Title: ROGERS v. DELL COMPUTER CORPORATION

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

ROGERS v. DELL COMPUTER CORPORATION  ROGERS v. DELL COMPUTER CORPORATION 2005 OK 51 138 P.3d 826 Case Number: 99991 Decided: 06/28/2005 As Corrected: November 29, 2005 THE SUPREME COURT OF THE STATE OF OKLAHOMA DONNA J. ROGERS AND PAUL PALMER d/b/a FAB SEAL INDUSTRIAL LINERS, INC., Plaintiffs/Appellees, v. DELL COMPUTER CORPORATION, Defendant/Appellant. ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION II ¶0 Plaintiffs, computer purchasers, filed suit against defendant, seller, seeking certification of a class action and alleging violations of the Oklahoma Consumer Protection Act, 15 O.S.2001, §§ 751-763, negligence, and breach of contract. The defendant filed a motion to dismiss or, alternatively, to compel arbitration. The district court denied defendant's motion. The defendant appealed only the denial of the application to compel. The Court of Civil Appeals affirmed. This Court granted the petition for certiorari. COURT OF CIVIL APPEALS' OPINION VACATED; DISTRICT COURT'S ORDER REVERSED; CAUSE REMANDED. J. David Cawthon, Bradley C. West, Terry W. West, The West Law Firm, Shawnee, Oklahoma, for the plaintiffs. John N. Hermes, McAfee & Taft, Oklahoma City, Oklahoma, for the defendant on the Reply in Support of the Petition for Writ of Certiorari. James L. Kincaid, Gerald L. Jackson, Crowe & Dunlevy, Oklahoma City, Oklahoma, for the defendant before the Court of Civil Appeals and on the Petition for Writ of Certiorari. TAYLOR, J. ¶1 The issues in this case are: (1) the jurisdiction of this Court and of the district court, (2) the proper procedures in the district court on application to compel arbitration, and (3) the existence and force of an arbitration provision allegedly sent with an invoice and acknowledgment and with the purchased computer. We find this Court has jurisdiction over this appeal and the district court had jurisdiction of the issues below as framed by the plaintiffs. Because the proper procedures were not followed in the district court, we cannot say whether the district court's denial of the application to compel arbitration was proper and whether the arbitration provision attached to the application is enforceable against the plaintiffs. Therefore, we remand the case with instructions to follow the procedures set out in this opinion. I. BACKGROUND AND PROCEDURAL ISSUES ¶2 Paul Palmer, doing business as Fab Seal Industrial Liners, Inc., and Donna Rogers (collectively plaintiffs) filed suit against Dell Computer Corporation, later renamed Dell, Inc., (Dell) asking for certification as a class action and alleging violations of the Oklahoma Consumer Protection Act, 15 O.S.2001, §§ 751-763, negligence, and breach of contract. Dell filed a motion to dismiss for lack of jurisdiction and failure to state a claim or, alternatively, to compel arbitration. The district court denied Dell's motion. Dell appealed the part of the order denying the application to compel arbitration invoking appellate jurisdiction pursuant to section 817(A) of the Oklahoma Uniform Arbitration Act, 15 O.S.2001, § 801-18 (OUAA). II. JURISDICTION A. Oklahoma Uniform Arbitration Act ¶3 It is the duty of this Court to inquire into its own jurisdiction and the jurisdiction of the court below. City of Lawton v. International Union of Police Ass'n, ¶4 The OUAA does not apply to "collective bargaining agreements or contracts with reference to insurance except for those contracts between insurance companies." § 802 of the OUAA. The FAA does not except these two contracts from its application. Therefore these two types of agreements come under the FAA but not the OUAA. The denial of an application to compel arbitration under these type of contracts would not be appealable to this Court by right. See rule 1.60(i) of the OSCR. Here both the OUAA and the FAA are applicable. Because the OUAA is applicable here, the order denying Dell's application to compel arbitration is appealable by right under rule 1.60. Thus, this Court has jurisdiction of the appeal. B. Oklahoma Uniform Tax Procedures Act ¶5 As to the district court's jurisdiction, the district court denied Dell's motion to dismiss for lack of jurisdiction. The crux of Dell's motion was that the plaintiffs' claims are a transparent attempt to generate a class action suit when in reality the