Fifth Circuit Finds Parties Can Authorize Arbitrators By Their Conduct
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The Fifth Circuit un-vacated an arbitration award last week, holding the district court had wrongly concluded that the court was the proper decision-maker on contract formation. Although courts are presumptively authorized to decide whether an arbitration agreement exists, the Fifth Circuit found the parties altered that presumption by “submitting, briefing, and generally disputing that issue throughout the arbitration proceedings.” OMG, L.P. v. Heritage Auctions, Inc., 2015 WL 2151779 (5th Cir. May 8, 2015). [Or, as I like to think of the case: “OMG! I gave arb TMI and lost my appeal. WTF”]
The dispute related to OMG’s claim that it was owed more commissions than the auction house had paid it for firearm sales. The parties disputed how to interpret the term “merchandise” in the contract. Heritage demanded arbitration. The two relevant agreements between OMG and Heritage provided for binding arbitration of “any dispute” “in any way related” to the agreements. In arbitration, the auction house argued there was no meeting of the minds regarding the meaning of “merchandise,” so the contract was unenforceable. The arbitrator agreed and rescinded the contract.
OMG asked the federal district court to vacate the arbitration award, arguing that the arbitrator exceeded his authority by ruling on the issue of contract formation. The district court agreed, finding “a court was the proper decision-maker as to contract formation issues in this case, not the arbitrator.”
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