issue therein were not contracts of adhesion. See id. (defining contract of adhesion as "a standardized contract prepared entirely by one party to the transaction for the acceptance of the other . . . [that] must be accepted or rejected by the second party on a `take it or leave it' basis, without opportunity for bargaining and under such conditions that the `adherer' cannot obtain the desired product or service save by acquiescing in the form agreement.") Here, by contrast, it is undisputed the terms of the agreement were presented on a "take it or leave it basis" and there has been no showing World could have received the desired loan from any other source. Under such circumstances, the instant agreements were contracts of adhesion. See id.
As it is undisputed that the Bank drafted the instant agreements and that the terms were not subject to negotiation, the doctrine of contra proferentem applies to the instant action. As the Court has no other means of resolving the ambiguity presented, the Court must construe the ambiguous language in the agreements against the Bank and adopt World's reasonable interpretation.
C. Amount of Award
The Bank asserts that the Arbitrator's reasoning is inconsistent with his finding that the Bank is not entitled to any prepayment fees. Specifically, the Bank argues that the Arbitrator "apparently rejected World's argument that the applicable date for determining which prepayment formula to apply was the date of notice of prepayment" because the example used by the Arbitrator to demonstrate his reasoning is one in which actual prepayment occurred before the conversion date. (See Bank Mem. at 27) (emphasis in original). By the Bank's calculation, if the actual payment date is used, the Bank is entitled to prepayment fees for six of the advances because actual prepayment of those advances occurred after the conversion date. (See the Bank Mem. at 27) The Bank contends, therefore, that it is entitled to prepayment fees for the six advances in question.
As to each of the advances, World gave notice of its intent to prepay before the conversion date.
The Bank is not entitled to a reduction in the Arbitrator's award based on the asserted inconsistency. The uncontroverted facts demonstrate that "the Bank's practice has always been to determine the prepayment fee on the date notice is given of intent to prepay — not the date prepayment occurred." (See World Mem. at 20-21.) Further, the Bank never argued before the Arbitrator that the date of prepayment, not the date of notice of prepayment, should be determinative. (See id.) Under such circumstances, the Bank cannot argue before this Court that the date of payment controls. Cf. Parks School of Business, Inc. v. Symington, 51 F.3d at 1489 (holding argument not raised before trial court cannot be asserted on appeal).
Accordingly, the Bank is not entitled to a reduction in the Arbitrator's award based on the six advances that were actually prepaid after the conversion date.
C. Prejudgment Interest
The Arbitrator ordered the Bank to pay prejudgment interest to World at a rate of 6.6 percent per annum. (See FAA at 7.) According to representations made at the hearing, the parties do not dispute that the prevailing party in a breach of contract action ordinarily is entitled to prejudgment interest. The Bank asserts, however, that World is not entitled to prejudgment interest under the facts presented in this case and that, even if such interest is appropriate, the interest should be calculated at 4.07 percent per annum.
First, the Bank argues that the equities do not support an award of prejudgment interest because more than one year elapsed between the Bank's final rejection of World's claim in the Spring of 1998 and World's filing of the present lawsuit in September 1999. As World delayed in bringing the instant action, the Bank argues, World should not receive prejudgment interest for any delay in payment caused by World's own inaction. The Arbitrator disagreed and declined to limit World's recovery of prejudgment interest. The Arbitrator's decision was not an abuse of discretion and the Court will not alter the Award in this regard. See Citicorp. Real Estate, Inc. v. Smith, 155 F.3d 1097, 1109 (9th Cir. 1998) (holding award of pre- and post-judgment interest is reviewed for abuse of discretion except where award requires interpretation of statute or other questions of law.)
As noted, the parties also disagree as to the applicable rate of interest. Generally, prejudgment interest is awarded according to the rate set forth in 28 U.S.C. § 1961. See In re NuCorp. Energy, Inc., 902 F.2d 729, 734 (9th Cir. 1990)("Title 28 U.S.C. § 1961 . . . is to be used for the calculation of prejudgment interest, unless the equities of a particular case demand a different rate.") (citations omitted). At the time the dispute was presented to the Arbitrator, the rate of interest under § 1961 was approximately 4 percent. World, however, relies on Section IV.D of the Advances and Security Agreement to support its claim for prejudgment interest at the higher rate of 6.6 percent. Section IV.D, entitled "Default Rate," provides for interest on "[a]ny payment of principle or interest or any other sum due hereunder . . . at a rate equal to one percentage point above the rate in effect and being charged by the Bank from time to time under its Other Cash Needs — Variable Rate Credit Option." (See J.A. Ex. 1 at 17.) Section IV.D is inapplicable to the present action, however, as it is a unilateral provision authorizing the Bank to recover interest where a borrower defaults on a loan. The section does not purport to dictate the rate to which a borrower, wrongfully assessed fees, is entitled. Although World asserts that it would be "reasonable" to award World interest at the "the same rate that would be payable to the Bank for a member's default," World cites no authority for the proposition that federal law allows courts to interpret unilateral provisions as bilateral provisions.
