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Brower v. Gateway 2000 - 246 A.D.2d 246, 676 N.Y.S.2d 569 (App. Div. 1st Dept. 1998)

Rule:

As a general matter, under New York law, unconscionability requires a showing that a contract is both procedurally and substantively unconscionable when made. That is, there must be some showing of an absence of meaningful choice on the part of one of the parties together with contract terms, which are unreasonably favorable to the other party.

Facts:

Plaintiff consumer,, on behalf of himself and others similarly situated,who purchased computers and software products from defendant Gateway 2000 through a direct-sales system, by mail or telephone order. The complaint sought compensatory and punitive damages, alleging deceptive sales practices in seven causes of action, including breach of warranty, breach of contract, fraud and unfair trade practices. In particular, the allegations focused on Gateway's representations and advertising that promised "service when you need it," including around-the-clock free technical support, free software technical support and certain on-site services. According to plaintiffs, not only were they unable to avail themselves of this offer because it was virtually impossible to get through to a technician, but also Gateway continued to advertise this claim notwithstanding numerous complaints and reports about the problem. 

Gateway's procedure was to ship standard terms and conditions of the parties' agreement that included an arbitration clause to the consumer. The supreme court of New York county granted Gateway’s motion to dismiss on the ground that that there was a valid agreement to arbitrate between the parties. Plaintiffs appealed.

Issue:

Is the arbitration clause in the parties’ agreement a material alteration that renders it invalid and unenforceable?

Answer:

No.

Conclusion:

The court affirmed but modified the order that required arbitration before the International Chamber of Commerce because it found the cost excessive and that it deterred individual consumers from invoking the arbitration process. The arbitration clause was not invalid under U.C.C. § 2-207 because the clause was not a material alteration of an oral agreement, but rather one provision of the sole contract that existed between the parties. The contract was therefore outside the scope of § 2-207.

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