Avedon Engineering, Inc. v. Seatex

F I L E D
United States Court of Appeals
Tenth Circuit

OCT 3 1997
PUBLISH
PATRICK FISHER
Clerk
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

AVEDON ENGINEERING, INC., a
Colorado corporation; as assignee of
H.B.C., INC., a Colorado corporation,

Plaintiff-Appellant,

v.

SEATEX, a New York corporation;
No. 96-1066
CONSOLTEX, a New York
corporation; THE BALSON-
HERCULES GROUP LTD., a Rhode
Island corporation and DOES 1-20,
whose true names are unknown,
inclusive,

Defendants-Counter-
Claimants-Appellees.

Appeal from the United States District Court
for the District of Colorado
(D.C. No. 94-B-2561)

John W. Gaddis, of Grant, Bernard, Lyons & Gaddis, Longmont, Colorado, for
Plaintiff/Appellant.

Mary P. Birk, of Baker & Hostetler (Marjorie N. Sloan, of Baker & Hostetler,
with her on the brief), Denver, Colorado, for Defendants/Counter-
Claimants/Appellees.
Before SEYMOUR, Chief Judge, BRORBY and KELLY, Circuit Judges.

SEYMOUR, Chief Judge.

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 In this breach of contract action against Seatex, 1 Twist 2 appeals the district

court’s denial of a jury trial on the issue of whether its contract with Seatex

included an agreement to arbitrate, and the district court’s stay of litigation

pending arbitration. Twist also appeals the grant of summary judgment to Seatex

for Twist’s failure to timely arbitrate. Because we conclude the district court

erred by failing to make a choice of law determination before resolving those

issues, we reverse and remand for further proceedings consistent with this

opinion.

I.

Twist was formed in 1992 to design and manufacture clothing and

accessories for the snowboard industry. Twist evaluated the suitability of Seatex

fabric for use in its clothing line by ordering product samples. At the time of the

relevant transactions, Twist’s principal place of business was Colorado and

Seatex’s principal place of business was New York. In a series of preliminary

1
Defendant Seatex is a New York-based division of Balson-Hercules, a
Rhode Island corporation. Seatex is a converter of textiles which buys fabric in a
“greige,” or unfinished, state and arranges for it to be dyed and finished according
to specifications of commercial customers.
2
Plaintiff Avedon Engineering, Inc., is the assignee of H.B.C., Inc., a
Colorado corporation engaged in the manufacture of snowboarding apparel under
the trade name Twist. In this opinion, both entities will be referred to as Twist.

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transactions Twist negotiated quantity, price and fabric quality with Goebel

Textiles, agent for Seatex, through telephone calls and facsimile transmissions.

Twist placed its purchase orders with Goebel by facsimile transmission.

For at least three of the preliminary transactions, Seatex responded to the

purchase orders by sending a standardized sales confirmation form from New

York to Twist in Colorado. Some special conditions of performance were noted

in small type at the bottom front of the confirmation form, among which was a

notice regarding arbitration. 3 Two clauses relevant to arbitration appeared in full

on the back of the form. Clause 10 provided that disputes arising out of

transactions between the parties would be settled by arbitration, and clause 11

provided that future transactions between the parties would be controlled by the

terms of the sales confirmation form unless superseded by a signed contract. 4

3
In relevant part the preprinted form states: “This contract is subject to all
the terms and conditions on this and the reverse side hereof, including the
provisions providing for ARBITRATION and EXCLUSION OF WARRANTIES.”
Rec., vol. I at 99.
4
The relevant portions of the clauses state:

10. ARBITRATION: (a) Any controversy arising out of or relating to
this contract or any modification or extension thereof including any
claim for damages and/or rescission, shall be settled by arbitration
before a panel of three arbitrators in the city of New York, (or, if
applicable law requires some other place, then such other place) in
accordance with the rules then obtaining of the American Arbitration
Association.
(b) The parties consent to the jurisdiction of the Superior Court of
the State of New York, and of the United States District Court for the

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 It is undisputed that the arbitration and future transactions clauses were not

negotiated terms of contract. Both were inserted unilaterally by Seatex in its

confirmation forms. Although Twist paid for and retained the fabric pursuant to

its preliminary orders and does not dispute that it received the confirmation forms

reflecting its preliminary purchases, Twist neither signed nor returned those

forms.

