1

 The Honorable William G. Cambridge, then Chief Judge, United States District

Court for the District of Nebraska.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 99-1260

___________

PCS Nitrogen Fertilizer, L.P., *

f/k/a Arcadian Fertilizer, L.P., *

*

Appellee, *

* Appeal from the United States

v. * District Court for the

* District of Nebraska

The Christy Refractories, L.L.C., *

*

Appellant. *

_________________

Submitted: December 15, 1999

Filed: September 15, 2000

_________________

Before McMILLIAN, JOHN R. GIBSON, and MAGILL, Circuit Judges.

_________________

McMILLIAN, Circuit Judge. 

The Christy Refractories, L.L.C. (Christy), appeals from an interlocutory order

entered in the United States District Court1 for the District of Nebraska holding that the

underlying dispute between Christy and PCS Nitrogen Fertilizer, L.P. (PCS), is not

subject to mandatory arbitration. See PCS Nitrogen Fertilizer, L.P. v. Christy

Refractories, L.L.C., No. 8:98CV390 (D. Neb. Dec. 28, 1998) (hereinafter "slip op.").
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For reversal, Christy argues that the district court erred in interpreting the pertinent

contract documents because (1) Christy's customer acknowledgment was a "definite

and seasonable expression of acceptance" and thus bound PCS to its terms, which

included a mandatory arbitration clause; (2) the added arbitration term became part of

the contract because the clause did not materially alter the contract or, alternatively,

because PCS assented to it; (3) Christy's customer acknowledgment was a counteroffer accepted by PCS; or (4) the arbitration clause became part of the contract as a

result of the parties' course of dealing. For the reasons discussed below, we affirm the

order of the district court. 

Jurisdiction

Jurisdiction in the district court was proper based upon 28 U.S.C. § 1332.

Jurisdiction in the court of appeals is proper based upon 9 U.S.C. § 16(a)(1) and 28

U.S.C. § 1292(a)(1). The notice of appeal was timely filed pursuant to Fed. R. App.

P. 4(a).

Background

The following statement of facts is drawn from the district court order and the

record on appeal. PCS, a manufacturer of ammonia fertilizers, is a Delaware limited

partnership authorized to do business in Nebraska. PCS has a buying office in

LaPlatte, Nebraska, among its several offices nationwide. Christy is a Missouri limited

liability company also authorized to conduct business in Nebraska.

On February 4, 1997, through its LaPlatte office, PCS submitted a purchase

order to Christy for a certain quantity of a catalyst support medium (hereinafter “the

goods”) for use in PCS’s manufacturing process. See Appellant's Appendix

(hereinafter "App.") at 33-36 (PCS purchase order). PCS's purchase order contained

no term regarding the arbitration of disputes. See id. In response, on February 7, 1997,
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Christy sent a customer acknowledgment form. See id. at 37-38 (Christy customer

acknowledgment). The face of Christy's form contained the statement: "THIS

CONTRACT CONSISTS OF THE TERMS AND CONDITIONS ON THE FACE

AND REVERSE HEREOF. THIS CONTRACT CONTAINS A BINDING

ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES."

Id. at 37 (set forth in capital letters in original). The terms and conditions of sale were

set forth on the reverse side of the form and included the following initial term:

1. Offer and Acceptance . . . . Seller's acceptance of any offer by

Purchaser to purchase the Products is expressly conditional upon the

Purchaser's assent to all the terms and conditions herein, including any

terms additional to or different from those contained in the offer to

purchase. Seller hereby objects to any different or additional terms or

conditions contained in any acceptance by Purchaser of any offer made

by Seller or in any other document submitted by Purchaser. No

modification, addition, deletion, rescission or waiver by Seller of any term

or condition set forth herein or of any of Seller's rights or remedies

hereunder shall be binding upon Seller unless agreed to in a writing signed

by Seller. Purchaser shall be deemed to have assented to these terms and

conditions unless Seller receives written notice of any objection within 10

days after Purchaser's receipt of this form and in all events prior to

delivery or other performance by Seller.

