This blockbuster maritime action,1 initiated ten years ago, is before us for the second time. On the first appeal, we affirmed the district court's findings of liability but directed the district court on remand to modify its judgment to take into account, inter alia, (1) the awarding of prejudgment interest; (2) the validity of the red-letter clause in the contract between Auto Transportation, S.A., and Todd Shipyards Corporation; and (3) the full scope of the damages excludable under the work-product exclusion in the subcontractors' insurance policies. We also instructed the district court to make a final determination of damages as to all of the parties. On remand, the district court carefully sifted through the evidence and contentions of the parties, made additional findings of fact and conclusions of law, and entered judgment accordingly.

On appeal from this judgment, the appellants launch what can be regarded as a two-prong attack. First, they urge us to engage in a de novo review of a number of issues already resolved in the first panel opinion. Second, they challenge almost all aspects of the district court's opinion. We hold that the law of the case doctrine bars further consideration of the issues already resolved by this Court. With respect to the judgment of the district court, we affirm in all respects but one. Because attorney's fees in this case is a component of foreseeable damages recoverable for breach of implied warranties of workmanlike performance, we find that the district court erred in excluding Todd's liability for attorney's fees from coverage of the red-letter clause. Consequently, we remand the case solely for the reallocation of the fee award among the appropriate parties.

In Todd Shipyards Corp. v. Turbine Service, Inc., 467 F.Supp. 1257, 1270-81 (E.D.La.1978) (Todd I ), the district court set forth in detail the facts of this case.2 We repeat them here summarily and only to the extent made necessary by our analysis.

This litigation concerns an attempt by Auto Transportation, S.A. (Auto), owners of the vessel KATRIN, to recover damages due to faulty repairs performed by several repairers. In February of 1973, Auto brought the vessel to the repair yard of Todd Shipyards Corporation (Todd) for boiler and bulkhead repairs and for inspection of its high pressure (HP) and low pressure (LP) turbines. The contract contained Todd's standard "red-letter" clause and conditions. The boiler and bulkhead repairs were accomplished satisfactorily and are not implicated in this action.

Todd engaged a subcontractor, Turbine Service, Inc., (Turbine Service) to open up the turbines for inspection. Although the HP turbine required relatively minor repairs, the LP turbine was found badly damaged. Todd and Turbine entered into a contract for the repair of the LP turbine. Under this agreement, Turbine was required, among other things, to remove and replace four rows of blades from the LP turbine; to fair, dress and reinstall the remaining blades; and, as found necessary, to straighten and renew the stationary blades in the upper and lower casing.

Turbine Service in turn subcontracted a substantial portion of the work to Gonzales Manufacturing and Industrial Machine Works, Inc. (Gonzales). When replacement blades for the LP turbine could not be found, Turbine Service decided to modify blades not otherwise compatible with the turbine by milling off their airfoils--that portion of the blades that protrudes into the stream flow--and welding them onto the roots of the old blades for insertion into the turbine rotor. Because the fabricated blades were shorter than the original KATRIN blades, "spacer rings," annular steel rings, were manufactured and attached to the inside of the turbine casing to reduce the space between the casing and the modified blades. Turbine Service never had the blades tested and failed to disclose the modification of the blades to either Todd or Auto.3

After reinstallation, the KATRIN passed two dock trials. During the river trial, however, a Todd observer heard noises inside the turbine. The LP turbine was opened, and considerable damage was found inside. At trial, the district court determined that the damage was precipitated by a defective weld on one or two rotor blades. Auto shipped the LP turbine to Siemens A.G. in Germany, the original manufacturer, for rebuilding. Eight months later, the LP turbine was returned to the United States and installed. The KATRIN thereafter traded commercially for the next few months. In July of 1976, for reasons having no bearing on this appeal, the vessel sustained extensive damage off the Irish coast at Cork and was sold for scrap.4

