Textile Unlimited, Inc. v. A.. BMH and Co.

United States Court of Appeals for the Ninth Circuit · 2001 · Contracts

ContractsArbitrationU.C.C. battle of the formsVenuePreliminary injunctionsFAA9 U.S.C. § 428 U.S.C. § 1391

Facts

Over about ten months, Textile purchased yarn from A..BMH through a repeated exchange in which Textile sent purchase orders and A..BMH responded with invoices and acknowledgments containing additional terms, including an arbitration clause requiring binding arbitration in Atlanta and a Georgia venue clause. Textile did not request changes to those added terms, but later refused to pay for one shipment, claiming the yarn was defective. A..BMH submitted the dispute to AAA arbitration in Atlanta, and Textile then sued in federal court in California to enjoin the arbitration on the ground that no arbitration agreement had become part of the parties' contract. Textile had objected to arbitration itself and reserved its jurisdictional challenge.

Issue

Whether Textile's suit to enjoin arbitration had to be brought in the contractually designated arbitration locale under the FAA, and whether the district court properly enjoined arbitration because the arbitration clause had not become part of the contract under California Commercial Code § 2207. Also at issue was whether Textile waived its objection to arbitration by not objecting within the AAA time period.

Rule

FAA venue provisions are permissive, not mandatory. Section 4 permits a petition to compel arbitration in any federal district court that would otherwise have jurisdiction under Title 28, and it limits only where compelled arbitration may occur once such a petition is filed; it does not require all litigation relating to arbitration to be filed in the contractually designated arbitration forum. When exchanged forms do not create a contract under U.C.C. § 2-207(1) because acceptance is expressly conditional and there is no specific and unequivocal assent to the added terms, but the parties' conduct forms a contract under § 2-207(3), the disputed additional terms drop out, and absent a U.C.C. gap-filler, an arbitration clause is not included. A party that never agreed to arbitrate does not waive its objection merely by failing to object within arbitral rules it never accepted, so long as it participates only to contest arbitrability.

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

Cedar Loom Supply, a Nevada corporation with its principal place of business in Las Vegas, bought industrial thread from Harbor Stitch Mills, a fictional Georgia company. Harbor's acknowledgment form added a clause requiring arbitration in Miami, Florida, and Harbor later filed an arbitration demand there; Cedar then sued in federal court in Nevada to enjoin the arbitration, and Harbor is subject to personal jurisdiction in Nevada.

Which is the best analysis of venue for Cedar's federal suit to enjoin arbitration?

Explanation. The majority held that FAA venue provisions are permissive, not mandatory, and that § 4 is narrowly tailored to actions to compel arbitration. A separate action seeking to enjoin arbitration is analyzed under the general federal venue statute, not by forcing the challenger into the contractually designated arbitration locale. Thus, if ordinary federal venue requirements are satisfied in Nevada, venue is proper there.