LEWIS A. KAPLAN, District Judge.
Plaintiff Copape Produtos de Pétroleo Ltda. ("Copape") entered into a contract with defendant Glencore Ltd. ("Glencore") to purchase approximately 150,000 cubic meters of light reformate, a substance used in blending gasoline. The parties had a falling out in consequence of which Copape commenced litigation against Glencore in Brazil while Glencore demanded arbitration in New York. The matter is before the Court on Copape's motion for a preliminary injunction staying the arbitration on the ground that there is no relevant agreement to arbitrate and on Glencore's cross-motion to compel arbitration. The motions depend upon the disputed existence of an agreement to arbitrate this dispute, which Copape contends implicates a battle of the forms, or something much akin to it, arising from the parties' negotiation of the agreement.
The commercial relationship between the parties began around December 2009 when Copape approached Bruno Faro, a Glencore affiliate in Brazil, in an effort to develop business.
These early contacts led, in the period between January and April 2010, to five contracts for the purchase of light reformate or other related products.
Copape then responded by e-mail, either agreeing to Glencore's proposal or providing counter-proposals for certain terms. The parties resolved open points via telephone and e-mail exchanges.
Once agreement was reached on the commercial terms, Glencore representatives (1) issued the invoice for the first payment (typically 10 to 20 percent of the total provisional value of the cargo), which Copape typically paid within 1 or 2 days, and (2) drafted the formal contract governing the transaction, which contained the primary commercial terms that had been agreed upon as well as other provisions.
There is no evidence that Copape ever objected to the terms of any of the formal contracts relating to the four initial transactions. But it is relevant to point out that the arbitration clause upon which Glencore relies was not in the formal contracts. It appeared instead in the general terms and conditions ("GTC").
On April 8, 2010, Glencore initiated discussion regarding a fifth contract when it e-mailed Copape an "indication" for three 50,000 cubic meter shipments of light reformate. The e-mail set forth the principal proposed terms and ended with the line "Other terms and conditions as per Glencore standard DES contract."
Copape responded four days later by e-mail with a counter proposal styled "BID for Light Reformate." Mr. Mezzarano pasted the text of Glencore's April 8 e-mail into the bid, but altered several key terms. Moreover, he changed the final sentence to read "Other terms and conditions as per Glencore standard DES contract, witch [sic] must be approved by Buyer [Copape]."
Later on April 12, Glencore responded with an e-mail setting forth "the terms and conditions we agreed upon."
Subsequent negotiations then ensued. On April 14, 2010, Copape requested, and Glencore soon agreed to, postponement of the three deliveries of light reformate.
On April 27, Glencore sent Copape an email stating that it had made adjustments to certain product specifications pursuant to recent negotiations and that "attached is [a] copy of our contract with the amended specification." This April 27 email was the first and only time that the standard DES contract that Copape had earlier insisted "must be approved" by it was transmitted.
The cover sheet of the DES Contract stated that the contract "confirm[ed] the agreement negotiated on Apr 12, 2010."
Glencore did not provide Copape with the GTC there referred to. Copape never asked for them.
Copape promptly responded by email, stating that it did not accept the aromotatics specification listed in the DES Contract but failing to raise any question regarding the GTC provision or to request any information about the GTC.
In time, Copape allegedly breached the contract. Copape sued Glencore in the 28th Civil Court of Rio de Janeiro, Brazil, on October 28, 2010. On June 25, 2011, Glencore commenced arbitration before a division of the American Arbitration Association. Copape then brought this action to stay the arbitration, and Glencore later moved to compel arbitration.
Despite the parties' sometimes confusing nomenclature, the motions before the Court turn entirely on a single question — whether Copape ever became bound by the arbitration clause included in Glencore's GTC, terms and conditions which were referred to (without any mention of arbitration) in Section 11 of the formal contract that Glencore sent to Copape upon conclusion of the 150 cubic meter light reformate contract on April 27, 2010, following the renegotiation of certain of the terms of that contract. As it is undisputed that the parties' dispute comes within the arbitration clause if Copape became bound, Copape's motion to stay the arbitration
Copape's argument that it is not bound starts and ends with the April 12, 2010 negotiations regarding the contract, which was formed by two or perhaps three e-mails:
None of these e-mails said anything about arbitration. None, in Copape's view, agreed to or approved "other terms and conditions as per Glencore standard DES contract," let alone the arbitration clause contained in the GTC, which Copape says it never had even seen nor discussed. Under either the "mirror image rule," which Copape contends is the governing principle, or the Uniform Commercial Code, it asserts that it is not bound to arbitrate this dispute.
Glencore, not surprisingly, takes a much different view. It maintains first and foremost that Copape agreed to arbitrate when it objected only to certain non-arbitration terms in the DES Contract on April 27, 2010, thereby failing to object to the GTC, and then again when it approved the deal in its entirety on May 6, 2010, without objecting to the GTC or the arbitration provision.
