Court Opinion

ID: 8411004
Source: CourtListenerOpinion
Date Created: 2022-11-02 18:30:45.056327+00
Date Added: 2024-06-11T16:47:49.300606
License: Public Domain

WILLIAMS, Chief Judge,
concurring in part and dissenting in part:
I fully concur in Part II of the majority opinion (the section addressing the enforceability of the arbitration clauses). I respectfully disagree, however, with the analysis and conclusion in Part I (the section addressing whether all of the parties to the Frontier transactions have contracts containing binding arbitration agreements). I have two primary points of contention in this regard. First, I believe that this case is indistinguishable from Supole & Sons Mfg. Co. v. Pervel Indus., 593 F.2d 135 (4th Cir.1979). Second, I do not believe that it is possible to distinguish Supak by applying N.C. GemStat. Ann. § 25-2-207 (2005) (North Carolina’s version of U.C.C. § 2-207) to each individual term of the arbitration clauses at issue, rather than addressing the arbitration clause as a whole.
I.
The district court, applying § 25-2-207, found that the arbitration clauses contained in the written confirmations sent by Frontier did not become part of the contracts between Frontier and those plaintiffs that did not sign and return the confirmation forms. This finding reflected the *294district court’s belief that the North Carolina Supreme Court’s decision in Frances Hosiery Mills, Inc. v. Burlington Indust., Inc., 285 N.C. 344, 204 S.E.2d 834, 842 (1974), and our decision in Supak were controlling. Because the case before us is indistinguishable from Frances Hosiery and Supak, I believe the district court did not err in following our precedent.
Frances Hosiery and Supak established binding precedent governing the construction of § 25-2-207 in the context of contractual arrangements virtually identical to those at issue in this case. In Frances Hosiery, the parties formed an oral contract for the sale of yarn, and when the seller shipped yarn to the buyer, it included invoices purporting to be “contracts” and containing arbitration clauses. 204 S.E.2d at 836-37, 841. The North Carolina Supreme Court determined that the invoices were confirmations within the meaning of § 25-2-207 and ultimately held that the arbitration clause constituted a proposed additional term that materially altered the contract. Id. at 842-43. In Supak, we applied the holding of Frances Hosiery to an oral contract for the sale of fabric followed by a written confirmation containing an arbitration clause. 593 F.2d at 136. In so doing, we explained that Frances Hosiery established a rule that “the addition of an arbitration clause constitutes a per se material alteration of the contract,” and as a result, the arbitration clause in the confirmation form did not become part of the parties’ contract. Id. at 136 *
Supak addressed the application of the same statute at issue here— § 25-2-207— to a factual scenario indistinguishable from that presented by this case — án oral contract formed by merchants in the textile industry that was followed by a written confirmation containing an arbitration clause. In Supak, we did not deem it necessary to inquire into the particular facts of the case at hand in considering whether the arbitration clause at issue represented a material alteration. Because we interpreted Frances Hosiery as establishing a per se rule, we simply applied that rule to the arbitration clause at issue.
I am unpersuaded that we can distinguish Supak by virtue of its silence concerning whether arbitration is a usage of *295trade in the textile industry. The majority opinion asserts that we need not follow Supak because “usage of trade is a question of fact that must be proved by the party asserting it,” and Supak’s silence on the usage of trade issue therefore “cannot be viewed as rejection of the contention that arbitration is a usage of trade in the textile industry.” Ante at 281 n. 4. The issue, however, is not whether Supak rejected the idea that arbitration could be a trade usage in the textile industry. The question is whether Supak precludes us from conducting an inquiry into the facts of each case to determine whether the arbitration clause at issue is a material alteration, rather than simply applying Frances Hosiery’s per se rule. Compare N & D Fashions, Inc. v. DHJ Indust, Inc., 548 F.2d 722, 726 & n. 7 (8th Cir.1976) (stating that although cases such as Frances Hosiery have held that an arbitration clause materially alters a contract under UCC § 2-207, “the better reasoned position is that the question whether an additional term in a written confirmation constitutes a ‘material alteration’ is a question of fact to be resolved by the circumstances of each particular case”). Supak did not attempt to limit Frances Hosiery to its particular facts, but rather treated the decision as establishing a per se rule. A per se rule applies “without reference to additional facts.” See Black’s Law Dictionary (8th ed.2004) (defining “per se” as “[o]f, in, or by itself; standing alone, without reference to additional facts”). Accordingly, I read Supak differently than the majority. I therefore believe that the district court did not err in applying Frances Hosiery’s per se rule rather than resolving the factual question of whether Frontier had established a usage of trade.
II.
I do not believe that we can distinguish Supak by asserting that because arbitration is a trade usage in the textile industry, the portion of the arbitration clause requiring the parties to submit their disputes to arbitration was not an “additional term” within the meaning of § 25-2-207(2) for two reasons. First, terms consistent with a trade usage may nevertheless constitute “additional terms” for purposes of § 25-2-207(2). Second, the existence of a trade usage is a question of fact that the district court has not resolved.
