Reinsurance & Arbitration Focus

The case involved the sale of mist eliminators (demisters) from MECS Inc. to Axiall Canada Inc., an owner of a Canadian manufacturing facility. A key issue involved the terms of the parties’ contractual relationship as formed through the sale and delivery process of the demisters: MECS typically would issue a proposal to Axiall; Axiall then sent a purchase order; MECS then sent an order acknowledgment; and Axiall would last accept the demisters. MECS’ proposals and order acknowledgments contained an arbitration clause. Axiall’s purchase order forms, however, did not contain an arbitration clause and contained language that acceptance of its purchase orders indicated an “irrevocable agreement” to Axiall’s general terms and conditions, which contained a no-modification provision and a forum-selection clause permitting Axiall to select a forum within either Louisiana or Kentucky.

When Axiall experienced problems with the demisters, Axiall sued MECS in Louisiana state court. MECS removed the case to federal court and then moved to dismiss, or alternatively stay, and compel arbitration under MECS’ proposal and order acknowledgment forms. The district court, however, denied MECS’ motion, holding that under Louisiana law, the parties had not agreed to the arbitration clauses.

On appeal to the Fifth Circuit, the court held that the case presented a “battle of the forms,” which is governed by two provisions of Louisiana’s version of the UCC adopted in its Civil Code: Article 2601 concerning additional terms in an acceptance of an offer to sell movables (such as demisters); and Article 2602 concerning contracts formed by the conduct of the parties. Applying these provisions, the court found that neither Axiall’s purchase orders nor MECS’ order acknowledgments “were communications that, when read in succession, were sufficient to form contracts under Article 2601.” However, the conduct of MECS’ shipping of the demisters following its sending of the order acknowledgment and Axiall’s accepting delivery, created a contract for “an agreed-upon quantity of demisters delivered at the agreed upon price.” This conduct-based contract, as construed by the court, did not include the arbitration clause as a term. The court rejected MECS’ argument that its order acknowledgments were counteroffers whose terms Axiall accepted by performance. There was no arbitration agreement because the parties never mutually agreed to MECS’ proposed arbitration clauses. The court thus affirmed the district court’s denial of MECS’ motion to compel arbitration.

Axiall Canada, Inc. v. MECS, Inc., No. 21-30105 (5th Cir. June 14, 2023).