UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

NOT FOR PUBLICATION

 .

:

NEWARK BAY COGENERATION :

PARTNERSHIP, LP : Civil Action No. 11-2441 (ES)(CLW)

:

Plaintiff, : REPORT & RECOMMENDATION

:

v. :

:

ETS POWER GROUP, :

:

Defendant. :

 :

WALDOR, UNITED STATES MAGISTRATE JUDGE

Pending before this Court is a motion to compel arbitration (“Motion to Compel 

Arbitration”) brought by Defendant ETS Power Group (“Defendant” or “ETS”). (Docket Entry 

No. 27). Plaintiff Newark Bay Cogeneration Partnership, LP (“Plaintiff or “Newark Bay”) has 

filed opposition to the Motion to Compel Arbitration. (Docket Entry No. 29). The Court decides 

the motion after having heard oral argument pursuant to Fed. R. Civ. P. 78. District Judge Salas 

referred Defendant’s Motion to Compel Arbitration to the Undersigned for Report and 

Recommendation. For the reasons set forth below, the Court respectfully recommends that 

Defendant’s Motion to Compel Arbitration be GRANTED. 

I. Background

Plaintiff is a privately held independent power producer organized and existing under the 

laws of the state of New Jersey. (Docket Entry No. 1, Complaint, (“Compl.”) at ¶1). Plaintiff 

operates as a merchant plant and sells electricity to the Pennsylvania, New Jersey, and Maryland 

markets and power grid. (Id. at ¶ 9). Plaintiff produces electricity utilizing two Westinghouse 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 1 of 22 PageID: 550
2

CB251 combustion turbines (“CT1” and “CT2”). (Id. at ¶ 10). Each CT is equipped with a 19 

stage compressor consisting of a casing, which houses the compressor’s diaphragms and 

stationary vanes. (Id. at ¶ 11). On June 1, 2006, CT2 experienced a failure of a stage 1 

compressor blade. (Id. at ¶ 12). Westinghouse was unable to provide replacement diaphragms 

necessary to rebuild CT2. (Id. at ¶ 14).

Defendant is a Florida corporation engaged in the business of providing OEM equivalent 

parts for industrial gas turbines. (Id. at ¶¶ 2-3). Following the 2006 loss, Defendant represented 

that it could “reverse engineer” the diaphragms and provide replacement diaphragms that would 

conform to the original Westinghouse design and be suitable for use within CT2. (Id. at ¶ 15). 

Plaintiff ultimately hired Defendant to complete the necessary repair and replacement work. (Id.

at ¶ 16). 

On January 12, 2010, CT2 tripped. (Id. at ¶ 27). Plaintiff’s inspection revealed damage 

in the CT2 compressors starting at stage 6. (Id. at ¶ 28). In particular, the stage 6 diaphragm had 

lost several vanes that caused damage to downstream compressor blades and vanes. (Id. at ¶ 31). 

Plaintiff alleges that further inspection revealed that all of the failed diaphragms were 

manufactured and supplied by ETS as part of the 2006 CT2 repair and resulted from ETS’ failure 

to meet proper specifications. (Id. at ¶¶ 32-36). As a result of the alleged failure of the ETS 

diaphragms, Plaintiff contends it sustained damages in an amount in excess of $4,538,870. (Id.

at ¶ 37). Accordingly, on April 28, 2011, Newark Bay brought action against ETS alleging: (1) 

breach of contract; (2) breach of express warranty; (3) breach of implied warranty of 

merchantability; (4) breach of implied warranty of fitness for an intended purpose; (5) 

negligence; (6) products liability; and (7) gross negligence. (Compl. at ¶¶ 38-80). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 2 of 22 PageID: 551
3

The central issue currently before this Court concerns a series of purchase orders

(“Purchase Order” or “Purchase Orders”) memorializing the above-described agreement to 

perform the requested – and allegedly defective – work and whether the agreement between the 

parties evidences a valid agreement to arbitrate the pending dispute. First, pursuant to a 

December 15, 2006 Purchase Order, ETS inspected the CT2 compressor and diaphragms to 

determine whether it could repair and/or reverse engineer the diaphragms. (Compl., Ex. A, Dec. 

15, 2006 Purchase Order). Next, pursuant to a February 16, 2007 Purchase Order, ETS created 

detailed dimensional diagrams and drawings of the diaphragms and vane segments for the 

purpose of facilitating repair of the diaphragms by a repair facility. (Id., Feb. 16, 2007 Purchase 

Order). Lastly, and of particular import, on March 30, 2007, ETS provided Plaintiff with a 

written price quote to repair or replace the damaged diaphragms for the CT2 compressor. 

(Motion to Compel Arbitration at ¶ 14). The offer was valid for 90 days and provided that ETS’

“standard terms and conditions of sale” applied. (Id., Muller Certification (“Cert.”), Ex. B.). 

Specifically, the ETS Terms & Conditions (“T&C”) require the parties to resolve all disputes 

arising in connection with the contract through arbitration:

10.1 Dispute Resolution. All disputes arising in connection with the Contract 

shall be settled, if possible, by negotiation of the parties. If settlement cannot be 

reached by negotiation, then the dispute shall be finally settled by arbitration 

without recourse to common or commercial courts. Each party shall have the 

right to send a request in writing, with notices to the other party, to the President 

of the International Chamber of Commerce stating its desire to resolve the dispute 

before an arbitration panel of three arbitrators appointed by the President of the 

ICC under its rules. Subject to the terms of Company’s proposal or the Contract, 

the arbitration will be held in London, England and shall apply the laws of 

England, provided that any provision of such law invalidating any provision of 

the Contract or modifying the intent of the parties as expressed in the terms of the 

Contract shall not apply. 