After completing its preliminary product evaluation, Twist placed a bulk

Southern District of New York, for all purposes in connection with
arbitration . . . .
....
(d) The arbitrators shall have no power to alter or modify any express
provision of this contract or to render an award which has the effect
of altering or modifying any express provision hereof, provided,
however, that any application for reformation of the contract shall be
made to the arbitrators and not to any Court and the arbitrators shall
be empowered to determine whether valid grounds for reformation
exist.
(e) Arbitration proceedings must be instituted within one year after
the claimed breach occurred, and the failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings and a waiver of all claims.
Notwithstanding any law to the contrary, the determination of
whether said one-year period has expired shall be made by the Court,
and shall not be within the jurisdiction of the arbitrators.
....
11. FUTURE TRANSACTIONS: Except to the extent that a future
transaction is governed by a signed contract between two parties, the
terms and conditions of this contract including without limitation, the
provision for arbitration shall govern all future transactions.

Rec., vol. I at 100.

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order in April 1993 for specially treated waterproof fabric for its 1993-94 line of

clothing. As it had with each of its preliminary transactions, Twist placed this

order by facsimile transmission to Seatex’s agent. Twist made one alteration to

this purchase order: in May of 1993, it increased the size of the order by facsimile

transmission. Seatex alleges that it confirmed this order by sales confirmation

form No. 2155. Twist disputes whether it received confirmation form No. 2155,

and further argues that, even if the form was sent, it was not timely. 5 Twist did,

however, accept delivery in Colorado and pay for the fabric ordered in April and

May of 1993.

Twist used the fabric to manufacture its 1993-94 line of clothing. By

December 1993, Twist began to receive reports that a special urethane coating

designed to waterproof the fabric was peeling. Clothing manufactured from this

fabric was returned to Twist as defective. After efforts to resolve the problem

with Seatex proved unavailing, Twist brought this suit in Colorado state court in

1994, 6 seeking damages for breach of contract, breach of express and implied

5
Because the only form proffered by Seatex as evidence of the April
transaction, rec., vol. I at 104, reflects the increased order for 200 denier oxford
flat fabric placed in May, Twist contends there is no evidence form 2155 was
timely sent by Seatex as required by section 2-207(1) of the UCC, id. at 137. Mr.
Goebel, Seatex’s agent, confirmed that Twist did not increase its order until May
12, 1993. Id. at 145. Mr. Goebel further attested that by June 3, 1993, he had not
yet received from Seatex an acknowledgment of the April contract. Id.
6
Twist originally filed suit in August 1994 in California, then its principal
place of business. That suit was dismissed for lack of jurisdiction.

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warranties, negligence, negligence per se, negligent misrepresentation, strict

products liability and deceptive trade practices.

Seatex removed the action to federal court and contended the arbitration

clause contained in the unsigned sales confirmation forms became part of the

April/May 1993 contract by operation of section 2-207 of the Uniform

Commercial Code (UCC). Seatex accordingly made motions to stay litigation and

to compel arbitration pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§

3, 4. Twist responded that section 2-207 prohibits inclusion of the arbitration

term because it materially alters the contract. Moreover, Twist argued that

whether there is a material alteration of a contract presents a question of fact and

requested a jury trial on that issue as provided in 9 U.S.C. § 4.

The district court concluded that the future transactions clause in the

preliminary sales confirmation forms negated any issue of fact regarding Twist’s

receipt of the sales confirmation form No. 2155. The court then concluded under

the facts presented and the prevailing trade usage in the textile industry that

arbitration was not a material alteration and was therefore included in the

Twist/Seatex contract. The district court granted a stay of litigation pending

arbitration and retired the case from its active docket.

Six months later, Seatex brought a motion to reactivate the case and a

motion for summary judgment on all claims for Twist's failure to timely arbitrate

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according to the terms in the arbitration clause. The district court ruled that its

earlier legal analysis on inclusion of the arbitration clause applied with equal

force to all of the terms within the clause, and that Twist was bound by conditions

in the arbitration clause which required filing of claims within one year of breach

with the American Arbitration Association (AAA) in New York. The court

concluded that Twist had waived all claims by failing to timely make that filing

and granted summary judgment to Seatex. Twist now appeals the initial denial of

a jury trial and grant of a stay, 7 and the final grant of summary judgment to

Seatex.

II.

“We review a district court's grant or denial of a motion to compel

arbitration de novo, applying the same legal standard employed by the district

court.” Armijo v. Prudential Ins. Co. of America, 72 F.3d 793, 796 (10th Cir.