World advised the Arbitrator that the average Variable Rate Credit Option rate for the relevant period is 6.6%. (See J.A. Ex. 105 at 2.)
Accordingly, World is entitled to prejudgment interest at the rate set forth in § 1961.
D. Attorney's Fees
The parties disagree as to whether World is entitled to attorney's fees. The Advances and Security Agreement between the parties contains an attorney's fees provision, stating that the borrower "will pay all attorneys' fees and other costs incurred by the Bank" if the Bank is the prevailing party. (See J.A. Ex. 1 p. 19). World argues, and the Arbitrator agreed, that this unilateral provision should be interpreted as a reciprocal attorney's fee provision pursuant to California Civil Code § 1717. California Civil Code § 1717 provides that, where a contract contains an unilateral attorney's fee provision, attorney's fees shall be awarded to the prevailing party, regardless of whether that party is the party authorized to receive attorney's fees under the contract. See Cal. Civ. Code § 1717(a).
The Bank argues that § 1717 is inapplicable because, under the Advances and Security Agreement, federal law governs this dispute. (See J.A. Ex. 1 at 19 (stating that "all advances granted under this Agreement shall be governed by the statutory and common law of the United States and, to the extent federal law incorporates or defers to state law, the laws of the State of California.").) "Under federal law, the prevailing party is not entitled to attorney fees unless authorized by `contract, applicable statute, or other exceptional circumstances.'" In re Bybee, 945 F.2d 309, 316 (9th Cir. 1991). Here, neither the contract nor any other source specifically authorizes World to recover its attorney's fees and World has not demonstrated that exceptional circumstances are present in the instant action. As a consequence, the Bank asserts, World is not entitled to recover its fees.
The Court agrees that World has not demonstrated that it is entitled to recover attorney's fees. World does not dispute that the choice of law provision in the Advances and Security Agreement provides that federal law will govern the dispute in question. Rather, relying on Resolution Trust Corporation v. Midwest Federal Savings Bank of Minot, 36 F.3d 785, 799 (9th Cir. 1994), World asserts that the Ninth Circuit applies § 1717 "notwithstanding the fact Federal law is to govern."(See World Mem. at 24.) Resolution Trust, however, does not support this proposition. In Resolution Trust, the Ninth Circuit applied § 1717 for the sole reason that the contract between the parties specified the terms of the loan agreement there at issue would be determined under California law. Here, by contrast, the contract between the parties specifically provides that federal law will govern. (See J.A. Ex. 1 at 19.)
Accordingly, World has not demonstrated that it is entitled to recover its attorney's fees.
CONCLUSION
For the reasons stated above, the Bank's Petition for Appeal is hereby GRANTED in part and DENIED in part as follows:
1. The Arbitrator's Decision awarding World the sum of $7,879,209.76 is hereby CONFIRMED.
2. The Arbitrator's decision to award prejudgment interest at the rate of 6.6 percent per annum is hereby MODIFIED to reflect an interest rate of 4.07 percent per annum.
3. The Arbitrator's Decision to award World its attorney's fees is hereby VACATED.
This order terminates Docket No. 9.
The Clerk shall close the file.
IT IS SO ORDERED.
JUDGMENT IN A CIVIL CASE
IT IS ORDERED AND ADJUDGED the Bank's Petition for Appeal is hereby GRANTED in part and DENIED in part as follows:
1. The Arbitrator's Decision awarding World the sum of $7,879,209.76 is hereby CONFIRMED.
2. The Arbitrator's decision to award prejudment interest at the rate of 6.6 percent per annum is hereby MODIFIED to reflect an interest rate of 4.07 percent per annum.
3. The Arbitrator's Decision to award World its attorneys' fees is hereby VACATED.