Court Opinion

ID: 2815045
Source: CourtListenerOpinion
Date Created: 2015-07-07 22:06:04.985278+00
Date Added: 2024-06-11T11:30:34.665099
License: Public Domain

Filed 7/7/15 Sanmina-Sci Corp. v. Pace USA, LLC CA6
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      SIXTH APPELLATE DISTRICT

SANMINA-SCI CORPORATION,                                             H040274
                                                                    (Santa Clara County
         Plaintiff and Respondent,                                   Super. Ct. No. 1-12-CV-233960)

         v.

PACE USA, LLC et al.,

         Defendants and Appellants.

         Is an arbitration clause in a purchase order part of the contract for the sale of goods
when both parties’ writings expressly reject any additional terms and the seller’s invoice
is silent regarding arbitration? Applying Commercial Code section 2207, subdivision (3),
we conclude that the arbitration clause is not part of the resulting contract.1
         Plaintiff Sanmina-SCI Corporation sued defendants Pace USA, Inc., Pace USA,
LLC, and Pace PLC, for breach of contract based on defendants’ failure to pay for
materials plaintiff manufactured and delivered. On appeal from the trial court’s denial of
defendants’ petition to compel arbitration, defendants claim section 2207(3) makes the
arbitration clause in their purchase orders enforceable even though plaintiff’s invoices did
not contain the arbitration clause. For the reasons stated here, we will affirm the order
denying defendants’ petition.

         1
       Unspecified statutory references are to the California Uniform Commercial
Code. Citations to section 2207(3) refer to section 2207, subdivision (3).
                           I.   TRIAL COURT PROCEEDINGS
       According to the complaint, plaintiff and defendants manufacture television set-
top boxes and related components. Plaintiff provided products for defendants over a
number of years. In 2011, defendants informed plaintiff they were shifting production to
another facility and directed plaintiff to transfer set-top box materials to defendants’ other
facilities. Plaintiff allegedly shipped millions of dollars in materials and components in
response to defendants’ request.
       Plaintiff’s shipments were accompanied by invoices containing two clauses
relevant to this dispute. First, plaintiff’s invoices state that the sale of the goods “is
expressly conditioned on your acceptance of the terms and conditions set forth” in the
invoice and that plaintiff “hereby objects to any additional or different terms set forth in
any purchase order or similar document that you may issue.” Second, the invoices
contain the following forum selection clause: “the parties acknowledge and agree that
the state courts of Santa Clara County, California and the federal courts located in the
Northern District of the State of California shall have exclusive jurisdiction and venue to
adjudicate any and all disputes arising out of or in connection with these terms.”
       Defendants did not pay some of the invoices, leading plaintiff to sue for breach of
contract in 2012 seeking over $3 million in damages. Defendants filed an answer and a
cross-complaint alleging breach of contract and other causes of action. After several
months of discovery, in September 2013 plaintiff moved for judgment on the pleadings.
Defendants responded by moving to dismiss the action based on inconvenient forum
(Code Civ. Proc, § 410.30, subd. (a)) and petitioning for an order compelling arbitration.
       Defendants based their petition to compel arbitration on terms of the purchase
orders defendants sent to plaintiff in the transactions underlying plaintiff’s complaint.2

       2
          Each defendant’s respective terms and conditions document has a different
arbitration clause. In their Reply Brief, defendants collectively specify that they are
                                               2
Those purchase orders incorporate certain terms and conditions by reference, two of
which are relevant here. First, the terms and conditions state: “No additional terms or
conditions shall be binding upon [defendants], unless agreed to in writing by” defendants.
Second, the terms and conditions contain an arbitration clause stating that all “disputes
arising from or related to this Agreement shall be submitted to arbitration in Palm Beach
County, Florida ... .”
       After a hearing, the trial court denied defendants’ petition to compel arbitration,
finding that an arbitration clause was not part of the parties’ contract and that, even
assuming it was, defendants waived the right to arbitrate by not timely petitioning to
compel arbitration. The court also denied defendants’ motion to dismiss and plaintiff’s
motion for judgment on the pleadings.
              II.   GOVERNING LAW AND STANDARD OF REVIEW
       The parties agree that this appeal is governed by section 2207. Section 2207
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
[¶] (c) Notification of objection to them has already been given or is given within a
reasonable time after notice of them is received. [¶] (3) Conduct 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,