T&C § 10.1. 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 3 of 22 PageID: 552
4

On April 2, 2007, Plaintiff executed a Purchase Order for the replacement parts. (Motion

to Compel Arbitration at ¶ 13). The parties dispute the meaning and intent of the April 2, 2007 

Purchase Order. ETS contends that Plaintiff’s April 2, 2007 Purchase Order specifically 

references ETS’ March 30, 2007 quotation, without the rejection or proposal of different terms or 

conditions. (Motion to Compel Arbitration at ¶ 21). Plaintiff believes ETS’ interpretation of its 

April 2, 2007 Purchase Order goes beyond its intended scope. (Docket Entry No. 29 at 8-9). To 

that end, the sole reference in the Purchase Order to the March 30, 2007 proposal is, “T&M not 

to exceed ETS proposal dated 3/30/07.” (Id.). Accordingly, the Purchase Order’s reference to 

the ETS proposal is limited to ETS’ proposed cost for the work on a time and material basis and 

cannot be read as an incorporation of the entirety of the proposal letter or the undisclosed T&C 

that are mentioned in that letter. (Id.)

On July 5, 2011, ETS moved to compel arbitration and stay this litigation. (Docket Entry 

No. 15). Plaintiff opposed ETS’ application alleging that it never agreed to the ETS T&C and, 

therefore, said T&C did not bind the Plaintiff. (Docket Entry No. 16). On January 6, 2012, this 

Court entered an order permitting discovery on the issue of contract formation, limited to the 

depositions of the two individuals who negotiated the agreement, the applicability of the ETS 

T&C, as well as the custom and practice in the industry regarding the existence of standard terms 

and conditions and preference for arbitration. (Docket Entry No. 26). 

On February 7, 2012, ETS filed the instant renewed Motion to Compel Arbitration. 

(Docket Entry No. 27). On February 21, 2012, Newark Bay filed a brief in opposition (Docket 

Entry No. 29, “Pl.’s Opp. Br.”), on February 28, 2012, ETS filed its reply brief (Docket Entry 

No. 30, “Def.’s Reply Br.”), and, on March 19, 2012, Newark Bay filed a sur reply in opposition 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 4 of 22 PageID: 553
5

(Docket Entry No. 34, “Pl.’s Sur Reply”). The Motion to Compel Arbitration was referred to the 

Undersigned on April 10, 2012. 

II. Standard of Review

Motions to compel arbitration are reviewed under the summary judgment standard of 

Fed. R. Civ. P. 56(c). Bellevue Drug Co. v. Advance PCS, 333 F.Supp.2d 318, 322 (E.D.Pa. 

2004); Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9 (3d Cir. 1980). A 

court shall grant summary judgment under Rule 56(c) of the Federal Rules of Civil Procedure “if 

the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is 

no genuine issue of material fact and that the movant is entitled to judgment as a matter of law.” 

Fed. R. Civ. P. 56(c). A factual dispute is genuine if a reasonable jury could find for the nonmoving party, and is material if it will affect the outcome of the trial under governing substantive 

law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-57 106 S.Ct. 2505, 91 L.Ed.2d 202 

(1986). In determining whether a genuine issue of material fact exists, the court must view the 

facts and all reasonable inferences drawn from those facts in the light most favorable to the 

nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 

S.Ct. 1348, 89 L.Ed.2d 538 (1986); Curley v. Klem, 298 F.3d 271, 276-77 (3d Cir. 2002).

Initially, the moving party has the burden of demonstrating the absence of a genuine issue 

of material fact. Celotex Corp., 477 U.S. at 323. Once the moving party has met this burden, the 

nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a 

genuine issue of fact for trial. Id. Thus, to withstand a properly supported motion for summary 

judgment, the nonmoving party must identify specific facts and affirmative evidence that 

contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. “A nonmoving 

party may not ‘rest upon mere allegations, general denials or . . . vague statements . . . .’” Trap 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 5 of 22 PageID: 554
6

Rock Indus., Inc. v. Local 825, Int’l Union of Operating Eng’rs, 982 F.2d 884, 890 (3d Cir. 

1992) (citation omitted). Moreover, the non-moving party must present “more than a scintilla of 

evidence showing that there is a genuine issue for trial.” Woloszyn v. County of Lawrence, 396 

F.3d 314, 319 (3d Cir. 2005). Applying this summary judgment standard, the Court proceeds to 

an analysis of ETS’ Motion to Compel Arbitration. 

III. Analysis

The Federal Arbitration Act (“FAA”) reflects a “strong federal policy in favor of the 

resolution of disputes through arbitration.” Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 263 

(3d Cir. 2003). The FAA provides that “[a] written provision in any . . . contract evidencing a 

transaction involving commerce to settle by arbitration a controversy . . . shall be valid, 

irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 

revocation of the contract.” 9 U.S.C. § 2. The Supreme Court has made clear that “the central or 

primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced 

according to their terms.” Stolt-Nielsen v. Animal Feeds Int’l Corp., --- U.S. ----, 130 S.Ct. 

