Hitchiner Mfg v . Modern Indust. CV-09-242-PB 10/30/09

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Hitchiner Manufacturing Co., Inc.

Case N o . 09-cv-242-PB Opinion N o .

Modern Industries, Inc.

MEMORANDUM AND ORDER

Hitchiner Manufacturing Co., Inc. (“Hitchiner”) seeks an

injunction compelling Modern Industries, Inc. (“Modern”) to

participate in an arbitration proceeding before the American

Arbitration Association (“AAA”). In the alternative, Hitchiner

seeks leave to amend its complaint to assert claims for breach of

contract, breach of the implied covenant of good faith and fair

dealing, and unjust enrichment. For the reasons set forth below,

I deny Hitchiner’s request to compel arbitration and grant it

leave to amend its complaint.

I. BACKGROUND

Hitchiner, a manufacturer and marketer of metal components

and assemblies, entered into several agreements with Modern, a supplier of production machining, heat treating, and hydraulic

products. (Pl.’s Mem. of Law in Supp. of Mot. for Prelim. I n j .

Compelling Arbitration, Doc. N o . 8-2, at 2.) Over the course of

an approximately seven-year relationship, Modern placed orders

and purchased numerous parts from Hitchiner. (Sweny Aff., Doc.

N o . 9-2, at ¶ 3.) Hitchiner alleges that Modern has defaulted on

its obligations under two of its agreements with Hitchiner by

failing to pay for metal components that it ordered and accepted.

(Pl.’s Mem. of Law in Supp. of Mot. for Prelim. I n j . Compelling

Arbitration, Doc. N o . 8-2, at 2.)

A. The Agreements Between Modern and Hitchiner

On July 3 0 , 2008, Hitchiner sent Modern price quotations

concerning the manufacture and sale of heavy duty nozzle ring

castings and actuator rods. (Pl.’s Mem. of Law in Supp. of Mot.

for Prelim. I n j . Compelling Arbitration, Doc. N o . 8-2, at 2 ; see

Compl. Ex. 1 , Doc. N o . 1-2.) In response, Modern submitted two

purchase orders, one for actuator rods dated September 1 9 , 2008,

and another for nozzle ring castings dated September 2 4 , 2008.

Hitchiner later sent Modern order acknowledgments, manufactured

the parts, and delivered them to Modern. (Pl.’s Mem. of Law in

Supp. of Mot. for Prelim. I n j . Compelling Arbitration, Doc. N o .

-2- 8-2, at 3 ; Compl. Ex. 3 , Doc. N o . 1-4

Hitchiner’s price quotations specified that they were

“subject to terms and conditions on [the] reverse side hereof.”

(See Compl. Ex. 1 , Doc. N o . 1-2.) In the bottom right-hand

corner of the side labeled “Quotation Terms and Conditions” was a

provision titled “Arbitration” that read:

any controversy or claim arising out of or relating to our acknowledgment or any breach thereof, shall be settled in accordance with the Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof.

(Id.) Modern’s purchase orders were not accompanied by such

terms and conditions, and did not contain an arbitration

provision. (See Compl. Ex. 2 , Doc. N o . 1-2.) Hitchiner’s order

acknowledgments stated, however, that they were “subject to terms

and conditions on [the] last page.” Among these terms and

conditions was the aforementioned arbitration provision. (See

Compl. Ex. 3 , Doc. N o . 1-4

B. The Arbitration Proceeding

Hitchiner submitted a Demand for Arbitration on April 1 7 ,

2009, alleging breach of contract under common law, breach of

contract under the Uniform Commercial Code (“UCC”), breach of the

covenant of good faith and fair dealing, and unjust enrichment.

-3- (See Compl. Ex. 5 , Doc. N o . 1-6.) Modern filed its answer on May

1 5 , 2009, and later filed an objection to Hitchiner’s selection

of Manchester, New Hampshire as the hearing locale, which the AAA

denied. (See Compl. Ex. 7 , Doc. N o . 1-8; Pl.’s Mem. of Law in

Supp. of Mot. for Prelim. I n j . Compelling Arbitration, Doc. N o .

8-2, at 4 ; Compl. Ex. 8 , Doc. N o . 1-9.) On July 1 4 , 2009, Modern

submitted its arbitrator ranking to the AAA, and requested

additional time to select an arbitrator. (Pl.’s Mem. of Law in

Supp. of Mot. for Prelim. I n j . Compelling Arbitration, Doc. N o .

8-2, at 4 ; see Compl. Ex. 9, Doc. N o . 1-10

Modern then amended its answer on July 1 5 , 2009 to assert

that no enforceable agreement to arbitrate existed between Modern

and Hitchiner, and that Hitchiner’s claim was therefore not

arbitrable. (Def.’s Mem. in Supp. of O b j . to Mot. for Prelim.