This action was originally brought by Todd in June of 1975 against Turbine Service and Gonzales demanding the return of certain damaged turbine parts of the KATRIN, which were removed after the river trial casualty and taken to the shops of Turbine Service and Gonzales. By the time of trial, however, the nature of the litigation had changed considerably. Auto had intervened to recover for damages to its vessel, and the insurers of Turbine Service and Gonzales--Travelers Insurance Company (Travelers) and Sentry Insurance Company (Sentry), respectively--were brought into the suit. The parties' claims, counterclaims, and cross claims included the following:

(1) Auto sought to recover from all other parties for the cost of repairing the KATRIN's LP turbine in Germany, loss of use of the vessel during the repair period, and related expenses.

(2) Todd sought to recover from Auto the balance of its repair invoices and indemnity from Turbine Service and Gonzales and their respective underwriters in the event Todd was found liable to Auto.

(3) Turbine Service and Travelers sought indemnity from Gonzales and Sentry for negligent workmanship by Gonzales and sought to recover from Todd and Auto unpaid repair invoices.

(4) Gonzales and Sentry sought to recover unpaid repair invoices from all other parties and sought indemnity from Turbine Service for any liability imposed on Gonzales or Sentry.

The trial lasted sixty-seven days over a six-month period and was the longest non-jury maritime trial in the history of the Eastern District of Louisiana.5 After trial, the district court in a comprehensive opinion held that Todd, Turbine Service, and Gonzales were negligent and in breach of implied warranties of workmanlike performance. As a result, all were liable in solido to Auto for $967,633.20 in damages for repair and reinstallation costs, loss of use during the down time of the vessel, and certain necessary expenses. The district court also (1) found applicable the work-product exclusion of Travelers' and Sentry's insurance policies, (2) granted Todd full indemnity over against both Turbine Service and Gonzales, and (3) denied all indemnity as between Turbine Service and Gonzales. Finally, post-judgment interest was awarded, and Auto was held entitled to attorney's fees "[to] be tried in due course." Todd I, supra, at 1311.

On appeal, we upheld both the in solido liability of Todd, Turbine Service, and Gonzales and Todd's right to indemnification from Turbine Service and Gonzales. Todd Shipyards Corp. v. Turbine Service, Inc., 674 F.2d 401, 424-25 (5th Cir.1982) (Todd II ). In addition, we affirmed the district court's judgment denying such a right between Turbine Service and Gonzales. We, however, concluded that the district court had erred in several respects. First, we found that, inasmuch as the case was within the admiralty jurisdiction of the district court, prejudgment interest should have been awarded. Second, we held that, contrary to the conclusion of the district court, the red-letter clause in Todd's contract with Auto was effective in limiting Todd's liability under the circumstances of this case. Third, we determined that additional costs needed to be excluded under the work-product exclusion of the Travelers and Sentry policies. We remanded the case with directions that the district court recalculate the respective liabilities of the parties in light of the foregoing, fix the award of costs and attorney's fees owing to Auto, and make a final determination of damages with respect to all the parties. Id.6

On remand,7 the district court set prejudgment interest, determined attorney's fees and costs, and modified its damage award, Todd Shipyards Corp. v. Turbine Service, Inc., 592 F.Supp. 380 (E.D.La.1984) (Todd III ), all of which is described more fully below. From the final judgment of the district court, Todd, Travelers, and Sentry appeal.8

As mentioned above, the contentions of the parties fall within two general categories. First, Travelers and Sentry at great length urge us to reopen a number of issues already determined by the prior panel decision. It is argued that the law of the case doctrine does not preclude de novo review of these issues because (1) the prior panel lacked subject matter jurisdiction over the district court's 1982 judgment and (2) the holdings of this Court with respect to these issues are clearly erroneous and would work a manifest injustice. Second, all the appellants raise various objections to the final judgment of the district court not previously considered by this Court. Travelers and Sentry challenge (1) the award of prejudgment interest and (2) the determination by the district court of the amount of damages excluded from coverage under the work-product exclusion of the underwriters' insurance policies. Todd asserts that the district court erred in (1) refusing to extend coverage of the red-letter clause to its liability for Auto's attorney's fees; (2) holding it liable in solido with Turbine Service and Gonzales for Auto's damages, irrespective of the operation of the red-letter clause; and (3) offsetting the amount due on its repair invoice against the entire in solido liability of the repairers instead of awarding it recovery directly from Auto.