seeking to enforce the terms and conditions applicable to Pace USA, LLC purchase
orders.
                                              3
together with any supplementary terms incorporated under any other provisions of this
code.” (§ 2207, subds. (1)-(3).)
       Section 2207 is California’s codification of Uniform Commercial Code section 2-
207, governing situations where parties exchange goods but disagree about the terms of
the resulting contract. (See Transwestern Pipeline Co. v. Monsanto Co. (1996) 46
Cal. App. 4th 502, 513, fn. 1 & 515-516 (Transwestern).) Under section 2207, subdivision
(1), a writing operates as an acceptance even if it contains additional or different terms
than those in the offer “unless acceptance is expressly made conditional on assent to the
additional or different terms.” Where there is no express condition, under section 2207,
subdivision (2) the terms of the offer and the additional terms in the acceptance become
part of the contract unless: (a) the offer expressly limits acceptance to its terms; (b) the
additional terms materially alter the offer; or (c) the offeror objects to the additional
terms. (§ 2207, subds. (2)(a)-(2)(c).) Where acceptance is expressly conditioned on
assent to additional terms, the writing is treated as a counteroffer. (See § 2207, subd. (1);
Transwestern, at p. 514 [rule regarding additional terms becoming part of contract “does
not apply if the offeree expressly conditions its acceptance on the offeror’s assent to the
offeree’s additional terms”].) If the offeror does not accept the counteroffer but the
parties’ conduct recognizes the existence of a contract, section 2207(3) applies and the
contract “consist[s] of those terms on which the writings of the parties agree, together
with any supplementary terms incorporated under any other provisions of this code.” (§
2207(3); see Transwestern, at p. 514 [“even if the offeree’s acceptance is expressly made
conditional on the offeror’s assent to the offeree’s additional terms, and no such assent is
given, the existence of a contract and its terms may nevertheless be inferred” by applying
section 2207(3)].)
       The trial court based its denial of defendants’ petition to compel arbitration on
statutory and contractual interpretation in the context of undisputed facts. We therefore
review that decision de novo. (Hartnell Community College Dist. v. Superior Court
                                               4
(2004) 124 Cal. App. 4th 1443, 1448-1449 [“The standard of review for an order on a
petition to compel arbitration is ... de novo where no conflicting extrinsic evidence was
admitted in aid of interpretation of the arbitration agreement.”].)
                                     III.   ANALYSIS
       Neither party disputes that plaintiff’s shipment of goods and defendants’ partial
payment constituted conduct recognizing the existence of a contract. Both parties also
agree that section 2207(3) applies, as plaintiff’s invoices expressly condition acceptance
on defendants’ assent to additional terms, and defendants’ purchase orders as well as
plaintiff’s invoices expressly reject additional terms. Defendants claim the phrase “terms
on which the writings of the parties agree” in section 2207(3) means that the contract
between the parties includes not only the terms on which the parties agree but also any
terms from one writing about which the other writing is silent. Under that interpretation,
the parties’ contract would include both plaintiff’s forum selection clause and defendants’
arbitration clause unless those clauses are inconsistent. Plaintiff contends that section
2207(3) compels inclusion of only those terms on which both writings expressly agree,
with any terms about which the other writing is silent dropping out. Under plaintiff’s
interpretation, the parties’ contract would include neither the forum selection clause nor
the arbitration clause.
       Though defendants state they are “unaware of any California authority
interpreting” section 2207(3), they cite Transwestern, which specifically interpreted that
section in a similar factual context. (Transwestern, supra, 46 Cal. App. 4th 502.) In
Transwestern, the purchaser of turbine lubricant containing polychlorinated biphenols (an
environmental contaminant) sued the seller for equitable indemnity after the purchaser
settled a claim with the owners of a pipeline that became contaminated. (Id. at pp. 508-
510.) The purchase orders for the lubricant contained no limitations on remedies against
the seller. (Id. at p. 513.) The seller’s invoices, on the other hand, expressly conditioned
acceptance on assent to a limitation of liability clause. (Ibid.)
                                              5
       To determine the contract terms, the Transwestern court applied section 2207(3),
noting that in a battle of forms “ ‘all of the terms on which the parties’ forms do not agree
drop out, and the [Uniform Commercial Code] supplies the missing terms.’ ”
(Transwestern, supra, 46 Cal.App.4th at p. 515.) The court agreed with the seller that the
reference to “ ‘supplementary terms’ ” in section 2207(3) “may include terms
incorporated as a result of the parties’ course of dealing” because section 1201 states that
the parties’ agreement can be implied from their course of dealing. (Transwestern, at p.
516, citing §§ 1201, subd. (3), 1205.) However, the court rejected the seller’s argument
that unilaterally transmitting a form with a limitation of liability was sufficient to
establish a course of dealing, reasoning that “the mere exchange of forms containing
inconsistent terms, for however long a period, cannot establish a common understanding
between the parties as to which set of conflicting terms is part of their contract.” (Id. at p.
516.) Importantly, the court found the forms inconsistent based on the purchase orders’
silence regarding liability limitations. (Ibid. [noting the “purchase orders repeatedly
stated terms and conditions which contained no limitations on ... liability”].) The court
concluded that the purchaser’s silence was not express assent to the limitation on liability
and therefore the limitation was not a term of the parties’ contract. (Id. at pp. 516, 519.)
       Defendants attempt to distinguish Transwestern by seizing on that court’s use of
the word “inconsistent” and argue that because defendants’ arbitration clause is not
inconsistent with plaintiff’s forum selection clause, both clauses are part of the parties’
contract. But the Transwestern court found an inconsistency based on the absence of a
clause limiting liability in the purchase orders, not through parsing differing clauses to
determine whether they could be harmonized. (See Transwestern, supra, 46 Cal.App.4th
at p. 516.) The Transwestern analysis, which interprets section 2207(3) to compel
inclusion of only those terms on which the parties’ writings expressly agree, is consistent
with authority from other jurisdictions interpreting Uniform Commercial Code provisions
virtually identical to section 2207(3). (See C. Itoh & Co. (America) Inc. v. Jordan Intern.
                                               6
Co. (7th Cir. 1977) 552 F.2d 1228, 1232, 1236-1237 [arbitration clause in
acknowledgement not part of contract where purchase order silent on arbitration because
“it is clear that the ... forms do not ‘agree’ on arbitration”]; PCS Nitrogen Fertilizer, L.P.
v. The Christy Refractories, L.L.C. (8th Cir. 2000) 225 F.3d 974, 976, 982 [same;
arbitration clause in acknowledgement “merely demonstrated [seller’s] desire to include
the arbitration clause as a term of the contract”]; Textile Unlimited, Inc. v. A..BMH and
Company, Inc. (9th Cir. 2001) 240 F.3d 781, 783, 788 [same]; McJunkin Corp. v.
Mechanicals, Inc. (6th Cir. 1989) 888 F.2d 481, 488-489 [remedy limitation clause in
acknowledgement not part of contract where purchase order silent]; Belden Inc. v. Am.
Elec. Components, Inc. (Ind.Ct.App., 2008) 885 N.E.2d 751, 755, 757 [damage limitation
clause in acknowledgement not part of contract where purchase order silent; seller “could
not unilaterally include terms” in resulting contract without purchaser’s assent].)
Although the foregoing cases all involved a disputed clause in an acknowledgement
rather than a purchase order, we see no reason why a different analysis would apply
where the disputed clause is in the purchase order.
       Applying those authorities here, defendants’ purchase orders contain an arbitration
clause but are otherwise silent regarding forum selection. The purchase orders state that
“[n]o additional terms shall be binding” without defendants’ written consent. Plaintiff’s
invoices contain a forum selection clause but are silent regarding arbitration. The
invoices similarly object to “any additional or different terms set forth in any purchase
order” sent by defendants. Because both parties expressly rejected the addition of any
terms not contained in their respective writings and defendants provide no evidence that
an agreement to arbitrate was part of the parties’ course of dealing, section 2207(3) limits
their contract to the terms on which their writings expressly agree, along with gap-filler
provisions from the Commercial Code. Therefore, neither defendants’ arbitration clause
nor plaintiff’s forum selection clause is part of the parties’ contract.