Id. at 38. Another term on the reverse side of Christy’s form provided for arbitration

of contractual disputes between PCS and Christy as follows:

26. Arbitration. If any dispute occurs between Purchaser and Seller

arising out of or related to this Contract, Seller, in its sole discretion, may

require that such dispute be settled by arbitration under the then current

rules of the American Arbitration Association. If Seller elects to submit

any such dispute to arbitration, the decision and award of the arbitrator

shall be firm and binding and the award may be entered in any court

having jurisdiction. Any arbitration shall be held and the award shall be

deemed to be made in St. Louis, Missouri.
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Id. Finally, the last sentence on the terms and conditions page of the form stated that

"THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION

WHICH MAY BE ENFORCED BY THE PARTIES." Id. (set forth in capital letters

in original).

On or about May 1, 1997, Christy delivered the goods to PCS's LaPlatte office.

See id. at 32 (affidavit of Gary Altman) (Sept. 25, 1998). PCS alleges that, following

use in its manufacturing process, the goods failed to function as warranted. See id. at

2-3 (Amended Complaint, ¶ 10). PCS subsequently commenced this action against

Christy in the United States District Court for the District of Nebraska and claimed

damages of $940,876.36 for the cost of the goods, lost production, and the clean-up

and repair costs associated with the damage that the goods allegedly caused to PCS's

manufacturing equipment.

On September 4, 1998, Christy filed a Demand for Arbitration with the American

Arbitration Association ("AAA") and attached a copy of PCS's purchase order and

Christy's customer acknowledgment form. See id. at 41-49. On September 25, 1998,

PCS formally objected to Christy's demand for arbitration and requested a stay of

arbitration. See id. at 53-54. On the same day, PCS asked the district court to decide

whether PCS was required to arbitrate its claims against Christy and to enjoin

arbitration pending the district court's arbitrability determination. See id. at 13-14

(Motion to Enjoin Arbitration), 19-20 (Motion for Determination of Arbitrability). 

The district court granted PCS's motion to enjoin arbitration, see PCS Nitrogen

Fertilizer, L.P. v. Christy Refractories, L.L.C., No. 8:98CV390 (D. Neb. Nov. 24,

1998), and later granted PCS's motion to determine arbitrability, concluding that the

arbitration provision was not an enforceable part of the parties' agreement. See slip op.
2The district court noted that, although the parties agreed that UCC § 2-207

governed, neither side had addressed whether Nebraska or Missouri law should apply.

See slip op. at 3. The district court reasoned that "[t]he exercise likely would be

academic, however, as the Nebraska and Missouri versions of UCC § 2-207 are

essentially the same." Id. (citing N&D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722

(8th Cir. 1976), for proposition that it is unnecessary to resolve a choice-of-law issue

where the states involved adopted UCC § 2-207 without modification). 

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at 1. Applying Article 2 of the Uniform Commercial Code (UCC),2 the district court

held that, because Christy's acceptance was expressly conditional upon PCS's assent

to additional terms (including the arbitration clause), no contract was formed under

UCC § 2-207(1). See id. at 3-4. The district court alternatively determined that, even

if Christy's customer acknowledgment was a valid acceptance under § 2-207(1), the

provisions of § 2-207(2) prevented incorporation of Christy's added terms because the

arbitration clause was a material alteration of the contract. See id. at 5-7. Finally, the

district court held that the additional arbitration terms could not qualify as a

supplemental term under § 2-207(3) given the parties' limited course of dealing. See

id. at 7-8. This appeal followed.

Discussion

A party who has not agreed to arbitrate a dispute cannot be forced to do so. See

AT&T Techs., Inc. v. Communication Workers of Am., 475 U.S. 643, 648 (1986).

Accordingly, the court must determine "whether there is an agreement between those

parties which commits the subject matter of the dispute to arbitration." ITT Hartford

Life & Annuity Ins. Co. v. Amerishare Investors, Inc., 133 F.3d 664, 668 (8th Cir.

