ICC Chemical Corp. v. Vitol, Inc.
425 F. App'x 57 (2011)
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Rule of Law:
Under U.C.C. § 2-207(2), an additional term in a written confirmation between merchants, such as an arbitration clause, becomes part of the contract unless the party opposing inclusion can prove it is a "material alteration." An alteration is not material if it would not result in objective surprise or hardship, which cannot be shown if the term is sometimes used in the parties' industry.
Facts:
- ICC Chemical Corporation (ICC) and Vitol, Incorporated (Vitol) are both merchants in the petroleum and chemical industries.
- On July 2, 2009, ICC agreed to purchase mixed xylenes from Vitol through an independent broker, Moab Oil.
- On the same day, Moab sent a confirmation to both parties outlining the agreed-upon terms, including price, quantity, and delivery.
- On July 6, 2009, Vitol sent its own written confirmation to ICC, which repeated the original terms but added new ones, including a mandatory arbitration clause.
- Vitol's confirmation stated it superseded all previous agreements and confirmations.
- ICC received Vitol's confirmation but never objected to the arbitration clause or any other new terms prior to the legal dispute.
Procedural Posture:
- ICC Chemical Corporation filed a breach of contract action against Vitol, Inc. in the U.S. District Court for the Southern District of New York.
- Vitol moved to stay the district court proceedings, arguing the dispute was subject to a written arbitration agreement.
- The district court found that the arbitration clause was part of the parties' contract and granted Vitol's motion to stay the proceedings pending arbitration.
- ICC, as the appellant, appealed the district court's decision to the U.S. Court of Appeals for the Second Circuit; Vitol is the appellee.
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Issue:
Does an arbitration clause included in a merchant's written confirmation following an oral agreement constitute a material alteration under N.Y. U.C.C. § 2-207(2)(b) when the party opposing the clause fails to show it would cause objective surprise or hardship within the industry?
Opinions:
Majority - Per Curiam
No, an arbitration clause included in a merchant's written confirmation does not constitute a material alteration under N.Y. U.C.C. § 2-207(2)(b) when the party opposing the clause fails to show it would cause objective surprise or hardship. Under U.C.C. § 2-207, which governs contracts for the sale of goods between merchants, additional terms in a written confirmation become part of the contract unless they materially alter it. A term materially alters a contract if it would 'result in surprise or hardship if incorporated without express awareness by the other party.' The burden of proving materiality falls on the party opposing the term's inclusion. In this case, ICC failed to carry its burden of showing objective surprise. ICC's own witness acknowledged that traders in their industry 'sometimes agree to arbitration.' Because arbitration is not foreign to the industry, a reasonable merchant would not be surprised by its inclusion, and therefore, the clause is not a material alteration and becomes an enforceable part of the contract.
Analysis:
This decision reinforces the principle that an arbitration clause is not a per se material alteration under U.C.C. § 2-207. It places a significant evidentiary burden on the party opposing arbitration to demonstrate that such clauses are so unusual in their specific industry as to cause objective surprise. The court's reliance on the opposing party's own admission about industry customs highlights the fact-intensive, case-by-case nature of this inquiry and makes it more difficult for merchants to avoid arbitration clauses in confirmation forms unless they can show a complete absence of such practices in their trade.
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