I n j . Compelling Arbitration, Doc. N o . 9, at 1 ; see Compl. Ex. 1 0 ,

Doc. N o . 1-11.) Modern contends that it never discussed

arbitration with Hitchiner, and that it never consummated an

agreement to arbitrate with Hitchiner. (Def.’s Mem. in Supp. of

O b j . to Mot. for Prelim. I n j . Compelling Arbitration, Doc. N o . 9

at 1-2.) Hitchiner maintains that the price quotations, purchase

orders, and order acknowledgments together formed binding

-4- contracts that included the arbitration provision. (See Pl.’s

Mem. of Law in Supp. of Mot. for Prelim. I n j . Compelling

Arbitration, Doc. N o . 8-2, at 5.)

II. STANDARD OF REVIEW

Hitchiner has requested a preliminary injunction compelling

Modern to participate in the pending arbitration proceeding.

Hitchiner’s “motion for a preliminary injunction” is properly

viewed as a motion to compel arbitration under the Federal

Arbitration Act (“FAA”), and I will treat it as such. See

. Given the pro-arbitration policy of the FAA,

it has been established that where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that “an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.”

Intergen N.V. v . Grina,

3 4 , 143 (1st Cir. 2003)

(quoting United Steelworkers of Am. v . Warrior & Gulf Navigation

Co.,

7 4 , 581 (1960)); see also Berenson v . Nat’l Fin.

Servs. LLC,

5 , 43 (1st Cir. 2007). Arbitration,

however, is “a matter of contract and a party cannot be required

to submit to arbitration any dispute which he has not agreed so

-5- to submit.” Intergen,

(internal citations

omitted).

While Section 4 of the FAA gives federal district courts the

authority to order parties to proceed to arbitration in

accordance with their agreement, a court obviously cannot compel

arbitration unless it is satisfied that a valid agreement to

arbitrate exists. Page v . Mosely,

9 1 , 295 (1st Cir.

1980), abrogated on other grounds by Shearson/American Express v .

McMahon,

(1987). Modern argues that it cannot be

compelled to arbitrate its dispute with Hitchiner because the

arbitration provision Hitchiner cites never became a part of the

contracts between the parties.

III. ANALYSIS

Modern can be compelled to arbitrate only if the parties’

sales contracts included an agreement to arbitrate. Hitchiner

has presented three arguments at different stages of the

litigation to support its contention that the contracts contained

an arbitration clause. In its complaint, Hitchiner characterized

its price quotations as offers and claimed that contracts were

formed when Modern submitted responsive purchase orders.

-6- (Compl., Doc. N o . 1 , at ¶ 25.) Because the price quotations

included an arbitration clause, Hitchiner argued, Modern

obligated itself to arbitrate when it submitted purchase orders

accepting Hitchiner’s offers.

Later, in its motion for a

preliminary injunction, Hitchiner argued that Modern’s purchase

orders were offers that Hitchiner accepted through its order

acknowledgments. It then argued that the contracts incorporated

an agreement to arbitrate because Modern submitted its offers in

response to price quotations that include an arbitration clause.

(Pl.’s Mem. of Law in Supp. of Mot. for Prelim. I n j . Compelling

Arbitration, Doc. N o . 8-2, at 5.) Finally, without abandoning

its second argument, Hitchiner argued in a recent telephone

conference that Modern bound itself to arbitrate by not objecting

to Hitchiner’s order acknowledgments even though they included an

arbitration clause. In the discussion that follows, I explain

why none of these arguments entitles Hitchiner to the relief it

seeks.

The short answer to Hitchiner’s first argument is that it

has forfeited its right to prevail on this basis by failing to

develop its argument in the memorandum it submitted in support of

-7- its motion for preliminary injunction.1 See, e.g., Rocafort v .

IBM Corp.,

(1st Cir. 2003) (arguments raised in

complaint but not developed in motion for summary judgment are

forfeited).

Hitchiner’s second argument is based primarily upon its

misinterpretation of Judge Stahl’s decision in Polyclad

Laminates, Inc. v . VITS Maschinenbau GmbH,

4 2 , 345

(D.N.H. 1990). In that case, the seller included an arbitration

clause in both its price quotations and its order

acknowledgments. The buyer’s purchase orders did not expressly

address the issue of arbitration, but they did state that the

terms and conditions of the purchase orders “are those set forth

below, those preprinted or added to the face of this purchase

order and those which are contained in attachments or exhibits

1 It is unlikely that Hitchiner’s first argument would succeed even if it had been asserted in its memorandum. Price quotations are usually not viewed as offers. See, e.g., Boise Cascade Corp. v . Reliance Nat’l Indem. Co.,

1 , (D. M e . 2001); Maurice Elec. Supply Co., Inc. v . Anderson Safeway Guard Rail Corp.,

(D.D.C. 1986); Taft-Peirce Mfg. C o . v . Seagate Tech., Inc.,

(D.R.I. 1992). More importantly, Hitchiner’s price quotations preserve Hitchiner’s right to accept or reject Modern’s purchase orders for any reason. (See Compl. Ex. 1 , Doc. N o . 1-2.) Thus, the price quotations themselves appear to be invitations to submit offers rather than offers that Modern could accept by submitting purchase orders.