                                               7
       Defendants also cite contract interpretation cases to argue that we should
harmonize the arbitration and forum selection clauses. However, those cases involve
situations where both clauses are valid and must be interpreted to give effect to the
mutual intent of the contracting parties. (See, e.g., Personal Sec. & Safety Systems Inc. v.
Motorola Inc. (5th Cir. 2002) 297 F.3d 388, 395-396 [construing forum selection clause
narrowly to give effect to arbitration clause because “we must interpret the forum
selection clause in the context of the entire contractual arrangement and we must give
effect to all of the terms of that arrangement”].) By contrast, here we do not interpret
either provision (whether broadly, narrowly, or otherwise) because neither is part of the
parties’ contract.
       Defendants’ reliance on an unpublished federal district court decision is
misplaced. (Citing Spartech CMD, LLC v. Int’l Auto. Components Group N. Am., Inc.
(E.D. Mich., Feb. 23, 2009, No. 08-13234) 2009 WL 440905 (Spartech).) Spartech
involved purchase orders containing an arbitration clause and acknowledgements that
contained a forum selection clause but did not mention arbitration. (Id. at pp. *1-*2.)
The seller’s acknowledgements did not expressly object to including additional or
different terms and nothing in the court’s decision suggests that acceptance was
conditioned on the buyer’s assent to additional terms. (Id. at p. *8.) Neither party in
Spartech suggested that subdivision (3) of Michigan Compiled Law section 440.2207
applied.3 Relying on Michigan case law, the court concluded that Michigan Compiled
Law section 440.2207, subdivision (2) applied and deemed the purchase orders’
arbitration clause enforceable as an additional term to which the seller had not objected.
(Spartech, at pp. *6-*9, citing Am. Parts Co. v. Am. Arbitration Assn. (Mich.Ct.App.
1967) 154 N.W.2d 5, 13-16.)

