Rich Hill and Enza Hill, on Behalf of a Class of Persons Similarly Situated v. Gateway 2000, Inc., and David Prais

105 F.3d 1147 · U.S. Court of Appeals · 1997

Facts

Rich and Enza Hill ordered a computer from Gateway 2000, Inc. over the phone, providing a credit card number. The computer arrived in a box containing a list of terms, including an arbitration clause, which stated they would govern unless the computer was returned within 30 days. The Hills kept the computer for more than 30 days. They later complained about its components and performance, alleging Gateway was a racketeer.

Procedural history

The Hills filed suit in federal court. Gateway asked the district court to enforce the arbitration clause, but the judge refused, finding the record insufficient to support a valid arbitration agreement or adequate notice. Gateway took an immediate appeal, as is its right under 9 U.S.C. § 16(a)(1)(A).

Issue

Are terms included inside a product box, such as an arbitration clause, effective as part of the contract if the customer keeps the product beyond a specified return period? This applies even if the terms were not read or explicitly assented to at the time of purchase.

Holding

Yes, the terms inside the box, including the arbitration clause, are effective as part of the contract. The district court's decision refusing to enforce the arbitration clause is vacated, and the case is remanded with instructions to compel arbitration.

Rule

A contract can be formed when a vendor proposes an "accept-or-return" offer, where terms are included with the product, and the buyer accepts by keeping the product beyond a specified return period. This applies even if the buyer did not read the terms, as a contract need not be read to be effective. Practical considerations, such as the impracticality of reading terms over the phone or at the point of sale, support this method of contract formation. The Federal Arbitration Act does not require arbitration clauses to be prominent.

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