[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 07-10130
November 28, 2007
________________________ THOMAS K. KAHN
CLERK
D. C. Docket Nos.
03-01930-CV-BE-S & 03-02901-CV-BE
2:03-CV-1930-KOB
AIG BAKER STERLING HEIGHTS, LLC,
A.B. OLATHE II LIMITED PARTNERSHIP,
Plaintiffs-Counter-Defendants-Appellants,
versus
AMERICAN MULTI-CINEMA, INC.,
Defendant-Counter-Claimant-Appellee.
__________________________________________________________________
2:03-CV-2901-KOB
AMERICAN MULTI-CINEMA, INC.,
Plaintiff-Appellee,
versus
AIG BAKER STERLING HEIGHTS, LLC,
A.B. OLATHE II LIMITED PARTNERSHIP,
Defendants-Appellants.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(November 28, 2007)
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
*
Honorable Clay D. Land, United States District Judge for the Middle District of
Georgia, sitting by designation.
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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
3
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
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“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
5
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,”
Rosenweig 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 (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
6
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 (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
7
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., Inc., the Fourth Circuit held that a mistake “was not ‘evident’
because it did not appear on the face of the arbitration award.” 142 F.3d 188, 194
(4th Cir. 1998). We are convinced that the earlier decision of the Fourth Circuit in
Transnitro is erroneous.
Even if we were to assume that the plain language of section 11(a) is
ambiguous, which would mean that it is reasonably susceptible to another
interpretation, we would reach the same conclusion. We would be guided by the
established meaning that the words of section 11(a) had at the time they were
adopted. “[I]f a word is obviously transplanted from another legal source, whether
the common law or other legislation, it brings the old soil with it.” Evans v. United
States, 504 U.S. 255, 260 n.3, 112 S. Ct. 1881, 1885 n.3 (1992) (quoting Felix
8
Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L. Rev. 527,
537 (1947)) (internal quotation marks omitted). Stated differently, “[w]hen
Congress uses language with a well-known legal meaning,” we generally presume
“the statute to incorporate that understood meaning.” Assa’ad v. U.S. Att’y Gen.,
332 F.3d 1321, 1329 (11th Cir. 2003).
The language of the Federal Arbitration Act, which was enacted in 1925,
was transplanted from the Arbitration Law that the State of New York enacted in
1920, Arbitration Law, ch. 275, 1920 N.Y. Laws 803 (codified as amended at N.Y.
C.P.L.R. §§ 7501–7514); see also J.P. Chamberlain, Current Legislation: The
Commercial Arbitration Law, 9 A.B.A. J. 523, 524 (1923); Larry J. Pittman, The
Federal Arbitration Act: The Supreme Court’s Erroneous Statutory Interpretation,
Stare Decisis, and a Proposal for Change, 53 Ala. L. Rev. 789, 797 (2002);
Michael R. Holden, Note, Arbitration of State-Law Claims by Employees: an
Argument for Containing Federal Arbitration Law, 80 Cornell L. Rev. 1695, 1705
& n.48 (1995), and the settled meaning of that earlier law is consistent with our
interpretation. The language of section 11(a) of the federal Act matched almost
verbatim the language of section 2375 of the New York Code of Civil Procedure,
which had long been a part of New York law and the New York Arbitration Law
incorporated by reference. See N.Y. Code Civ. P. § 2375 (Matthew Bender 1916)
(codified as amended at N.Y. C.P.L.R. § 7511(c)) (requiring a court to modify or
9
correct an arbitration award “[w]here there was an evident miscalculation of
figures, or an evident mistake in the description of any person, thing, or property,
