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Arbitration Provision in Consumer Sales Contract Held Unconscionable
Description A New York appeals court held that Gateway's standard sales clause requiring arbitration of disputes under the rules of the International Chamber of Commerce was unconscionable under the UCC because the cost of arbitration generally exceeded the cost of the products involved.
Topic Sales
Key Words Unconscionability; Arbitration
C A S E   S U M M A R Y
Facts Gateway sells computers and related products by mail, Internet and telephone. With each order, Gateway would send a "Standard Terms and Conditions Agreement" that included the terms of the sale. One term was that any dispute would be resolved by arbitration under the rules of the International Chamber of Commerce (ICC). Plaintiffs, who bought products from Gateway, sued for various claims, contending that Gateway falsely advertised that technical support would be available, but the plaintiffs had trouble getting support on the phone. The trial court dismissed the case, noting the arbitration clause. Plaintiffs appealed.
Decision Reversed in part. Under New York's version of the UCC (2-302), the mandatory arbitration provision was unconscionable and, thus, unenforceable. The high cost of arbitration under ICC rules serves to deter buyers from invoking arbitration, effectively leaving them without a forum for disputes. Disputants are required to pay a $2,000 nonrefundable registration fee when requesting arbitration, would have to travel to Chicago for arbitration, and would have to pay Gateway's legal fees if Gateway prevailed, as the ICC uses the "loser pays" rule.
Citation Brower v. Gateway 2000, 676 N.Y.S.2d 569 (Sup. Ct., App. Div., N.Y., 1999)

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