A.
Under § 25-2-207(2), “additional terms [in a written confirmation] are to be construed as proposals for addition to the contract.” N.C. Gen.Stat. § 25-2-207(2). Between merchants, the additional terms become part of the contract unless “(a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter [the contract]; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.” § 25-2-207(2)(a)-(c).
The official comments to § 25-2-207 suggest that terms consistent with a trade usage may nevertheless be “additional” for purposes of § 25-2-207(2). Comment 5 lists examples of clauses that “involve no element of unreasonable surprise” and therefore should not be considered material alterations. Among these examples are “a clause providing for interest on overdue invoices or fixing the seller’s standard credit terms where they are within the range of trade practice and do not limit any credit bargained for” and “a clause limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance ‘with adjustment’ or otherwise limiting remedy in a reasonable manner.” § 25-2-207 cmt. 5 (emphasis added). Thus, comment 5 suggests *296that the drafters of § 25-2-207(2) contemplated that terms consistent with trade usage might represent additional terms that would be screened for materiality. Moreover, comment 1 indicates that § 25-2-207 “is intended to deal with two typical situations,” one of which “is where an agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far as agreed upon and adding terms not discussed.” § 25-2-207 cmt. 1 (emphasis added). Thus, comment 1 suggests that the terms that should be considered “additional” are those that the parties have not discussed.
At least two of our sister circuits, in interpreting other states’ versions of U.C.C. § 2-207, have held that terms consistent with a trade usage or course of dealing may represent “additional terms” but do not materially alter a contract. In Aceros Prefabricados, S.A. v. TradeArbed, Inc., 282 F.3d 92 (2d Cir.2002), the Second Circuit noted that the official comments to New York’s version of UCC § 2-207 “recognize the importance of trade practices to the material alteration analysis,” because the examples of proposed terms that do not constitute material alterations contained in the comments include terms that are “within customary limits,” or “within the range of trade practices,” while “the common thread among the examples [of material alterations] provided is that they all constitute provisions that significantly deviate from industry norms.” Id. at 101-02 (internal quotation marks and alteration omitted). There, the Second Circuit relied in part on “evidence that arbitration is standard practice in the steel industry” to conclude that an arbitration clause in a confirmation form was not a material alteration and therefore became part of the parties’ contract. Id. at 102. Similarly, in Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709 (7th Cir.1987), the Seventh Circuit noted that Illinois’s version of U.C.C. § 2-207 is followed by official comments suggesting that proposed terms consistent with trade practice or custom do not materially alter a contract. Id. at 714. In that case, Tree Top was seeking to enforce an arbitration clause contained in a written confirmation. The Seventh Circuit held that the arbitration clause did not constitute a material alteration of the parties’ contract, because although Tree Top did not offer proof of a trade usage, it did prove a course of dealing between the parties that should have put Schulze on notice that the confirmation was likely to contain such a clause. Id. at 714-15.
In contrast, there is a dearth of precedent supporting the view adopted in the majority opinion. I am aware of no other case in which the reviewing court has fragmented an arbitration clause in order to treat the portion governing the obligation to arbitrate differently than the portion setting forth the terms and conditions under which arbitration would proceed. Notably, none of the cases cited by the majority in support of the proposition that arbitration is a trade usage have concluded that a trade usage cannot represent an additional term for purposes of U.C.C. § 2-207. To the contrary, those cases conform to the view that arbitration clauses contained in written confirmations of oral agreements between merchants in the textile industry may represent additional terms, but do not materially alter a contract. See, e.g., Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d 289, 296-97 (2d Cir.1999) (textile buyer was bound by an arbitration clause in a written confirmation because he failed to object to its addition to the contract).
To be sure, some commenters have described the official comments to U.C.C. § 2-207 as “poor from [an] analytical *297view,” because “[i]f a term stated on a responsive document merely iterates what the law would otherwise impose, it is arguably not an ‘additional’ term.” Duesenberg & King, Sales and Bulk Transfers § 3.03 (Bender’s U.C.C. Service 2006) (stating that “[t]his would be true whether the term were implied by operation of a Code section, through custom and usage, prior course of dealing, or any other means by which a matter on which the parties are silent nonetheless becomes a part of their agreement”). Nevertheless, the official commentary to § 25-2-207 indicates that the statute’s drafters meant the phrase “additional terms” to include all “terms not discussed” during the formation of an oral agreement, regardless of whether those terms in fact alter the agreement. Accordingly, I would follow the reasoning of our sister circuits to conclude that terms consistent with a trade usage may constitute “additional terms” within the meaning of § 25-2-207(2), but generally do not materially alter a contract.
B.