1758, 1773, 176 L.3d2d 605 (2010) (internal citations omitted). “[A]ny doubts concerning the 

scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand 

is the construction of the contract language itself or any allegation of waiver, delay, or a like 

defense to arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-

25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). However, this presumption in favor of arbitration 

“does not apply to the determination of whether there is a valid agreement to arbitrate between 

the parties.” Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009) 

(quoting Fleetwood Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002)). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 6 of 22 PageID: 555
7

To determine whether the parties agreed to arbitrate, the Court turns to “ordinary statelaw principles that govern the formation of contracts.” First Options of Chic. Inc. v. Kaplan, 514 

U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). See also Blair v. Scott Speciality Gases, 

283 F.3d 595, 603 (3d Cir. 2002). Newark Bay and ETS agree that New Jersey law applies here. 

Because arbitration is a matter of contract, John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 

547, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964), before compelling arbitration pursuant to the FAA, a 

court must determine that (1) a valid agreement to arbitrate exists, and (2) the particular dispute 

falls within the scope of that agreement. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 

532 (3d Cir. 2005). 

A. Is There a Valid Arbitration Agreement? 

I. There is a Valid Contract Between Newark Bay and ETS:

As an initial matter, the Court finds that a valid contract exists between Newark Bay and 

ETS. Under New Jersey law, the basic elements of a valid contract are: (1) an offer by the 

promisor to act or forebear in some way; (2) acceptance by the promisee of the promisor’s offer; 

and (3) fair consideration paid by the promisee in exchange for the promisor’s performance. 

Taha v. Tires Plus, No. 10-4118, 2011 WL 229330 (D.N.J. June 8, 2011) (citing Am. 

Handkerchief Corp. v. Frannat Realty Co., 17 N.J. 12, 109 A.2d 793, 795-96 (N.J. 1954) 

(discussing contract formation under New Jersey law)). “The essentials of a valid contract are: 

mutual assent, consideration, legality of object, capacity of the parties and formality of 

memorialization.” Cohn v. Fisher, 118 N.J.Super. 286, 291, 287 A.2d 222 (Law Div. 1972). 

Additionally, purchase orders can create a binding contract. See Promotion in Motion, Inc. v. 

Beech-Nut Nutrition Corp., No. 09-1228, 2011 WL 6372323 (D.N.J. Dec. 20, 2011) (“As a 

matter of law, the Court finds that the Purchase Orders are valid and enforceable contracts.”) 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 7 of 22 PageID: 556
8

(citing U.C.C. § 2-201; Kay-Bee Toys Corp. v. Winston Sports Corp., 214 A.D. 2d 457, 458 

(N.Y.App. Div. 1995) (“Purchase orders may create a binding contract.”)).

Here, on April 2, 2007, Newark Bay issued a written Purchase Order specifically 

referencing and accepting the March 30, 2007 proposal. The proposal – the offer – and the 

Purchase Order – the acceptance – required ETS to provide repair and replacement services for 

the Newark Bay compressor diaphragms and seals. Accordingly, ETS had discernible duties or 

obligations under the proposal and corresponding Purchase Order. See Fletcher-Harlee Corp. v. 

Pote Concrete Contractors, Inc., 421 F.Supp.2d 831 (D.N.J. 2006) (“The offer must contemplate 

the assumption of legal rights and duties and must show a clear intention to assume liability.”) 

(citation omitted). Further, there is no question that ETS received consideration from Plaintiff 

pursuant to this transaction, specifically, $846,879. (Docket Entry No. 1, Ex. A, Apr. 2, 2007 

Purchase Order). In sum, in executing the above documents, both parties manifested an intent to 

be bound. The Court finds, as a matter of law, that a valid contract exists between Newark Bay 

and ETS. 

The fact that ETS describes the March 30, 2007 offer as a “quotation” in the subject line 

of its offer does not change this Court’s analysis. Plaintiff argues that “Under the UCC, a ‘price 

quote’ is not necessarily an offer.” (Pl.’s Opp. Br. at 22). Plaintiff is correct. Generally, 

“[W]hat transforms the quotation into an offer cannot be neatly defined; it depends on the 

manifestation of intent by the seller and the ‘unique facts and circumstances of each case.’” 

Reilly Foam Corp. v. Rubbermaid Corp., 206 F.Supp.2d 643, 650-51 (E.D.Pa. 2001). Here, 

however, the price quote is an unequivocal offer. First, the March 30, 2007 ETS letter states 

“ETS Power Group is pleased to offer . . . ” The letter also includes a number of specific terms 

including the identification of products, quantities, pricing, timing, and reference to standard 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 8 of 22 PageID: 557
9

terms and conditions. Newark Bay treated the letter as an offer in regard to, at a minimum, price 

and quantity. The April 2, 2007 Purchase Order merely modified the March 30, 2007 proposal 

in that Newark Bay agreed to pay only the lower estimate offered by ETS. Looking to the plain 

language of the March 30, 2007 letter and viewing the transaction as a whole, both parties treated 

the price quote as an offer and not merely a quotation. Accordingly, the Court finds the March 

30, 2007 correspondence contains sufficient detail and is deemed an offer as a matter of law. 

II. Incorporation by Reference: 

Although a valid contract exists between Newark Bay and ETS, in the absence of an 

express agreement to arbitrate in the Purchase Order itself, the Court must determine whether the 

parties agreed to incorporate the arbitration provision by reference. New Jersey law provides 

that “two or more writings may constitute a single contract even though they do not refer to each 

other. Whether two writings are to be construed as a single contract, however, depends on the 

intent of the parties.” Van Orman v. Am. Ins. Co., 680 F.2d 301, 306 (3d Cir. 1982) (internal 

citations omitted). The basic question is whether the parties assented to a writing as the 

complete integration of their agreement. Lawrence v. Tandy & Allen, Inc., 14 N.J. 1, 7, 100 

A.2d 891 (1953). In sum, “[i]n order for there to be a proper and enforceable incorporation by 

reference of a separate document, the document to be incorporated must be described in such 

terms that its identity may be ascertained beyond doubt and the party to be bound by the terms 

must have had ‘knowledge of and assented to the incorporated terms.’” Guidotti v. Legal 

Helpers Debt Resolution, L.L.C., No. 11-1219, 2011 WL 6720936, at *16 (D.N.J. Dec. 20, 2011) 

(quoting Alpert v. Quinn, 410 N.J.Super. 510, 533, 983 A.2d 604 (App.Div. 2009)). See also, 4 

Williston on Contracts § 30:25 (Lord ed. 1999).

