Textile Unlimited, Inc. v. A..BMH and Company, Inc.
240 F.3d 781 (2001)
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Rule of Law:
The Federal Arbitration Act's venue provisions are permissive and supplement general venue statutes, meaning a suit to enjoin an arbitration may be brought in any proper federal district court and is not restricted to the contractually-designated arbitration locale. Furthermore, under UCC § 2-207, an arbitration clause is a material additional term that does not become part of a contract formed by conduct when the parties' writings do not agree on that term.
Facts:
- Over a ten-month period, Textile Unlimited, Inc. ('Textile') purchased yarn from A..BMH and Company, Inc. ('A..BMH') through approximately 38 transactions.
- Each transaction began with Textile sending a purchase order containing basic terms like item, quantity, and price.
- In response, A..BMH would ship the yarn and send an invoice and order acknowledgment.
- A..BMH's forms contained additional printed terms, including a clause requiring binding arbitration of all disputes in Atlanta, Georgia.
- The terms stated that A..BMH's willingness to sell was conditioned on Textile's acceptance of these terms, and that accepting delivery of the yarn constituted acceptance of the terms.
- Textile never explicitly assented to or objected to the additional terms on A..BMH's forms.
- A dispute arose when Textile received a shipment of yarn it alleged was defective and refused to pay.
Procedural Posture:
- A..BMH submitted its payment dispute with Textile to binding arbitration in Atlanta, Georgia.
- Textile filed an action in the U.S. District Court for the Central District of California, seeking to enjoin the arbitration.
- The American Arbitration Association arbitrator determined that the case was arbitrable.
- The U.S. District Court granted Textile's motion for a preliminary injunction, staying the arbitration proceedings in Georgia.
- A..BMH, as the appellant, filed a timely appeal of the district court's order to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does the Federal Arbitration Act require a party seeking to enjoin an arbitration to file suit in the contractually-designated arbitration locale?
Opinions:
Majority - Thomas, Circuit Judge
No. The Federal Arbitration Act (FAA) does not require that an action to enjoin arbitration be brought in the district where the contract designated the arbitration to occur. The FAA’s venue provisions are permissive, not mandatory, and they supplement the general venue provisions of 28 U.S.C. § 1391. Citing the Supreme Court's decision in Cortez Byrd Chips, Inc., the court reasoned that Congress intended to liberalize, not restrict, venue choice. Requiring a party to contest the very existence of an arbitration agreement in the forum dictated by the disputed clause would contradict the fundamental principle that arbitration is a matter of consent. The court also held that the district court did not err in finding Textile was likely to succeed on the merits. Under California Commercial Code § 2207 (UCC § 2-207), A..BMH's acceptance was a counteroffer because it was expressly conditional on assent to the new terms. Since Textile never gave 'specific and unequivocal assent,' no contract was formed under § 2-207(1). Instead, a contract was formed by the parties' conduct under § 2-207(3), the terms of which consist only of the terms on which the writings agree. Therefore, the unagreed-upon arbitration clause 'drops out' of the contract.
Analysis:
This decision significantly clarifies the venue rules for actions challenging the validity of an arbitration agreement, confirming that the FAA's permissive venue approach extends to suits seeking to enjoin arbitration. It prevents a party from being forced to litigate the threshold question of arbitrability in a distant forum dictated by a disputed contract term, thereby protecting the principle that a party cannot be bound by an arbitration clause to which it has not agreed. The case also provides a straightforward application of the UCC § 2-207 'battle of the forms' doctrine, reinforcing that material additional terms, like an arbitration clause, included in an acceptance that is expressly conditional on assent, are excluded from a contract formed by conduct.
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