Even assuming that we could conclude that terms in keeping with a trade usage are not “additional terms” for purposes of § 25-2-207(2), I believe that it would be inappropriate for us to hold that arbitration is a trade usage in the textile industry when the district court has not ruled on this factual issue. See N.C. Gen.Stat. Ann. § 25-1-205(2) (2006) (stating that the existence and scope of a trade usage “are to be proved as facts” and if it “is established that such a usage is embodied in a written trade code or similar writing, the interpretation of the writing is a question for the court”). To be sure, the “Yarn Rules” and a number of cases indicate that, in general, arbitration is commonly used in the textile industry. In North Carolina, however, Frances Hosiery has been the law for over thirty years. Thus, it seems that the relevant trade usage in North Carolina could well be that parties enter into arbitration agreements by signing and returning written confirmations. Many of the plaintiffs in this case assented to Frontier’s arbitration agreements in precisely that manner. Also, the “Yarn Rules” suggest that merchants in the textile industry should expect to be bound by arbitration clauses contained in confirmation forms, but might not necessarily expect to be bound to arbitrate in the absence of such a writing. (See J.A. at 542-53 (excerpt from the “Yarn Rules” stating that “[pjarties to the sale and purchase of yarns are members of the textile industry, which has, for over, fifty years, settled disputes by arbitration in accordance with the terms and conditions of contracts which have tended to become standard ...” (emphasis added)).) Because the district court has not addressed this issue, we should not take it upon ourselves to find that “Frontier has met its burden of proving that arbitration is a usage of trade.... ” Ante at 280. Rather, we should allow the district court to make findings of fact on remand.
C.
Finally, another issue prevents us from resolving this case by relying on the UCC’s “gap-filler” provision, codified in North Carolina as N.C. Gen.Stat. Ann. § 25-1-201 (2006). One might argue that after concluding that, under Supak, the arbitration clauses contained in the written confirmations constituted material alterations that did not become part of the parties’ agreement, the district court should have turned to § 25-1-201 to fill the gap left by the oral contract’s silence on the question of arbitration. See N.C. Gen. Stat. Ann. § 25-l-201(b)(3) (2006) (defining an “agreement” as “the bargain of the parties in fact, as found in their language *298or inferred from other circumstances, including course of performance, course of dealing, or usage of trade”).
Resolving this question after determining that the arbitration clauses in the written confirmations did not become part of the contracts, however, would be purely an academic exercise. The issue before this court is whether the district court erred in denying Frontier’s motion to compel arbitration. To compel arbitration under the Federal Arbitration Act (FAA), a litigant must demonstrate, inter alia, “a written agreement that includes an arbitration provision which purports to cover the dispute.” Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir.2002) (emphasis added) (internal quotation marks omitted). Thus, Frontier cannot compel arbitration based on an implied term in an oral contract. It must proffer a written agreement containing an arbitration clause that purports to cover its dispute with the plaintiffs. The writings that Frontier provided to satisfy this requirement were the confirmations that it sent to the plaintiffs. Accordingly, Frontier’s ability to compel arbitration depends on whether or not the arbitration clauses in the written confirmations became part of its contracts with the plaintiffs.
III.
In sum, I fully concur in Part II of the majority opinion. I therefore concur in the judgment only with regard to those plaintiffs that either signed and returned Frontier’s confirmation forms or had contracts governed by South Carolina law. I respectfully dissent from Part I, however, because I believe that this case is controlled by our decision in Supak. Accordingly, I would hold that because the North Carolina arbitration agreements in Frontier’s confirmation forms did not become part of the contracts with those plaintiffs that did not sign and return the forms, the district court did not err in denying Frontier’s motion to compel arbitration as to those plaintiffs.

 In Supak & Sons Mfg. Co. v. Pervel Indus., 593 F.2d 135 (4th Cir.1979), we also rejected the argument that Prances Hosiery's per se rule was preempted by the Federal Arbitration Act (FAA) because it served to restrict the validity and enforceability of arbitration agreements. See id. at 137 (stating that “U.C.C. § 2-207, as judicially construed in ... North Carolina” does not “restrict the validity or enforceability of arbitration agreements,!] but is rather a general rule of contract formation”) (footnote omitted). Frontier argues that Supak was wrongly decided in this regard and was impliedly overruled by Saturn Distrib. Corp. v. Williams, 905 F.2d 719 (4th Cir.1990). Saturn Distñb. Coip.’s recognition that the Federal Arbitration Act (FAA) “preempt[s] state rules of contract formation which single out arbitration clauses and unreasonably burden the ability to form arbitration agreements,” id. at 723, does not call the into question Supak's validity, as Supak also acknowledged that the FAA "is preemptive of conflicting state laws which restrict the validity or enforceability of arbitration agreements,” Supak, 593 F.2d at 137. In Saturn Distrib. Corp., we distinguished the Virginia statute held to be preempted by the FAA from “the general rule of contract formation” at issue in Supak, and did not question Supak’s validity. 905 F.2d at 723. Moreover, even if there were tension between the two decisions, one panel of this court cannot overrule another panel. See McMellon v. United States, 387 F.3d 329, 334 (4th Cir.2004) (en banc) ("[W]e conclude that when there is an irreconcilable conflict between opinions issued by three-judge panels of this court, the first case to decide the issue is the one that must be followed, unless and until it is overruled by this court sitting en banc or by the Supreme Court.”).