referred to in the award”); Arbitration Law § 8, 1920 N.Y. Laws at 806. By 1920,
when New York passed its Arbitration Law, the New York Court of Appeals had
recognized that, to fall within the scope of section 2375, a mistake or
miscalculation must have appeared in the award “on its face.” In re Burke, 191
N.Y. 437, 440, 84 N.E. 405, 406 (1908). This principle, which has been part of
New York jurisprudence for many years, see, e.g., Matter of Tamaron Invs., Inc.,
637 N.Y.S.2d 637, 638 (N.Y. Sup. Ct. 1996); Moore v. Eadie, 245 N.Y. 166, 171,
156 N.E. 653, 655 (1927) (citing Burke, 191 N.Y. at 437, 84 N.E. at 405); Sweet v.
Morrison, 116 N.Y. 19, 33, 22 N.E. 276, 280 (1889); Bissell v. Morgan, 56 Barb.
369 (N.Y. Gen. Term 1865), was part of the “old soil” that accompanied the
language that was transplanted from New York law into section 11(a) of the
Federal Arbitration Act in 1925. Section 11(a), which has not changed materially
since it was first enacted, continues to embrace this principle.
Our reading of section 11(a) is also consistent with the purpose of the
Federal Arbitration Act: “to relieve congestion in the courts and to provide parties
with an alternative method for dispute resolution that is speedier and less costly
than litigation.” Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367 (11th
Cir. 2005) (internal quotation marks omitted). Because arbitration is an alternative
10
to litigation, judicial review of arbitration decisions is “among the narrowest
known to the law.” Del Casal v. E. Airlines, Inc., 634 F.2d 295, 298 (5th Cir. Unit
B Jan. 1981). That narrow review is why a court cannot vacate an arbitration
award for fraud based on information available before or during the arbitration that
the parties, through lack of diligence, failed to discover. Bonar v. Dean Witter
Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir. 1988).
This appeal illustrates the danger of broad judicial review of arbitration
awards. The parties elected to settle their dispute by arbitration rather than
litigation, but this appeal is now before us after more than three years of litigation.
The district court erred when it modified the award.
B. State Law Governs the Availability and Amount of Prejudgment Interest.
The discussion by the district court of its decision not to grant prejudgment
interest is brief and not entirely clear. We believe that the rationale for the decision
of the district court can be read two ways. Either the district court determined that
it had discretion to decline to grant prejudgment interest under federal law, see
Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1447
(11th Cir. 1998) (under federal law, prejudgment interest is a matter of the
discretion of the district court), or it determined that prejudgment interest is
unavailable because the award was modified rather than confirmed. Under either
reading, the district court erred. We address each of these readings in turn.
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The district court erred to the extent that it exercised discretion under federal
law to decline to award prejudgment interest because state law governs the
entitlement of Baker to prejudgment interest. The jurisdiction of the district court
was based on diversity of citizenship. In diversity cases, the availability and
amount of prejudgment interest is ordinarily governed by state law. See Venn v.
St. Paul Fire & Marine Ins. Co., 99 F.3d 1058, 1066–67 (11th Cir. 1996).
An exception to this general rule exists when “affirmative ‘countervailing
federal interests’ are at stake that warrant application of federal law,” Esfeld v.
Costa Crociere, S.P.A., 289 F.3d 1300, 1307 (11th Cir. 2002) (quoting Gasperini v.
Ctr. for Humanities, Inc., 518 U.S. 415, 432, 116 S. Ct. 2211, 2222 (1996)), but the
Federal Arbitration Act does not place countervailing federal interests at stake in
this appeal. As the Supreme Court has explained, the Act “is something of an
anomaly in the field of federal-court jurisdiction. It creates a body of federal
substantive law establishing and regulating the duty to honor an agreement to
arbitrate, yet it does not create an independent federal-question jurisdiction under
28 U.S.C. § 1331 or otherwise.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 25 n.32, 103 S. Ct. 927, 942 n.32 (1983). The Act places
arbitration agreements on the same footing under state law as other agreements.
Perry v. Thomas, 482 U.S. 483, 492 n.9, 107 S. Ct. 2520, 2527 n.9 (1987). The
Act serves federal interests adequately when state law answers questions
12
concerning the availability and amount of prejudgment interest. Those are
questions about which the Act is silent.
