Aig Baker Sterling v. American Multi-Cinema

Decision Date28 November 2007
Docket NumberNo. 07-10130.,07-10130.
Citation508 F.3d 995
PartiesAIG BAKER STERLING HEIGHTS, LLC, A.B. Olathe II Limited Partnership, Plaintiffs-Counter-Defendants-Appellants, v. AMERICAN MULTI-CINEMA, INC., Defendant-Counter-Claimant-Appellee. American Multi-Cinema, Inc., Plaintiff-Appellee, v. AIG Baker Sterling Heights, LLC, A.B. Olathe II Limited Partnership, Defendants-Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

Clyde O'Neal Westbrook, III, James A. Harris, Jr, Harris & Harris, LLP, Birmingham, AL, for Appellants.

Scott Burnett Smith, Bradley, Arant, Rose & White, Huntsville, AL, John DeForest Watson, III, Bradley, Arant, Rose & White, Birmingham, AL, Bernard J. Rhodes, Lathrop & Gage, LC, Kansas City, MO, for Appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before MARCUS and PRYOR, Circuit Judges, and LAND,* District Judge.

PRYOR, Circuit Judge:

This appeal in an action to confirm an arbitration award presents two main questions, including one that has divided our sister circuits about the interpretation of the Federal Arbitration Act: (1) whether section 11(a) of the Act, which allows a district court to correct an "evident material mistake in the description of any person, thing, or property referred to in the award," embraces a mistake by a party that was not brought to the attention of the arbitration panel before the panel rendered the award; and (2) whether state or federal law governs the availability and amount of prejudgment interest in an action to confirm an arbitration award when jurisdiction is based on diversity of citizenship. AIG Baker Sterling Heights, L.L.C. and A.B. Olathe II (collectively "Baker") agreed with American Multi-Cinema, Inc., ("American") to arbitrate a dispute concerning the liability for real-estate taxes that a Kansas county assessed on property that American leased from Baker. During the arbitration, American estimated that its share of taxes for the year 2002 was $226,771.76. American contends that it erroneously admitted that it had paid nothing to Baker that year and the arbitration award to Baker included the $226,771.76. American asserts that it later discovered that it had paid the tax assessor $248,624.57, its share of taxes for 2002. The district court modified the award by deducting the $248,624.57 and declined, under federal law, to grant Baker prejudgment interest. Because we conclude that the district court exceeded its authority under section 11(a) and the availability and amount of prejudgment interest is a question of state law, we reverse and remand for further proceedings.

I. BACKGROUND

American leased from Baker space in two shopping centers, respectively located in Michigan and Kansas. The lease agreement required American to pay Baker a portion of the real-estate taxes on the properties. A dispute arose over the amount of tax that American owed Baker. The parties agreed to submit the dispute to a three-member arbitration panel in Kansas City, Missouri. The panel awarded $866,425.18 to Baker.

Baker filed an action in the Northern District of Alabama for confirmation of the award and sought prejudgment interest. American filed an answer and counterclaim in the district court, and American filed a separate action in the Western District of Missouri to modify the award. The district court in Missouri transferred its action to the Northern District of Alabama, and the two actions were consolidated. American also filed a motion to correct the award with the arbitration panel, but the panel concluded that the motion by American was untimely.

A portion of the award, $226,771.76, corresponds to the liability of American to Baker for taxes on the Kansas property in 2002. Ownership of the property changed in the middle of 2002, and the landlord that replaced Baker asked American to pay the share of taxes that American owed for the first half of the year directly to the county tax authority. American did so, but "now realizes that this payment was a mistake." American contends that it should have made this payment to Baker, which should have paid the county. American argues that it is entitled to a credit for the amount of tax it paid on the Kansas property for the 2002 tax year.

American did not present any of this information to the arbitration panel before the panel rendered its award. American admitted to the panel that its unpaid tax liability for 2002 on the Kansas property was approximately $226,771. The facts admitted to the arbitration panel did not reflect the payment by American to the county because American "did not realize its mistake until it was preparing to pay the arbitration award."

