UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
November 30, 2007
COLORADO-ARKANSAS-TEXAS DISTRIBUTING, L.L.C., PLAINTIFF,
AMERICAN EAGLE FOOD PRODUCTS, INC., DEFENDANT.
The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.
This case arises from an arbitration award in favor of defendant, American Eagle Food Products, Inc. ("AEF"), against plaintiff, Colorado-Arkansas-Texas Distributing, L.L.C., ("CAT"). AEF initiated arbitration to resolve its claim that CAT breached various contracts by refusing to accept delivery of merchandise.*fn1 CAT sued in New York state court to enjoin the arbitration, but the arbitration proceeded.*fn2 AEF removed the case to this Court and filed a counterclaim to confirm the arbitration award.*fn3 Before the Court are cross-motions for summary judgment.*fn4 AEF seeks summary judgment confirming the arbitration award. CAT argues that the arbitration award is unenforceable because CAT never agreed to arbitrate and moves for summary judgment denying AEF's claim.
All parties agreed that the Court would decide such questions of fact as might be necessary to fully resolve the matter on the basis of the existing record.*fn5 These are the Court's findings of facts and conclusions of law based on that record.
CAT, a Colorado limited liability company, distributes and sells edible nuts. AEF, a New Jersey corporation, sells edible nuts. Mr. Lyda is the managing member of CAT, and Mr. Sobeck is the president of AEF.*fn6
CAT and AEF have had a business relationship since some time prior to 2004.*fn7 CAT ordered nuts from AEF on numerous occasions, either directly or through a broker.*fn8 AEF followed up each order by issuing a "sales order" form.*fn9 The forms contained the following language:
"This contract is entered into subject to the terms, conditions, and agreements printed on the back hereof.
"Arbitration: Any controversy or claim arising out of this contract shall be settled in binding arbitration by the Association of Food Industries, Inc., of New York in accordance with its rules then obtaining.
"Thank you for your business. If this confirmation is incorrect, please contact us immediately. If it is correct, sign and return one copy immediately."*fn10
It is common in the nut industry and in the CAT-AEF relationship to make an oral order that is confirmed by a sales order or other document.*fn11 CAT frequently, but not always, signed and returned the sales order forms, but the parties performed whether or not CAT signed the form.*fn12
At issue in this case are fifteen AEF sales orders issued to CAT, all of which contained the standard arbitration clause. Seven of the forms (numbered 22595-22601) are dated February 10, 2005, and eight of the forms (numbered 22659-22666) February 23, 2005.*fn13 According to AEF, it issued these sales orders immediately after CAT placed orders with AEF.*fn14
February 10 Sales Orders On February 10, 2005, Lyda entered an oral agreement with Sobeck to buy cashews from AEF.*fn15 Sobeck prepared sales order forms confirming the order and faxed them to Lyda on the same day.*fn16 Each form included an arbitration clause and indicated that it "[c]onfirm[ed] phone order from Tim Lyda to Gene Sobeck."*fn17 The fax cover sheet instructed CAT: "Please advise your purchase order numbers and return with signature immediately (all contracts will be null and void if not signed an returned)."*fn18 CAT did not respond to the fax, either to inform AEF that it had not placed an order or to sign the sales orders.*fn19
CAT argues that the February 10 sales orders did not establish an agreement to arbitrate because CAT never signed the documents. CAT, however, does not dispute that the parties reached an oral agreement on February 10.*fn20 Indeed, the language of the February 10 sales orders indicates that there was an oral agreement, and CAT never objected to the purported confirmation. Moreover, the parties behaved as if they had reached an oral agreement before CAT filed suit in this case.
Mr. Lyda's deposition testimony, to the extent it attempts to deny that the sales orders confirmed an oral agreement, is not credible. Lyda refers to the sales order forms as "proposals" and asserts that "I sign documents when I confirm [a phone order],"*fn21 but there is no evidence that AEF had any reason to think that there was no oral agreement or that the oral agreement was not binding until CAT confirmed by signing the sales orders.*fn22 On these issues, Lyda's testimony asserts legal conclusions,*fn23 but does not establish the facts necessary to support the conclusions.
February 23 Sales Orders
On February 22, 2005, Ms. Roy, a broker for CAT, contacted Mr. Katz, a broker for AEF, and made a firm bid to buy cashews from AEF. AEF accepted.*fn24
In transactions arranged by buyer's and seller's brokers, such as this transaction, it is customary in the industry for each broker to send a confirmation to his own client and to the other broker.*fn25 In addition to the exchange of the brokers' confirmation forms, a seller may send a confirmation directly to the buyer.*fn26
After the February 22 order, Katz sent confirmation forms to AEF and Roy, and Roy sent confirmation forms to CAT and Katz.*fn27 On February 23, 2005, AEF issued sales order forms to confirm the order and faxed them to CAT on March 2, 2005. The fax cover sheet asked Lyda to sign and return the sales orders.*fn28
As with the February 10 sales orders, CAT argues that the February 23 sales orders did not establish an agreement to arbitrate because CAT did not sign the documents. But CAT does not dispute that Roy and Katz, acting as brokers for CAT and AEF, reached an oral agreement that was confirmed by Roy and AEF.*fn29 Rather, CAT asserts that "[i]n light of CAT's custom and practice as to its major orders, this 'Sales Confirmation' was a mere proposal."*fn30 Notwithstanding this assertion, the Court finds, based on (1) the deposition testimony of Roy*fn31 and Katz,*fn32 (2) the course of dealing between these parties, (3) the common practice of the nut industry, and (4) the parties' actions prior to litigation, that the parties reached an oral agreement on February 22.
