Facts
- Hess Corporation (Hess) operated retail gas stations in Florida and, beginning in 2003, used Advanced Power Technologies (APT), a business of Grandis Family Partnership, Ltd., to service and maintain station lighting.
- In 2007, Hess sought a major retrofit of outdoor lighting and ballasts to more energy-efficient models and began negotiating with APT in May 2007.
- In June 2007, Hess also purchased several orders of lighting ballasts from APT using Hess’s standard Purchase Order form.
- The parties’ project agreement was memorialized in a written contract dated July 2, 2007 (Agreement), consisting of an eleven-page document plus extensive appendices, schedules, and forms.
- The Agreement contained an integration clause, a provision listing documents incorporated by reference, and a New York choice-of-law clause, but it did not contain an arbitration clause or a venue provision.
- During performance, Hess issued 32 Purchase Orders connected to the project. Each Purchase Order stated that additional terms and conditions applied and directed the reader to Hess’s website, where those terms included an arbitration clause (and a venue provision).
- Hess argued that Schedule C’s references to “purchase orders” incorporated the terms of Hess’s standard Purchase Order, including the website arbitration clause.
- At an evidentiary hearing, Hess offered a May 2007 meeting agenda suggesting Hess provided APT with a sample Purchase Order, and Hess presented testimony that APT had received the same Purchase Order form when Hess ordered ballasts from APT in 2007.
- The relationship later broke down and APT filed suit in Florida state court for breach of contract; Hess removed the case to the Southern District of Florida based on diversity and asserted counterclaims (including breach of contract and conversion).
- Before discovery began, Hess moved to stay the litigation and compel arbitration, or alternatively to transfer venue. The court held an evidentiary hearing and then ruled on that motion.
Issues
- Under New York contract law, did the Agreement’s generic references to “purchase orders” (including in Schedule C) incorporate by reference Hess’s standard Purchase Order terms located on Hess’s website, creating a binding agreement to arbitrate?
- If the Agreement did not clearly incorporate those terms, could evidence of the parties’ dealings or the Federal Arbitration Act’s pro-arbitration policy supply the consent needed to compel arbitration (or to transfer venue based on the same Purchase Order terms)?
Decision
- The court denied Hess’s motion to stay the case and compel arbitration.
- The court held that the Agreement did not clearly and expressly incorporate Hess’s standard Purchase Order terms (including the website arbitration clause); Schedule C’s generic reference to “purchase orders” was insufficient as a matter of law under New York incorporation-by-reference rules.
- The court declined to treat the parties’ dealings (including the alleged delivery of a sample Purchase Order and use of Purchase Orders in other transactions) as a substitute for a clear contractual adoption of an arbitration clause in the integrated Agreement.
- The court also denied the alternative request to transfer venue, because the venue provision appeared only in the same Purchase Order terms that were not incorporated into the Agreement.
Legal Principles
- Arbitration is a matter of contract: a court may compel arbitration only if the parties agreed to arbitrate under applicable state contract-formation rules.
- When a contract selects New York law, New York rules govern whether external documents are incorporated by reference.
- Under New York law, incorporation by reference requires an express, clear identification of the document to be incorporated; a vague reference to a category of documents (such as “purchase orders”) does not automatically import boilerplate “terms and conditions,” especially dispute-resolution terms.
- An integration clause and a detailed, negotiated written agreement weigh against finding that a major dispute-resolution mechanism was adopted indirectly through general references to ancillary paperwork.
- The Federal Arbitration Act’s policy favoring arbitration does not allow a court to impose arbitration without contractual consent; that policy applies after an enforceable arbitration agreement is found.
- The same incorporation analysis applies to related boilerplate provisions (such as forum-selection or venue clauses) found only in the non-incorporated purchase-order terms.
Conclusion
Because the July 2, 2007 integrated Agreement did not clearly incorporate Hess’s standard Purchase Order terms posted on Hess’s website, the court found no enforceable agreement to arbitrate (and no incorporated venue clause) under New York law and denied Hess’s motion to compel arbitration, stay the case, or transfer venue.