Agreements to Arbitrate

The Third Circuit recently decided a case in which the District Court had vacated an arbitration award after finding that the parties to the contract at issue had not agreed to arbitration. In Aliments Krispy Kernels, Inc. v. Nichols Farms, the plaintiff, Aliments had attempted to confirm an arbitration award related to the sale of pistachios. The contract dispute centered on a brokered deal between the buyer, Aliments, and the seller, Nichols.

Upon denial of Aliments’ credit application, Nichols requested payment before delivering the pistachios, instead of thirty days from delivery. Aliments claimed that advance payment is inconsistent with the parties’ previous practices and with industry standards and eventually bought pistachios from another vendor at a higher price. Aliments then initiated arbitration proceedings to recover the difference in cost and was awarded $222,100.

When Nichols refused to pay, Aliments brought the case before the District Court seeking enforcement of the arbitration award. The court found there was a lack of evidence as to an agreement or sales confirmation between the parties and agreed with Nichols that it did not agree to arbitrate, accordingly granting Nichols’ petition to vacate the award. Aliments appealed to the Third Circuit, which examined the legal standard applied by the District Court and whether the parties entered into an agreement to arbitrate as a matter of law.

The Third Circuit stated that its previous applications of the standard requiring an express and unequivocal agreement to arbitrate were confusing and outdated. Instead, the Third Circuit instructed that when determining if a party is compelled to submit to arbitration, the courts should decide whether there was a valid agreement between the parties to arbitrate by applying ordinary state law principles governing the formation of contracts.

The Third Circuit concluded that the District Court properly used the express and unequivocal standard in deciding whether to confirm the arbitration award only to the extent that there were no genuine issues of material fact regarding the formation of the contract. However, it disagreed with the lower court’s finding that there were no genuine issues of material fact; specifically, that there was no evidence that an agreement or sales confirmation was entered and that there was no evidence that Nichols intended to arbitrate.

The Third Circuit stated that there are remaining issues of fact such as – among several other issues – whether a binding contract was created before Nichols received Aliments’ credit application. Therefore, the case was vacated and remanded for further proceedings due to the Court’s finding that multiple issues of material fact are in existence.

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