Lounge-A-Round v. Gcm Mills, Inc.

• Decision Date: 13 August 1980
• Docket Number: P,LOUNGE-A-ROUN
• Citation: 166 Cal.Rptr. 920,109 Cal.App.3d 190
• Court: California Court of Appeals Court of Appeals
• Parties: , 29 UCC Rep.Serv. 778 laintiff, Cross-Defendant, and Respondent, v. GCM MILLS, INC., Defendant, Cross-Complainant, and Appellant. Civ. 57268.

Page 920

166 Cal.Rptr. 920

109 Cal.App.3d 190, 29 UCC Rep.Serv. 778

LOUNGE-A-ROUND, Plaintiff, Cross-Defendant, and Respondent, v. GCM MILLS, INC., Defendant, Cross-Complainant, and Appellant.

Civ. 57268.

Court of Appeal, Second District, Division 3, California.

Aug. 13, 1980.

Buchalter, Nemer, Fields, Chrystie & Younger and John A. Dito, Los Angeles, for defendant, cross-complainant, and appellant

Freedman & Sobel and Michael C. Baum, San Francisco, for plaintiff, cross-defendant, and respondent.

KLEIN, Presiding Justice.

STATEMENT OF THE CASE

Appellant GCM Mills, Inc. (GCM) appeals from the denial of its motion to compel arbitration directed against respondent Lounge-A-Round (LAR).

STATEMENT OF FACTS

During the period of time from May to August 1977, LAR, a California corporation, entered into three contracts with GCM, a corporation with its principal place of business in New York, for the purchase of a particular fabric. Shortly thereafter, in the fall of 1977, a dispute arose as to the quality of the material delivered to LAR. On November 8, 1977, LAR filed a complaint against GCM in the Superior Court of Los Angeles County, alleging breach of contract and breach of warranty. GCM then filed a petition in the United States District Court for the Southern District of New York seeking to compel arbitration in New York. The district court dismissed this petition with prejudice pursuant to a stipulation of the parties and its own deliberations on March 3, 1978.

On March 13, 1978, GCM answered LAR's superior court complaint and filed a cross-complaint which alleged breach of contract and included a claim arising out of a fourth contract with LAR, unrelated to the previous three. In the course of the discovery subsequently undertaken by GCM, LAR answered interrogatories and permitted GCM to examine some of the fabric which was the subject of the dispute.

Thereafter, on December 8, 1978, GCM filed a motion in the pending action to compel arbitration in California. The court denied the motion, ruling: "1. The right of petitioner GCM Mills Inc. to compel arbitration was adversely adjudicated against petitioner in the US District Court (Southern District of New York) and that court's order of March 3, 1978 dismissing the motion with prejudice is res judicata. (P) 2. Under California law, petitioner GCM Mills Inc.'s right to compel arbitration has been waived by making a general appearance in this lawsuit, seeking affirmative relief by a cross complaint and participating in other pre trial proceedings."

CONTENTIONS

GCM contends that (1) its agreement with LAR provided for arbitration; (2) the instant action is not barred by the doctrine of res judicata as there has been no adverse adjudication; and (3) its right to arbitration has not been waived.

DISPOSITION

We find these arguments to be unpersuasive for the reasons hereinafter set forth and therefore affirm the judgment (order denying motion to compel arbitration).

DISCUSSION

"In construing a contract providing for arbitration, the Court must first decide whether federal or state substantive law applies. (Citations.) Federal law will govern when the contract evidences a transaction 'involving commerce' (citations); otherwise state law applies. An examination of the complaint in the (case herein) reveals the requisite transaction 'involving commerce.' The contract is between (two) corporations which are incorporated and which do business in a number of states . . . and it requires the transport of . . . materials in interstate commerce. Accordingly, federal substantive law, as embodied in the federal Arbitration Act, 9 U.S.C. § 1 et seq., ( ¹ ) will be applied." (John Ashe Associates, Inc. v. Envirogenics Co. (E.D.Pa.1977) 425 F.Supp. 238, 241; Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App.3d 19, 23-25, 136 Cal.Rptr. 378; Communications Workers of America v. Pacific Telephone and Telegraph Co. (C.D.Cal.1978) 462 F.Supp. 736, 739.)