1995). We also review de novo a district court’s decision to deny a jury trial on

the factual question of whether the parties agreed to arbitrate. Par-Knit Mills,

Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n.9 (3d Cir. 1980).

7
Under the Federal Arbitration Act (FAA), Twist could not immediately
appeal the district court’s interlocutory order granting a stay of litigation pending
arbitration. 9 U.S.C. § 16(b).

-8-
 Before granting a stay of litigation pending arbitration, a district court must

determine that an agreement to arbitrate exists. 9 U.S.C. §§ 3, 4; Hornbeck

Offshore (1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754 (5th Cir.

1993); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987).

The existence of an agreement to arbitrate “is simply a matter of contract between

the parties; [arbitration] is a way to resolve those disputes--but only those

disputes--that the parties have agreed to submit to arbitration.” First Options of

Chicago, Inc. v. Kaplan, 115 S. Ct. 1920, 1924 (1995). When parties dispute the

making of an agreement to arbitrate, a jury trial on the existence of the agreement

is warranted unless there are no genuine issues of material fact regarding the

parties’ agreement. Par-Knit Mills, 636 F.2d at 54 & n.9.

Both Twist and Seatex agree that section 2-207 of the UCC controls the

determination of the existence of an agreement to arbitrate. 8 Section 2-207

8
Section 2-207 provides:
(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 it; or
(c) notification of objection to them has already been given or is
given within a reasonable time after notice of them is received.

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dictates that additional terms inserted unilaterally in a confirmation form become

part of a contract between merchants 9 unless: an offer is made expressly

conditional to its terms, § 2-207(2)(a); the additional terms are expressly objected

to, § 2-207(2)(c); or the terms cause a material alteration to the contract, § 2-

207(2)(b). 10 Twist neither limited acceptance of any of its offers to their

(3) Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such
case the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this
Act.

U.C.C. § 2-207 (1994) (emphasis added). Both Colorado and New York have
adopted section 2-207 in its entirety, C OLO . R EV . S TAT . A NN . § 4-2-207 (Bradford
Pub. Co. 1992); N.Y. U.C.C. L AW § 2-207 (McKinney 1997)).
9
A merchant is one “who deals in goods of the kind or otherwise by his
occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved in the transaction.” U.C.C. § 2-104 (1994). Twist
admits it is an “acknowledged leader in designing, manufacturing and selling
apparel in the international snowboard apparel market.” Rec., vol. I at 108.
Twist is thus a merchant in the apparel industry.
10
Seatex also argues, and the district court agreed, that subsection (3) of
section 2-207 provides an alternate basis for holding that the parties have agreed
to arbitrate disputes. We disagree. Seatex contends the arbitration and future
transactions clauses in the preliminary sales confirmation forms control this
dispute. Seatex characterizes those forms as confirming “previous discussions
concerning the terms of the specific sale.” Rec., vol. I at 161. Seatex also states
that “[i]t should go without saying that offer-and-acceptance precedes the sending
of a contract confirmation.” Id. at 165. In such a situation, 2-207(3) would not
apply “for it contemplates contract formation through performance, and here the
contract was already formed . . . prior to performance.” 1 J AMES J. W HITE &
R OBERT S. S UMMERS , U NIFORM C OMMERCIAL C ODE § 1-3, at 25-26 (4th ed. 1995).

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terms 11 nor expressly objected to the terms in the preliminary sales confirmation

forms. Thus, unless inclusion of the arbitration clause caused a material

alteration 12 to the contract, arbitration became part of the Twist/Seatex

preliminary sales contracts, and by operation of the future transactions clause, 13

became part of the April/May 1993 contract.

The first step in evaluating whether the arbitration term was included in the

Twist/Seatex contract should be a determination of what state’s law controlled the

formation of that contract. Coastal Indus., Inc. v. Automatic Steam Prods. Corp.,

654 F.2d 375, 377-78 (5th Cir. 1981). The district court did not perform such an

analysis, despite Twist’s assertion that Colorado law should be applied. The court

was apparently persuaded by Seatex’s argument, rec., vol. I at 42 n.10, that no

choice of law analysis was necessary because both Colorado and New York, the

11
Twist suggested in its brief in opposition to Seatex’s motion for summary
judgment that it limited its April 20 order expressly to its terms. However, Twist
did not raise this issue in the district court when it argued that arbitration
materially altered its contract with Seatex. The district court concluded that
Twist did not make its offer expressly limited to its terms, and there is no
evidence the district court’s determination was erroneous.
12
Terms which“materially alter” a contract include those which result in
surprise or hardship to the parties. U.C.C. § 2-207 cmt. 4 (1994). The official
comments to section 2-207 give some examples of terms which can cause surprise
and hardship, but arbitration is not among them. Id.
13
Because we conclude infra that the district court erred when it failed to
make a choice of law determination, we do not separately address whether the
future transactions clause independently constitutes a material alteration under
section 2-207. That issue should be considered, if necessary, on remand.