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 9 of 22 PageID: 558
10

In support of incorporation, ETS argues that when Newark Bay accepted its March 30, 

2007 proposal – which included the ETS T&C – a valid contract was formed on ETS’ terms. 

(Motion to Compel Arbitration at 8-9). See Standard Bent Glass Corp. v. Glassrobots Oy, 333 

F.3d 440, 447 (3d Cir. 2003). Defendant specifically relies on the following language: “The 

seller’s terms may include documents or provisions incorporated by reference into the main 

agreement. Traditional documents incorporated by reference into contracts include accepted 

industry guidelines or parallel agreements between the parties.” Id. To that end, ETS contends 

that whether or not the ETS T&C were attached to ETS’ March 30, 2007 proposal is of no 

moment. Instead, parties to a contract are free to incorporate by reference, and bind themselves 

to, terms that may be found in other documents. (Motion to Compel Arbitration at 9, citing 

Aceros Prefabricados, S.A. v. TradeArbed, Inc., 282 F.3d 92, 100 (2d Cir. 2002)). Moreover, 

Newark Bay’s failure to read a contract or request referenced terms within that contract does not 

excuse it from being bound by its terms, particularly where the Plaintiff is a sophisticated 

commercial party. (Id. at 11-13). 

Plaintiff disagrees and argues that the arbitration provision was not incorporated by 

reference because ETS neither provided a copy of the T&C with the executed contract nor did 

Newark Bay acknowledge that it had read and agreed to the T&C. (Pl.’s Opp. Br. at 6). 

Specifically, ETS cannot establish that Newark Bay assented to the incorporation of the T&C as 

required under both state and federal law. (Id.). Instead, the Purchase Order does not reference 

the arbitration provision or, more broadly, the T&C. In fact, the sole reference to the ETS March 

30, 2007 proposal is limited to ETS’ proposed cost for the work on a time and material basis. 

Accordingly, said language cannot be read as an incorporation of the entirety of the proposal 

letter or the undisclosed terms and conditions that are mentioned in that letter. (Id. at 9). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 10 of 22 PageID: 559
11

The Court finds that ETS has the better argument. The T&C are valid and were 

effectively incorporated by reference into the March 30, 2007 proposal. First, the T&C are 

clearly and unambiguously referred to in ETS’ March 30, 2007 proposal. That is to say, the 

document to be incorporated was “described in such terms that its identity may be ascertained 

beyond doubt.” Guidotti, 2011 WL 6720936, at * 16. Specifically, the March 30, 2007 proposal 

reads: 

This quotation is based on best efforts estimates of repairs and replacements, it is 

valid for 90 days and is based on our standard terms and conditions of sale. 

(Muller Cert., Ex. B) (emphasis added).1 

Moreover, Newark Bay had knowledge of the T&C and assented to their incorporation by 

executing the April 2, 2007 Purchase Order. Specifically, the testimony of Mr. Joseph Mitchell, 

consultant for Newark Bay, confirms that Mr. Mitchell provided the March 30, 2007 proposal to 

Newark Bay Vice President Timothy Fagan:

Q: And by the way, do you recall receiving [the March 30, 2007] proposal from 

ETS?

Mr. Mitchell: Yes.

Q: Okay. And when you received it, did you share it with anyone or give it to 

anyone?

Mr. Mitchell: Yes.

Q: To whom did you give it?

Mr. Mitchell: Tim Fagan. 

(Muller Cert., Ex. A., 54:16-20; 16:18-24). On April 2, 2007, Mr. Fagan signed the Purchase 

Order which clearly references the March 30, 2007 proposal, expressly noting the T&C. 

Although proposing changes to the March 30, 2007 proposal, Newark Bay did not alter or 

respond to the reference to the T&C nor ask for them. In sum, the above language unequivocally 

 

1 This is in stark contrast to cases in which a court rejected a party’s attempt to incorporate a separate provision by 

reference. See, e.g., Weiner v. Mercury Artists Corp., 284 A.D. 108, 130 N.Y.S.2d 570, 571 (N.Y.App.Div.1954) 

(rejecting incorporation by reference where a seller attempted to incorporate a 207-page booklet into a one-page 

contract, and then tried to avail itself of an arbitration clause buried on page 66 of the booklet, with no other mention 

of arbitration). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 11 of 22 PageID: 560
12

put Newark Bay on notice of the conditions that were to apply to this transaction. Mr. Fagan 

reviewed the March 30, 2007 proposal and accepted said proposal, thus assenting to its terms, 

when he signed the April 2, 2007 Purchase Order. 

As noted above, Newark Bay argues that because ETS neither provided a copy of the 

T&C with the executed contract nor did Newark Bay acknowledge that it had read and agreed to 

the T&C, Newark Bay should not be bound by the T&C. Specifically, Mr. Fagan avers that: (1) 

at no time before or after Newark Bay engaged ETS did ETS provide Newark Bay with any 

standard terms and conditions of sale; (2) had Newark Bay known that the arbitration provision 

contained in the standard terms and conditions required arbitration in London, England, pursuant

to the rules of the ICC, and subject to the laws of England, it would not have agreed to enter the 

agreement with ETS; and (3) had Newark Bay known the standard terms and conditions were 

onerous and one-sided, particularly with respect to warranties, it would have never agreed to 

enter the agreement with ETS. (Docket Entry No. 16, Ex. A, ¶¶ 3-5). 