plaintiffs are seeking a tax refund which must first be addressed by the Oklahoma Tax Commission. Dell submitted that the district court should have dismissed the petition because the plaintiffs failed to exhaust their administrative remedies. ¶6 Section 227 of title 68 of the Oklahoma Statutes provides a mechanism for a refund of taxes erroneously paid. Section 225 provides the means for appeals for denial of a refund. Section 202 defines a taxpayer as any person liable to pay any state tax. If the plaintiffs' claims are for a refund of the sales tax collected either by mistake of fact, error in computation or misinterpretation of law, the plaintiffs would have to first seek relief with the Oklahoma Tax Commission pursuant to these sections. See Stallings v. Oklahoma Tax Comm'n, ¶7 The plaintiffs protested Dell's characterization of their claims. The plaintiffs emphasized that their position was Dell "charges and collects from Oklahoma residents monies falsely characterized as a sales tax on the purchase of optional service contracts, and/or on transportation charges (i.e., shipping and handling charges) for the delivery of computers and computer products." We confine our review to the issues based on plaintiffs characterization of the claims. Thus, proof that the "sales taxes" were remitted to the Oklahoma Tax Commission as Dell alleges would be a defense to the plaintiffs' claims as the plaintiffs have limited them. III. FACTS ¶8 For reasons discussed below, our statement of the facts are those to which the parties admit either in the district court or in this appeal. Dell, a Texas-based company, sells computers through direct marketing. Customers place orders directly with Dell. Dell ships the purchased computers from Texas and Tennessee. In addition to the computers, Dell markets service contracts. ¶9 Dell attached what it alleges are the Rogers invoice and the Fab Seal acknowledgment to its motion to dismiss or compel arbitration. Dell also attached a document taken from one of its internet pages and entitled "Terms and Conditions of Sale." ¶10 We assume for purposes of discussion only that the plaintiffs received the representative "Terms and Conditions of Sale" document either with the invoice and acknowledgment, with the shipment of the computer, or both. The arbitration provision included in the "Terms and Conditions of Sale" document, if received and if enforceable, would require the plaintiffs to submit their claims against Dell or its affiliates to binding arbitration. IV. APPLICABLE LAW ¶11 The FAA applies to contracts affecting interstate commerce. 9 U.S.C. § 1 (2000); Allied-Bruce Terminix Co. v. Dobson, ¶12 The FAA does not preempt state law unless the state law frustrates the Congressional purposes and objectives embodied in the FAA. Volt, ¶13 Where a contract affecting interstate commerce contains an arbitration provision and does not provide otherwise, the FAA requires the question of the contract's validity as a whole to be submitted to arbitration. Prima Paint Corp. v. Flood & Conklin MFG.Co., ¶14 The court's role is to determine whether there is a valid, enforceable agreement to arbitrate the dispute. Wilkinson v. Dean Witter Reynolds, Inc., V. PROCEEDINGS ON THE APPLICATION TO COMPEL ARBITRATION ¶15 In Oklahoma state courts, the OUAA determines how proceedings on an application to compel arbitration shall be conducted so long as the OUAA does not frustrate the purposes underlying the FAA. See Volt, ¶16 Section 815 of the OUAA provides that an application to compel arbitration "shall be heard in the manner . . . for making and hearing of motions in actions." Proceedings on motions are addressed in rule 4 of the Rules for District Courts of Oklahoma, 12 O.S.Supp. 2002, ch. 2, app. (ORDC). Under rule 4 of the ORDC, the party seeking to compel arbitration must present a statement of the law and facts showing an enforceable agreement to arbitrate the issues presented by the petition. Id. at rule 4(c). The application to compel arbitration must be supported by affidavits, pleadings, stipulations, and other evidentiary materials which are verified by a person having knowledge of their accuracy. Id. Alternatively, counsel may submit a verified statement of what the proof will show and then present the proof at the hearing. Id. The moving party must also submit a concise brief including a list of authorities on which