Designer Skin LLC v. S & L Vitamins, Inc., et al.
Klocek v. Gateway, Inc., et al.
2000 U.S. Dist. Lexis 9896, 104 F. Supp.3d 1332 (D. Kan., June 16, 2000)
Court holds that Gateway's Standard Terms and Conditions, supplied along with and inside the packaging of a computer purchased by the plaintiff, do not create a binding contract with that consumer under either the law of either Missouri or Kansas. The court reached this conclusion despite the fact that the Standard Terms provide that they will constitute the terms of such an agreement if the consumer retains the computer for more than 5 days, and the consumer so retained the computer.
Plaintiff purchased a computer from defendant Gateway Inc. ("Gateway"). Inside the box containing the computer, which was delivered to plaintiff at the time of purchase, were Gateway's Standard Terms and Conditions ("Standard Terms"). The Standard Terms stated that "by keeping your Gateway 2000 computer system beyond five (5) days after the date of delivery, you accept these terms and conditions." The Standard Terms contained an arbitration clause, mandating that "any dispute or controversy arising out of or relating to this Agreement ..." be resolved via arbitration. According to the court, it was unclear from the record whether the computer was delivered to plaintiff in Kansas at the time of purchase, or if it was shipped by Gateway to plaintiff at his home in Missouri.
Plaintiff brought suit, alleging that Gateway induced him and others to purchase computers and special support packages by making false promises of technical support. He also advanced claims of breach of contract and warranty. Gateway moved to dismiss, arguing that such claims had to be arbitrated pursuant to the Standard Terms, which formed a contract between the parties. The court denied this motion, finding that the Standard Terms did not constitute a binding contract between the parties.
Under Kansas choice of law rules, Kansas courts follow the doctrine of "lex loci contractus" "which requires that the Court interpret the contract according to the law of the State in which the parties performed the last act necessary to form the contract." The court was unable to determine from the record before it whether this "final act" occurred in Kansas or Missouri. Because it believed the result would be the same under the law of either jurisdiction, however, the court elected not to resolve this choice of law question.
The court noted that courts have split on the issue of whether "terms received with a product become part of the parties' agreement." The court then declined to follow that line of cases, such as Hill and ProCD, which upheld the validity of a shrink-wrap license delivered along with a product, and stated that it believed that the courts of Kansas or Missouri would do likewise.
The court held that the transaction at issue was governed by the Uniform Commercial Code ("UCC"). It held further that, for the purpose of this motion, "plaintiff offered to purchase the computer (either in person or through catalog order) and that Gateway accepted plaintiff's offer (either by completing the sales transaction in person or by agreeing to ship and/or shipping the computer to plaintiff)."
The Standard Terms are either "an expression of acceptance or written confirmation" of plaintiff's offer, governed by Section 2-207 of the UCC. Under that section, to the extent the Standard Terms contain terms contrary or additional to those contained in plaintiff's initial offer (such as the mandatory arbitration clause at issue), they only become binding upon the plaintiff if expressly accepted by him. If he does not accept them, the additional terms do not become a part of the parties contract, the terms of which are instead limited to those contained in plaintiff's offer. The only way for Gateway to alter that result is to clearly indicate to plaintiff at the time of purchase that its willingness to sell the computer is conditioned on the consumer's acceptance of the Standard Terms, which cannot occur absent notice to the consumer at the time of purchase. Under such circumstances, the Standard Term then become a counter offer, which becomes the parties' contract if accepted by the consumer. Said the court:
Under 2-207, the Standard Terms constitute either an expression of acceptance or written confirmation. As an expression of acceptance, the Standard Terms would constitute a counter-offer only if Gateway expressly made its acceptance conditional on plaintiff's assent to the additional or different terms. "The conditional nature of the acceptance must be clearly expressed in a manner sufficient to notify the offeror that the offeree is unwilling to proceed with the transaction unless the additional or different terms are included in the contract." Gateway provides no evidence that at the time of the sales transaction, it informed plaintiff that the transaction was conditioned on plaintiff's acceptance of the Standard Terms. Moreover, the mere fact that Gateway shipped the goods with the terms attached did not communicate to plaintiff any unwillingness to proceed without plaintiff's agreement to the Standard Terms.
The fact that plaintiff retained the computer for 5 days did not alter this result. Although such retention, under the Standard Terms, would make those terms binding upon the plaintiff, those terms do not come into play because plaintiff never accepted them. As such, the court denied defendant's motion to dismiss.
The court also granted defendant Hewlett-Packard's motion to dismiss, on the grounds that the complaint failed to allege sufficient facts to indicate an ability to meet the jurisdictional damage limits of federal court applicable to diversity actions. The court also declined to certify plaintiff's claims as a class action, in part because he was proceeding pro se.