OPINION OF THE COURT?
PHILIP S. STRANIERE, J. Claimant, Emanuel Licitra, commenced this small claims action against the defendant, Gateway, Inc. (Gateway), alleging that the defendant failed to accept return of defective equipment and reimburse him the purchase price. Defendant filed a motion seeking (1) dismissal of the complaint on the grounds that the contract between the parties precluded a court action and limited the resolution of all disputes to arbitration; (2) an award to the defendant granting summary judgment on various theories; and (3) an order compelling arbitration pursuant to the CPLR. Claimant opposes the motion. Defendant, in its papers, indicates that the correct name of the defendant is Gateway Corp. The agreement that the defendant claims is an enforceable contract between the parties indicates that the correct name is "Gateway Companies, Inc." The copyright on the agreement is held by "2000 Gateway, Inc." The trademark is registered to "Gateway, Inc." Since the correct identity of the defendant is not raised as an issue and the defendant has agreed to appear and answer the action, the court does not have to address the issue of whether or not the use of all these different corporate entities is a deceptive practice under General Business Law article 22-A.
Background:
In January 2001 claimant allegedly presented Gateway with a certificate for a "free" computer or a $700 credit towards the purchase of one as part of a promotion with Isuzu Motors. On January 14, 2001 claimant ordered a computer that cost in excess of the $700. He was able to use the promotional certificate for credit. Claimant asserts that almost immediately he experienced problems with the computer and sought to return it to defendant and have his money refunded. After negotiating with the defendant he agreed to accept a replacement computer. He received a new unit on or about February 9, 2001. Claimant alleges that the new unit still did not operate properly and he again demanded to return it and receive his money back. Claimant contends that the defendant refused to do so but continued to only offer to fix or replace the unit. It is common in this industry to accept orders for computers by telephone, facsimile transmission and electronic mail. These are often referred to as "cash now, terms later" transactions. The consumer pays for the equipment, usually by credit card, and the seller sends the equipment with the written agreement New York pizza would be caught soggy in such a box. The container may pass as a "pizza box" in those parts of the world that think food from Domino's, Little Caesars, Pizza Hut, and Papa John's is pizza. In this court's opinion such a classification cannot be recognized east of the Hudson River.
Issues Presented:
A. Is There A Contract?
The first issue presented is whether or not a contract exists between the parties and, if so, what are the terms of the contract? Common sense tells us that if you pay money and receive a product in return, a contract has been created. The unique issue with the purchase of computers is that there is no negotiation of the terms of the agreement. The written "Agreement" arrives with the product and by retaining the computer for 30 days, the consumer consents to be bound by the terms of the entire writing. As cited above, courts have held this procedure creates a binding agreement between the parties. But in the words of Ira Gershwin, "It ain't necessarily so." Accepting these holdings as being applicable, if the defendant, as a term and condition of filing a claim, required the consumer to sing "O Sole Mio" in Yiddish while standing on his or her head in Macy's window, only Mandy Patinkin would qualify to object to the receipt of defective equipment. This cannot be so. What these decisions must mean is that a contract has been formed with the price, the equipment and time of delivery agreed to, but almost nothing else. All other terms of the "Agreement" proposed by the computer company must be subject to interpretation by the courts as being additional terms because, if not, they might conflict with state law or be against public policy. All terms of the "Agreement" should not be enforced merely because the consumer retains the equipment for 30 days after receipt, especially because it is unclear when the 30-day period to protest begins. Does it commence upon delivery of the goods to the carrier since the "Agreement" states that title passes upon "delivery to the carrier" (para 1), who, parenthetically, is selected by the shipper; or does it commence upon receipt by the consumer? Is the time period stayed in the all too common situation where a parent buys the computer as a present for a student and does not give the gift for several weeks or is the clock ticking while the equipment sits in the box? There are several reasons why the clauses of the "Agreement" must be considered additional terms and not part of the contract. For instance, paragraph 8 of the document states argument can be made that the plaintiffs in those actions, by commencing litigation in the Supreme Court rather than utilizing alternate dispute resolution techniques such as arbitration, had selected a forum that both federal and state law was seeking to discourage as a method for dealing with certain commercial conflicts. There is a contract between the parties entered into when the computer was ordered. The written "Agreement" includes additional terms to be interpreted pursuant to New York law.
