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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:

We agree with the rationale that, in such transactions, there is no agreement or contract upon the placement of the order or even upon the receipt of the goods. By the terms of the Agreement at issue, it is only after the consumer has affirmatively retained the merchandise for more than 30 days -- within which the consumer has presumably examined and even used the product(s) and read the agreement -- that the contract has been effectuated.

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.

We find that this argument, too, was properly rejected by the IAS court. Although the parties clearly do not possess equal bargaining power, this factor alone does not invalidate the contract as one of adhesion. As the IAS court observed, with the ability to make the purchase elsewhere and the express option to return the goods, the consumer is not in a "take it or leave it" position at all; if any term of the agreement is unacceptable to the consumer, he or she can easily buy a competitor's product instead ... and reject Gateway's agreement by returning the merchandise.

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.

We do find, however, that the excessive cost factor that is necessarily entailed in arbitrating before the ICC is unreasonable and surely serves to deter the individual consumer from invoking the process. (citations omitted). Barred from resorting to the courts by the arbitration clause in the first instance, the designation of a financially prohibitive forum effectively bars consumers from this forum as well; consumers are thus left with no forum at all in which to resolve a dispute.

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.

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