Fifth Circuit Holds “Tacit Acquiescence” Insufficient to Create Valid Contract to Arbitrate

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This appeal concerns the validity of arbitration proceedings in a dispute between a seller of a power generator, Imperial Industrial Supply Company, and its buyer, Quintina Maria Thomas. In October 2018, Thomas’s home in Hawaii caught on fire, which she claimed was caused by a power generator purchased from Imperial.

Thomas initiated arbitration proceedings against Imperial. She began by sending Imperial an alleged agreement that purported to be a “binding self-executing irrevocable contractual agreement” evidencing Thomas’s acceptance of Imperial’s offer. The alleged agreement did not define what Imperial offered but stated that “a product sale-purchase agreement and warranty for the [generator] creat[ed] an ongoing contractual relationship between [Imperial] and [Thomas].” The alleged agreement further provided that Imperial would need to propound 15 different “Proofs of Claim” to Thomas in order to avoid (1) breaching the alleged agreement; (2) admitting, by “tacit acquiescence,” that the generator caused the fire; and (3) participating in arbitration proceedings.

Thereafter, Imperial received a notice of arbitration hearing and timely objected. Without responding to Imperial’s objections, the arbitration association sent Imperial the final arbitration award, which awarded Thomas $1.5 million for breach of the alleged agreement on the basis that Imperial consented to the arbitration by “tacit acquiescence.”

Imperial sued Thomas seeking to vacate the arbitration award. The United States District Court for the Southern District of Mississippi vacated the award, and Thomas appealed.

Applying Mississippi law, the Fifth Circuit panel held “tacit acquiescence” to the alleged agreement is insufficient to constitute a valid contract. The panel noted that tacit acquiescence between relative strangers ignores the basic tenets of contract law because, absent a long-standing relationship between the parties, silence or inaction does not constitute acceptance of an offer. “If Thomas’s argument was valid, it would turn the notion of mutual assent on its head in ordinary purchase cases like this one: buy an item from a dealer or manufacturer, then mail a letter saying ‘you agree if you don’t object,’ and you can have whatever deal you want if the dealer/manufacturer doesn’t respond,” the panel wrote.

Because Thomas offered no evidence of previous dealings with Imperial, the panel found that the conspicuous lack of mutual assent means that a valid contract was never formed. The panel did not address Thomas’ other challenges, finding them to be without merit, and affirmed the district court’s judgment vacating the arbitration award.

Imperial Indus. Supply Co. v. Thomas, No. 20-60121 (5th Cir. Sept. 2, 2020)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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