Designer Skin LLC v. S & L Vitamins, Inc., et al.
Tony Brower, et al. v. Gateway 2000, Inc., et al.
676 N.Y.S.2d 569, 1998 N.Y. App. Div. Lexis 8872 (1st Dept. N.Y., August 13, 1998)
Plaintiffs purchased computer and software products from defendant Gateway 2000. When they received these products, they also received a copy of Gateway 2000's Standard Terms and Conditions Agreement which provided that the Terms and Conditions would become a binding agreement between the parties if the consumer retained Gateway's products for 30 days. During this 30 day period, the consumer was free to return the product for any reason. Plaintiffs retained the products they received past the 30 day period.
Plaintiffs thereafter commenced suit, charging that Gateway 2000 engaged in deceptive sales practices. Defendant sought to dismiss the action on the grounds that the contract between the parties, reflected in the Terms and Conditions, mandated that any dispute arising out of plaintiffs' purchase be arbitrated before the International Chamber of Commerce ("ICC").
Plaintiffs opposed this motion, arguing that the arbitration clause contained within the Terms and Conditions was not part of the contract between the parties. Instead, that agreement had been formed when plaintiffs first ordered the products. As no mention of either arbitration or the arbitration clause had been made then, contended plaintiffs, the arbitration clause was not part of the parties' agreement.
Following the Seventh Circuit's decisions in Hill and ProCD, the court rejected this argument, holding instead that the Terms and Conditions did indeed constitute the parties' contract. Said the court:
The court also rejected plaintiffs' argument that the parties' contract was an unforceable contract of adhesion because it included an arbitration clause, or a clause which mandated arbitration of the parties' disputes in Chicago.
The court did invalidate so much of the arbitration clause which mandated that the arbitration proceed before the ICC in accordance with its rules. In this respect, the contract was unconscionable, and invalid under UCC 2-302. The ICC's rules mandate that a party seeking to arbitrate a dispute under $50,000 pay the ICC advance fees of $4000 of which $2000 is non-refundable, even if the consumer prevails. Because this was more than the cost of most Gateway products, the court found this provision unconscionable.
Accordingly, the court remanded the case to the New York Supreme Court with instructions to direct the parties to arbitrate their dispute before an arbitrator selected by the court in accordance with the Federal Arbitration Act, 9 U.S.C. §1 et seq.