UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
February 16, 1977
AVILA GROUP, INC., Petitioner,
NORMA J. OF CALIFORNIA, Respondent
Edward Weinfeld, District Judge.
The opinion of the court was delivered by: WEINFELD
EDWARD WEINFELD, District Judge.
Pursuant to 9 U.S.C., section 4, and 28 U.S.C., section 2283, Avila Group, Inc. ("Avila"), a New York corporation with its principal place of business in New York, petitions this Court for an order compelling arbitration of a dispute arising out of two contracts between it and Norma J. of California ("Norma J."). Avila also seeks to stay an action upon the same contracts brought by Norma J. in California state court.
Norma J. is a California corporation and has its principal place of business in California, and the amount in controversy is well over $10,000. The Court thus has diversity jurisdiction over the subject matter of the suit under 28 U.S.C., section 1332(a). The contracts at issue, calling for the delivery of thousands of dollars worth of textiles from New York to California, clearly evidence a transaction involving interstate commerce, and thus the provisions of the Federal Arbitration Act
are applicable to the petition.
In February 1976, Norma J. placed two orders with Avila to purchase a total of 80,000 yards of various fabrics, which Norma J. intended to use in the manufacture of clothing. The purchase orders were on Avila's standard order form, provided by independent salesmen representing Avila in California, and were signed by Norman Ring in his capacity as Norma J.'s president. Norma J. asserts that the samples of the fabrics shown to Ring before the order was placed had a special "crisp" finish that was required to cut the patterns for the clothes Norma J. intended to produce. Norma J. rejected the first shipment of the orders on the ground that the fabrics sent did not have a crisp finish, and it subsequently refused to accept delivery of the remainder of the orders. By letter dated May 21, 1976, Avila commenced arbitration proceedings in New York City against Norma J., pursuant to provisions contained in the order forms that all disputes arising under them would be settled by arbitration in New York. Norma J. declined to submit to arbitration.
Instead, on October 26, 1976, it instituted an action against Avila in the California Superior Court seeking damages for breach of contract and requesting declaratory and injunctive relief on its claim that the contracts between it and Avila did not require arbitration of disputes. On November 11, 1976, Avila filed the instant petition to compel arbitration, and all proceedings in the California action have been stayed pending this Court's decision.
Norma J. opposes the petition on two grounds. First, it asserts that Ring neither read nor had notice of the arbitration and consent-to-jurisdiction provisions of the order forms when he signed them and that those provisions thus did not become part of the parties' contract. Second, it contends that because Avila never returned countersigned copies of the order forms showing acceptance by Avila, no contract came into being and no agreement to arbitrate was reached. These claims will be addressed individually.
Norma J.'s contention that it neither agreed to arbitration nor consented to New York in personam jurisdiction is based on the fact that the contract clauses dealing with these matters are on the reverse sides of the order forms. Ring asserts that he did not know what those provisions contained, that he took no notice of them, and that Avila's sales representatives did not mention them. Avila argues that whether Ring read the reverse sides of the contracts is immaterial because the front sides gave legally sufficient notice of the provisions on the back to bind Norma J.
This proceeding is governed by section 4 of the Federal Arbitration Act,
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.
It is well established that Congress, in passing this section of the Arbitration Act, created national, substantive law under its commerce and maritime powers and that such law governs the questions of validity, revocability and enforceability of arbitration agreements under the coverage of the Act.
Thus, the law to be applied in deciding whether Norma J. is bound by the arbitration and consent-to-jurisdiction provision of the contracts is neither California law nor New York law, but "[federal] law, comprising generally accepted principles of contract law".
In order to prevail on its argument, Norma J. must bring itself within an exception to the general contract rule that a person of ordinary understanding and competence will be bound by the provisions of a contract that he signs whether or not he has read them.
In light of facts as to which there is no dispute in this proceeding, Norma J.'s contention that it should not be held to the arbitration provision because its president had no notice of such a provision must be rejected as insufficient to deny application of the general rule.
First, many of the state court cases that Norma J. cites in support of its position, which are not controlling in any event,
can readily be distinguished from the present case. Those cases involved parties of substantially unequal bargaining power and sophistication or else dealt with contracts that would actually fail to give a reasonable man notice of "small print" provisions governing the rights and remedies of the parties.
In this case, both Norma J. and its president are admittedly sophisticated parties in the textile field.