-8- attached hereto, or referenced herein.” Id. at 343 (emphasis in

original). As Judge Stahl noted, at least one of the purchase

orders (which the court construed as offers), cited an order of

confirmation from the seller which in turn referenced a form that

contained an arbitration clause. Id. As a result, Judge Stahl

held that the arbitration clause was enforceable because the

buyer incorporated the arbitration clause in its offer to

purchase. Id. at 345.

In relying on Polyclad, Hitchiner fails to note that the

court enforced the arbitration agreement in that case because the

buyer included the arbitration clause by reference in its offer

to purchase. When the seller later accepted the buyer’s offer

through an order confirmation that also included an arbitration

clause, the parties clearly bound themselves to submit their

disputes to arbitration. See id. In this case, however,

Modern’s purchase orders did not incorporate by reference either

Hitchiner’s price quotations or its order confirmations.

Accordingly, Hitchiner cannot prevail on the basis of Polyclad.

In a last ditch effort to salvage its arbitration claim,

Hitchiner argued during a telephone conference on October 6,

2009, that the arbitration clause in the order acknowledgments

was incorporated into the contracts, even if the order

-9- acknowledgments are treated as acceptances and the arbitration

clause is treated as an “additional term” under Section 2-207 of

New Hampshire’s version of the Uniform Commercial Code. In

relevant part, Section 2-207, which governs “Additional Terms in

Acceptance and Confirmation,” reads as follows: (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter i t ; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

-A:2-207(1)-(2) (1994).

If the purchase orders in this case are treated as offers,

and the order confirmations are treated as acceptances, the

arbitration clause is clearly an “additional term” under Section

2-207. Further, because arbitration clauses added in an

acceptance ordinarily are deemed to materially alter a contract,

they do not become a part of the contract under Section 2-207.

See § 382-A:2-207(2)(b); Polyclad,

(following

-10- the “majority view” that a proposal to arbitrate materially

alters a contract); Supak & Sons, Mfg. C o . v . Pervel Indus.,

Inc.,

(4th Cir. 1979); Aceros Prefabricados,

S.A. v . TradeArbed, Inc.,

(2d Cir. 2002).

Notwithstanding the plain language of Section 2-207,

Hitchiner invokes Comment 6 to that section to support its

argument that Modern obligated itself to arbitrate by failing to

object to Hitchiner’s inclusion of the arbitration clause in the

order acknowledgments.2 I am unpersuaded by this argument.

Comment 6 appears to address only non-material terms that do

2 Comment 6 reads as follows:

If no answer is received within a reasonable time after additional terms are proposed, it is both fair and commercially sound to assume that their inclusion has been assented t o . Where clauses on confirming forms sent by both parties conflict each party must be assumed to object to a clause of the other conflicting with one on the confirmation sent by himself. As a result the requirement that there be notice of objection which is found in subsection (2) is satisfied and the conflicting terms do not become a part of the contract. The contract then consists of the terms originally expressly agreed t o , terms on which the confirmations agree, and terms supplied by this Act, including subsection ( 2 ) . The written confirmation is also subject to Section 2-201. Under that section a failure to respond permits enforcement of a prior oral agreement; under this section a failure to respond permits additional terms to become part of the agreement.

§ 382-A:2-207 cmt. 6.

-11- not contradict the terms of the offer. With respect to such

terms, it is correct to say, as Comment 6 does, that “a failure

to respond permits additional terms to become part of the

contract.” § 382-A:2-207 cmt. 6. I cannot adopt Hitchiner’s

more expansive interpretation of Comment 6, however, without

disregarding the plain statement in Section 2-207(2) that exempts

additional terms from becoming part of a contract if they

“materially alter” the contract. See § 382-A:2-207(2)(b).

Because commentary cannot be used to contradict a statute’s plain

meaning, I decline to adopt Hitchiner’s argument.

IV. CONCLUSION

For the foregoing reasons, I deny Hitchiner’s motion to

compel arbitration (Doc. N o . 8 ) . Hitchiner has ten (10) days

from the date of this order to amend its complaint to include the

allegations contained in its arbitration demand.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

October 3 0 , 2009

cc: George P. Butler, I I I , Esq. Leslie Calhoun, Esq. Steven J. Dutton, Esq.

-12- Kelleigh D. Murphy, Esq. Mark C . Rouvalis, Esq. L . Pahl Zinn, Esq.

-13-