1998). Where the arbitrability of the dispute depends on contract interpretation, we

review the district court's decision de novo. See Keymer v. Management Recruiters

Int'l, Inc., 169 F.3d 501, 504 (8th Cir.1999). To the extent that the district court's order

concerning arbitrability is based on factual findings, we review those findings for clear

error. See id.
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UCC § 2-207(1)

Christy initially argues that its customer acknowledgment form was a definite

and seasonable expression of acceptance within the spirit of UCC § 2-207(1) despite

its “expressly conditional” language and thus the district court erred in determining that

PCS was not required to arbitrate its claim. UCC § 2-207(1) states that

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.

Id. (emphasis added). Christy acknowledges that its customer acknowledgment form

tracked the language of § 2-207(1). See App. at 38 (Christy customer acknowledgment

form) (“Seller’s acceptance of any offer by Purchaser to purchase the Products is

expressly conditional upon the Purchaser’s assent to all terms and conditions herein,

including any terms additional to or different from those contained in the offer to

purchase.”) (emphasis added). 

Nonetheless, Christy urges that this “mechanical” language within its form

should not foreclose a valid acceptance, because “often the parties do no impart such

significance to the terms on the printed forms as to have them prevent a contract from

being consummated.” Brief for Appellant at 9; see also Dorton v. Collins & Aikman

Corp., 453 F.2d 1161, 1166 (6th Cir. 1972) (Dorton) (noting that, “[w]hereas under

common law the disparity between the fineprint terms in the parties’ forms would have

prevented the consummation of a contract when these forms are exchanged, Section

2-207 recognizes that in many, but not all, cases the parties do not impart such

significance to the terms on the printed forms.”). Instead, Christy contends that the

district court should have looked beyond the acknowledgment form’s language and

focused on the parties’ intent as determined by the factual circumstances surrounding
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the agreement, to determine whether the acceptance was in fact expressly conditional

on PCS’s assent. See Brief for Appellant at 12-13 (citing John E. Murray, Section

2-207 of the Uniform Commercial Code: Another Word About Incipient

Unconscionability, 39 U. Pitt. L. Rev. 597 (1978)). But see C. Itoh & Co. (America)

v. Jordan Int’l Co., 552 F.2d 1228, 1235-36 (7th Cir. 1977) (Itoh) (holding that written

confirmation was not valid acceptance under § 2-207(1) where it contained language

matching § 2-207(1)’s “expressly conditional” proviso). Christy argues that, based on

the facts and circumstances, its customer acknowledgment form was intended as an

acceptance and was treated as such by PCS, given that PCS expressly required such

an acknowledgment to make the offer binding, see App. at 34 (PCS purchase order)

(“This order shall not be binding upon Buyer until Seller’s acknowledgment of this

order has been received at Buyer’s issuing office.”), and that PCS failed to object in

writing within ten days to Christy’s acknowledgment form. See id. at 38 (Christy

customer acknowledgment form) (“Purchaser shall be deemed to have assented to these

terms and conditions unless Seller receives written notice of any objection within 10

days after Purchaser's receipt of this form and in all events prior to delivery or other

performance by Seller.”).

We disagree. Although an acceptance containing additional or different terms

(such as an arbitration clause) will typically not preclude § 2-207(1) contract formation,

the creation of a contract is prevented where “acceptance is expressly made conditional

on assent to the additional or different terms.” White Consol. Indus., Inc. v. McGill

Mfg. Co., 165 F.3d 1185, 1191-92 (8th Cir. 1999) (White). While an acceptance need

not match the exact language of § 2-207(1) to be considered “expressly conditional,”

see id. at 1191 (“To require the exact language of the UCC would be too formalistic

and inconsistent with the UCC’s requirement that its provisions be liberally

construed.”), an acceptance which precisely follows § 2-207(1) clearly forestalls

contract formation. See Itoh, 552 F.2d at 1235. The pertinent language on Christy’s

acknowledgment form reads: “Seller’s acceptance of any offer by Purchaser to

purchase the Products is expressly conditional upon the Purchaser’s assent to all the
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terms and conditions herein, including any terms additional to or different from those

contained in the offer to purchase.” App. at 38 (Christy customer acknowledgment

form). By its very construction, Christy’s acceptance is expressly conditional on PCS’s

assent to all the terms, including the arbitration provision (an additional and different

term), contained within the acknowledgment form. Thus, even under a narrower

interpretation of § 2-207(1), Christy's acknowledgment cannot be a valid acceptance

under § 2-207(1) and, accordingly, no contract was created by the exchange of forms.

