Brower v. Gateway 2000, Inc.
246 A.D.2d 246, 676 N.Y.S.2d 569 (N.Y.A.D. 1 Dept. 1998)
- Brower bought a computer from Gateway through direct sales (over the phone).
- When it arrived, the box contained a shrinkwrap agreement which included an arbitration clause.
- Shrinkwrap agreement basically say that if you open the box, you’ve agreed to the terms.
- Sometimes, 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.
- Brower was unhappy with the customer service and attempted to sue for breach of warranty. Gateway moved to dismiss the suit based on the arbitration clause.
- Brower argued that the arbitration clause was unconscionable.
- The 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.
- For example, it costs $4k to file a complaint with the ICC. That’s a lot considering the computer only cost $2k.
- Because it was a European arbitrator, they could get away with making the loser pay legal fees. That is generally not legal under US laws.
- The Trial Court found for Gateway, Brower appealed.
- Brower argued that the arbitration clause was invalid under UCC §2-207, unconscionable under UCC §2-302, and unenforceable as a contract of adhesion.
- Under 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.
- The 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).
- The 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.
- The 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.
- Generally, in order for a contract to be held unconscionable, it must both be procedurally unconscionable and substantively unconscionable.
- UCC §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 powerful party.