Brower v. Gateway 2000, Inc.
246 A.D.2d 246, 676 N.Y.S.2d 569 (N.Y.A.D. 1 Dept. 1998)
bought a computer from Gateway through direct sales (over the phone).
it arrived, the box contained a shrinkwrap agreement which included an arbitration clause.
agreement basically say that if you
open the box, you've agreed to the terms.
shrinkwrap agreements aren't
enforceable, (see ProCD, Inc. v. Zeidenberg (86 F.3rd 1447 (7th Cir. 1996))), but that
wasn't argued in this case.
was unhappy with the customer service and attempted to sue for breach
of warranty.Gateway moved to dismiss the suit based on the arbitration
argued that the arbitration clause was unconscionable.
arbitration clause said that the arbitration would use International
Chamber of Commerce rules.The arbitrator was located in Chicago (Brower was in New York),
and it was a difficult and expensive procedure to deal with.
example, it costs $4k to file a complaint with the ICC.That's a lot considering the computer only cost $2k.
it was a European arbitrator, they could get away with making the loser
pay legal fees.That is
generally not legal under US laws.
Trial Court found for Gateway, Brower appealed.
argued that the arbitration clause
was invalid under UCC §2-207, unconscionable under UCC §2-302, and
unenforceable as a contract of adhesion.
UCC §2-207(2), you might
consider the shrinkwrap agreement to be a material
altercation of an oral agreement, since the original sale was via phone
call, and the phone call mentioned nothing about arbitration.The Court claimed that it was
acceptance of the merchandise that constituted the acceptance of the contract, so anything in the oral
agreement was simply parol evidence.
Appellate Court partially reversed the decision.They said that Brower had to submit to arbitration, but
the case was remanded to the Trial Court to chose a new arbitrator,
pursuant to the Federal Arbitration Act (9 USC § 1).
Appellate Court did not accept most of Brower's arguments, but they did
agree that the particular arbitrator chosen was not fair and was designed
to deter individual customers from using the arbitration process.
Court found that there was no procedural unconscionablity, even though a lot of the arbitration clauses
are difficult to understand, and it is unreasonable to assume that
someone would be familiar with European arbitration law.
in order for a contract to be held unconscionable, it must both be procedurallyunconscionable and substantively unconscionable.
§2-302 allows courts to
flexibly police against clauses that they find unconscionable
as a matter of law.
Unconscionability consists of a combination of grossly unequal
bargaining power plus terms that are unreasonably favorable to the more