## Facts

- Rich and Enza Hill ordered a Gateway computer by telephone and paid by credit card.
- Gateway shipped the computer in a box that included a printed “Standard Terms and Conditions Agreement.”
- The printed terms stated that they governed the parties’ relationship and that the customer agreed to them by keeping the computer for more than 30 days instead of returning it.
- The terms included a clause requiring disputes to be resolved by arbitration.
- The Hills kept the computer for more than 30 days, later complained about components and performance, and filed a federal lawsuit asserting, among other claims, RICO violations predicated on alleged mail and wire fraud.
- Gateway moved to compel arbitration based on the shipped terms; the district court denied the motion for lack of a valid agreement and inadequate notice of the arbitration clause.
- Gateway filed an interlocutory appeal under 9 U.S.C. § 16(a)(1)(A).

## Issues

1. Whether standard terms shipped with a product, made effective unless the buyer returns the product within a stated period, become part of the parties’ contract when the buyer retains the product past that period.
2. Whether the Federal Arbitration Act permits refusing to enforce an arbitration clause based on the buyer’s failure to read it or on demands for heightened notice or prominence for arbitration terms.

## Decision

- The Seventh Circuit reversed the order denying arbitration.
- The court held that Gateway’s shipped terms, including the arbitration clause, became part of the contract when the Hills kept the computer beyond the 30-day return period.
- The court rejected the argument that the contract was fully formed during the telephone order such that the shipped terms were merely proposed later modifications.
- The court held that the arbitration clause was enforceable under the Federal Arbitration Act and could not be invalidated by imposing special prominence or notice requirements applicable only to arbitration.
- The case was remanded with instructions to compel arbitration and to dismiss or stay the action.

## Legal Principles

- A seller may structure acceptance so that the buyer accepts by retaining goods after delivery for a specified period, where the buyer has an opportunity to review terms and reject them by returning the goods.
- Under U.C.C.-style formation rules, contract formation may occur through a sequence of steps, and an offer may invite acceptance by conduct subject to stated conditions.
- A party may be bound by contract terms even if the party did not read them, absent a generally applicable contract defense.
- The Federal Arbitration Act requires enforcement of arbitration agreements on the same footing as other contract terms; courts may not impose arbitration-specific notice, prominence, or separate-assent requirements.
- Challenges to an arbitration clause must rest on grounds that would invalidate contracts generally (e.g., fraud, duress, unconscionability), not on arbitration-specific disfavor.

## Conclusion

The court held that the buyers accepted the in-the-box terms by keeping the computer past the stated return period and that the arbitration clause was enforceable under the FAA without any special notice requirement, requiring the dispute to proceed in arbitration rather than federal court.


Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997)