## Facts

- Consumers purchased computers directly from Gateway by telephone or mail order.
- Gateway shipped the product with a “Standard Terms and Conditions Agreement” stating that keeping the computer beyond 30 days after delivery constituted acceptance.
- The agreement required that any dispute be resolved “exclusively and finally by arbitration” under International Chamber of Commerce (ICC) rules, before a sole arbitrator, in Chicago, Illinois.
- Plaintiffs filed a putative class action alleging deceptive practices and related claims (including breach of warranty, breach of contract, fraud, and unfair trade practices) tied to advertised technical support and services.
- ICC arbitration, as referenced in the clause, imposed substantial up-front administrative fees and other burdens (including travel to Chicago), making the arbitral forum economically unrealistic for small consumer claims.

## Issues

1. Whether the post-delivery “shrinkwrap” terms, accepted by retaining the computer beyond 30 days, became part of the parties’ contract, including the agreement to arbitrate.
2. Whether the ICC-based arbitration forum term was unconscionable under U.C.C. § 2-302 due to prohibitive costs and practical inaccessibility for consumers.
3. If the ICC forum term was unconscionable, whether it could be severed while enforcing the parties’ general agreement to arbitrate.

## Decision

- The appellate court held that the contract formation mechanism was valid and that an agreement to arbitrate existed based on notice in the shipped terms and acceptance by retention beyond 30 days.
- The court held the ICC forum designation substantively unconscionable because its fee structure and related burdens effectively denied consumers any realistic forum for small-value disputes.
- The court severed the ICC designation rather than voiding arbitration entirely.
- The order compelling arbitration was modified and the case remanded for arbitration in a commercially reasonable, non-prohibitive forum consistent with the parties’ agreement to arbitrate.

## Legal Principles

- Post-delivery standard terms can become binding where the buyer receives reasonable notice and an opportunity to reject by returning the goods within a stated period.
- Under U.C.C. § 2-302, a dispute-resolution term is substantively unconscionable when it operates to deny a party any meaningful ability to pursue a claim, including by requiring a financially prohibitive arbitral forum.
- Adhesion characteristics and unequal bargaining power do not alone invalidate an arbitration agreement; unconscionability turns on the fairness and practical effect of the challenged term.
- Courts may sever an unconscionable component of an arbitration clause (such as the designated arbitral institution or fee regime) while enforcing the parties’ broader agreement to arbitrate.

## Conclusion

The court enforced the parties’ agreement to arbitrate formed through Gateway’s post-delivery terms, but it refused to enforce the ICC forum requirement because its costs and burdens made arbitration illusory for typical consumers; the unconscionable forum term was severed and the matter remanded for arbitration in a reasonable alternative forum.


Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569 (N.Y. App. Div. 1st Dep’t 1998)