       3
      Michigan Compiled Law section 440.2207 is identical to California Uniform
Commercial Code section 2207.
                                             8
       Because defendants acknowledge that section 2207(3) controls here, Spartech’s
analysis under provisions of a Michigan law that is identical to section 2207, subdivisions
(1) and (2) does not support their argument. Plaintiff’s invoices expressly conditioned
acceptance on defendants’ assent to additional terms and expressly rejected any terms
other than those in the invoices, so additional terms in the invoices were merely
counteroffers. Because defendants’ purchase orders expressly rejected any additional
terms absent written agreement and there is no evidence of written consent to plaintiff’s
terms, defendants never accepted plaintiff’s counteroffers. Given each party’s express
rejection of the other’s additional terms, section 2207(3) controls to state the terms of the
contract. (See Transwestern, supra, 46 Cal.App.4th at p. 514.)
       Having concluded, based on section 2207(3), that the trial court properly
determined the parties’ contract does not include the arbitration clause, we do not reach
the trial court’s alternative ruling that defendants waived arbitration by their delay.
                                   IV.    DISPOSITION
       The order denying defendants’ petition to compel arbitration is affirmed.

                                              9
                                  ____________________________________
                                  Grover, J.

WE CONCUR:

____________________________
Bamattre-Manoukian Acting P. J.

____________________________
Mihara, J.

SANMINA-SCI CORPORATION v PACE USA, LLC ET AL
H040274