However, failure to read or review the T&C does not render them invalid. See

Glassrobots Oy, 333 F.3d at 447-48. In Schwartz v. Comcast Corp., 256 Fed Appx. 515 (3d Cir. 

2007), Plaintiff, a Comcast subscriber, sued Defendant alleging that Comcast breached its 

contract with him by failing to provide high-speed internet services as promised. Comcast filed a 

motion to compel arbitration based on the inclusion of an arbitration clause in the Comcast 

subscriber agreement. Plaintiff disputed the applicability of the arbitration provision because he 

allegedly never received a copy of the subscriber agreement. Id. at 518. The Third Circuit held 

that the parties’ relationship was governed by the subscriber agreement, and therefore was a

valid agreement to arbitrate:

Whether or not Schwartz received a copy of the subscription agreement, he could 

not accept services he knew were being tendered on the basis of a subscription 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 12 of 22 PageID: 561
13

agreement without becoming bound by that agreement. Restatement (Second) of 

Contracts § 23 (1981) (“[W]here an offer is contained in a writing [a party] may, 

without reading the writing, manifest assent to it and bind himself without 

knowing its terms. . . . [A]n offeror or offeree who should be aware of [the terms 

of a writing] may be bound in accordance with them if he manifests assent.”).

Id. at 518. Here, as established above, Mr. Fagan was aware that the March 30, 2007 proposal 

was being offered pursuant to the ETS T&C. Mr. Fagan accepted the proposal by signing the 

April 2, 2007 Purchase Order. Accordingly, despite the fact that ETS never provided their T&C

to Newark Bay, Mr. Fagan was bound to the terms contained in the March 30, 2007 proposal 

once he manifested assent. Id. New Jersey law is consistent with this principle. See Gras v. 

Assoc’s First Capital Corp., 346 N.J.Super.42, 56 (App.Div. 2001) (“Failing to read a contract 

does not excuse performance unless fraud or misconduct by the other party prevented one from 

reading.”) (internal quotation and citation omitted); 66 VMD Assoc’s, LLC v. Melick-Tully and 

Assoc’s, P.C., No. L-6584-07, 2011 WL 3503160, at *6 (App.Div., Aug. 11, 2011) (“[A] party 

accepting an offer has an absolute duty to read and understand the terms of an offer, and failure 

to do so will not diminish the force and effect of the resulting contract.”). 

Moreover, as ETS correctly notes, this principle is amplified when the transaction 

involves sophisticated commercial parties. Mr. Fagan, the Vice President of Newark Bay, is 

responsible for overall management of the Newark Bay Power Station and involved in all 

operational and financial decisions at Newark Bay. (Docket Entry No. 16, Ex. A, ¶ 1). No one 

disputes that Mr. Fagan is a seasoned and sophisticated commercial party. As a seasoned 

merchant, once Mr. Fagan reviewed the March 30, 2007 proposal, the onus was on Mr. Fagan to 

procure the T&C to the extent he sought to challenge their applicability or scope. The Third 

Circuit instructs us to hold sophisticated commercial parties to higher standards:

[T]he goal of commercial contract law is to efficiently facilitate business 

transactions between seasoned merchants. It is appropriate to require a merchant 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 13 of 22 PageID: 562
14

to exercise a level of diligence that might not be appropriate to expect of a nonmerchant.

Glassrobots Oy, 333 F.3d at 447 n. 10. Accordingly, Newark Bay’s failure to object to the T&C, 

including the arbitration provision, absent surprise or hardship, makes those terms part of the 

contractual agreement. Glassrobots Oy, 333 F.3d at 447-48. 2 

III. Material Alteration of the Contract:

Newark Bay argues that even if the arbitration provision is incorporated by reference, it 

materially alters the terms of the agreement and should not be included. “Even in a commercial 

transaction, a provision will not be incorporated by reference if it would result in surprise or 

hardship to the party against whom enforcement is sought.” Glassrobots Oy, 333 F.3d at 448; 

N.J.S.A. 12A:2-207.3 A material alteration is one that would “result in surprise or hardship if 

 

2 This Court has reviewed the case law cited to by Plaintiff supporting its position that this Court should reject the 

incorporation of the arbitration provision and has, moreover, conducted an independent review of the relevant New 

Jersey case law. See Alpert, 410 N.J. Super at 534; Curtis v. Cellco Partnership, 413 N.J. Super. 26, 992 A.2d 795 

(App.Div. 2010); Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 132, 773 A.2d 

665 (2001); GMAC v. Pittella, No. L-2934-08, 2010 WL 2089981 (App.Div. 2010); Wilson v. Woodfields at 

Princeton Highlands, No. L-6262-07, 2011 WL 2409369 (App.Div. 2011); Morando v. Netwrix Corp., No. 11-5075, 

2012 WL 1440229 (D.N.J. Apr. 24, 2012). A review of the foregoing case law reveals a telling pattern. In each of 

these cases in which the party seeking to compel arbitration was required to make a heightened showing of clarity or 

definiteness, the parties to the suit possessed uneven bargaining power – e.g. customers of the Defendant or

employees of the Defendant. This Court is not faced with the same policy considerations as we are dealing with two 

sophisticated business entities. See Hayden v. Hartford Life Ins. Co., No. 10-3424, 2010 WL 5140015, at *7 (D.N.J. 

