Fifth Circuit Affirms Arbitral Award for Breach of Unsigned Contract

The United States Fifth Circuit Court of Appeals has affirmed an arbitral award based upon breach of an unsigned contract. In Tricon Energy Limited v. Vinmar International, Ltd., No. 12-20100 (5^th Cir. May 3, 2013), Vinmar agreed to purchase an industrial petrochemical from Tricon through the services of a broker. The parties entered into a binding agreement through the broker using three memoranda to confirm the terms of the deal. The following day, a representative for Tricon sent a Vinmar a sales contract that included most of the terms of the deal and an arbitration clause. Near the signature block, the contract stated, “Please advise your agreement by signing the foregoing and returning via fax . . . within 24 hours In the event we do not receive your reply as requested, then this contract shall be the governing instrument.” Neither party signed the contract.

Later, a representative for Vinmar made handwritten suggested changes to the contract, but not the arbitration clause and sent the edited document to Tricon. Tricon agreed to all of the suggested terms except for an industry standard time bar of 90 days. After the price of the chemical Vinmar purchased fell dramatically, Vinmar sent Tricon an offer to “wipe the slate clean.” Tricon reportedly rejected the offer. Vinmar then demanded that any chemical delivered to it be manufactured in the United States despite that no such provision was included in the parties’ purchase agreement. After Tricon stated the company could not make such a guarantee, Vinmar refused to accept delivery. Tricon was able to sell only a portion of the refused chemical by the date for contract completion.

About one year later, Tricon sought to initiate arbitral proceedings with Vinmar for the alleged breach of contract. A panel of three arbitrators found that the parties entered into a binding contract that included an arbitration provision when a representative for Tricon accepted most of Vinmar’s proposed additional sales contract terms. The three-arbitrator panel awarded Tricon more than $1.3 million in damages, interest at the contractual rate of 8.5 percent, and attorney’s fees.

Tricon asked a trial court to confirm the arbitral award and Vinmar countered by filing a motion to vacate the award. The lower court confirmed the judgment but awarded interest to Tricon at a lower federal rate. Vinmar then filed an appeal with the Fifth Circuit alleging the parties’ never agreed to arbitrate. Tricon appealed the interest award by stating the trial court impermissibly disregarded the decision of the arbitral panel.

According to the appeals court, both parties agreed that a contract was formed. The parties disagreed, however, about whether or not an arbitration provision was included in the contract. After examining the evidence considered by the trial court, the Fifth Circuit dismissed Vinmar’s argument that the parties did not agree to arbitrate because the contract was not signed by stating,

Contrary to Vinmar’s assertions, blank signature lines are not proof, by themselves, that the parties required formal signatures for a contract to be binding.

The court continued,

Signature lines may be strong evidence that the parties did not intend to be bound by a contract until they signed it. But the blank signature blocks here are insufficient, by themselves, to raise a genuine dispute of material fact. All the remaining evidence—the parties’ negotiations, Tricon’s past practice, common industry practice, that the blanks were automatically computer generated, and that the parties made a binding deal to trade MX before negotiating over arbitration—conclusively demonstrates that Tricon and Vinmar reached a binding agreement to arbitrate even though they did not sign the contract.

Next, the appeals court discussed “whether arbitrators may award a non-statutory rate if the parties agreed to submit that issue to arbitration.” The Fifth Circuit stated,

The one circuit that has confronted the question held that the district court had erred by replacing the awarded rate with the statutory default. See Newmont U.S.A. Ltd. v. Ins. Co. of N. Am., 615 F.3d 1268, 1275–77 (10th Cir.2010). We agree with that court; nonetheless, we affirm, because the arbitrators in this case did not award post-judgment interest, but post-award interest, and that distinction makes a difference.

According to the appeals court, a judgment that confirms an arbitral award is subject to federal post-judgment interest requirements. The court said, “Furthermore, the circuits have unanimously agreed that “an arbitration panel may not establish a post-judgment interest rate itself . . . .” Newmont, 615 F.3d at 1277.” The court continued,

That principle does not decide this case; if the arbitrators awarded a non-statutory rate, they did so based on the parties’ submission of the issue to them, not on their own authority. An arbitration panel “may determine whether the parties have sufficiently contracted for their own rate and, if they have, indicate that rate should be applied.” Id. Furthermore, the parties may agree to submit the question of post-judgment interest to arbitration.

Next, the Fifth Circuit stated since parties may directly contract to submit to a non-statutory post-judgment interest rate, “there is no reason why they should not be able to do so indirectly by agreeing to submit the question to arbitration.” The appeals court added,

Because the parties agreed to submit the issue of post-judgment interest to arbitration, the arbitration panel had the authority to award a non-statutory rate. The dispositive question is whether it did so.

After determining the arbitral “panel did not-award post-judgment interest expressly,” the court dismissed Tricon’s appeal with regard to post-judgment interest.

Since the court found that a valid agreement to arbitrate existed and the arbitral panel did not expressly award post-judgment interest, the Fifth Circuit affirmed the decision of the trial court.