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relevant states, have enacted identical versions of section 2-207 of the UCC and

because any New York decisional law diverging from the general application of

the UCC would be preempted by the FAA.

It is true that both states have adopted identical versions of section 2-207,

and we agree that choice of law analysis is generally unnecessary if the relevant

states have enacted identical controlling statutes. However, because we note at

least two issues which we think Colorado and New York would analyze

differently--the materiality of the arbitration clause and the one-year limitations

period required under the arbitration clause--a choice of law determination is

necessary. Moreover, we conclude the FAA does not preempt the state law issue

of whether the parties have agreed to arbitrate their contract dispute.

A. Materiality of Arbitration Terms

Colorado has not directly addressed whether inclusion of arbitration as an

additional term materially alters a contract, and thus we presume it would follow

a conventional UCC analysis on this issue. Arguably, arbitration as an additional

term would “‘materially alter’ [a contract] and thus not survive 2-207(2).” 1

J AMES J. W HITE & R OBERT S. S UMMERS , U NIFORM C OMMERCIAL C ODE § 1-3, at 27

(4th ed. 1995). However, the burden of showing that arbitration is a material

alteration is on the party opposing its inclusion because section 2-207 presumes

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inclusion of additional terms between merchants. Comark Merchandising, Inc. v.

Highland Group, Inc., 932 F.2d 1196, 1201 (7th Cir. 1991). 14

New York does not conform to typical UCC analysis, at least with respect

to the burden of proof that arbitration is a material alteration when introduced as

an additional term. New York presumes that arbitration is material; the

presumption effectively carries the initial burden of the party opposing arbitration

as a material alteration. New York’s highest court has stated that “the inclusion

of an arbitration agreement materially alters a contract for the sale of goods, and

thus, pursuant to section 2-207 (subd. (2), par. (b)), it will not become a part of

such a contract unless both parties explicitly agree to it.” Marlene Indus. Corp. v.

Carnac Textiles, Inc., 380 N.E.2d 239, 242 (N.Y. 1978). Although the proponents

14
Usage of trade could be relevant to the determination of material
alteration because it “may define a material alteration under section 2-207, and
thus determine whether a proposed term in a ‘battle of the forms’ will be given
effect.” 1 W HITE & S UMMERS , § 3-3, at 119. If Colorado law applies, the district
court will have to decide in the first instance how that state would deal with the
burden of proof issue on trade usage. Some courts, purporting to apply general
UCC law, have concluded the burden of showing that arbitration is not a trade
usage is with the party opposing the addition of arbitration. Cf. Wilson Fertilizer
& Grain, Inc. v. ADM Milling Co., 654 N.E.2d 848, 854 (Ind. Ct. App. 1995)
(proponents of arbitration not required to put forward evidence of trade usage
when party opposing inclusion alleges only its actual surprise in opposition to
inclusion). Other courts have concluded that after the party opposing inclusion of
an arbitration provision has made a prima facie showing of hardship or surprise,
the burden shifts to the party urging inclusion to prove trade usage. Cf. Comark
Merchandising, Inc. v. Highland Group, Inc., 932 F.2d 1196, 1202 (7th Cir. 1991)
(party urging inclusion should prove trade usage to show surprise was
unreasonable).