We consider each of these contentions in turn.III. DE NOVO REVIEW

The law of the case doctrine, as formulated in this circuit, generally precludes reexamination of issues of law or fact decided on appeal, either by the district court on remand or by the appellate court itself on a subsequent appeal. Dickinson v. Auto Center Manufacturing Co., 733 F.2d 1092, 1096 (5th Cir.1983); Conway v. Chemical Leaman Tank Lines, Inc., 644 F.2d 1059, 1061 (5th Cir.1981). This doctrine "is based on the salutary and sound public policy that litigation should come to an end." White v. Murtha, 377 F.2d 428, 431 (5th Cir.1967). Indeed, if every question once considered and decided remained open for reexamination in subsequent proceedings in that same case, an appellate court could not efficiently or satisfactorily perform its duties. Chapman v. NASA, 736 F.2d 238, 241 (5th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 517, 83 L.Ed.2d 406 (1984); White v. Murtha, supra, at 431. Moreover, the law of the case doctrine "discourages 'panel shopping' at the circuit level for in today's climate it is most likely that a different panel will hear subsequent appeals."9 Lehrman v. Gulf Oil Corp., 500 F.2d 659, 662 (5th Cir.1974), cert. denied, 420 U.S. 929, 95 S.Ct. 1128, 43 L.Ed.2d 400 (1975). Nonetheless, it is well established that the doctrine is not an inexorable command but a rule of practice, usually followed but limited in scope. Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983); United States v. Horton, 622 F.2d 144, 148 (5th Cir.1980).

In the case at bar, Travelers and Sentry argue that the law of the case doctrine is inapplicable because the prior panel lacked appellate jurisdiction over the first appeal.10 Citing Holmes v. J. Ray McDermott & Co., 682 F.2d 1143, 1146 (5th Cir.1982), cert. denied, 459 U.S. 1107, 103 S.Ct. 732, 74 L.Ed.2d 956 (1983), Travelers and Sentry point out that, when attorney's fees are an integral part of the merits and the scope of relief, an order of the district court is not a final judgment within the meaning of 28 U.S.C. Sec. 129111 unless that order includes a determination of the fees. See also Alcorn County v. U.S. Interstate Supplies, Inc., 731 F.2d 1160, 1164 (5th Cir.1984) (applying Holmes rule); Oxford Production Credit Ass'n v. Duckworth, 689 F.2d 587, 588 (5th Cir.1982) (same). Travelers and Sentry contend that, because (1) the district court in its first judgment held that Auto was entitled to attorney's fees but failed to calculate the fee amount and (2) the fees were awarded as a substantial component of Auto's foreseeable damages, the Todd II appeal was not perfected under the final judgment rule of Sec. 1291.

We agree with Travelers and Sentry that this Court in Todd II lacked appellate jurisdiction of the district court's judgment under Sec. 1291. It is well established in this circuit that, in an action for breach of implied warranties of workmanlike performance, attorney's fees are recoverable as foreseeable damages. Thibodeaux v. Texas Eastern Transmission Corp., 548 F.2d 581, 587 (5th Cir.1977); see also McCawley v. Ozeanosun Compania, Maritime, S.A., 505 F.2d 26, 32 (5th Cir.1974); Strachan Shipping Co. v. Koninklyke Nederlandsche Stoomboot Maalschappy, N.V., 324 F.2d 746, 747 (5th Cir.1963), cert. denied, 376 U.S. 954, 84 S.Ct. 969, 11 L.Ed.2d 972 (1964). Such an award of attorney's fees cannot be regarded as collateral to the action but forms an integral part of the scope of relief. Therefore, under Holmes and its progeny, cited above, it follows that the district court's failure in Todd I to set the amount of fees before the entry of judgment precluded the exercise of Sec. 1291 jurisdiction.