Dec. 10, 2010) (noting that the New Jersey Supreme Court’s requirement that arbitration provisions contain more 

explicit and precise language was limited to certain contexts where strong public policy considerations exist, i.e.,

employment discrimination). Accordingly, the New Jersey case law on which Newark Bay purportedly relies – or 

on which it invoked albeit without referencing comprehensively – is factually distinguishable from the instant 

matter. Cf. Lyndhurst Board of Education v. Network Billing Systems, LLC, No. C-325-09, 2011 WL 2339669, at 

*5 (App.Div. June 15, 2011) (finding that Plaintiff’s reliance on case law in the context of consumer contracts was 

misplaced where the Plaintiff was a seasoned negotiator – “not [a random customer]” – and had negotiated the 

subject contract for a period of months). 

3 U.C.C. § 2-207 provides:

(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 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 14 of 22 PageID: 563
15

incorporated without express awareness by the other party.” N.J.S.A. 12A:2-207. With respect 

to surprise, the Second Circuit has stated:

Surprise includes both a subjective element of what a party actually knew and an 

objective element of what a party should have known. . . . A profession of 

surprise and raised eyebrows are not enough. Instead, to carry its burden, the 

nonassenting party must establish that, under the circumstances, it cannot be 

presumed that a reasonable merchant would have consented to an additional term. 

Aceros Prefabricados, 282 F.3d at 100 (quotations omitted). As to unreasonable hardship, the 

court considers “whether the clause at issue would impose substantial economic hardship on the 

nonassenting party.” Bayway Refining Co. v. Oxygenated Mktg. & Trading A.G., 215 F.3d 219, 

224 (2d Cir. 2000) (citations omitted). “The nonassenting party has the burden of proving 

surprise or hardship.” Rocheux Intern. Of N.J., Inc. v. U.S. Merchants Fin. Group, Inc., 741 

F.Supp.2d 651, 682 (D.N.J. 2010) (quoting American Ins. Co. v. El Paso Pipe & Supply Co., 978 

F.2d 1185, 1190 n.9 (10th Cir. 1992)). See Bayway Ref. Co. v. Oxygenated Mktg. & Trading 

A.G., 215 F.3d 219. 223 (2d Cir. 2000). 

As an initial matter, the Court need not engage in an examination of whether the 

arbitration provision is part of the parties’ contract pursuant to Section 2-207(2). Section 2-207 

applies to additional or different terms contained in either a “definite and seasonable expression 

of acceptance” or a “written confirmation.” N.J.S.A. 12A:2-207. Here, ETS sent Newark Bay a 

written Compressor Diaphragms and Seals Repair/Replacement Quotation. This exchange

represented an offer from Newark Bay to repair and/or replace the Newark Bay compressor 

diaphragms and seals. (Muller Cert., Ex. B). The ETS offer explicitly referenced the ETS T&C. 

(Id.). On April 2, 2007, Newark Bay responded by enclosing a signed Purchase Order accepting 

 

(c) notification of objection to them has already been given within a reasonable time 

after notice of them is received. 

N.J.S.A. 12A:2-207.

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 15 of 22 PageID: 564
16

the ETS offer without objecting to the T&C. (Docket Entry No. 1, Ex. A, Apr. 2, 2007 Purchase 

Order). As such, and as discussed at length above, the T&C were part of the original terms 

offered by ETS and accepted by Newark Bay. The T&C, therefore, do not represent additional 

or different terms in either a “definite and seasonable expression of acceptance” or a “written

confirmation” that require interpretation under Section 2-207(2). N.J.S.A. 12A:2-207. 

Even if the Court were to engage in the analysis Newark Bay asks of it, the arbitration 

provision would still be part of the parties’ contract. To that end, Newark Bay’s only evidence 

of surprise or hardship is its Vice President Timothy Fagan’s affidavit that he never received a 

copy of the ETS T&C and would not have agreed to be bound to arbitration in London, England, 

pursuant to the rules of the ICC, and subject to the laws of England. (Docket Entry No. 16, Ex. 

A, ¶¶ 3-5). Viewing the facts in favor of Newark Bay, this evidence is insufficient to prove 

surprise or hardship. The relevant portion of the arbitration provision reads:

Each party shall have the right to send a request in writing, with notices to the 

other party, to the President of the International Chamber of Commerce stating its 

desire to resolve the dispute before an arbitration panel of three arbitrators 

appointed by the President of the ICC under its rules. Subject to the terms of 

Company’s proposal or the Contract, the arbitration will be held in London, 

England and shall apply the laws of England, provided that any provision of such 

law invalidating any provision of the Contract or modifying the intent of the 

parties as expressed in the terms of the Contract shall not apply. 

T&C § 10.1. Newark Bay and ETS operate in an international industry in which only 10 to 12 of 

the 52 CTs manufactured by Westinghouse worldwide are available in the United States. 

(Motion to Compel Arbitration at 24). Accordingly, it should come as no surprise to either party 

if arbitration disputes are resolved in international forums. To that end, submission of disputes 

to international arbitration is common in this industry.4 See Glassrobots Oy, 333 F.3d at 448 

 

4

Such standard terms and conditions include: (1) Turbine Blading Limited Standard Terms and Conditions § 12 

(“Subject to the terms of Company’s proposal or the Contract, the arbitration will be held in London, England and 

shall apply the laws of England . . . )(Muller Cert., Ex. G, ¶ 12); (2) Wood Group 2011 Standard Terms and 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 16 of 22 PageID: 565
17

(considering industry norms in determining whether arbitration provision was reasonable); 

Aceros, 283 F.3d at 102 (“standard industry practices are always relevant when interpreting 

contracts governed by the UCC. . . .”). Newark Bay is a sophisticated commercial entity. If 

Newark Bay took issue with any costs or inconvenience associated with the ETS arbitration 

provision, it was free to reject the proposal or make a counter-offer. In sum, even if the 

arbitration provision was considered a proposed additional term, it did not constitute a material 

alteration of the parties’ contractual relationship. 

