SandBar 6:3, October, 2007

Exxon Must Use State Law to Calculate Prejudgment Interest
Sea Hawk Seafoods v. Exxon Corp. (In re Exxon Valdez), 484 F.3d 1098 (9th Cir. Apr. 16, 2007).
 
Terra Bowling, J.D.

In a case regarding damages to a seafood company from the Exxon Valdez oil spill, the Ninth Circuit has ruled that the prejudgment interest rate should be calculated under state law. The decision reversed a district court order that calculated the prejudgment in­ ter­ est rate under federal law.

Background
After the Exxon Valdez spill, Sea Hawk Seafoods filed suit to re­cover losses it sustained from the spill. The parties reached a settlement on all issues, except the issue of whether to apply state or federal law to calculate the prejudgment interest rate. The United States District Court for the District of Alaska decided that the rate should be calculated using federal law, which resulted in a rate of 4.11% for 1992 and 3.54% for 1993. Sea Hawk appealed the decision.

Erie Doctrine
On appeal, the Ninth Circuit first considered a U.S. Supreme Court case, Erie Railroad Co. v. Tompkins, which held that federal courts sitting in diversity jurisdiction must apply state substantive law and federal procedural law.1 The court recognized that since courts view prejudgment interest as a substantive claim, it is appropriate to use state law unless federal law preempts state law.

The court noted that “[f]ederal admiralty law preempts state law only if the state law ‘contravene[s] any acts of Congress 85 work[s] any prejudice to the characteristic features of the maritime law, or interfere[s] with its proper harmony and uniformity in its international and interstate relations.’”2 In a prior order regarding the Exxon Valdez spill, the court concluded that federal law did not preempt state law claims for economic harm.3

Although Exxon argued that the court should depart from its normal rule of considering prejudgment interest as a substantive claim, the court disagreed. Exxon cited a case in which the Ninth Circuit held that prejudgment interest should be calculated using federal law, but the court found that that case was exempt from the normal rule because the court applied federal law to all of the substantive claims in that case.

Conclusion
The court reversed and remanded the case to the district court. The district court will calculate the prejudgment interest rate pursuant to Alaskan law, which will be 10.5%.

Endnotes
1  304 U.S. 64 (1938).
2.  Sea Hawk Seafoods v. Exxon Corp. (In re Exxon Valdez), 484 F.3d 1098, 1101 (9th Cir. Apr. 16, 2007).
3.  In re Exxon Valdez, 270 F.3d 1215, 1253 (9th Cir. 2001).