However, because this case was brought under the admiralty jurisdiction of the district court, we hold that the panel had jurisdiction under 28 U.S.C. Sec. 1292(a)(3).12 Under this provision, the appellate courts have jurisdiction of appeals from interlocutory decrees that determine the rights and liabilities of the parties to admiralty cases. See generally Offshore Logistics Services, Inc. v. Mutual Marine Office, Inc., 639 F.2d 1168, 1170 (5th Cir.1981); O'Donnell v. Latham, 525 F.2d 650, 652 (5th Cir.1976). Although Sec. 1292(a)(3) is to be construed narrowly, we have consistently held that the provision should be applied to achieve its original purpose of allowing the final determination of liability among the parties before the computation of damages. See Hollywood Marine, Inc. v. M/V Artie James, 755 F.2d 414, 416 (5th Cir.1985); In re Patton-Tully Transportation Co., 715 F.2d 219, 222 n. 4 (5th Cir.1983); see generally 9 J. Moore, Federal Practice p 110.19; 16 C. Wright, A. Miller, E. Cooper & E. Gressman, Federal Practice & Procedure Sec. 3927. Here, the district court's original judgment not only determined all rights and liabilities among the parties but also calculated all recoverable damages with the sole exception of the amount of attorney's fees and costs owing to Auto. The appeal from that judgment, therefore, came well within the scope of the Sec. 1292(a)(3) exception to the final judgment rule.13

Travelers and Sentry alternatively argue that, even if the law of the case doctrine is generally applicable, we should exercise our limited discretion and reconsider certain holdings of the Todd II panel. These holdings include (1) the granting of attorney's fees to Auto, (2) the award of indemnity to Todd, (3) the denial of indemnity as between Turbine Service and Gonzales, (4) the finding of Gonzales' liability, and (5) the award of $3,000 per day net down time damages to the KATRIN. Each of these claims was fully briefed and squarely decided in the original appeal of this case and additionally was the subject of a petition for rehearing and a petition for rehearing en banc.

We have often stated that the law of the case doctrine is subject to three exceptions,14 only one of which is relevant here. Before we can resurrect and give favorable consideration to the contentions previously rejected in Todd II, Travelers and Sentry must demonstrate that the challenged holdings of the prior panel are "clearly erroneous and would work an injustice." Goodpasture, Inc. v. M/V Pollux, 688 F.2d 1003, 1005-06 (5th Cir.1982), cert. denied, 460 U.S. 1084, 103 S.Ct. 1775, 76 L.Ed.2d 347 (1983); White v. Murtha, supra, at 432. In the absence of such an exceptional circumstance, the law of the case, whether right or wrong, applies. See Doe v. Marshall, 694 F.2d 1038, 1041 (5th Cir.), cert. denied, 462 U.S. 1119, 103 S.Ct. 3087, 77 L.Ed.2d 1349 (1983); Key v. Wise, 629 F.2d 1049, 1055 n. 4 (5th Cir.1980), cert. denied, 454 U.S. 1103, 102 S.Ct. 682, 70 L.Ed.2d 647 (1981); Schwartz v. NMS Industries, Inc., 575 F.2d 553, 554 (5th Cir.1978). We have fully considered the contentions of Travelers and Sentry. We cannot say that any of the prior panel's holdings is unprincipled or without basis in law or fact. The Todd II decision neither is clearly erroneous nor works a manifest injustice. We therefore hold that the law of the case doctrine is fully applicable and bars reconsideration of the issues already determined by this Court.15

Although fully briefed on the issue, the district court in Todd I was silent on the matter of prejudgment interest.16 On appeal from the original judgment, we reiterated the oft-applied principle that in admiralty cases an award of prejudgment interest is the rule rather than the exception. Because no peculiar circumstances were disclosed on the face of the record that would allow the district court to refuse to make such an award, we directed the district court on remand to calculate and award prejudgment interest. Todd II, supra, at 416.

