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An Agreement to Arbitrate May Materially Alter a Contract About Material
Description Seller unilaterally inserted arbitration clause in contract for sale of textile that the buyer claims was defective. Circuit court held that state law interpretation of whether the insertion of such clause materially altered the contract governs resolution of whether the case goes to trial or to arbitration.
Topic Alternate Dispute Resolution
Key Words Arbitration, UCC, Choice-of-Law
C A S E   S U M M A R Y
Facts Colorado clothing maker Twist ordered Seatex fabric. After negotiations, Twist placed an order with the New York company. Seatex unilaterally added an arbitration clause to the contract. The fabric turned out to be defective in use, Twist claimed. After efforts to resolve the problem failed, Twist sued Seatex in Colorado state court. Seatex moved the suit to federal court and moved to stay litigation and to compel arbitration pursuant to the Federal Arbitration Act.
District Court Decision Prevailing trade usage in the textile industry is arbitration, so inclusion of that term in the contract was not a material alteration. Litigation to be stayed in favor of arbitration.
Court of Appeals Decision UCC 2-207, concerning the unilateral insertion of additional terms in a contract, controls the determination of the existence of an arbitration agreement. The district court must first determine whether the law of Colorado or of New York governs. The law regarding the materiality of the arbitration clause and the one-year limit required under the arbitration clause may be treated differently in the two states. The "FAA does not preempt the state law issue of whether the parties have agreed to arbitrate their contract dispute." Reversed and remanded for a choice of law determination.
Citation Avedon Engineering v. Seatex, ---F.3d--- (1997 WL 608591, 10th Cir.)
126 F. 3d 1279 (10th Cir., 1997)

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