Aceros v. TradeArbed

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DMC/SandT/18/02
Aceros Prefabricados, S.A. v. TradeArbed, Inc.
Court of Appeals for the Second Circuit; Miner, Calabresi and Cabranes; 282 F.3d 92 (2d Cir. 2002); February 13, 2002.
confirmation: arbitration: material alteration: arbitration clause: arbitration provision: motion to stay: burden of proof
Summary
In this case the Second Circuit Court of Appeals held that the so-called New York rule that arbitration agreements require a higher degree of proof than non-arbitration agreements is preempted by the Federal Arbitration Act. Instead, the appropriate evidence standard to be applied to agreements to arbitrate is the preponderance standard. [A preponderance of the evidence means evidence that makes the existence of a fact more likely than not]

Case Note contributed by Jana N. Byron, attorney with the firm Healy & Baillie LLP, New York, International Contributors to the website.

DMC Category Rating: Reversed

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Facts
In December 1999, TradeArbed ("TA") and Aceros began exchanging correspondence in connection with Aceros’ prospective purchase of steel from TA. During the course of the correspondence, TA sent three confirmation orders dated January 17, January 28 and March 9, 2000. Each confirmation included a cover sheet stating, "[s]ubject to terms stated on General Conditions of Sale enclosed. Your failure to object to any term within 10 days of receipt of this contract shall be deemed an acceptable by you." Although the General Conditions of Sale were not included with the confirmation orders, it was undisputed that the General Conditions of Sale included an arbitration clause requiring arbitration in New York in accordance with the rules of the American Arbitration Association.

When Aceros commenced an action against TA for breach of contract in the U.S. District Court for the Southern District of New York, TA moved for a stay pending arbitration pursuant to the arbitration clause contained in the General Conditions of Sale and the Federal Arbitration Act ("FAA"). The district court denied the motion holding that, as a matter of law, an arbitration agreement materially alters legal rights under a contract. Thus, reasoned the district court, parties to a contract will not be held to have chosen arbitration unless there is an express, unequivocal agreement to arbitrate. In the TA/Aceros matter, the trial court concluded that there was no express, unequivocal agreement to arbitrate between TA and Aceros. Instead, the district court found that the confirmation orders were proposals for additional terms to be included in the agreement between the parties. TA appealed.

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Judgment
On appeal, the Second Circuit Court of Appeals first noted that parties to a contract may incorporate by reference terms providing for arbitration of disputes. The Court then went on to hold that the so-called New York rule relied on by the district court that arbitration agreements require a higher degree of proof than non-arbitration agreements was preempted by the FAA. Specifically, the Second Circuit turned to the Supreme Court’s opinion in Perry v. Thomas, 482 U.S. 483 (1987) where it held that under the FAA "[a] court may not, . . . in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes non-arbitration agreements under state law." Following the Supreme Court, the Second Circuit ruled that "contrary to the district court’s holding, arbitration agreements do not, as a matter of law, constitute material alterations to a contract; rather, the question of their inclusion in a contract . . is answered by examining . . .their materiality under a preponderance of evidence standard as we would examine any other agreement."

Applying the preponderance standard, the court found that there was sufficient evidence to establish that the arbitration provision in the General Conditions of Sale was included in the contract between TA and Aceros. Accordingly the court remanded the case to the district court with instructions that the agreement to arbitrate be enforced.

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