On remand, the district court used the rate of interest provided in La.Civ.Code Ann. art. 2924(B) as the touchstone in its calculations.17 Auto's suggestion that the much higher prime rate be used was explicitly rejected on the ground that no evidence had been introduced that Auto had borrowed any money and incurred higher costs. However, because of the "uncommon high rate of return available to investors over the principal part of [this litigation]," the court decided that "full and fair compensation is more nearly achieved by a calculation of interest on a compound basis." Todd III, supra, at 385. The court ordered prejudgment interest to be compounded on a daily basis and set forth the dates from which the interest would run.

Travelers and Sentry object to the district court's award of prejudgment interest in two respects. First, they argue that the prior panel should not have granted prejudgment interest at all under the "peculiar circumstances" of this case or at least should have allowed the district court to decide the issue in the first instance. We, though, are law-of-the-case bound in this matter and thus cannot reconsider this contention. The Todd II holding requiring prejudgment interest to be awarded is not inconsistent with precedent nor clearly erroneous. See Noritake Co. v. M/V Hellenic Champion, 627 F.2d 724, 730 (5th Cir.1980); Alcoa Steamship Co. v. Charles Ferran & Co., 443 F.2d 250, 256 (5th Cir.), cert. denied, 404 U.S. 854, 92 S.Ct. 98, 30 L.Ed.2d 94 (1971).

Second, Travelers and Sentry assert that the district court abused its discretion in ordering the prejudgment interest to be compounded daily. This claim is meritless. In admiralty cases, prejudgment interest is not awarded as a penalty but as compensation for use of funds by the defendant to which the plaintiff is entitled. King Fisher Marine Service, Inc. v. NP Sunbonnet, 724 F.2d 1181, 1187 (5th Cir.1984); In re Vulcan, 553 F.2d 489, 490 (5th Cir.), cert. denied, 434 U.S. 855, 98 S.Ct. 175, 54 L.Ed.2d 127 (1977). Admiralty courts in setting these rates have broad discretion and may look to state law or other reasonable guideposts indicating a fair level of compensation. Platoro Ltd. v. Unidentified Remains of a Vessel, 695 F.2d 893, 907 (5th Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983); Gator Marine Service Towing, Inc. v. J. Ray McDermott & Co., 651 F.2d 1096, 1101 (5th Cir.1981). The court below believed that the judicial interest rates provided in article 2924 of the Louisiana Civil Code would undercompensate Auto, but that the prime rates available during the applicable periods were too high.18 Consequently, the court adopted the statutory rates but ordered them to be compounded daily to approximate roughly the rate of return Auto could have received. We perceive no abuse of discretion either in this methodology or in the resulting award.19

Turbine Service and Gonzales were covered by identical comprehensive general liability insurance policies issued by Travelers and Sentry, respectively. These policies included a "work-product" or "injury-to-work" exclusion which eliminated coverage for the costs of repairing or replacing the insured's work product. In Todd I, the district court construed the exclusion to relieve Travelers from paying for replacing blades in rows 11-14 and sixty-three other blades in the LP turbine at a cost of $51,323. Todd I, supra, at 1312. Travelers and Sentry remained liable for the remainder of the LP turbine repair damages.