Events After the Sales Orders
The sales orders provided for deliveries to begin in March 2005. From March to May, AEF asked CAT to sign and return the sales orders,*fn33 and from April or May through October, AEF contacted CAT to establish a shipping schedule.*fn34 In response to these inquiries, CAT did not inform AEF that the sales orders were not binding. In fact, it indicated that it was considering selling or washing the contracts.*fn35 At some point, however, CAT stopped responding.*fn36
AEF submitted a demand for arbitration before the Association of Food Industries ("AFI") on August 30, 2005, and sent a copy of the demand to CAT on October 12.*fn37 On December 16, AFI sent a notice scheduling the arbitration for January 31, 2006.*fn38 In a January 17 e-mail to AFI, Mr. Lyda asked to move the date, identified his counsel for the arbitration, and noted that CAT had had favorable results in arbitrations before AFI.*fn39 AFI rescheduled the arbitration for March 7, 2006.*fn40
On March 6, 2006, CAT sought to enjoin the arbitration, claiming that there were no agreements to arbitrate.*fn41 This was CAT's first objection to arbitration, and it came almost five months after receiving the initial demand for arbitration. In an affirmation submitted in support of CAT's petition for an injunction, CAT's attorney explained the delay:
"In preparation for the impending AFI arbitration hearing, [CAT] thought it prudent to consult with us relative to the position CAT could take in such a hearing. . . . [W]e advised CAT that based on CAT's records and our understanding of the law, there was a very significant issue in this matter, regarding formation of any contract and in addition, of any agreement to arbitrate by CAT."*fn42
The Court concludes, based on this explanation and CAT's behavior prior to filing a petition to enjoin arbitration, that CAT believed until March 6, 2006 that it was obliged to arbitrate.
AEF asks the court to confirm its arbitration award against CAT. CAT opposes confirmation on the grounds that it did not agree to arbitrate the claims and thus is not bound by the award.
The threshold question of whether there was an agreement to arbitrate is for the Court.*fn43 AEF's arguments that CAT is time-barred from raising this issue and that this question must be determined by the arbitrators are not persuasive.
"[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."*fn44 Whether a valid agreement to arbitrate exists is determined by state law principles governing the formation of contracts.*fn45 But, "[t]o the extent that state law 'treats arbitration agreements differently from any other contracts,'  it is preempted by § 2 of the FAA, and will not apply to an agreement governed by the federal statute."*fn46
AEF claims that CAT agreed to and is bound by the arbitration provisions contained in the sales orders.*fn47 According to AEF, the sales orders (1) confirmed oral agreements between the parties, (2) were consistent with prior transactions between AEF and CAT, and (3) were not objected to by CAT. AEF argues also that CAT's actions, prior to seeking an injunction, indicate that CAT understood the arbitration agreements to be binding. CAT claims, however, that there are no agreements to arbitrate because it never signed AEF's sales orders.
Section 2-207 of the New York Uniform Commercial Code ("UCC") governs disputes involving the additional terms in written confirmations.*fn48 It provides that, as between merchants, additional terms included in a written confirmation become part of the contract unless (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 is given within a reasonable time.*fn49 In this case, the parties are merchants who reached oral agreements that were confirmed by AEF's sales orders dated February 10 and 23. Thus, additional terms contained in the sales orders were incorporated unless they materially altered the oral agreements.
Whether the inclusion of an arbitration clause materially alters the oral agreement must be determined on a case-by-case basis with "the burden of proving the materiality . . . on the party that opposes inclusion."*fn50 "A material alteration is one that would 'result in surprise or hardship if incorporated without express awareness by the other party.'"*fn51 To show a material alteration, the non-assenting party "must establish that, under the circumstances, it cannot be presumed that a reasonable merchant would have consented to the additional term."*fn52 Evidence of industry custom and the parties' course of dealings often are relevant to determining whether an additional term is material.*fn53
In this case, there is no evidence that incorporation of the arbitration clauses without CAT's express assent would result in surprise or hardship. CAT does not deny that it was familiar with the arbitration language contained in AEF's standard sales order or that it received the sales orders at issue here.*fn54 Nor does it claim to have objected to the arbitration clauses in these or prior transactions. CAT's actions, prior to the filing of this suit, were consistent with an expectation that it had agreed to arbitration.*fn55 And arbitration clauses are common, if not customary, in the nut industry.*fn56 I, therefore, find that the parties agreed to arbitrate any disputes arising out of the February 10 and 23 sales orders. This conclusion is consistent with those reached by other courts faced with merchants who received, without objection, unsigned confirmation forms containing arbitration agreements that were consistent with prior courses of dealing.*fn57
In arguing that there is no arbitration agreement in this case, CAT focuses entirely on what it calls AEF's "own requirements" that the sales orders be signed and returned.*fn58 CAT argues that because AEF requires sales orders to be signed, the unsigned forms do not establish an agreement to arbitrate. To support its claim that AEF's sales orders are not binding until signed and returned, CAT points to (1) AEF's statement, subsequent to the February 10 oral agreement, that "contracts will be null and void if not signed and returned,"*fn59 (2) AEF's requests for CAT's signature, and (3) prior sales orders that were signed.
The facts cited by CAT do not prevent the Court from finding that the parties intended to be bound to the oral agreements memorialized in the February 10 and 23 sales orders. It is clear that an agreement to arbitrate may be binding even though it is not signed,*fn60 but a signature would be necessary if the parties did not intend to be bound by the oral agreement.*fn61 The facts emphasized by CAT are some evidence of the parties' intent, but they are not ultimately persuasive.
For the foregoing reasons, AEF's cross-petition to confirm the arbitration award is granted and the Clerk shall enter judgment for AEF and against CAT in the sum of $128,500 together with interest and costs. CAT's petition to stay arbitration is denied in all respects. The Clerk shall close the case.