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of arbitration as trade usage may in some limited circumstances make a sufficient

showing to alter this result, 15 application of New York law in the absence of such

15
New York has held that trade usage can, in some limited circumstances, be
used to supplement express terms of a contract. See Schubtex, Inc. v. Allen
Snyder, Inc., 399 N.E.2d 1154, 1156 (N.Y. 1979) (acknowledging possibility that
trade usage, with appropriate course of dealing between parties showing express
assent, could incorporate an arbitration term into the parties’ agreement); compare
Woodcrest Fabrics, Inc. v. B & R Textile Corp., 464 N.Y.S.2d 359, 360 (N.Y. App.
Div. 1983) (Sandler, J.P., concurring) (accepting arbitration as trade usage upon
receipt of affidavits of two independent brokers) with Jones Apparel Group, Inc. v.
Petit, 426 N.Y.S.2d 739, 740 (N.Y. App. Div. 1980) (acknowledging possibility
that arbitration could be included in contract absent express agreement upon proof
of trade usage sufficient to show entire industry is bound by practice, but deciding
that proof was insufficient to carry proponent’s burden on trade usage).
Seatex argued below that an arbitration clause is not a material alteration
because arbitration is customarily used in the textile industry. If New York law
applies, we disagree that Seatex’s proof on this point was sufficient to show that
arbitration became part of the Twist/Seatex contract as a matter of law. In New
York the burden is on the proponent of arbitration to establish that arbitration is not
a material alteration. Seatex offered two trade codes as proof of the textile
industry’s trade practice of arbitrating disputes. Rec., vol. I at 56, 87. However,
“[t]o prove [trade usage], a party must usually call on an expert.” 1 WHITE &
SUMMERS § 3-3, at 124. A trade code, by itself, is insufficient to show the required
regularity of observance and expectation of use within the industry. Id. at n.50.
Seatex also offered the affidavit of one of its vice presidents, rec., vol. I at 54, and
the affidavit of Seatex’s agent, Mr. Goebel, id. at 145. Attestations offered by
Seatex employees that arbitration is the trade practice are insufficient to prove
trade usage. H & W Indus., Inc. v. Occidental Chem. Corp., 911 F.2d 1118, 1122
(5th Cir. 1990).
To establish trade usage, more is required than “‘[a] vague, unspecific
reference . . . to the effect that “in the textile industry arbitration is the usual
accepted method of resolving disputes.”’” Diskin v. J.P. Stevens & Co., Inc., 836
F.2d 47, 51-52 (1st Cir. 1987) (quoting Jones Apparel Group, 426 N.Y.S.2d at
740). Moreover, even if the proof offered by Seatex had been sufficient to show a
general textile industry practice of arbitration, a question of fact would remain as to
whether an apparel merchant like Twist is subject to the trade usage of the textile
industry, whether Twist’s reliance on the advice and guidance of Goebel defeats the

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a showing presumptively requires the conclusion that arbitration is a material

alteration and thus would not become part of the Twist/Seatex contract.

B. One-Year Limitations Period

There is another potentially significant difference between Colorado and

New York law. The arbitration clause at issue in this case not only requires

arbitration, but also requires it to be instituted within one year. New York has

adopted the general UCC provision permitting parties to contractually agree to

alter the limitations period to a minimum of one year. N.Y. U.C.C. L AW § 2-

725(1) (McKinney 1997). It is thus possible New York would conclude that

unilateral inclusion of such a one-year limitations period as an additional term in

an otherwise valid agreement to arbitrate would not constitute a material

alteration; such a reduction in limitations periods might reasonably be expected

whenever a party contracts in New York. Cf. Shur-Value Stamps, Inc. v. Phillips

Petroleum Co., 50 F.3d 592, 599 (8th Cir. 1995) (concluding a one-year

limitations period inserted as an additional term in a confirmation form is deemed

by the legislature to be reasonable and customary and does not impose surprise

and hardship within the meaning of section 2-207 if the limitations period is

application of trade usage, or whether the terms of this arbitration clause are
consistent with trade usage.

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permitted by state law).

Colorado, on the other hand, has not adopted the general UCC provision

permitting parties to contractually reduce their limitations period. C OLO . R EV .

S TAT . A NN . § 4-2-725 (Bradford Pub. Co. 1992). In Colorado, the state limitation

period for “[a]n action for breach of any contract for sale . . . may not be varied

by agreement of the parties.” Id. § 4-2-725(1). Parties in Colorado would not

expect that limitations periods would be reduced below the statutory minimum.

Although arbitration is arguably not an “action” 16 to which Colorado’s prohibition

against variations in limitations periods applies, id., the prohibition does not have

to be enforceable against arbitration clauses to “surprise” Twist as a party

contracting under Colorado law. If Colorado law applies, it is likely the

limitations period would be excluded from the Twist/Seatex contract as a material

alteration under section 2-207(2)(b).