On appeal from that decision, Travelers and Sentry argued that their insureds' work product was the entire LP turbine and that consequently the entire cost of repairing the turbine should have been excluded. We upheld the applicability of the work-product exclusion in general, but found this contention to be "plainly contrary to the facts." Todd II, supra, at 421. We stated that, on the record of this case, the work product of the insureds was only the specific components they attempted to repair. Id.20 Travelers and Sentry, however, were not denied all relief. In Todd I, the district court had only excluded the actual replacement costs of the insureds' work product. We determined on appeal that the work-product exclusion also applied to all out-of-pocket expenses associated with repairing and replacing the insureds' work product. We concluded: "At the risk of oversimplification, it appears that all economic losses suffered by the KATRIN's Owners may be attributable either to the 'down time' of the KATRIN or to the repair or replacement of the work product of Todd, Turbine Service and Gonzales." Id. at 423. We remanded for the district court to determine anew Travelers' and Sentry's liability.

On remand, the district court once again identified that the insureds' work product consisted of the blades in rows 11-14 and sixty-three other blades and calculated that the cost of replacing these blades comprised 23% of the total repair costs of the LP turbine. The court then reported that it had examined every invoice in minute detail and, whenever a cost of inspecting, crating, shipping, or reinstalling the LP turbine was included in an item of damage, excluded 23% of the charges. Finally, the court deducted (1) the cost of replacing the insureds' work product and (2) the amount of out-of-pocket expenses attributable to such repair from the underwriters' total liability. Travelers and Sentry remained liable for such damages as loss of use of the vessel, general expenses from the master's account, and pilotage, wharfage, tug, repatriation, and recrewing expenses. Todd III, supra, at 388.

On appeal from that decision, Travelers and Sentry assert that, in refusing to exclude the entire costs of inspecting, crating, shipping, and reinstalling the LP turbine, the district court failed to carry out this Court's specific instructions. They point out that in Todd II we stated that losses suffered by Auto could be attributable "either to the down time of the KATRIN or to the repair or replacement of the work product." Todd II, supra, at 423 (emphasis supplied). According to the underwriters, this statement directed the district court to exclude from coverage the cost of repairing the entire LP turbine.21 We find this contention ill-conceived. As the district court observed in rejecting the same argument in Todd III, the portion of the opinion relied upon by Travelers and Sentry appears at the end of a lengthy discussion concerning the scope of the policies' coverage. In the course of this discussion, we expressly upheld the district court's conclusion that the work product of the insureds was not the LP turbine in its entirety but only portions thereof. See Todd II, supra, at 421. Moreover, we observed that, under Louisiana law, "the [work product] exclusion does not exclude damages to property other than the insured's work product." Id. at 423. This being the case, our opinion in Todd II clearly required the district court to "segregate costs and dissect invoices" in order to determine that portion of the entire costs of inspecting, crating, shipping, and reinstalling the LP turbine that was attributable to repairing specifically the insureds' work product. While the summary of that discussion, upon which Travelers and Sentry rely, might have been worded more carefully, our analysis, taken as a whole, provided adequate guidelines to the district court for use in determining the exact amount of Travelers' and Sentry's liability. The district court correctly applied these guidelines on remand, and its determination and allocation of damages is not clearly erroneous. See King Fisher Marine Service, Inc., supra, at 1187; Florida East Coast Railway Co. v. Revilo Corp., 637 F.2d 1060, 1067 (5th Cir.1981).22

Todd presents two arguments with respect to the district court's enforcement of the red-letter clause, which limited Todd's liability for negligence or breach of contract to $300,000.23 First, Todd argues that the court erred in failing to apply the red-letter clause to its liability for Auto's attorney's fees. Attorney's fees were awarded in this case as a component of the general damages recoverable. As such, Todd contends, the fees stand in equal footing with the other elements of the damage award and should have been considered part of the liability subject to the $300,000 limitation.24 We agree.