See Dorton, 453 F.2d at 1168 (“In order to fall within this [§ 2-207(1)] proviso, it is

not enough that an acceptance is expressly conditional on additional or different terms;

rather, an acceptance must be expressly conditional on the offeror’s assent to those

terms.”).

Christy argues that, if its customer acknowledgment form was not a valid

acceptance of PCS's offer, then the acknowledgment form was converted into a nonbinding counter-offer to which PCS in turn assented through its acceptance of and

payment for the goods. See Brief of Appellant at 27-31; see also Construction

Aggregates Corp. v. Hewitt-Robins, Inc., 404 F.2d 505 (7th Cir. 1968) (Construction

Aggregates) (holding that, although seller's acknowledgment was not valid acceptance

of buyer's offer under § 2-207(1), buyer's subsequent acceptance of and payment for

goods along with buyer's objection to a particular term within counter-offer constituted

assent to remaining terms of counter-offer), cert. denied, 395 U.S. 921 (1969); John E.

Murray, Jr., The Chaos of the "Battle of the Forms": Solutions, 39 Vand. L. Rev. 1307,

1335 (1986) (proposing that, "if a counter-offer clearly reveals that the seller-offeree

is shipping the goods on his own terms, and the buyer has reason to know that clear

intention, the buyer's acceptance of the goods should manifest a conduct acceptance of

the counter-offer").

We agree that, if Christy's acknowledgment form was not a valid acceptance,

then it stands as a non-binding counter-offer. See JOM, Inc. v. Adell Plastics, Inc., 193

F.3d 47, 53 (1st Cir. 1999) (en banc) (JOM) ("[I]f a seller does make its acceptance
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'expressly conditional' on the buyer's assent to any additional or divergent terms in the

seller's invoice, the invoice is merely a counteroffer, and a contract is formed only when

the buyer expresses its affirmative acceptance of the seller's counteroffer."); Mead

Corp. v. McNally-Pittsburg Mfg., 654 F.2d 1197, 1206 (6th Cir. 1981); Itoh, 552 F.2d

at 1236. Moreover, if PCS had in fact assented to this counter-offer, the parties would

have created a contract, such that the additional terms in Christy's acknowledgment

(including the arbitration clause) would have become part of the contract. See

Diamond Fruit Growers, Inc. v. Krack Corp., 794 F.2d 1440, 1443 (9th Cir. 1986)

(Diamond) (citing J. White & R. Summers, Handbook of the Law Under the Uniform

Commercial Code, § 1-2, at 32-33 (2d ed. 1980)). 

However, mere acceptance of and payment for goods does not constitute

acceptance of all the terms in the seller's counter-offer. See Ralph Shrader, Inc. v.

Diamond Int'l Corp., 833 F.2d 1210, 1215 (6th Cir.1987) (rejecting argument that

buyer implicitly assented to counter-offer, given buyer's acceptance of and payment for

goods); Diamond, 794 F.2d at 1444-45 (refusing to equate assent with the acceptance

of goods and payment for them, because this would in effect reinstate the common law

rule that § 2-207 was designed to abolish); Itoh, 552 F.2d at 1236 n.8 (adopting view

that, with no other actions by the parties, mere acceptance and payment does not

establish assent). Instead, specific and affirmative assent to the seller's counter-offer

is necessary to create a contract. See JOM, 193 F.3d at 53 (requiring "affirmative

acceptance of the seller's counteroffer" for § 2-207(1) contract formation); Diamond,

