Klocek v. Gateway, Inc.

United States District Court for the District of Kansas · 2000 · Contracts

ContractsarbitrationFAAUCC 2-207additional termsconsumer contractsshrinkwrap termsexpress assent

Facts

Gateway sold plaintiff a computer and included its Standard Terms and Conditions in the box with the computer materials. Those terms stated that keeping the computer more than five days after delivery constituted acceptance, and they included an arbitration clause. The record was unclear whether plaintiff bought the computer in person in Kansas or ordered it and received shipment in Missouri, and Gateway provided no evidence that it informed plaintiff of the Standard Terms at the time of sale. Plaintiff also sued Hewlett-Packard for selling him a scanner allegedly incompatible with Gateway computers, but his complaint alleged only $24,000 plus unitemized punitive damages against Hewlett-Packard.

Issue

Whether Gateway established the existence of an enforceable agreement to arbitrate when the arbitration clause appeared only in terms included with the shipped computer and Gateway showed no express assent by plaintiff at the time of sale. Whether plaintiff's allegations against Hewlett-Packard satisfied the amount in controversy required for diversity jurisdiction.

Rule

Before compelling arbitration or dismissing in favor of arbitration, the court must determine under ordinary state contract law whether the parties formed a written agreement to arbitrate. Under Kansas and Missouri law, in a consumer sale governed by the UCC, terms sent with the goods after formation of the sales contract are additional terms under UCC § 2-207 and, because the buyer is not a merchant, they become part of the contract only if the buyer expressly agrees to them; silence or retention of the goods is not express assent. A plaintiff invoking diversity jurisdiction must allege facts showing recoverable damages meeting the jurisdictional minimum; conclusory assertions and unsupported punitive-damages claims are insufficient.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel bought a desktop computer from Lakeview Digital, a fictional electronics seller in Kansas City, Missouri, after agreeing by phone on the model and price. When the computer arrived, the box contained a four-page document stating that any disputes must be arbitrated and that keeping the computer longer than seven days constituted acceptance of those terms; nothing about arbitration had been mentioned during the call.

If Lakeview moves to dismiss Nina's later lawsuit and compel arbitration, what is the strongest argument against enforcement of the arbitration clause?

Explanation. The court held that contract formation is governed by ordinary state contract law, and in a consumer sale governed by the UCC, terms sent with the goods after the sales contract is formed are additional terms under § 2-207. For a nonmerchant buyer, those terms are merely proposals and do not become part of the contract absent express agreement. Mere retention of the goods is not express assent.