It is helpful to begin with the legal effect of the arrangements the parties made in the inception of the 150,000 cubic meter light reformate contract, as these shed light on Glencore's contentions.
"[A]rbitration is a matter of consent, not coercion."
Here, the discussions concerning the contract at issue began on or about April 8, 2010 with Glencore's "indication" for three shipments of light reformate. The "indication" stated "[o]ther terms and conditions as per Glencore standard DES contract." But Copape did not accept that "indication." Rather, on April 12, 2010, it made its own bid, altering several of the business terms proposed in the "indication" and, importantly, changing Glencore's proposed final term to read "[o]ther terms as per Glencore standard DES contract, witch [sic] must be approved by Buyer." Glencore later that day adopted that term, immediately following which Copape confirmed the deal by e-mail, requested the issuance of invoices and, upon their receipt, arranged to pay $9 million.
If that were the whole story, the case would be entirely straightforward. Copape's April 12 response to Glencore's "indication" rejected Glencore's proposal that all terms other than those set forth in the e-mailed term sheets would be as set forth in Glencore's standard contract. Instead, the response rejected the standard contract terms, except to whatever extent Copape later might approve them. Glencore then adopted this understanding. For the purposes of determining the terms included in this contract as of April 12, 2010, Copape had not approved of Section 11 of the standard Glencore DES contract or, more to the point, the GTC to which it referred. But there is more to this case than that, and the broader context ultimately leads to a different result.
Copape relies on the "battle of forms" provision of the Uniform Commercial Code ("UCC"), Section 2-207, which provides in relevant part as follows:
In Copape's view, the April 12 discussions encompassed the terms of the contract. Copape argues that the formal DES Contract, sent on April 27, was a "written confirmation" of those terms, "even though it state[d] terms additional to . . . those [previously] agreed upon,"
Copape first argues that Sections 2-207(2)(a) and (c) were satisfied because the inclusion in its April 12 bid of the clause "[o]ther terms as per Glencore standard DES contract, witch [sic] must be approved by Buyer" both expressly limited acceptance to the offer and served as notice of its objection to any unapproved terms in the DES Contract. But the argument is not persuasive.
It is true that Copape on April 12 expressly reserved the right to "approve" any of the terms of the DES Contract not previously agreed upon by the parties. Until Copape received the DES Contract, the "other terms and conditions" were not incorporated into the contract. When Copape received the DES Contract, however, it was became aware of its contents in their entirety.
Copape did not raise any issues with respect to Section 11, the GTC, or the arbitration provision at any time after receiving the DES Contract. Instead, Copape wrote back promptly, objecting to certain other terms in the DES Contract.
If Copape had had any objections to Section 11, the GTC, or the arbitration provision, the appropriate course of action to ensure that such objections were duly considered would have been to reply by fax within one business day of April 27 — as required by the DES Contract. Copape may have reserved the right to "approve" the additional terms of the DES Contract, but it did exactly that when it failed to object to Section 11. Absent such an objection, the arbitration clause was incorporated into the contract.
These facts alone would be sufficient to find that Copape's April 12 requirement that it must approve the additional terms provided by the standard DES contract did not relieve it of the duty to arbitrate. But this outcome is further supported by the additional alterations to the contract that took place after April 12. From that date until May 6, when the contract was finalized, ongoing negotiations occurred regarding the price, product specification, and timing under the contract. Copape initiated these modifications when it requested, on April 14, that the product shipment dates be altered. Further material modifications were made, and the new terms of the agreement were formalized in the DES Contract sent to Copape on April 27. One last round of negotiations regarding certain product specifications then took place, and on May 6 the parties reached a final agreement.
On closer examination, then, this case is not one involving a "battle of the forms" at all. Rather, it is a textbook example of basic contract negotiation. Copape's April 12 statement that additional terms set forth under the DES Contract "must be approved" by it was an early condition in an ongoing process of negotiation before a final contract was formed on May 6, 2010. The April 27 DES Contract contained several provisions that had been altered after the April 12 discussions — some of them at Copape's request. The DES Contract was not a "written acceptance" of a contract the parties had otherwise agreed to on April 12. It was a revised offer that reflected new terms and conditions pursuant to ongoing negotiations. Those terms and conditions — including the GTC — were subsequently accepted by both parties. Accordingly, Copape is bound by the arbitration provision.
Copape argues also that the arbitration provision was an "additional term" in the April 27 "written confirmation" that would materially, and therefore impermissibly, alter the contract under UCC § 2-207(2)(b). As noted above, however, the arbitration provision was not an "additional" term that was added to a later "written acceptance" of the April 12 agreement. Rather, it was one term among many that the parties agreed upon in due course, while negotiating and finalizing the contract. Any consideration of "materiality" under Section 2-207 is therefore irrelevant for present purposes. Copape approved the arbitration provision, and it is now bound by its terms.
For the foregoing reasons, Copape's motion for a preliminary injunction [DI 9] is denied, and Glencore's motion to compel arbitration [DI 18] is granted.
SO ORDERED.