794 F.2d at 1444 (rejecting seller's argument that acceptance of goods and payment for

them is equivalent to assent and mandating "specific and unequivocal assent" to terms

of counter-offer); Itoh, 552 F.2d at 1235 (noting that buyer "never expressly assented

to the challenged arbitration term"). Thus, Christy's reliance on Construction

Aggregates is misplaced, because in that case "there had been additional actions by the

negotiating parties[,] namely, buyer had objected to only some of the terms in seller's

writing which indicated that buyer had in fact accepted the disputed terms in seller's

counter-offer." Itoh, 552 F.2d at 1236 n.8. No such "additional actions" or evidence
3

 Notably, if a contract had in fact been formed between Christy and PCS under

§ 2-207(1), we would have applied § 2-207(2) to determine the contract’s terms, as the

district court did in the alternative. See slip op. at 5-7 (holding that, even if the parties

had formed a contract under § 2-207(1), the arbitration clause materially altered the

contract and therefore did not become part of the parties’ agreement); see also C. Itoh

& Co. (America) v. Jordan Int’l Co., 552 F.2d 1228, 1236 n. 7 (7th Cir. 1977) (Itoh)

(noting that § 2-207(2) analysis necessary if contract formed under § 2-207(1)).

Section 2-207(2) provides:

[t]he 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.

However, because the parties did not form a contract under § 2-207(1), we need not

address Christy’s arguments as to the applicability of § 2-207(2).

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of affirmative assent are present here. Thus, we cannot say that PCS affirmatively

accepted Christy's counter-offer and created a contract under § 2-207(1) that included

the added arbitration provision. However, to the extent that the parties’ actions may

nevertheless have created a contract, such factual circumstances may be taken into

consideration under § 2-207(3).3 See Dorton, 453 F.2d at 1166 (“[W]hen no contract

is recognized under Subsection 2-207(1) . . . the entire transaction aborts at this point.

If, however, the subsequent conduct of the parties - particularly, performance by both

parties under what they apparently believe to be a contract - recognizes the existence

of a contract, under Subsection 2-207(3) such conduct by both parties is sufficient to

establish a contract, notwithstanding the fact that no contract would have been

recognized on the basis of their writings alone.”).

UCC § 2-207(3)
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Christy alternatively argues that, if the parties failed to create a contract under

§ 2-207(1), the parties' conduct after the exchange of forms was nonetheless sufficient

under § 2-207(3) to establish a contract that included the supplementary arbitration

term. Section 2-207(3) states that:

[c]onduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the

parties do not otherwise establish a contract. In such case the terms of the

particular contract consist of those terms on which the writings of the

parties agree, together with any supplementary terms incorporated under

any other provisions of this Act.

Christy contends that § 2-207(3)'s reference to "supplementary terms incorporated

under any other provisions of this Act" encompasses those terms arrived at through the

course of performance, course of dealing, or usage of trade, as well as the UCC's

standard "gap-fillers." See Brief for Appellant at 32-33 (citing Dresser Indus., Inc. v.

Gradall Co., 965 F.2d 1442, 1451 (7th Cir. 1992), and Daitom, Inc. v. Pennwalt Corp.,

741 F.2d 1569, 1579 (10th Cir. 1984)). Christy further argues that the arbitration

clause here should be included as a supplementary term of the contract, given the

course of dealing between the parties. See id. at 33 (citing UCC § 1-205 (defining

"course of dealing" as "a sequence of previous conduct between the parties to a

particular transaction which is fairly to be regarded as establishing a common basis of

understanding for interpreting their expressions and other conduct.")). According to

Christy, the parties' course of dealing included Christy's mailing of multiple customer

acknowledgment forms to PCS, the review of and lack of objection to these forms by

PCS, as well as delivery and acceptance of the goods. On these facts, Christy asserts

that the parties' sequence of previous conduct established a "common basis of

understanding" that disputes would be resolved through arbitration.