it relies. See id. Within fifteen days after the application is served, a party opposing the application to compel arbitration must file a brief or list of authorities and, if appropriate, verify the facts supporting its position. Id. ¶17 Either party may request a hearing. The decision to grant a hearing will be in the discretion of the district court. See id. at rule 4(d). However, if the existence of an agreement to arbitrate is controverted, then the better procedure is for the district court to conduct an evidentiary hearing before entering an order. In making its decision, the district court should be mindful of the FAA's and the OUAA's policies favoring arbitration; ambiguity falls on the side of the existence of an agreement to arbitrate. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., VI. STANDARD OF REVIEW ¶18 Under the proceedings governing applications to compel arbitration, the existence of an agreement to arbitrate is a question of law. Questions of laws are reviewed de novo. Hill v. Blevins, VII. EXISTENCE OF AN ARBITRATION AGREEMENT ¶19 Under the initial step of determining whether the parties have a written agreement to arbitrate, courts should apply state contract law. First Options of Chicago, Inc. v. Kaplan, ¶20 The U.C.C. applies to "transactions in goods." U.C.C. § 2-102. "Goods" are "all things (including specially manufactured goods) which are moveable at the time of identification to the contract . . . ." U.C.C. § 2-105. Because the contracts in this case deal primarily with the sale of goods, the U.C.C. applies here. ¶21 Oklahoma and, apparently, Texas have not addressed the substantive issue before this Court. ¶22 The Defontes court concluded that the plaintiffs did not knowingly consent to the additional terms in Dell's "Terms and Conditions Agreement" document. 2004 WL 253560, at *7. Therefore, the arbitration provision was not part of the parties' contracts, and the court denied the application to compel arbitration. Id. The court implicitly applied section 2.207 of the Texas U.C.C. when it found that the plaintiffs were not bound by the arbitration agreement. Id. ¶23 The Stenzel court, citing Carnival Cruise Lines, Inc. v. Shute, ¶24 Stenzel and Defontes are indicative of the split of authority on whether documents such as the "Terms and Conditions of Sale" submitted by Dell in the present case are binding. The cases most often cited as indicative of the disparate outcome are ProCD, Inc., 86 F.3d 1447 (7th Cir. 1996) (the court applied the U.C.C. to a shrinkwrap license agreement and found the agreement to be binding), and Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91 (3rd Cir. 1991) (applying the U.C.C., the box-top license agreement was not binding). The difference in outcome is generally attributable to a court's determination of when the contract was formed. The cases on which the Stenzel court based its conclusion are distinguishable. Further, the Stenzel court did not recognize the application of section 2-207 of the U.C.C. to the facts. We find the Defontes opinion to be better reasoned but find a more complete analysis is needed. ¶25 There is no doubt that in the present case, the parties entered into contracts for the purchase of computers. The question then becomes when were the contracts formed and what terms were included in the contracts. Generally subsection 2-206(1) of the U.C.C answers the first question. Subsection 2-206(1) provides: "Unless otherwise unambiguously indicated by the language or circumstances . . . an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance . . . by a prompt promise to ship . . . ." ¶26 Under section 2-206(1) of the U.C.C., the buyer is the offeror, and a contract is formed when an order is placed and the seller agrees to ship unless the language and circumstances involved in the transaction unambiguously show otherwise. In this case, the time of formation of the contracts and their terms depend on the conversations and circumstances between Dell and the plaintiffs at the time the orders were placed. If the language and circumstances were such that when the orders were placed, the contracts were not formed until after the plaintiffs received the "Terms and Conditions of Sale" document, the arbitration provisions would be a term of the contracts. The arbitration provision would also be a term of the contracts if it were incorporated