Originally from the AAA Yearbook on Arbitration and the Law - 29th Edition

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1.01 Contract Formation

OMG L.P. v. Heritage Auctions, Inc., 612 Fed. App’x 207 (5th Cir. 2015)

The parties agreed to arbitrate the issue of contract formation by submitting, briefing, and generally disputing that issue throughout the arbitration proceedings, with the plaintiffs never contesting the arbitrator’s authority to decide the contract formation until he issued an adverse award. By submitting issues for an arbitrator’s consideration, parties may expand an arbitrator’s authority beyond that provided by the original arbitration agreement such that there is no need for the Fifth Circuit to address whether the original agreement encompassed such authority.

OMG and Heritage entered into two agreements: 1) an Asset Purchase Agreement (APA), under which OMG transferred all of its assets to Heritage for $150,000; and 2) the Consulting Agreement (CA), in which OMG agreed to consult for Heritage in exchange for commissions on the sales of firearms and “Merchandise.” A dispute arose over the calculation of commissions and the meaning of “Merchandise” under the CA. Heritage terminated the CA and demanded arbitration to, inter alia, resolve the meaning of “Merchandise.” Both the APA and CA contain arbitration clauses. The arbitrator found that the meaning of “Merchandise” and the calculation of commissions were ambiguous and that there was no way to resolve the ambiguity. As a result, the parties’ minds never met and a contract never existed. OMG filed a suit in federal court seeking to vacate the award on the grounds that the arbitrator exceeded his authority, committed prejudicial misconduct, ruled on a matter not submitted to him, and committed a manifest error of law. The district court vacated the award reasoning that “a court was the proper decision-maker as to contract formation issues in this case, not the arbitrator.” Heritage appeals the district court’s order and judgment vacating an arbitration award against OMG, Jon Gallo, and Greg Martin.