provision included on the face of the invoice is part of the agreement between the parties.
Section 2-207 of the UCC governs disputes involving the addition of terms in written confirmations. Specifically, section 2-207 provides that, as between merchants, additional terms included in a written confirmation will not become part of the contract if: (1) the offer expressly limits the acceptance to the terms of the offer;
(2) they materially alter it; or (3) notification of objection to them has been given or is given within a reasonable time. NYUCC § 2-207(2); Tex. Bus. & Com. Code § 2.207(b).
Turning to the instant case, respondent claims that the petitioner's inclusion of the arbitration clause in the invoices "clearly constituted an 'additional term' which would 'materially alter' the agreement between the parties as per Tex. Bus. & Com. Code sec. 2.207(b)(2)."
Res. Mem. at 11 n. 7. Respondent further asserts that, under the New York rule, the addition of an arbitration provision constitutes a per se material alteration. Id. at 15.
Petitioner, on the other hand, maintains that the respondent was obviously aware of the arbitration provision and should be bound by it because for over 17 months the parties engaged in 42 transactions, each of which involved an invoice containing a similar arbitration provision to which the respondent never objected. Petitioner's Memorandum of Law at 10.
A term is considered to be a material alteration if its inclusion in the contract "would result in surprise or hardship if incorporated without express awareness by the other party." NYUCC § 2-207, official comment 4; see Valtrol, Inc. v. Gen'l Connectors Corp., 884 F.2d 149, 155 (4th Cir. 1989); Trans-Aire Int'l, Inc. v. Northern Adhesive Co., 882 F.2d 1254, 1262-63 (7th Cir. 1989); Step-Saver Data Systems, Inc. v. Wyse Technology, 939 F.2d 91, 104 n. 44, 105 n. 49 (3d Cir. 1991); Bergquist Co. v. Sunroc Corp., 777 F. Supp. 1236, 1245 (E.D. Pa. 1991).
This modern day approach favors a case-by-case materiality determination, focusing on the degree of "surprise" or "hardship" imposed upon the nonassenting party. Bergquist, 777 F. Supp. at 1244-45; see e.g., Pervel Indus. v. T.M. Wallcovering, Inc., 871 F.2d 7, 8 (2d Cir. 1989) (party bound by arbitration provision where well established custom of sending purchase order confirmations containing an arbitration clause existed and buyer made numerous purchases over a period of time); Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 765 (10th Cir. 1983) ("issue of whether a term materially alters the contract for the purpose of § 2-207(2)(b) is a question of fact that must be determined in light of the facts of the case and the parties' expectations").
A per se rule characterizing the addition of an arbitration provision as a material alteration, such as the New York rule,
is "absolutely contrary to the UCC's special emphasis on the particular circumstances surrounding each contractual relationship." Bergquist, 777 F. Supp. at 1245. Whereas, the "surprise or hardship" test is more in tune with the UCC, as well as in support of the strong federal policy favoring arbitration of disputes. See Moses, 460 U.S. at 24. Moreover, this modern approach addresses the "preeminent concern of Congress in passing the [Federal Arbitration] Act," namely, "to ensure the judicial enforcement of privately made agreements to arbitrate." See Byrd, 470 U.S. 213 at 219, 221.
Clearly, in the instant case, respondent was not surprised by the inclusion of an arbitration provision in the invoices at issue. For a period spanning approximately two years, respondent received 42 invoices, all of which contained an arbitration clause on the face of the invoice, located at the bottom set forth in capital letters. In fact, the respondent actually admits that it was the petitioner's "practice" to include an arbitration provision in its invoices. Res. Mem. at 12.
As for the hardship element, the respondent has not shown in any way that arbitration would impose a "substantial economic hardship" on the respondent, Trans-Aire, 882 F.2d at 1262, or that it would "substantially alter the distribution of risk" between the parties. Step-Saver, 939 F.2d at 105.
Thus, in accord with the UCC and in the spirit of effecting the "'accomplishment and execution of the full purposes and objectives of Congress'" with respect to the Federal Arbitration Act, Volt, 489 U.S. at 477 (citation omitted), I find that the arbitration clause was not a material alteration. Hence, it became part of the contract between the parties because the respondent did not seasonably object to its inclusion.
NYUCC § 2-207(2)(c); Tex. Bus. & Com. Code § 2.207(b)(3).
Having found that an agreement to arbitrate exists, I turn now to the issue of whether the transactions at issue fall within the scope of the arbitration provision. Clearly, the arbitration agreement encompasses the transactions in the instant action; i.e., a dispute arising out of or relating to the order under which the goods were shipped.