As we discussed in Part III of this opinion, it is the law of this circuit that "[f]oreseeable damages recoverable for breach of the [warranty of workmanlike performance] include reasonable attorney's fees and litigation expenses." Thibodeaux v. Texas Eastern Transmission Corp., supra, at 587. Todd's liability for Auto's attorney's fees, therefore, is fundamentally different from, for example, liability for interest on a judgment, which we held was not covered by the red-letter clause in Alcoa Steamship Co. v. Charles Ferran & Co., supra, at 254, relied on by the district court. Whereas an award of judicial interest is collateral to and independent of the action itself, attorney's fees awarded as a result of breach of an implied warranty of workmanlike performance are an integral part of the merits of the case and the scope of relief. See supra Part III; see also Holmes, supra, at 1146. Liability for such an award of attorney's fees, as a consequence, must be regarded as part and parcel of the substantive liability capped by the red-letter clause. Thus, although we are reluctant to delay any further the end of this litigation, protracted as it is, we must reverse the portion of the judgment holding Todd liable for Auto's fees apart from the $300,000 limitation of the red-letter clause. We direct the district court on remand to modify its judgment so that Todd's liability for the fee award is included within the aggregate liability limited by contract.

Second, Todd argues that, because the red-letter clause confines its liability to only certain costs, the district court erred in holding Todd liable in solido with Turbine Service and Gonzales. We find this argument meritless. While the red-letter clause places certain restrictions on the damages recoverable from Todd, it does not alter the fundamental character of Todd's liability. In Todd II, we affirmed the district court's finding that Todd's negligence and breach of warranty were a proximate cause of Auto's damages, for which Todd was primarily liable. Todd II, supra, at 410. That holding is now the law of the case. We conclude that Todd's resulting shared obligation with Turbine Service and Gonzales is in solido to the extent of the limits of the red-letter clause or the amount Auto can compel any of the repairers to pay. See generally Narcise v. Illinois Central Gulf R.R., 427 So.2d 1192, 1195 & n. 4 (La.1983) ("While one item of damages may be recoverable against one debtor and not the other, the parties are liable in solido as to every item for which plaintiff can compel payment from either.").

D. "Savings Made Possible"

Todd's final argument is that the district court erred in offsetting the balance due to Todd on the repair contract from Auto's total recovery. Todd argues that, because all three repairers are liable to Auto in solido, offsetting resulted in a windfall to Turbine Service and Gonzales at Todd's expense. We find no error.

In its original decision, the district court determined that the measure of damages for breach of contract should govern in this case. Todd I, supra, at 1304. We agreed on appeal. Todd II, supra, at 412. Under this measure, Auto was entitled to be put in the same position it would have occupied had the repair contract been performed. Damages were therefore computed by adding (1) the cost of repairs to have the LP turbine placed in the condition contracted for, (2) necessary expenses during down time of the vessel, (3) loss of profits during down time, and (4) costs and attorney's fees.25 Todd I, supra, at 1304. An award of this sum, however, would have placed Auto in a better position than it would have been in if the contract had not been breached, because the breach discharged Auto's duty to pay the balance due under the contract.26 Thus, the amount of the contract price that had not yet been paid was deducted from the damages as "savings made possible." Specifically, $1,142,446--the total of LP turbine repair damages, loss-of-use damages, and out-of-pocket damages--were reduced by $174,813--the balance due on the repair contract--to result in net recoverable damages of $967,633. Todd I, supra, at 1311. On remand, the district court, pursuant to our directions, lowered the loss-of-use damages from $645,000 to $498,000, thereby further reducing net damages to $820,663.

In light of the above, that Todd's argument is based on a false premise is readily apparent. Contrary to its contentions, Todd is not entitled to recover the balance due under the contract. As the district court made clear in Todd I, this obligation was discharged by Todd's breach. Rather, the district court considered the balance due on Todd's repair contract in computing Auto's damages solely in order to ensure that Auto received no more than its expectation interest.27 Because the repairers were obligated in solido to pay this expectancy, the district court correctly subtracted the balance due under the contract from the amount of their total liability.

We hold that the red-letter clause applies to Todd's liability for the award of attorney's fees. Therefore, we remand with directions that the district court modify its judgment accordingly. In all other respects, the judgment is affirmed.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.