Nu-X Ventures v. SBL, LLC

Decision Date20 October 2021
Docket NumberCIVIL ACTION NO. 3:21-CV-00354-GNS
Citation568 F.Supp.3d 829
Parties NU-X VENTURES, Plaintiff v. SBL, LLC d/b/a Global Cannabinoids, Defendant
CourtU.S. District Court — Western District of Kentucky

Andrew B. Courtney, Bradford M. Cohen, Michael J. McMullen, Cohen & McMullen, PA, Ft. Lauderdale, FL, Peter M. Cummins, Frost Brown Todd LLC, Louisville, KY, for Plaintiff.

Cara Thornton, Fortis Law Partners LLC, Denver, CO, for Defendant.

MEMORANDUM OPINION AND ORDER

Greg N. Stivers, Chief Judge

This matter is before the Court on Defendant's Motion to Compel Arbitration (DN 18). The motion is ripe for adjudication. For the reasons outlined below, the motion is GRANTED .

I. BACKGROUND

In 2019, Plaintiff Nu-X Ventures ("Nu-X") and Defendant Global Cannabinoids ("Global") entered into an agreement for Global to sell CBD products to Nu-X. (Compl. ¶ 16, DN 1). The agreement was negotiated by John Merritt, Global's Vice President of Sales and Business Development, and Nu-X's agent, Michael Hernandez. (Compl. 6). The transactions were initiated by purchase orders ("Purchase Orders") from Nu-X to Global dated October 16, 2019, and November 26, 2019. (Compl. ¶ 17).

On October 16, 2019, Nu-X ordered 1,000 cases of CBD gummies and 1,000 cases of CBD capsules for a total price of $295,000. (Compl. ¶ 19). On November 26, 2019, Nu-X ordered an additional 500 cases of CBD gummies and 500 cases of CBD capsules for a total price of $147,500. (Compl. ¶ 21). Nu-X memorialized these orders by sending the Purchase Orders to Global, each with its own unique identification number, on the day each order was agreed upon. (Compl. ¶ 23). (Compl. Exs. A-B, DN 1-2 to 1-3).

The Purchase Orders each contained the logo and letterhead of National Tobacco Company ("NTC"). (Compl. ¶¶ 13, 15). Nu-X is an affiliate of NTC and they share the same principal office location. (Compl. ¶¶ 13-14). During its dealings with Global, Nu-X utilized NTC's vendor system to issue the invoices and purchase orders because Nu-X was a newly established company. (Compl. ¶ 13). Likewise, each Purchase Order was signed, but Nu-X has not specified whether the form was signed by an agent from Nu-X or NTC. (Purchase Orders).

After receiving Nu-X's Purchase Orders, Global responded by sending Nu-X sales orders ("Sales Orders") for each transaction. (Def.’s Mot. Compel Arbitration Exs. A-B, DN 18-2 to 18-3). Each Sales Order contains the same price, quantity, and identification number as the corresponding Purchase Order, and each Sales Order also references the identification number of the relevant Purchase Order. At the bottom of each Sales Order, however, there is a provision stating: "By making payment for your order, you acknowledge and agree to all of our terms and conditions at this link: https://bit.ly3qEZo3r." The hyperlink then leads to terms and conditions ("Terms and Conditions"), including a mandatory arbitration provision and a choice of law section stating that Nevada law applies to any disputes arising under the Sales Order. (Def.’s Mot. Compel Arbitration Ex. C, DN 18-4).

Nu-X filed this action alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing. (Compl. ¶¶ 33-48). Nu-X claims that Global failed to deliver the agreed upon quantity of CBD capsules and gummies and that many of the cases that were delivered did not comply with market standards. (Compl. ¶¶ 27-28).

Global subsequently filed this Motion to Compel Arbitration. (DN 18). The motion is ripe for decision.

II. JURISDICTION

This Court has subject-matter jurisdiction of this matter based upon 28 U.S.C. §§ 1332(a), 1331, and 1367(a).

III. STANDARD OF REVIEW

Motions to compel arbitration are evaluated under the summary judgment standard set forth in Fed. R. Civ. P. 56(c). Atkins v. CGI Tech. & Sols., Inc. , 339 F. Supp. 3d 619, 628 (E.D. Ky. 2018) (citation omitted). The party who opposes arbitration must show a "genuine issue of material fact as to the validity of the agreement to arbitrate." Id. (quoting Great Earth Cos. v. Simons , 288 F.3d 878, 889 (6th Cir. 2002) ). In addition, the party opposing arbitration "has an evidentiary burden of demonstrating that the arbitration agreement itself, rather than the contract in which it is found, is unenforceable." Id. (citing Green Tree Fin. Corp.-Ala. v. Randolph , 531 U.S. 79, 91-92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) ).

