126 F.3d 1279 (10th Cir. 1997), 96-1066, Avedon Engineering, Inc. v. Seatex

Docket Nº:96-1066.
Citation:126 F.3d 1279
Party Name:AVEDON ENGINEERING, INC., a Colorado corporation; as assignee of H.B.C., Inc., a Colorado corporation, Plaintiff-Appellant, v. SEATEX, a New York corporation; Consoltex, a New York corporation; The Balson-Hercules Group Ltd., a Rhode Island corporation and Does 1-20, whose true names are unknown, inclusive, Defendants-Counter-Claimants-Appellees.
Case Date:October 03, 1997
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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126 F.3d 1279 (10th Cir. 1997)

AVEDON ENGINEERING, INC., a Colorado corporation; as

assignee of H.B.C., Inc., a Colorado corporation,

Plaintiff-Appellant,

v.

SEATEX, a New York corporation; Consoltex, a New York

corporation; The Balson-Hercules Group Ltd., a Rhode Island

corporation and Does 1-20, whose true names are unknown,

inclusive, Defendants-Counter-Claimants-Appellees.

No. 96-1066.

United States Court of Appeals, Tenth Circuit

October 3, 1997

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John W. Gaddis, Grant, Bernard, Lyons & Gaddis, Longmont, CO, for Plaintiff-Appellant.

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Mary P. Birk, Baker & Hostetler (Marjorie N. Sloan, Baker & Hostetler, with her on the brief), Denver, CO, for Defendants-Counter-Claimants-Appellees.

Before SEYMOUR, Chief Judge, BRORBY and KELLY, Circuit Judges.

SEYMOUR, Chief Judge.

In this breach of contract action against Seatex, 1 Twist 2 appeals the district court's denial of a jury trial on the issue of whether its contract with Seatex included an agreement to arbitrate, and the district court's stay of litigation pending arbitration. Twist also appeals the grant of summary judgment to Seatex for Twist's failure to timely arbitrate. Because we conclude the district court erred by failing to make a choice of law determination before resolving those issues, we reverse and remand for further proceedings consistent with this opinion.

I.

Twist was formed in 1992 to design and manufacture clothing and accessories for the snowboard industry. Twist evaluated the suitability of Seatex fabric for use in its clothing line by ordering product samples. At the time of the relevant transactions, Twist's principal place of business was Colorado and Seatex's principal place of business was New York. In a series of preliminary transactions Twist negotiated quantity, price and fabric quality with Goebel Textiles, agent for Seatex, through telephone calls and facsimile transmissions. Twist placed its purchase orders with Goebel by facsimile transmission.

For at least three of the preliminary transactions, Seatex responded to the purchase orders by sending a standardized sales confirmation form from New York to Twist in Colorado. Some special conditions of performance were noted in small type at the bottom front of the confirmation form, among which was a notice regarding arbitration. 3 Two clauses relevant to arbitration appeared in full on the back of the form. Clause 10 provided that disputes arising out of transactions between the parties would be settled by arbitration, and clause 11 provided that future transactions between the parties would be controlled by the terms of the sales confirmation form unless superseded by a signed contract. 4

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It is undisputed that the arbitration and future transactions clauses were not negotiated terms of contract. Both were inserted unilaterally by Seatex in its confirmation forms. Although Twist paid for and retained the fabric pursuant to its preliminary orders and does not dispute that it received the confirmation forms reflecting its preliminary purchases, Twist neither signed nor returned those forms.

After completing its preliminary product evaluation, Twist placed a bulk order in April 1993 for specially treated waterproof fabric for its 1993-94 line of clothing. As it had with each of its preliminary transactions, Twist placed this order by facsimile transmission to Seatex's agent. Twist made one alteration to this purchase order: in May of 1993, it increased the size of the order by facsimile transmission. Seatex alleges that it confirmed this order by sales confirmation form No. 2155. Twist disputes whether it received confirmation form No. 2155, and further argues that, even if the form was sent, it was not timely. 5 Twist did, however, accept delivery in Colorado and pay for the fabric ordered in April and May of 1993.