into them at the time the plaintiffs placed the orders. ¶27 If the contracts were formed at the time that the orders were placed and the "Terms and Conditions of Sale" document was not incorporated into the contracts, the second question becomes relevant to the analysis. The second question is generally answered by applying section 2-207 of the U.C.C. (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. Comment 1 provides that section 2-207 is intended to deal with the typical situation where the parties reach an oral agreement which is followed by one of the parties sending a document including the agreed terms and adding terms not discussed. ¶28 There is no statement in the "Terms and Conditions of Sale" document upon which "acceptance is expressly made conditional on assent to the additional terms." The plaintiffs' accepting the computers and not returning them is consistent with a contract being formed at the time that the orders were placed and cannot be construed as acquiescing in the "Terms and Conditions of Sale" document whether included with the invoice or acknowledgment or with the computer packaging. If the contracts were formed at the time the orders were placed, see U.C.C. § 2-206(1), the "Terms and Conditions of Sale" document, including the arbitration provision, would be an additional term of the contracts under section 2-207. The arbitration provision would not be part of the contracts but proposals to add it as a term to the contracts. Id. at § 207(1)-(2). The facts necessary for the application of this analysis are not in the record presented for appellate review. Thus, this Court cannot determine whether the arbitration provision was part of the contract and enforceable against the plaintiffs, so to decide whether the application to compel arbitration was properly denied. ¶29 We are not unmindful of two recent Texas Court of Appeals' decisions: Dell, Inc. v. Muniz, Nos. 04-04-00722-CV, 04-04-00752-CV, 2005 WL 659154 (Tex. Ct. App. Mar. 23, 2005) (not "released for publication" and "subject to revision or withdrawal"), and Smith v. Gateway, Inc., No. 03-01-00589-CV, 2002 WL 1728615 (Tex. Ct. App. July 26, 2002) (not designated for publication and without precedential value). These two cases are not helpful here primarily for the following reasons. In Muniz, the parties agreed that the arbitration agreement was binding, 2005 WL 659154, at *3, and only contested whether the claim fell within the arbitration agreement's exceptions. In Smith, "Gateway established that an arbitration agreement existed between the parties." 2002 WL 1728615, at *2. However, the Smith court does not give us the facts underlying this conclusion. ¶30 Our analysis is limited to agreements which fall under article 2 of the U.C.C. This opinion's analysis does not include agreements to which article 2 of the U.C.C. is inapplicable, such as agreements which are not for the sale of goods. VIII. PROSPECTIVE APPLICATION ¶31 Because we have not before addressed the procedures to be employed in proceedings on applications to compel arbitration, we only impose these procedures prospectively to applications to compel arbitration filed after mandate issues in this appeal. See McDaneld v. Lynn Hickey Dodge, Inc., IX. CONCLUSION ¶32 In conclusion, on applications to compel arbitration, the district court should follow the summary procedures set out in this opinion. Because this Court has not previously articulated the procedures to be followed on applications to compel arbitration, they apply only to those applications filed after mandate of this appeal. Section 2-207 and other provisions of the U.C.C. apply to the contracts here and apply to terms which Dell can show were enclosed with the invoice, with the acknowledgment, or in the package containing the purchased product. On de novo review, the record is insufficient to support the order denying the application to compel arbitration. We reverse the district court's order denying the application to compel arbitration and remand with instructions. The Court of Civil Appeal's opinion is vacated. COURT OF CIVIL APPEALS' OPINION VACATED; DISTRICT COURT'S ORDER REVERSED; CAUSE REMANDED. Watt, C.J., Winchester, V.C.J., Lavender, Opala,Edmondson, Taylor, JJ., concur. Hargrave and Colbert, JJ.dissent. I would withdraw certiorari as having been improvidently granted. Kauger, J., dissents with notice. FOOT