In a case involving a property tax dispute where one of the parties failed to inform the arbitration panel of a substantial tax payment, the Eleventh Circuit Court of Appeals held that the arbitrators' failure to account for the payment did not constitute an "evident material mistake" within the meaning of the Federal Arbitration Act (FAA). Specifically, the Court reasoned that a lack of information in the hands of the arbitrators does not constitute a mistake that would warrant award modification under the FAA.

In AIG Baker Sterling Heights, LLC v. American Multi-Cinema, Inc., No. 07-10130, 2007 WL 4180608(11th Cir. Nov. 28, 2007), AIG Baker (Baker) leased space in two shopping malls – one in Kansas, one in Michigan – to American Multi-Cinema (AMC). The lease agreement required AMC to pay Baker for a share of the property taxes.

When a dispute arose over AMC's share of the property taxes, the parties submitted the dispute to a three-member arbitration panel. The panel awarded Baker $866,425.18.

Following the arbitration, AMC realized that it had paid $226,771.16 directly to the tax authority in Kansas. Consequently, when Baker filed a motion to confirm the award, AMC filed a motion to modify the award, arguing that the overlooked Kansas payment constituted an "evident material mistake" which warranted modification under the Federal Arbitration Act (FAA). See 9 U.S.C.A. § 11(a).

The district court granted AMC's motion and modified the award to credit AMC for the tax payment that AMC had previously overlooked. Also, the district court declined to award Baker any prejudgment interest.

The principal issue on appeal was whether the failure to account for the Kansas tax payment constituted an "evident material mistake" within the meaning of the FAA even though AMC never brought this payment to the attention of the arbitrators.

In construing this provision of the FAA, the Court reasoned that in light the statutory language and legislative history, a lack of information in the hands of the arbitrators does not constitute an "evident material mistake." Accordingly, since the arbitrators were never advised of the Kansas payment, the Court held that the district court erred in modifying the award pursuant to section 11(a) of the FAA.

The Court also addressed the district court's denial of prejudgment interest. On this issue, the Court held that in diversity cases involving the FAA, state law, not federal law, governs the availability and amount of prejudgment interest. Accordingly, the Court remanded the case with instructions to decide under choice-of-law rules whether Alabama or Missouri law was applicable.

The Court's decision in this case promotes the finality of arbitration by precluding parties from raising their mistakes as a basis for award modification. In a case currently before the Supreme Court, the finality of arbitration has been pitted against the malleability of arbitration as the high court examines the question of whether the FAA permits parties to an arbitration agreement to contract for additional grounds for vacatur. See Hall Street Associates, L.L.C. v. Mattel, Inc. (No. 06-989).