IV. DISCUSSION

The Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the "FAA") applies to arbitration provisions in "contract[s] evidencing a transaction involving commerce ...." 9 U.S.C. § 2 (1947). The FAA codifies "liberal federal policy favoring arbitration agreements" and creates a presumption of arbitrability when a contract contains an arbitration clause. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ("[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.").

A. Under U.C.C. § 2-207, the arbitration clause is part of the contract and therefore a presumption of arbitrability arises.

Federal courts apply state substantive law to state law claims. Erie R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Federal courts also apply the choice of law principles of the state in which they sit. Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The Terms and Conditions incorporated into Global's Sales Orders contain choice of law provisions stating that the law of Nevada will govern the agreement between the parties. (Terms & Conditions 5). In Kentucky, enforceability of a choice of law clause is governed by Restatement (Second) Conflict of Law § 187 (1971). However, this rule only applies "in situations where it is established to the satisfaction of the forum that the parties have chosen the state of the applicable law." Restatement (Second) Conflict of Law § 187 cmt. A (1971). It appears, however, that Nevada and Kentucky law are in accord regarding the application of U.C.C. § 2-207.1

KRS 355.2-207 is used by courts to determine the contents of an agreement when it is clear that an agreement exists. Dorton v. Collins & Aikman Corp. , 453 F.2d 1161, 1165 (6th Cir. 1972). KRS 355.2-207 applies when "an agreement has been reached either orally or by informal correspondence between the two parties and is followed by one or both of the parties sending formal acknowledgements or memoranda embodying the terms so far as agreed upon and adding terms not discussed." Id. (quoting U.C.C. § 2-207 cmt. 1). Nu-X and Global prepared Purchase Orders and Sales Orders, respectively, memorializing their agreement. (Sales Orders; Change Notices). Global's Sales Orders contained a hyperlink to a Terms and Conditions page which included the arbitration clause ("Arbitration Clause"). (Sales Orders; Terms & Conditions; Def.’s Mot. Compel Arbitration Ex. C, DN 18-4, ¶10). The addition of this term by Global that was not part of Nu-X's original order is therefore governed by U.C.C. § 2-207.

Both parties address the applicability of KRS 355.2-207. (Pl.’s Resp. Def.’s Mot. Compel Arbitration 9, DN 21; Def.’s Reply Mot. Compel Arbitration 6, DN 22). KRS 355.2-207 provides that additional terms become part of the contract unless "they materially alter it." U.C.C. § 2-207(2).2 Whether an arbitration clause "materially alters" the agreement is determined on a case by case basis. Oceanconnect.com, Inc. v. Chemoil Corp. , No. H-07-1053, 2008 WL 194360, at *2 (S.D. Tex. Jan. 23, 2008) (citation omitted). "[T]he burden of proving the materiality of the alteration must fall on the party that opposes inclusion." ICC Chem. Corp. v. Vitol, Inc. , 425 F. App'x 57, 59 (2d Cir. 2011) (alteration in original) (internal quotation marks omitted) (citation omitted). A material alteration is one that would "result in surprise or hardship if incorporated without express awareness by the other party...." U.C.C. § 2-207 cmt. 4. Nu-X cannot claim surprise simply because they failed to read the conditions referenced in Global's Sales Orders. Morgan v. Mengel Co. , 195 Ky. 545, 242 S.W. 860, 862 (1922) ; Yee v. Weiss , 110 Nev. 657, 877 P.2d 510, 513 (1994). Nu-X has not contended that arbitration would cause undue hardship to the parties, though such argument would be futile. District courts have repeatedly found that a mandatory arbitration clause does not rise to the level of hardship necessary to materially alter the contract, especially when a party has been presented with the document containing the clause on more than one occasion.3 Dumont Tel. Co. v. Power & Tel. Supply Co. , 962 F. Supp. 2d 1064 (N.D. Iowa 2013) ("Thus, the mere fact that an arbitration provision deprives a party of a judicial forum cannot constitute ‘hardship’ for the purpose of materially altering a contract."); Dixie Aluminum Prods. Co. v. Mitsubishi Int'l Corp. , 785 F. Supp. 157, 161 (N.D. Ga 1992) ("[T]he arbitration provision ... does not constitute a ‘material alteration.’ "); Hagrpota for Trading & Distrib., Ltd. v. Oakley Fertilizer Inc. , No. 09 Civ. 9779(CM)(KNF), 2010 WL 2594286, at *6 (S.D.N.Y. June 18, 2010) ("[A]rbitration clauses are not normally considered ‘material’ terms in transactions between merchants, and are so routinely enforced even if one party professes unawareness of the presence of an arbitration clause in the agreement." (citations omitted)). Nu-X received the Sales Orders before paying for the products and received the sales order form with the Terms and Conditions incorporated via hyperlink on two separate occasions. Nu-X, therefore, had an opportunity and a duty to read the Terms and Conditions and was on notice of the arbitration clause.

Nu-X has not demonstrated that inclusion of...

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