Opinion ID: 765873
Heading Depth: 2
Heading Rank: 3

Heading: Agreement to Arbitrate - Application of State Law

Text: 26 Section 2 of the FAA provides that a written arbitration provision in any contract involving commerce shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. §2. Accordingly, state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). However, 27 [a] state law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of § 2. A court may not, then, in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law. 28 Id. (internal citations omitted); see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). Thus, we have stated that while § 2 of the FAA preempts state law that treats arbitration agreements differently from any other contracts, 5 it also preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate. Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42, 46 (2d Cir. 1993) (internal citation and quotation marks omitted). Accordingly, in determining whether the parties agreed to arbitrate in this case, the district court properly looked to general state law contract principles for guidance. 29 Plaintiffs do not, and cannot, dispute that Chelsea entered into a series of binding contracts with Bombay Dyeing for the purchase of textiles, irrespective of whether they or anyone employed at Chelsea actually read the terms and conditions printed on the reverse side of the Confirmations. In fact, at oral argument, plaintiffs' counsel went further, rightly conceding that if the arbitration clause found in paragraph 13 had been legible and clearly written, there is little question that plaintiffs would be bound to arbitrate their dispute with Bombay Dyeing. See Level Export Corp. v. Wolz, Alken & Co., 305 N.Y. 82, 87 (1953) (buyer could not avoid arbitration by claiming he was unaware of and never read arbitration provision incorporated in binding contract); seealso N.Y. U.C.C. §§2-207(1)-(2) (written confirmation sent within reasonable time operates as acceptance even though it states additional terms; additional terms become part of contract between merchants unless they materially alter agreement, or notice of objection to additional terms is given within reasonable time); Gaynor-Stafford Indus., Inc. v. Mafco Textured Fibers, 384 N.Y.S.2d 788, 789-91 (App. Div., 1st Dep't 1976) (construing § 2-207 in context of agreement between textile merchants, and concluding that arbitration clause contained in written order acknowledgment did not materially alter agreement given custom and practice of arbitration in industry). 30 Nonetheless, the Chelsea Square plaintiffs contend that the district court rightly found that Bombay Dyeing had not established that Chelsea had agreed to arbitrate disputes with it, given the district court's finding that the clause was illegible and unintelligible. We disagree. 31 We accept the district court's factual finding that the arbitration clause at issue was nearly illegible given certain printing defects and the fact that the clause was printed on very thin, tissue-style paper, which resulted in some of the text being obscured by typing on the reverse side. Nonetheless, the district court was able to reproduce the clause's text, with all of its defects. And, although the text itself is indeed garbled, we disagree with the district court's legal conclusion that the clause was unintelligible to a business like Chelsea that was operated by an experienced textile merchant, James Pitts, who had been purchasing textiles from Bombay Dyeing pursuant to the same basic sales Confirmation form for approximately a decade. SeeLeadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995) (evidence of trade usage and course of dealings between parties supported district court's finding of an agreement to arbitrate). The front of each Confirmation plainly informed the textile buyer that any sale would be governed by the terms and conditions printed on the reverse side. 32 We believe that a textile buyer is generally on notice that an agreement to purchase textiles is not only likely, but almost certain, to contain a provision mandating arbitration in the event of disputes, and must object to such a provision if it seeks to avoid arbitration. See Helen Whiting, Inc. v. Trojan Textile Corp., 307 N.Y. 360, 367 (1954) (From our own experience, we can almost take judicial notice that arbitration clauses are commonly used in the textile industry . . . .); see also In re Gaynor-Stafford, 384 N.Y.S.2d at 790-91; Leadertex, 67 F.3d at 25; Pervel Indus., Inc. v. T M Wallcovering, Inc., 871 F.2d 7, 8 (2d Cir. 1989) (holding that textile buyer was bound by purchase order confirmations containing an arbitration clause where buyer did not object to provision, in part on the ground that arbitration clauses are widespread in textile industry); Imptex Int'l Corp. v. Lorprint, Inc., 625 F. Supp. 1572, 1572 (S.D.N.Y. 1986) (The New York courts have repeatedly held that, as arbitration clauses are commonly used in the textile trade, a textile buyer's failure to object to an arbitration clause upon receipt of both the sales agreement signed by the seller and the initial shipment of goods binds the buyer to the arbitration clause.). 33 For these reasons, we hold that Chelsea was bound by the arbitration clause printed on the reverse side of the Bombay Dyeing Confirmations to which it did not object. Moreover, although the clause does not state that the arbitration is to take place in India, it does state that arbitration is to be conducted in accordance with rules framed by The Cotton Textile Export Promotion Council [Texprocil], which, in turn, mandate that the arbitration be held in Bombay, India.