Caseflicks

Court of Appeals for the Sixth Circuit • 1972

Frank E. Dorton and J. A. Castle, Partners, D/B/A the Carpet Mart v. Collins & Aikman Corporation and Painter Carpet Mills, Inc.

453 F.2d 1161 | 1972 U.S. App. LEXIS 11982

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Takeaway

In short, this case teaches that a merchant’s boilerplate arbitration clause is not automatically enforceable merely because the other merchant performs without objection: under UCC § 2-207, courts must determine whether the clause was an additional and material term, but a valid broad clause will send contract-wide fraud claims to arbitration.

Background

The Carpet Mart, a Tennessee carpet retailer, bought carpeting from Collins & Aikman in more than fifty-five transactions between 1968 and 1970. The orders were placed by telephone, either directly by Carpet Mart partners or through Collins & Aikman’s visiting salesman. After each order, Collins & Aikman sent a printed acknowledgment form, which referred on its face to terms on the reverse side, including an arbitration clause requiring arbitration in New York City. The Carpet Mart received the forms before delivery, accepted and paid for the carpeting, and did not object to the printed terms.

The Carpet Mart later alleged that Collins & Aikman had fraudulently sold carpet represented as made of 100% Kodel polyester fiber when some of it contained inferior, cheaper fiber. It sued for compensatory and punitive damages in Tennessee state court; Collins & Aikman removed the case to federal court on diversity grounds and sought a stay pending arbitration under § 3 of the Federal Arbitration Act.

The district court denied the stay. It concluded that no binding arbitration agreement existed because UCC § 2-207(3), rather than § 2-207(1) and (2), governed the parties’ dealings. Collins & Aikman appealed.

Issues

Issue #1

Whether the denial of a stay pending arbitration under 9 U.S.C. § 3 was immediately appealable.

Holding

Yes. The interlocutory denial of the requested stay was appealable.

Reasoning

Under Shanferoke Coal & Supply Corp. v. Westchester Service Corp., a motion to stay litigation pending arbitration under § 3 is treated as an application for an interlocutory injunction. Denial of such relief is therefore appealable under 28 U.S.C. § 1292, even though the underlying merits action remains unresolved.

Issue #2

Whether the acknowledgment forms made the arbitration clause part of the parties’ sales contracts under UCC § 2-207.

Holding

The record did not permit a final answer. The district court erred by treating § 2-207(3) as automatically controlling, and the case had to be remanded for factual findings under § 2-207(1) and (2).

Reasoning

Section 2-207 displaced the common-law mirror-image rule, under which an acceptance containing additional terms operated as a counteroffer and the buyer’s performance could be treated as acceptance of every counteroffer term. The Code instead generally recognizes a contract despite additional or different terms, then determines separately whether those terms became part of the bargain.

The threshold factual question was whether the parties reached oral agreements during the telephone calls or salesmen’s visits. If they did, Collins & Aikman’s forms were confirmations of those oral agreements. If they did not, the forms were acceptances of The Carpet Mart’s oral offers. In either event, the district court first had to determine whether arbitration was already part of the orally offered or agreed terms, or was an added term in the printed forms.

The forms were not acceptances 'expressly made conditional' on the buyer’s assent to the additional terms within § 2-207(1). Although they stated that the transaction was 'subject to' the printed terms, they did not directly and distinctly state that Collins & Aikman would not proceed unless The Carpet Mart assented to those terms. Indeed, the forms purported to treat several forms of conduct or silence, including retaining a form without objection, as sufficient to bind the buyer; that is inconsistent with an insistence on actual assent.

Because the forms were not expressly conditional on assent, a contract could be recognized under § 2-207(1), rather than only through the parties’ conduct under § 2-207(3). The arbitration provision would then be treated as a proposed additional term under § 2-207(2).

Both sides were merchants, and The Carpet Mart did not object to the forms. Thus, the decisive question was whether the arbitration clause materially altered the oral offers or prior oral agreements. Material alteration depends on the facts of the particular commercial relationship; the Code’s comments do not categorically resolve whether an arbitration term is material. If it was a material alteration, it could bind The Carpet Mart only if it expressly agreed to it.

On remand, the district court was directed to determine whether prior oral agreements existed; whether the arbitration clause was additional to the oral offers or agreements; and, if it was additional, whether it materially altered them. If the clause was both additional and material, no arbitration agreement existed absent express agreement by The Carpet Mart.

Issue #3

Whether The Carpet Mart’s fraud claim could be litigated in court if the arbitration provision was found to be part of the contracts.

Holding

No. If a valid arbitration clause existed, the broad clause required arbitration of the alleged fraud in the sale of the carpets.

Reasoning

Under Prima Paint Corp. v. Flood & Conklin Manufacturing Co., a court deciding a § 3 stay motion may consider a challenge directed to the making of the arbitration agreement itself, but not a claim that the larger contract was fraudulently induced when the arbitration clause broadly covers that dispute.

The Carpet Mart’s fraud allegation concerned Collins & Aikman’s alleged substitution of inferior fiber for 100% Kodel polyester in the carpeting. That allegation attacked performance and inducement under the overall sales contracts, not the formation of the arbitration clause itself. The clause covered any controversy arising out of or relating to the contract, language broad enough to encompass the fraud claim.