Opinion ID: 2510273
Heading Depth: 1
Heading Rank: 7

Heading: existence of an arbitration agreement

Text: ¶ 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, 514 U.S. 938, 943-44, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). At this stage, a court may need to conduct a choice of law analysis. However, both Oklahoma and Texas have adopted the Uniform Commercial Code (U.C.C.), 12A O.S.2001, §§ 1-101 to 11-107 (Oklahoma U.C.C.); Tex. Bus. & Com.Code Ann., §§ 1.101-11.108 (West 1994 & Supp.2004-05) (Texas U.C.C.), [6] which, as shown below, is applicable here. Although Dell asserts Texas law applies, neither Dell nor the plaintiffs have maintained that there is any difference in the applicable law of Texas and Oklahoma. Thus any perceived choice-of-law issue is contrived. ¶ 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. [7] However, two courts have applied Texas law in addressing nearly identical claims and arguments as presented in this case and have reached different conclusions. Stenzel v. Dell, Inc., 2005 ME 37, 870 A.2d 133 (Me.2005); Defontes v. Dell Computers Corp ., No. C.A. PC 03-2636, 2004 WL 253560 (R.I.Super.Jan.29, 2004) cited in Stenzel, 2005 ME 37 at ¶ 28, 870 A.2d at 144 (under Rhode Island Supreme Court Rule 16(j), this order has no precedential effect). Both the Stenzel and the Defontes courts found the facts to be as follows. Dell sold computers to the plaintiffs. It also marketed service contracts on behalf of third-party service providers. Dell charged what was listed as a sales tax on the service contracts and on shipping charges. Dell remitted the amount of the sales tax to either the state where the computer was shipped or turned it over to the third-party service provider who remitted the tax to the state. After an order was placed, Dell sent each plaintiff an acknowledgment or an invoice. With the invoice or acknowledgment, Dell included a Terms and Conditions of Sale document which is substantially the same as the one attached to its application to compel arbitration in the present case. The document was also included with the computer shipments. The computers were sold through interstate commerce. ¶ 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 . 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, 499 U.S. 585, 595, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991); Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.1997); and ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996), found that the purchasers had expressly manifested their assent to be bound by the arbitration provision by accepting delivery of and failing to return the computers as provided in the agreement. Stenzel, 2005 ME 37 at ¶ 12, 870 A.2d at 140. The court continued by citing section 2.204(a) of the Texas U.C.C. [8] and concluded that the contract was formed when the plaintiffs failed to refuse delivery of the computers and failed to exercise their right to return the computers. Id. Based on its language, the court assumed without analysis that Dell was the offerer. Id. at 140, ¶¶ 10-12. The court rejected the plaintiffs' claims that the arbitration provision was illusory, id. at 140-43, ¶¶ 15-23 and unconscionable, id. at 143-45, ¶¶ 24-32, and affirmed the judgment of the lower court dismissing the complaint in favor of arbitration. Id. at 145-46, ¶ 37. ¶ 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. [9] Subsections 2-207(1) and (2) provide: (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, 163 S.W.3d 177, 2005 WL 659154, at , 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 . 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. [10] It also does not include clickwrap agreements where a party must assent to the terms before continuing an on-line purchase or installation of software.