More importantly, respondent does not charge that the orders were signed or induced under fraudulent circumstances. To the contrary, Ring, its president, states that when he signed the orders he "glanced at them to confirm the amounts, prices and other information [the salesmen] had written on them," and that he "did not notice the small fine print in the lower righthand corner of the form." Significantly, however, the very portion of the face page of the contract that Ring signed contains notice that the arbitration and consent-to-jurisdiction provisions are set forth on the reserve side. Immediately above the line where Ring signed the order, it is stated in print that -- given its position on the page -- is conspicuous: "this order is given subject to the terms herein stated and those on the reverse side hereof including arbitration, which are hereby accepted by the buyer."
Indeed, Ring's signature on one of the forms actually passes through the word "arbitration" in the notice appearing immediately above the signature line.
Courts applying federal law under the Arbitration Act have rejected cases that purport to apply special rules and requirements to agreements to arbitrate that are not applicable to other contracts.
In the absence of allegations of fraud or duress, these courts have focused "not on whether there was subjective agreement to all clauses in the underlying contract but [on] whether there was agreement to the contract embodying the clause in question."
Under the circumstances, it is clear that the notifications on Avila's forms concerning arbitration and consent-to-jurisdiction were sufficient to pass muster under applicable federal standards.
Norma J. also argues that Avila never effectively accepted the orders for fabric and thus that no agreement to arbitrate disputes ever came into being. This argument is based on a portion of the very legend that Norma J. asserts to be inadequate to give notice of the arbitration provisions. In relevant part that legend states: "This order . . . shall become a contract only when signed and delivered by the buyer to the seller and accepted in writing by the seller, or when buyer has accepted delivery of the whole or any part of the goods." Norma J. claims that Avila never countersigned the orders and that no goods were ever accepted under the contract. For several reasons, however, this claim cannot justify denial of Avila's petition to compel arbitration.
First, Norma J. is equitably estopped from asserting at this stage that no contract ever existed between the parties. This contention was first raised during oral argument on the petition to compel arbitration and was not included in Norma J.'s papers in response to the petition. But of greater significance, however, is the action commenced by Norma J. on October 21, 1976, in the California Superior Court seeking damages for Avila's alleged breach of the very order that contains the arbitration provision and also seeking in that action a declaration that the provision is not binding. Additionally, in its reply to the present petition to compel arbitration, Norma J. admits that it and Avila "were parties to two contracts, which contracts were partly oral and partially in writing,
whereby Petitioner agreed to sell and Respondent agreed to purchase a total of 80,000 yards of textile fabric . . . ."
Norma J. cannot be allowed to assert the existence of a valid contract under the order form to recover damages from Avila in the California action and at the same time contradictorily assert that no contract exists in order to avoid arbitration of its claims and those of Avila.
To allow Norma J. to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act.
This is especially so when Norma J. has for almost a year indicated by its actions and words that a contract was entered into by the parties,
and when it has in judicial proceedings repeatedly affirmed the existence of such a contract, concededly composed in major part of the documents signed by its president.
Finally, the failure of Avila to return a signed copy of the purchase orders, even assuming the contested fact that Norma J. never accepted any portion of the goods, would not negate the existence of the contract in any event. It is not contested that Avila shipped the first portion of the orders to Norma J. and thus began to render its performance under the contract. This action itself would be sufficient to constitute an acceptance of Norma J.'s offer under the applicable provisions of the Uniform Commercial Code.
In addition, Avila sent Norma J. a signed copy of an order form covering the first shipment of fabric under the original orders and referring to such orders, and it sent Norma J. invoices for portions of the goods covered by both original purchase orders.
These documents constitute acceptances by Avila in writing of the original orders and thus meet the terms specified for acceptance in the order forms. Moreover, although an offeror, in this case Norma J., may prescribe an exclusive manner of acceptance of its offer, an acceptance that does not conform to its terms will nevertheless result in a contract when the offeror indicates his assent to the acceptance.
Norma J. not only specified to Avila that its reasons for rejecting the fabrics were because the goods did not conform to the parties' agreement, it also brought suit against Avila in California seeking damages for breach of a contract that Norma J. admits was evidenced by the original purchase orders. These facts, admitted by Norma J., establish that a contract did indeed exist between the parties.
Accordingly, the petition to compel arbitration according to the terms of Avila's purchase orders is granted, and Norma J. is directed to stay its California Superior Court action pending the outcome of that arbitration.