B. Are the Parties Required to Use Arbitration?
Defendant argues that this action must be dismissed as the "Agreement" requires the parties to submit all disputes to arbitration. The initial issue to be resolved is whether a binding contract can result when there is no signed written agreement between the parties. The case law cited above establishes the principle that the contract is formed between the parties, not upon the placement or receipt of the order, but by the customer retaining the merchandise for more than 30 days without objection (Brower, supra, at 251; Hill, supra, at 1148; ProCD, Inc. v Zeidenberg, 86 F3d 1447 [7th Cir 1996]). Accepting this as being the applicable law, the question remains whether the acknowledgment of the existence of a contract means that all of the terms listed in the "Agreement" are binding on the parties. For the reasons set forth below, the court must find that the arbitration clause of the "Agreement" (para 9) is not binding on the parties. First, the expenses involved in arbitration as opposed to the cost of small claims court, where both trial by a judge and arbitration are available, makes arbitration not a viable alternative for many persons. Currently, the cost of filing an action in small claims court in New York City by an individual is $15. Defendant has provided the court with a copy of the Code of Procedure of the NAF, the exclusive arbitration group provided for by the "Agreement." On page 39 of the Code of Procedure the "fee schedule" section begins. The court notes that the pages referred to on page 39 do not correspond to the pages on which the information indicated actually appears. The filing fee for a consumer claim of $5,000 or less is $49, an amount over three times that of small claims court. This, however, only entitles the parties to a "documentary" hearing. If the parties want a "participatory" hearing where "an Arbitrator receives testimony or arguments and reviews documents or property to render an Order or Award" (definitions [P] [1]), the stated by the Court in Marek v Laufer & Son (257 AD2d 363, 364 [1st Dept 1999]), "A party who consents to arbitrate `waives in large part many of his normal rights under the procedural and substantive law of the State, and it would be unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent' (Matter of Marlene Indus. Corp. [Carnac Textiles], 45 NY2d 327, 333-334). Consent to arbitrate cannot be given by inadvertence. `It is settled that a party will not be compelled to arbitrate and, thereby, to surrender the right to resort to the courts, absent "evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes" * * * The agreement must be clear, explicit and unequivocal * * * and must not depend upon implication or subtlety' (Matter of Waldron [Goddess], 61 NY2d 181, 183-184 [citations omitted])."
C. There is No Basis to Grant Defendant Summary Judgment.
Although, in its notice of motion, defendant cites several reasons why it should be granted summary judgment dismissing claimant's complaint, the affirmation in support of the motion only refers to the "court lacking subject matter jurisdiction" over this matter. CCA 1801 defines a small claims as any cause of action for "money only" not in excess of $3,000. Claimant's complaint, on its face, states a cause of action in that he alleges that he is seeking the refund of money for defective equipment. Claimant wants his money refunded and not new equipment. Defendant apparently is willing to replace the equipment and does not want to refund any monies. The "Agreement" permits refunds to the consumer within 30 days of purchase. Factual issues exist as to when the claimant received the computer, when he notified the defendant it was defective and when he demanded his money back. An issue remains also as to whether or not the acceptance of replacement equipment triggers a new 30-day period for rejection or creates a situation where receiving new equipment is the only remedy available since the original 30-day period has expired and the consumer has "elected" the remedy of replacement rather than refund. The part of defendant's motion seeking summary judgment must be dismissed.
D. The Federal Arbitration Act Does Not Apply.
Defendant, in its motion, asks for relief based on the Federal Arbitration Act (9 USC § 4) in that the "Agreement" contains a mandatory arbitration clause. Both federal and state law favor the resolution of disputes by the use of arbitration and title 9 of the United States Code is in place to foster this end. For title 9 to be applicable, the transaction must be one that arises from interstate commerce. The fact that defendant is in South Dakota and the claimant in New York and interstate commercial means were used to order and ship the equipment places the subject matter of the contract under the general definition of title 9 (9 USC § 2). However, it is also clear that the existence of this title does not in and of itself create a cause of action under federal law and any attempt to bring an action in Federal District Court to enforce an arbitration clause must have an independent basis of federal jurisdiction (Kehr v Smith Barney, Harris, Upham & Co., 736 F2d 1283 [9th Cir 1984]; Klocek v Gateway Inc., 104 F Supp 2d 1332 D Kan 2000]). There is no federal question involved in this dispute, nor is there an amount in controversy that would permit the action to be brought on diversity of citizenship grounds. Since the amount in dispute is less than $2,000, the jurisdiction is a state court matter and small claims court is the appropriate forum for the resolution of the claim.
E. Arbitration Cannot Be Compelled Under Article 75 of the CPLR.
Defendant is asking for alternative relief pursuant to CPLR 7503 (a), alleging that it is entitled to an order compelling arbitration. This section provides that: "A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made or complied with * * * the court shall direct the parties to arbitrate." For the reasons stated above, the defendant is not entitled to an order compelling arbitration. Again, assuming the validity of the underlying agreement, the arbitration clause cannot be enforced when it is used as a means to deprive a consumer from having the matter resolved in small claims court absent a clear, specific, knowingly written waiver of that right by the consumer. Arbitration is supposed to be a quick, more efficient and less costly forum for resolving disputes. The analysis above reveals that such is not the case when arbitration is compared to small claims procedure. Arbitration is foreclosed where it contravenes a strong public policy or an important constitutional or statutory duty (Mineola Union Free School Dist. v Mineola Teachers Assn., 46 NY2d 568 [1979]). Parties are not to be led into arbitration unwittingly through subtlety (Matter of Perfect Fit Prods. Mfg. Co. [Pantasote Co.], 5 Misc 2d 348 [1957]). There is no question that the clauses of the "Agreement" were not negotiable. The consumer is required to accept the entire "Agreement" if the consumer wants to purchase the equipment. New York law cannot sanction compelling a consumer to utilize a more onerous method of resolving disputes than one provided by the Legislature.
Conclusion:
Defendant's motion to compel arbitration and for other relief is denied in its entirety.