The district court denied the request that Baker made for confirmation of the award and granted the motion by American for modification on the basis of an "evident material mistake." The court reduced the balance of the award by $248,624.57—the amount that American paid to the county. The court exercised "discretion not to award interest," and the court found that American had already paid $593,375.75 of the remaining amount owed to Baker. The court entered judgment in favor of Baker in the amount of $78,424.86. On appeal, Baker argues that the district court erred when it modified the award, declined to award prejudgment interest, and found that Baker had already paid part of the amount of the award.

II. STANDARD OF REVIEW

We review de novo questions of law that concern the modification of an arbitration award, Offshore Marine Towing, Inc. v. MR23, 412 F.3d 1254, 1255 (11th Cir.2005), and choice-of-law questions, Federated Rural Elec. Ins. Exch. v. R.D. Moody & Assocs., Inc., 468 F.3d 1322, 1325 (11th Cir.2006). We review for clear error findings of fact by a district court. Gaskin v. Sec'y, Dep't of Corr., 494 F.3d 997, 1001 (11th Cir.2007).

III. DISCUSSION

Baker makes three arguments on appeal. First, Baker argues that the district court exceeded its authority to modify an arbitration award under the Federal Arbitration Act, 9 U.S.C. §§ 1-16. Second, Baker argues that the district court should have followed state, not federal, law to determine whether Baker was entitled to prejudgment interest and the amount of interest. Third, Baker argues that the district court erred when it found that American paid a portion of the judgment. We address each argument in turn.

A. The District Court Did Not Have Authority To Modify the Arbitration Award on the Basis of a Mistake.

"The Federal Arbitration Act presumes that arbitration awards will be confirmed, and judicial review of an arbitration award is narrowly limited," Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1333 (11th Cir.2007) (citing B.L. Harbert Int'l, LLC v. Hercules Steel Co., 441 F.3d 905, 909 (11th Cir.2006)), but a district court may modify or correct an arbitration award "[w]here there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award," 9 U.S.C. § 11(a). The district court relied on this authority to modify the award that Baker received. The court ruled that the failure of the stipulated facts to reflect that American had paid $248,624.57 to the county was an "evident material mistake." We disagree.

The "starting point for interpreting a statute is the language of the statute itself." Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). American concedes that the arbitration award did not contain a "miscalculation of figures," so we address only the part of the Federal Arbitration Act that permits a district court to correct an "evident material mistake in the description of any person, thing, or property referred to in the award." 9 U.S.C. § 11(a). The authority of the district court to modify the award turned on the meaning of this text.

The plain language of the statute embraces only an "evident material mistake" that appears in a description "in the award." Because the arbitration panel crafts the award, only the panel can make a mistake in the award. To make a "mistake" is to "understand wrongly" or to "recognize or identify incorrectly." Webster's II New Riverside University Dictionary 759 (1984). What American complains about is not a "mistake," but rather "ignorance"—a "lack of knowledge." Id. at 608.

The arbitration panel did not "understand wrongly." The panel lacked knowledge because American never provided the panel with information about the tax payment to the county. The arbitration award that Baker received may be a product of ignorance attributable to an oversight by American, but the award does not contain an "evident material mistake in the description of any person, thing, or property referred to in the award." 9 U.S.C. § 11(a).

Ordinarily our interpretation of the text of section 11(a) would be the end of the matter, United States v. Fisher, 6 U.S. (2 Cranch) 358, 399, 2 L.Ed. 304 (1805) ("Where a law is plain and unambiguous . . . no room is left for construction."), but there is an odd wrinkle in this appeal. A sister circuit has construed what we consider to be the plain and unambiguous text of section 11(a) to mean something different from our interpretation. American relies heavily on that decision to support its reading of section 11(a).

The Fourth Circuit has interpreted section 11(a) to embrace mistakes that were made by parties that were never brought to the attention of the arbitration panel, see Transnitro, Inc. v. M/V Wave, 943 F.2d 471, 474 (4th Cir.1991); see also Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1254 (7th Cir.1994) (citing with approval Transnitro), but a more recent decision of that circuit reads section 11(a) in the same manner that we do. In Apex Plumbing Supply, Inc. v. U.S. Supply Co., the Fourth Circuit held that a mistake "was not `evident' because it did not appear on the face of the arbitration...

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