Polytek Engineering Co. v. Jacobson Companies
1997 U.S. Dist. LEXIS 19902, 1997 WL 769389, 984 F. Supp. 1238 (1997)
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Rule of Law:
An arbitration clause contained in a document attached to a purchase order is considered a binding "agreement in writing to arbitrate" under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards when the purchase order explicitly incorporates the terms of the attached document. A party's subsequent conduct, such as negotiating other terms from the attached document without objecting to the arbitration clause, further demonstrates assent to be bound by all of its provisions.
Facts:
- In 1992, Polytek Engineering Co., Ltd., a Hong Kong corporation, began negotiating to sell rubber recycling equipment to Hebei Import & Export Corp., a company in the People's Republic of China.
- Polytek then contacted Jacobson, Inc., a Minnesota manufacturer, to produce the equipment.
- In February 1993, Jacobson's president sent a fax to Polytek stating his understanding that Polytek would issue a purchase order with the official contract (the Hebei contract) attached.
- In April 1993, Polytek finalized its contract with Hebei (the 'Hebei Contract'), which contained technical specifications, a letter of credit requirement, and a clause requiring all disputes to be arbitrated by CIETAC in Beijing, China.
- On May 10, 1993, Polytek sent Jacobson a one-page Purchase Order which stated, 'For detail specification and terms, please refer to the attached contract,' and 'All the terms and conditions should conform with the main contract attached.' A copy of the Hebei Contract was attached.
- Following receipt of the Purchase Order, Polytek and Jacobson negotiated and altered the letter of credit requirement found in the attached Hebei Contract, but Jacobson never objected to the arbitration clause.
- Jacobson proceeded to manufacture and ship the equipment to China and received payment from Polytek as specified in the Purchase Order.
Procedural Posture:
- Hebei Import & Export Corp. initiated a CIETAC arbitration proceeding in China against Polytek, claiming the equipment provided was non-conforming.
- On March 29, 1996, the CIETAC tribunal issued an award in favor of Hebei against Polytek.
- On April 3, 1996, Polytek initiated a separate CIETAC arbitration proceeding in China against Jacobson for breach of contract.
- Jacobson responded to the CIETAC proceeding by denying the existence of an arbitration agreement and challenging CIETAC's jurisdiction.
- CIETAC determined it had jurisdiction, held a hearing which Jacobson did not attend, and issued a final award of $1,700,367.41 in favor of Polytek on May 26, 1997.
- Polytek filed a petition in the U.S. District Court for the District of Minnesota to confirm and enforce the foreign arbitral award against Jacobson.
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Issue:
Does a purchase order that explicitly references and attaches a separate contract, stating that 'All the terms and conditions should conform with the main contract attached,' successfully incorporate the arbitration clause from the attached contract, creating an 'agreement in writing to arbitrate' enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
Opinions:
Majority - Rosenbaum, District Judge
Yes, a purchase order that explicitly incorporates an attached contract by reference creates a binding written agreement to arbitrate under the terms of that attached contract. The court found that the Purchase Order's explicit language twice referring to the attached Hebei Contract and stating that 'All the terms and conditions should conform with the main contract' was sufficient to incorporate the arbitration clause. This conclusion was bolstered by the parties' prior correspondence, in which Jacobson's president acknowledged the Hebei Contract would be attached to the purchase order. Furthermore, the parties' subsequent conduct, specifically their negotiation of the letter of credit provision from the Hebei Contract, demonstrated that both parties were aware of and operating under the terms of the attached document. By raising objections to one clause (the letter of credit) while remaining silent on the arbitration clause, Jacobson implicitly accepted it. Because a valid 'agreement in writing' existed under Article II of the Convention, and Jacobson failed to prove any of the defenses under Article V, the court must confirm the foreign arbitral award.
Analysis:
This decision emphasizes the legal power of incorporation by reference in international commercial agreements and reinforces the strong U.S. public policy in favor of enforcing foreign arbitral awards under the New York Convention. The case serves as a precedent that a party cannot selectively choose which terms of an incorporated document to follow; silence on a specific term, like an arbitration clause, can be construed as acceptance, especially when other terms from the same document are actively discussed. This ruling provides greater certainty for international businesses relying on arbitration, showing that U.S. courts will perform only a limited review and will enforce arbitration clauses embedded in ancillary documents if they are properly incorporated.
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