B. Are Plaintiff’s Claims within the Scope of the Parties’ Arbitration Agreement?

Having determined that there is a valid agreement to arbitrate that can be enforced 

between Newark Bay and ETS, the next inquiry is whether Newark Bay’s claims fall within the 

scope of the arbitration clause. The Court must resolve the arbitrability issue with a “healthy 

regard for the federal policy favoring arbitration,” and thus resolve “any doubts concerning the 

scope of arbitrable issues . . . in favor of arbitration.” Moses H. Cone Mem’l Hosp., 460 U.S. at 

24-25. “In determining whether the particular dispute falls within a valid arbitration agreement’s 

scope, there is a presumption of arbitrability[:] an order to arbitrate the particular grievance 

should not be denied unless it may be said with positive assurance that the arbitration clause is 

not susceptible of an interpretation that covers the asserted dispute.” Century Indem. Co. v. 

Certain Underwriters at Lloyd’s, London, 584 F.3d 513, 524 (3d Cir. 2009) (citation omitted). 

Consequently, any doubts as to whether a dispute is covered by an arbitration agreement is 

resolved in favor of arbitration. Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir. 2000) 

(citation omitted). 

 

Conditions (providing that if parties cannot internally resolve a dispute, “[it] shall be resolved by arbitration in 

Zurich in accordance with the Swiss Rules of International Arbitration (Swiss Rules) of the Swiss Chambers of 

Commerce.”) (Id., Ex. E, ¶ 22.6); (3) Turbocare Gas Turbine Services, LLC Standard Terms and Conditions (parties 

who are unable to reach settlement shall have disputes “finally resolved by binding arbitration in accordance with 

the Rules of Conciliation and Arbitration of the International Chamber of Commerce.”) (Id., Ex. H, ¶ 12). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 17 of 22 PageID: 566
18

Here, the arbitration clause states in relevant part:

10.1 Dispute Resolution. All disputes arising in connection with the Contract

shall be settled, if possible, by negotiation of the parties. If settlement cannot be 

reached by negotiation, then the dispute shall be finally settled by arbitration 

without recourse to common or commercial courts.

T&C § 10.1 (emphasis added). 

The Court must bear in mind that “when phrases such as ‘any claim arising out of’ appear 

in an arbitration provision, they are given a broad construction, and typically suggest that a given 

dispute is within the scope of an arbitration provision.” Townsend v. Pinnacle Entm’t, Inc., No. 

11-1711, 457 Fed.Appx. 205, 2012 WL 75968, at *3 (3d Cir. 2012). See, e.g., Brayman Constr. 

Corp. v. Home Ins. Co., 319 F.3d 622, 625 (3d Cir. 2001); Battaglia, 233 F.3d at 727. Because 

of such expansive language, if the underlying factual allegations in the complaint “touch 

matters” covered by the contract containing the arbitration clause, then those claims are 

arbitrable, notwithstanding the legal labels for those claims. Mitsubishi Motors Corp. v. Soler 

Chrysler-Plymouth Inc., 473 U.S. 614, 625 n. 13, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Derbin 

v. Access Wealth Management, LLC, No. 11-812, 2011 WL 4751992, at *11(D.N.J. Oct. 7, 

2011) (finding that arbitration provision containing “arising out of” language “establishes a 

broad parameter”). 

The Court finds that all claims asserted against ETS in this case may properly be brought 

in arbitration as a matter of law. Newark Bay’s complaint alleges counts of (i) breach of 

contract, (ii) breach of express warranty, (iii) breach of implied warranty of merchantability, (iv)

breach of implied warranty of fitness for an intended purpose, (v) negligence, (vi) products 

liability, and (vii) gross negligence. (Compl. ¶¶ at 38-80). Legal labels aside, all the abovedescribed counts relate to the performance, or non-performance, of the agreement and ETS’

allegedly defective work thereunder. More specifically, all of Plaintiff’s claims are premised 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 18 of 22 PageID: 567
19

upon substantially similar factual allegations – i.e., the loss sustained by Newark Bay as the 

result of ETS’ alleged failure to reverse engineer, design, manufacture and/or fabricate the 

diaphragms installed in CT2 in accordance with the original Westinghouse design and 

specifications. These factual allegations necessarily “touch matters” covered by the parties’

March 30, 2007/April 2, 2007 agreement and the ETS T&C which have been incorporated by 

reference into that agreement. Mitsubishi Motors Corp., 473 U.S. at 625 n. 13; Epix Holdings

Corp. v. Marsh & McLennan Co., 410 N.J. Super. 453, 472-73, 982 A.2d 1194 (App.Div. 2009). 

To that end, the Third Circuit instructs district courts to construe broad arbitration provisions to 

encompass claims going to the formation of the underlying agreement. Battaglia, 233 F.3d at 

727. Lastly, with respect to Plaintiff’s counts sounding in tort, in New Jersey, “as a general rule, 

courts have construed broadly worded arbitration clauses to encompass tort, as well as contract 

claims.” Alfano v. BDO Seidman LLP, 393 N.J.Super. 560, 575, 925 A.2d 22 (App.Div. 2007) 

(citing Bleumer v. Parkway Ins. Co., 277 N.J.Super. 378, 402-08, 649 A.2d 913 (Law Div. 