Twist used the fabric to manufacture its 1993-94 line of clothing. By December 1993, Twist began to receive reports that a special urethane coating designed to waterproof the fabric was peeling. Clothing manufactured from this fabric was returned to Twist as defective. After efforts to resolve the problem with Seatex proved unavailing, Twist brought this suit in Colorado state court in 1994, 6 seeking damages for breach of contract, breach of express and implied warranties, negligence, negligence per se, negligent misrepresentation, strict products liability and deceptive trade practices.

Seatex removed the action to federal court and contended the arbitration clause contained in the unsigned sales confirmation forms became part of the April/May 1993 contract by operation of section 2-207 of the Uniform Commercial Code (UCC). Seatex accordingly made motions to stay litigation and to compel arbitration pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 3, 4. Twist responded that section 2-207 prohibits inclusion of the arbitration term because it materially alters the contract. Moreover, Twist argued that whether there is a material alteration of a contract presents a question of fact and requested a jury trial on that issue as provided in 9 U.S.C. § 4.

The district court concluded that the future transactions clause in the preliminary sales confirmation forms negated any issue of fact regarding Twist's receipt of the sales confirmation form No. 2155. The court then concluded under the facts presented and the prevailing trade usage in the textile industry that arbitration was not a material alteration and was therefore included in the Twist/Seatex contract. The district court granted a stay of litigation pending arbitration and retired the case from its active docket.

Six months later, Seatex brought a motion to reactivate the case and a motion for summary judgment on all claims for Twist's failure to timely arbitrate according to the terms in the arbitration clause. The district court ruled that its earlier legal analysis on inclusion of the arbitration clause applied with equal force to all of the terms within the clause, and that Twist was bound by conditions in the arbitration clause which required filing of claims within one year of breach with the American Arbitration Association (AAA) in New York. The court concluded that Twist had waived all claims by failing to timely make that filing and granted summary judgment to Seatex. Twist now appeals the initial denial of a jury trial and grant of a

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stay, 7 and the final grant of summary judgment to Seatex.

II.

"We review a district court's grant or denial of a motion to compel arbitration de novo, applying the same legal standard employed by the district court." Armijo v. Prudential Ins. Co. of America, 72 F.3d 793, 796 (10th Cir.1995). We also review de novo a district court's decision to deny a jury trial on the factual question of whether the parties agreed to arbitrate. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n. 9 (3d Cir.1980).

Before granting a stay of litigation pending arbitration, a district court must determine that an agreement to arbitrate exists. 9 U.S.C. §§ 3, 4; Hornbeck Offshore (1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754 (5th Cir.1993); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987). The existence of an agreement to arbitrate "is simply a matter of contract between the parties; [arbitration] is a way to resolve those disputes--but only those disputes--that the parties have agreed to submit to arbitration." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-45, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995). When parties dispute the making of an agreement to arbitrate, a jury trial on the existence of the agreement is warranted unless there are no genuine issues of material fact regarding the parties' agreement. Par-Knit Mills, 636 F.2d at 54 & n. 9.

Both Twist and Seatex agree that section 2-207 of the UCC controls the determination of the existence of an agreement to arbitrate. 8 Section 2-207 dictates that additional terms inserted unilaterally in a confirmation form become part of a contract between merchants 9 unless: an offer is made expressly conditional to its terms, § 2-207(2)(a); the additional terms are expressly objected to, § 2-207(2)(c); or the terms cause a material alteration to the contract, § 2-207(2)(b). 10 Twist neither limited acceptance of any of its

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offers to their terms 11 nor expressly objected to the terms in the preliminary sales confirmation forms. Thus, unless inclusion of the arbitration clause caused a material alteration 12 to the contract, arbitration became part of the Twist/Seatex preliminary sales contracts, and by operation of the future transactions clause, 13 became part of the April/May 1993 contract.

The first step in evaluating whether the arbitration term was included in the Twist/Seatex contract should be a determination of what state's law controlled the formation of that contract. Coastal Indus., Inc. v. Automatic Steam Prods. Corp., 654 F.2d 375, 377-78 (5th Cir.1981). The district court did not perform such an analysis, despite Twist's assertion that Colorado law should be applied. The court was apparently persuaded by Seatex's argument, rec., vol. I at 42 n.10, that no choice of law analysis was necessary because both Colorado and New York, the relevant states, have enacted identical versions of section 2-207 of the UCC and because any New York decisional law...

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