Next, I turn to the issue of whether the petitioner waived its right to compel arbitration. Respondent argues that the petitioner has waived its right to compel arbitration by interposing an answer and filing a Plea in Abatement in the Texas State Court Action. Res. Mem. at 17-19. This argument, however, is totally without merit. In the leading case on the issue of waiver, Rush v. Oppenheimer & Co., 779 F.2d 885 (2d Cir. 1985), the Second Circuit concluded that "a waiver of the right to compel arbitration due to participation in litigation will be found only when prejudice to the other party is demonstrated." Rush, 779 F.2d at 887 (citing Demsey & Assoc's, Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir. 1972)). "Waiver is not to be lightly inferred, and mere delay in seeking a stay of the proceedings without some resultant prejudice to a party cannot carry the day." Id.
Under the facts of this case, the respondent has failed to make the requisite demonstration of prejudice. There was no extensive involvement in the Texas State Court Action by the petitioner. The fact that the petitioner filed an answer and Plea in Abatement, or even sought a motion to dismiss (which was later withdrawn) is inadequate in and of itself to support the claim of waiver of arbitration. See Rush, 779 F.2d at 888-89; Sweater Bee By Banff, Ltd. v. Manhattan Indus., Inc., 754 F.2d 457, 463 (2d Cir.), cert. denied, 474 U.S. 819, 88 L. Ed. 2d 55, 106 S. Ct. 68 (1985); Lester v. Basner, 676 F. Supp. 481, 485 (S.D.N.Y. 1987). Hence, the petitioner did not waive its right to compel arbitration.
Based upon the foregoing, I find that: (1) an arbitration agreement exists between the parties; (2) the dispute falls within the scope of the arbitration agreement; and, (3) the petitioner has not waived its right to compel arbitration. Accordingly, the petitioner's motion to compel arbitration is granted.
At this point, three issues addressed by the parties remain: (1) whether this court has personal jurisdiction over the respondent; (2) whether New York law should be applied with respect to the arbitration; and, (3) whether the Texas State Court Action should be stayed. I will discuss these issues in turn.
The respondent asserts that this court lacks personal jurisdiction over the respondent. Res. Mem. at 5-7. This argument is without merit. The arbitration agreement included in the invoices contained both a choice-of-forum clause (stating that the parties are to settle by arbitration in New York City) and a choice-of-law clause (stating that the laws of the State of New York shall apply). In accordance with the arbitration agreement, the respondent has subjected itself, in advance, to the jurisdiction of the court within whose territorial jurisdiction the arbitration proceedings are to be had; that is, the Southern District of New York. See Farr & Co. v. Cia. Intercontinental De Navagaciaon De Cuba, 243 F.2d 342, 346 (2d Cir. 1957); Couleur Int'l, Ltd. v. Saint-Tropez West, 547 F. Supp. 176, 177 (S.D.N.Y. 1982); Farkar Co. v. R.A. Hanson DISC Ltd., 441 F. Supp. 841, 843 n.1 (S.D.N.Y 1977), modified on other grounds, 583 F.2d 68 (2d Cir. 1978); Lawn v. Franklin, 328 F. Supp. 791, 793-94 (S.D.N.Y. 1971). Accordingly, such advance submission waives any objection to personal jurisdiction and venue. Id.
With respect to the choice-of-law provision, the Act "requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Volt, 489 U.S. at 489 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967)). Where the parties agreed to abide by state law, enforcing the arbitration provision in accordance with the terms of the agreement is "fully consistent with the goals of the Federal Arbitration Act." See Volt, 489 U.S. at 479. By "rigorously enforcing" the agreement according to its terms, see Byrd, 470 U.S. at 221, the "contractual rights and expectations of the parties" are given effect, "without doing violence to the policies" behind the Act. Volt, 489 U.S. at 479. Thus, in accordance with the arbitration agreement, the laws of the State of New York shall apply.
Finally, the petitioner seeks to stay the Texas State Court Action, pursuant to the Federal Anti-Injunction Act (the "Act"), 28 U.S.C. § 2283.
The petitioner bases its request upon the exception contained in the Act authorizing a federal court to stay proceedings in a state court "where necessary in aid of its jurisdiction, or to protect or effectuate its judgment." Nonetheless, I find it unnecessary to address an injunction to the Texas state court. However, because the petitioner is entitled to have these issues arbitrated, the respondent is hereby enjoined from proceeding in any way with the Texas State Court Action.
For the foregoing reasons, the petitioner's motion to compel arbitration is granted and the respondent is enjoined from pursuing the Texas State Court Action.
DATED: New York, New York
March 4, 1993