1994)). See Wassertsein v. Kovath, 261 N.J.Super. 277, 286 (App.Div. 1991) (“Notwithstanding 

the language of the Wassersteins’ complaint sounding in tort, the complaint essentially arises in 

contract rather than tort and is governed by the contract.”). 

For purposes of the instant motion, the Court need not determine when the allegedly 

defective work occurred. In its opposition, Plaintiff argues that ETS’ motion is premature due to 

material issues of fact regarding when the conduct giving rise to Plaintiff’s allegations in its 

Complaint occurred. (Pl.’s Opp. Br. at 12). Specifically, Newark Bay contends that the factual 

record before this Court does not allow us to conclude that ETS’ allegedly negligent work was 

performed pursuant to the April 2, 2007 Purchase Order and corresponding March 30, 2007 

proposal. (Id.). However, the broad scope of the arbitration provision – i.e., the “all disputes 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 19 of 22 PageID: 568
20

arising in connection” language covers all three transactions and does not require this Court, at 

this juncture, to make this determination. The Court acknowledges that the December 15, 2006 

Purchase Order and February 16, 2007 Purchase Order do not contain references to the ETS 

T&C. Accordingly, the Court explicitly notes that it does not decide whether the ETS T&C 

apply to these Purchase Orders. Neither Newark Bay nor ETS has presented case law with 

respect to retroactive application of terms and conditions nor have the parties had an opportunity 

to engage in the discovery likely required to determine, with certainty, what caused the CT2 

compressor to trip. That being said, this potential uncertainty does not impact this Court’s

threshold analysis. 

In sum, all disputes arising in connection with Plaintiff’s case fall within the scope of the 

ETS arbitration provision. Plaintiff has failed to rebut the presumption of arbitrability. This 

Court is not persuaded that it may be said with positive assurance that the ETS arbitration 

provision is not susceptible of an interpretation that covers the asserted dispute. Century Indem. 

Co., 584 F.3d at 524. In accordance with Third Circuit precedent, Plaintiff’s disputes are 

arbitrable and an order to arbitrate may not be denied. 

C. Waiver

Lastly, Newark Bay argues that ETS waived its right to demand arbitration. (Pl.’s Opp. 

Br. at 12-14). In support, Newark Bay states that on March 29, 2011, Plaintiff sent ETS a notice 

letter advising Defendant that “[i]f we do not hear from you concerning proposed settlement 

within fourteen days from the date of this letter, we will presume that ETS would prefer to 

litigate.” (Id.). ETS did not respond to Plaintiff’s demand nor raise the issue of arbitration. 

(Id.). Accordingly, Newark Bay contends that said conduct constitutes a knowing waiver of 

ETS’ right to arbitrate. (Id. at 13). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 20 of 22 PageID: 569
21

“Consistent with the strong preference for arbitration in federal courts, waiver is not to be 

lightly inferred, and waiver will normally be found only where the demand for arbitration came 

long after the suit commenced and when both parties had engaged in extensive discovery.” 

PaineWebber, Inc. v. Faragalli, 61 F.3d 1063, 1068-9 (3d Cir. 1995) (internal quotations and 

citations omitted); Great Western Mortgage Corp. v. Peacock, 110 F.3d 222, 233 (3d Cir. 1997). 

The Third Circuit has stated that “prejudice is the touchstone for determining whether the right to 

arbitrate has been waived.” Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d 

Cir. 1992).5 

Nothing in the record suggests that Newark Bay has suffered prejudice such that ETS 

may be deemed to have waived its right to arbitrate. Instead, ETS filed its initial motion to 

compel arbitration just over two months after the litigation commenced. ETS filed no other 

responsive pleading. (Def.’s Reply Br. at 12). Furthermore, the Court has yet to schedule an 

initial scheduling conference and the parties have not engaged in any formal exchange of 

discovery. Although the length of the time period involved alone is not determinative, Newark 

Bay has failed to show what adverse effects, if any, it suffered within that short period of time. 

Accordingly, the Court finds that ETS did not waive its right to arbitrate. See Palcko v. Airborne 

Express, Inc., 372 F.3d 588, 598 (3d Cir. 2004) (finding that 38-day delay, while not 

determinative, did not establish waiver where opponent of arbitration failed to demonstrate 

prejudice); Wood v. Prudential Ins. Co., 207 F.3d 674, 680 (3d Cir. 2000) (holding that short 

delay of one-and-a-half months and lack of significant steps in litigation that could have caused

prejudice to plaintiff counsel against finding waiver). 

 

5

 The nonexclusive list of factors relevant to the prejudice inquiry include: “[1] the timeliness or lack thereof of a 

motion to arbitrate . . . [; 2] the degree to which the party seeking to compel arbitration has contested the merits of 

the opponent’s claims; [3] whether that party has informed its adversary of the intention to seek arbitration even if it 

has not yet filed a motion to stay the district court proceedings; [4] the extent of its non-merits practice; [5] its assent 

to the court’s pretrial orders; and [6] the extent to which both parties have engaged in discovery.” Hoxworth, 980 

F.2d at 926-27 (internal citations omitted). 

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 21 of 22 PageID: 570
22

IV. Conclusion

For the reasons stated above, this Court respectfully recommends that Defendant’s 

Motion to Compel Arbitration be GRANTED. Pursuant to L. Civ. R. 72.1(c)(2), the parties 

have fourteen (14) days from receipt hereof to file and serve objections.

s/Cathy L. Waldor x 

Cathy L. Waldor, U.S.M.J.

Case 2:11-cv-02441-ES-SCM Document 43 Filed 06/29/12 Page 22 of 22 PageID: 571