Arbitration. Agreement to Arbitrate. Battle of the Forms. Fifth Circuit holds there was no valid agreement to arbitrate where parties exchanged their own forms with different terms.

Axiall v. MECS, No. 21-30105 (5th Cir. June 14, 2023) [click for opinion]

Plaintiff-Appellee Axiall Canada, Inc. ("Axiall") and Defendant‑Appellant MECS, Inc. ("MECS") entered into a series of demister sales beginning in July 2019. For almost all of these transaction, MECS first issued a proposal to Axiall, Axiall next sent a Purchase Order, MECS then sent an Order Acknowledgement before shipping the demisters to Axiall, and, finally, Axiall accepted the demisters.

Both of MECS's forms (i.e., the proposals and Order Acknowledgements) contained language expressly limiting its acceptance of any purchase order to MECS's standard terms and conditions of sales. These standard terms and conditions contained an arbitration clause stating that "[a]ny and all disputes arising out of, relating to or in connection with this Purchase Order… shall be finally and exclusively resolved by binding confidential arbitration."

Similarly, Axiall's forms (i.e., the Purchase Orders) contained language that acceptance of its Purchase Orders indicated "irrevocable agreement to [Axiall's] General Terms and Conditions." Axiall's general terms and conditions contained two relevant provisions: (1) a no-modification provision; and (2) a forum selection clause stating that the seller "hereby agrees to exclusive and sole jurisdiction and venue in Lake Charles, Louisiana or Calvert City, Kentucky, as determined by [Axiall]." Arbitration was not mentioned in this provision or elsewhere in Axiall's forms.

On October 23, 2020, Axiall brought suit against MECS in Louisiana state court. In December, the case was removed to the United States District Court for the Western District of Louisiana. In its complaint, Axiall alleged breach of contract, breach of warranties, and redhibition claims stemming from problems with the purchased demisters. MECS then moved to dismiss, or alternatively stay, and compel arbitration, arguing that Axiall was bound by a contract whose terms included the binding arbitration clauses in MECS's forms. Axiall opposed the motion. The district court denied MECS's motion, holding that under Louisiana law, the parties had not agreed to the arbitration clauses. MECS appealed this denial and subsequently filed an opposed motion to expedite the appeal.

The court noted that, when adjudicating a motion to compel arbitration, it conducts a two-step inquiry. The first step is to determine whether the parties agreed to arbitrate the dispute in question. This involves two considerations: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement. The second step is to determine whether legal constraints external to the parties' agreement foreclose the arbitration of those claims.

The Fifth Circuit held that "in each of the transactions at issue, there was no valid agreement to arbitrate and that the parties thus did not agree to arbitrate th[e] dispute." In so holding, the court conducted a classic "battle of the forms" analysis: considering whether the parties ever formed a contract, and if so, whether MECS's arbitration clauses were included as terms of that contract.

With regard to contract formation, the court held that neither party's form communications were communications that were sufficient to form contracts under Louisiana law, but that a contract was established through performance where: (1) MECS shipped the demisters following its sending of the Order Acknowledgement; and (2) Axiall accepted delivery of said demisters.

With regard to contract terms (i.e., the forum selection clauses at issue), the court found that the forms exchanged by the parties did not agree on MECS's proposed arbitration clause. MECS included an arbitration provision in the terms incorporated in its proposals and Order Acknowledgements, while Axiall's forum selection clause in its Purchase Orders explicitly stated that MECS agrees to "exclusive and sole jurisdiction and venue in Lake Charles, Louisiana or Calvert City, Kentucky, as determined by [Axiall]." Because these communications did not evince agreement regarding jurisdiction, the court found that neither term was a part of the contract subsequently formed by the parties' conduct.

The Fifth Circuit distinguished this case from its 2005 holding in Marino v. Dillard's, Inc. In Marino, the Fifth Circuit held that continued employment was sufficient to enforce an arbitration agreement where defendant Dillard's sent plaintiff Marino a written arbitration agreement, and Marino signed an acknowledgment stating that continued employment (i.e., conduct) would be interpreted as consenting to arbitration. The court distinguished Marino on the grounds that Axiall's acceptance of delivery could not be interpreted as consent to MECS's proposed terms because, in its Purchase Order, Axiall rejected contractual terms different from its own.

In sum, the court held that there was no agreement between the parties to arbitrate because the parties never mutually agreed to MECS's proposed arbitration clauses, and upheld the district court's denial of MECS's motion to compel arbitration.

Kelton Basirico of the San Francisco office contributed to this summary.