C. Preemption

To obviate the potentially substantial impact of state law on the

determination of whether the parties agreed to arbitrate, Seatex argues that New

16
Under the Colorado UCC, an “‘[a]ction’ in the sense of a judicial
proceeding includes recoupment, counterclaim, setoff, suit in equity, and any
other proceedings in which rights are determined.” C OLO . R EV . S TAT . A NN . § 4-
1-201(1) (Bradford Pub. Co. 1992).

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York law would be inapplicable in any event because the FAA preempts its

application. Seatex Br. at 21. In particular, Seatex contends the New York rule

on arbitration always prohibits inclusion of arbitration clauses under section 2-

207 and therefore constitutes treatment of arbitration terms different from that

accorded to other contract terms. The application of a rule to prohibit formation

of agreements to arbitrate contravenes the FAA. 9 U.S.C. § 2 (Written contracts

to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds

as exist at law or in equity for the revocation of any contract.”); see Perry v.

Thomas, 482 U.S. 483, 492 n.9 (1987) (“A state-law principle that takes its

meaning precisely from the fact that a contract to arbitrate is at issue does not

comport with th[e] requirement[s] of § 2” of the FAA and is therefore

preempted.).

However, we conclude as has at least one other circuit that the FAA does

not preempt New York’s interpretation of section 2-207(2)(b) to determine

whether arbitration materially alters a contract. See Supak & Sons Mfr. Co. v.

Pervel Indus., Inc., 593 F.2d 135, 137 (4th Cir. 1979) (rejecting FAA preemption

of state law where law of either North Carolina or New York demands conclusion

that arbitration term is a material alteration under section 2-207(2)(b) which

cannot become part of a contract by inclusion in a confirmation form without

express assent of the contracting parties); cf. Eassa Properties v. Shearson

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Lehman Bros., Inc., 851 F.2d 1301, 1304 n.7 (11th Cir. 1988) (FAA does not

preempt Uniform Partnership Act because “state law governs the question of

whether . . . an agreement [to arbitrate] exists in the first instance”). 17

In enacting the FAA, “‘Congress intended to foreclose state legislative

attempts to undercut the enforceability of arbitration agreements.’” Perry, 482

U.S. at 489 (quoting Southland Corp. v. Keating, 465 U.S. 1, 16 (1984)). There is

a “clear federal policy of requiring arbitration unless the agreement to arbitrate is

not part of a contract evidencing interstate commerce or is revocable ‘upon such

grounds as exist at law or in equity for the revocation of any contract.’” Id.

(quoting 9 U.S.C. § 2).

But the FAA was not enacted to force parties to arbitrate in the absence of

an agreement. Congress’ concern “‘was to enforce private agreements into which

parties had entered.’” Id. at 490 (quoting Dean Witter Reynolds Inc. v. Byrd, 470

U.S. 213, 221 (1985)). The existence of an agreement to arbitrate is a threshold

matter which must be established before the FAA can be invoked. First Options,

17
Without addressing FAA preemption, the First Circuit applied New York
UCC law in analyzing parties’ agreement to arbitrate. See Diskin, 836 F.2d at 50-
52 (arbitration does not become part of contract under New York law unless
expressly assented to, and custom of textile trade to resolve disputes through
arbitration cannot substitute for the required specific assent to arbitration).
Similarly, the Third Circuit accepted the parties’ concession that arbitration was a
material term for purposes of section 2-207 analysis without analyzing FAA
preemption. See Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d
51, 53 n.6 (3d Cir. 1980).

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115 S. Ct. at 1924 (“[A]rbitration is simply a matter of contract between the

parties; it is a way to resolve those disputes--but only those disputes--that the

parties have agreed to submit to arbitration.”). We look to state law principles of

contract formation to tell us whether an agreement to arbitrate has been reached.

Perry, 482 U.S. at 492 n.9 (“[S]tate law, whether of legislative or judicial origin,

is applicable if that law arose to govern issues concerning the validity,

revocability, and enforceability of contracts generally.”); Schulze and Burch

Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 715 (7th Cir. 1987) (applying Illinois

state law to determine whether arbitration as additional term is a material

alteration); Coastal Indus., 654 F.2d at 377-78 & n.2 (5th Cir. 1981) (holding

whether arbitration clause became part of contract is question of state law).