American argues that federal law governs the availability and amount of
prejudgment interest whenever federal law provides a rule of decision. We
disagree. The decision upon which American relies for this argument, Kilpatrick
Marine Piling v. Fireman’s Fund Insurance Co., is an admiralty case in which our
jurisdiction was based on diversity. 795 F.2d 940, 947–48 (11th Cir. 1986).
Kilpatrick held “that admiralty courts have discretion in deciding prejudgment
interest,” id., but admiralty law is a context in which a countervailing federal
interest—“the federal interest in uniformity”—sometimes requires a choice of
federal common law rather than state law, Mink v. Genmar Indus., Inc., 29 F.3d
1543, 1548 (11th Cir. 1994).
In the absence of a federal interest that requires the application of federal
law, the existence of a federal rule of decision in a diversity case does not affect the
question whether the availability and amount of prejudgment interest is governed
by state or federal law. We join our sister circuits that have addressed this question
and hold that state law governs the availability and amount of prejudgment interest
in diversity cases involving the Federal Arbitration Act. See Executone Info. Sys.,
Inc. v. Davis, 26 F.3d 1314, 1329 (5th Cir. 1994); Northrop Corp. v. Triad Int’l
Mktg., S.A., 842 F.2d 1154, 1155 (9th Cir. 1988). The district court erred to the
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extent that it applied federal law to determine whether Baker was entitled to
prejudgment interest.
The district court also erred to the extent that it held that prejudgment
interest is unavailable because the arbitration award was modified rather than
confirmed. The availability and amount of prejudgment interest does not depend
on whether the district court confirms or modifies the award. A judgment entered
under the Federal Arbitration Act on an award has the force and effect of a
judgment recovered in any other civil action, regardless whether the court enters an
order “confirming, modifying, or correcting the award.” 9 U.S.C. § 13; see also
Parsons & Wittemore Ala. Mach. & Servs. Corp v. Yeargin Constr. Co., 744 F.2d
1482, 1484 (11th Cir. 1984). As in any other civil action based on diversity of
citizenship, the district court must look to state law to determine the availability
and amount of prejudgment interest when it enters a judgment, regardless of
whether that judgment confirms or modifies an award under the Federal
Arbitration Act. The district court erred to the extent that it held otherwise.
Our decision that state law governs the availability and amount of
prejudgment interest is not the end of the matter. On remand, the district court
must determine under the choice-of-law rules of Alabama, Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021 (1941), which state law
governs the availability and amount of interest. Baker argues that Missouri law
14
applies and entitles Baker to prejudgment interest “at the rate of nine percent per
annum.” Mo. Ann. Stat. § 408.020. American argues for the application of
Alabama law, which provides for prejudgment interest at a lower rate of six
percent. Ala. Code § 8–8–1. The district court should resolve that issue in the first
instance.
C. The Payment by American to Baker.
Baker has argued that the district court erred when it found that “Defendant
AMC has already paid $539,375.75” of the arbitration award and reduced the
balance due to Baker by that amount. American explains that the district court
directed counsel for American to bring a check for this amount, which represents
the amount of the award that was not in dispute, to a status conference that the
court held. American contends that it complied and presented the check to counsel
for Baker in the presence of the district court.
Baker does not dispute that it received the payment from American. In its
brief, Baker argued that the district court erred because no evidence of the payment
appears “in the record,” even though statements by counsel for Baker recorded in a
later hearing, a transcribed colloquy between the court and counsel for American,
and the order of the district court all reflect the payment. Baker wisely abandoned
this position at oral argument, so we need not address this issue further.
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IV. CONCLUSION
The order of the district court modifying the arbitration award and declining
to award prejudgment interest is REVERSED. We REMAND to the district court
for further proceedings consistent with this opinion.
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