As to the question of whether there was a contract to arbitrate in the first instance, despite a strong federal policy in favor of arbitration, "arbitration is a matter of contract and the parties cannot be forced to arbitrate something to which they did not agree." (John Ashe Associates, Inc. v. Envirogenics Co., supra, 425 F.Supp. at pp. 241-242; Georgia Power Co. v. Cimarron Coal Corp. (6th Cir. 1975) 526 F.2d 101, 106.)

The first contract herein derived from an oral agreement between the parties which was confirmed in writing by LAR's purchase order of May 8, 1977. That purchase order contained the following pertinent provisions:

"No order is valid unless made upon this form and properly signed on the front hereof. This order may not be varied or changed, nor any of its provisions waived except in writing, signed by an authorized representative of the Purchaser. In addition to any other method of acceptance, Seller's shipping the goods, constitutes Seller's acceptance of all the terms and conditions hereof.

". . .

"Terms of Seller's order, shipment or approval which are not identical with the terms of this order are not a part of the contract between Seller and Purchaser and are not binding upon purchase."

The words "Calif. Arbitration" were handwritten at the bottom of the purchase order.

In the first week of June 1977, GCM responded with an acknowledgement of order which contained the following provision:

"15. ARBITRATION. Any controversy or claim arising out of or relating to this contract, or the performance or the breach thereof, shall be settled by arbitration in New York City in accordance with the Rules of American Arbitration Association. The parties agree that judgment upon an award rendered by the Arbitrators may be entered in any Court having jurisdiction, and that any process or notice of motion or any application to such Court, including application for judgment upon an award may be served within or outside of the State of New York either personally or by mail."

According to the affidavit of David Sclar, LAR's agent in the negotiation of the contracts with GCM, Harvey Lipkin, GCM's agent, agreed to strike the words "in New York City" from the above provision and substitute the words "in California" to satisfy LAR's desire to arbitrate any disputes in California, rather than New York. Lipkin initialed the change and Sclar signed the acknowledgement. In its federal court suit, GCM denied that such a change was effected. However, GCM now asserts that the substitution did in fact take place.

Subsequently, in July and August 1977, LAR forwarded to GCM two more purchase orders for the same type of fabric. These purchase orders did not contain an arbitration clause. Rather, they contained the following provision:

"5. Purchaser and supplier agree that any disputes arising between them shall be subject to the jurisdiction of the courts of the State of California and further agree that the laws of the State of California shall be applied to resolve any such disputes. No waiver of any claim for consequential damages shall be enforceable."

GCM replied to these orders with two acknowledgements of orders which contained the standard clause requiring arbitration in New York City. In neither acknowledgement was the phrase "in New York City" stricken; neither acknowledgement was signed by any agent of LAR.

The situation as to the latter two contracts presents "a classic example of the 'battle of the forms.' " (Valmont Industries v. Mitsui & Co. (U.S.A.) (D.Neb.1976) 419 F.Supp. 1238, 1239; C. Itoh & Co. (America) Inc. v. Jordan Intern. Co. (7th Cir. 1977) 552 F.2d 1228, 1233.) The arbitration provision in GCM's acknowledgement was a new and additional term from those in LAR's purchase order. As such, section 2-207 of the Uniform Commercial Code (U.C.C.) is controlling since the U.C.C. is a primary source for "the 'federal' law of sales." (Gardiner Manufacturing Co. v. U.S. (9th Cir. 1973) 479 F.2d 39, 41; U.S. v. Wegematic Corp. (2d Cir. 1966) 360 F.2d 674, 676.)

"U.C.C. § 2-207(1) provides that a confirmation may operate as an acceptance even though its terms differ from that of the offer: 'A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.' Subdivision 2 outlines the effect of the conflicting term: 'The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer ; (b) they materially alter it; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.' (P) The Official Comment to the section clearly indicates that a conflicting clause is to be considered as a notification of objection for the purposes of U.C.C. § 2-207(2)(c): 'Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed to, terms on which the confirmations agree, and terms supplied by this Act, including subsection (2).' " (Lea Tai Textile Co., Ltd. v. Manning Fabrics, Inc. (S.D.N.Y.1975) 411 F.Supp. 1404, 1406-1407, emphasis ours.)

Since LAR's purchase orders specifically provided that their terms could not be varied or waived without authorization in writing and that any additional terms added by the seller would be unacceptable and therefore not...