Invoking the FAA, some courts have declined to apply any specific state’s

laws of contract formation, like section 2-207, to arbitration clauses. See

Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987) (holding

the FAA creates federal substantive law, and stating “whether [a party] is bound

by [an] arbitration clause of [a] sales confirmation form[] is determined under

federal law, which comprises generally accepted principles of contract law”); Hart

Ski Mfg. Co. v. Maschinenfabrik Hennecke, 711 F.2d 845, 846 (8th Cir. 1983)

(federal law governs whether parties have agreed to arbitrate). We are not

persuaded FAA preemption reaches so broadly.

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 In applying state law, “[a] court may not . . . construe [an arbitration]

agreement in a manner different from that in which it otherwise construes

nonarbitration agreements under state law.” Perry, 482 U.S. at 492 n.9.

However, it is only when “[a] state-law principle . . . takes its meaning precisely

from the fact that a contract to arbitrate is at issue” that the state law will be

preempted by the FAA. Id. Section 2-207 is a general principle of state law

controlling issues of contract formation. As a general rule, section 2-207

proscribes binding parties to any important non-negotiated terms of contract.

Presumptions against including terms, such as the New York rule, are routinely

applied to any term considered significant to the contracting parties. U.C.C. § 2-

207 cmt. 4 (1994) (warranties of merchantability or fitness are material alterations

under 2-207(2)(b)). Section 2-207 does nothing under its general, or its specific

New York application, to restrict enforcement of agreements to arbitrate to which

the parties have expressly assented. Supak, 593 F.2d at 137. Such a general rule

of contract law is not an impermissible “state statute[] [or] decision[] which

limit[s] arbitration agreements with rules not applicable to other contracts.”

Medical Dev. Corp. v. Industrial Molding Corp., 479 F.2d 345, 348 (10th Cir.

1973).

There is a world of difference between a state law rule that requires special

preconditions for enforcement of arbitration clauses not required for any other

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term of contract (which would be preempted by the FAA), see, e.g., Doctor’s

Assocs., Inc. v. Casarotto, 116 S. Ct. 1652, 1657 (1996) (FAA preempts a

Montana state statute prohibiting enforcement of arbitration agreements which

fail to include a special notice provision not required for any other terms of

contract.); Perry, 482 U.S. at 490, 492 (holding preempted a California Labor

Code provision permitting an action at law to be maintained despite existence of

parties’ agreement to arbitrate), and a rule of law that prohibits enforcement of

any important term of contract without the express agreement of the parties and

then concludes that arbitration is among the group of terms considered important

enough to require such express assent, Saturn Distribution Corp. v. Williams, 905

F.2d 719, 723 (4th Cir. 1990) (state law which prohibits formation of

nonnegotiable agreement compelling arbitration is preempted by the FAA,

whereas section 2-207 as a general rule of contract formation is not).

Accordingly, we conclude that state law principles of Colorado or New

York can, at a minimum, impact the interpretation of both the materiality of the

arbitration clause itself and also the terms contained within that clause. Those

varying interpretations are not preempted by the FAA. The district court should

have begun its analysis with a choice of law determination. Its failure to do so

affected all of the court’s subsequent determinations regarding the arbitration

term. We therefore reverse and remand for the district court to make the choice

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of law determination. E.g., Rocky Mtn. Helicopters, Inc. v. Bell Helicopter

Textron, Inc., 24 F.3d 125, 127 (10th Cir. 1994). 18

III.

We REVERSE the district court’s stay of litigation and remand this case

for a choice of law determination and for further proceedings consistent with this

opinion. Because we reverse the district court’s stay pending arbitration, we do

not reach the questions of whether arbitration became part of the Twist/Seatex

contract as a matter of law or whether the district court properly granted summary

judgment to Seatex for Twist’s failure to timely arbitrate. We leave those issues

to the district court on remand.

18
It would be inappropriate to resolve this choice of law issue by simply
applying the choice of law clause Seatex inserted as an additional term in its sales
confirmation form. Rec., vol. I at 100 (clause 9 of the confirmation form). The
choice of law provision may itself constitute a material alteration, particularly if
the choice of state law is determinative of whether other terms become part of the
contract. Compare Coastal Indus., Inc. v. Automatic Steam Prods. Corp., 654
F.2d 375, 378-79 (5th Cir. 1981) (applying choice of law provision inserted as
additional term in sales confirmation form when its application is immaterial to
analysis of the contract), with Galaxy Int’l, Inc. v. White Stores, Inc., 88 F.R.D.
311, 320-21 (W.D. Pa. 1980) (under Pennsylvania law, choice of law term added
as additional term is a material alteration).

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