We agree that the parties' conduct established a contract for sale between PCS

and Christy under § 2-207(3). The parties clearly behaved in a manner that recognized
4Courts and commentators have read § 2-207(3)'s reference to "supplementary

terms" differently. Compare Dresser Indus., Inc. v. Gradall Co., 965 F.2d 1442, 1451

(7th Cir. 1992) (holding that "all of the U.C.C.'s provisions should be used in discerning

the terms of a contract under § 2-207(3), including those provisions that allow us to

examine the parties' performance."); 2 W. Hawkland, Uniform Commercial Code Series

§ 2-207:04, at 109-10 (1990) (arguing that parties' course of conduct should be

considered under § 2-207(3)), with Itoh, 552 F.2d at 1237 (limiting "supplementary

terms" to those supplied by the stock "gap-filler" provision of Article Two); 1 J. White

& R. Summers, Uniform Commercial Code, § 1-3 at 45 (3d ed. 1988) (asserting that

"supplementary terms" should be limited to UCC's explicit "gap-fillers").

5

 PCS's buying offices (located in Clinton, Iowa, and Augusta, Georgia, as well

as LaPlatte) purportedly operate autonomously with respect to purchases. Accordingly,

PCS claims that the information and documentation supporting each purchase is

generated separately and independently by the various buying offices. See Appellant's

Appendix (hereinafter "App.") at 127-28 (affidavit of Gary Altman) (Nov. 2, 1998).

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the existence of a contract, as demonstrated by Christy's delivery of the goods and

PCS's acceptance of, payment for, and attempted use of the goods. Under § 2-207(3),

the contract integrates "those terms on which the writings of the parties agree," which

necessarily excludes the disputed arbitration term added in Christy's customer

acknowledgment form. Accordingly, if the arbitration clause is to become part of the

§ 2-207(3) contract between PCS and Christy, it must be a supplementary term

"incorporated under any other provisions" of the UCC.

Assuming arguendo that supplementary terms include terms arrived at through

a course of dealing,4 we hold that the parties' conduct did not constitute a course of

dealing sufficient to integrate the arbitration provision into the parties' contract. As

noted by the district court, of the 16 customer acknowledgment forms Christy sent to

PCS between mid-1996 and mid-1997, only nine of those forms went to PCS's LaPlatte

office,5 with eight relating to the same purchase order, namely the order of goods at

issue here. Thus, PCS's LaPlatte office received only one customer acknowledgment

form prior to the events giving rise to the instant litigation. This in and of itself hardly
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establishes a prior course of dealing sufficient to allow Christy to unilaterally include

the arbitration provision in the contract. Moreover, the fact that Christy repeatedly sent

its customer acknowledgment form to PCS does not establish a course of dealing; the

multiple forms merely demonstrated Christy's desire to include the arbitration clause

as a term of the contract. See In re CFLC, Inc., 166 F.3d 1012, 1017 (9th Cir. 1999)

("Course of dealing analysis is not proper in an instance where the only action taken

has been the repeated delivery of a particular form by one of the parties."); Step-Saver

Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991) (holding that "the

repeated sending of a writing which contains certain standard terms, without any action

with respect to the issues addressed by those terms, cannot constitute a course of

dealing which would incorporate a term of the writing otherwise excluded under §

2-207" because "the repeated exchange of forms by the parties only tells [buyer] that

[seller] desires certain terms. Given [seller's] failure to obtain [buyer's] express assent

to these terms before it will ship the program, [buyer] can reasonably believe that,

while [seller] desires certain terms, it has agreed to do business on other terms--those

terms expressly agreed upon by the parties.").

Conclusion

We hold that Christy's customer acknowledgment form was not a valid

acceptance under UCC § 2-207(1), that the parties nonetheless created a contract under

UCC § 2-207(3) through their subsequent conduct, but that this contract between PCS

and Christy did not include the disputed arbitration term. Accordingly, the judgment

of the district court is affirmed.

A true copy.

Attest:

U.S. COURT OF APPEALS, EIGHTH CIRCUIT.