Stella Maris, Inc. v. Cork Supply USA, Inc.

Filing 44

ORDER: Granting Motion to Stay Pending Arbitration 19 . Signed on 4/26/2012 by U.S. District Judge Michael R. Hogan. (jw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
STELLA MARIS, INC., an Oregon
corporation,
Plaintiff,

No. 6:11-cv-954-HO

v.

ORDER

CORK SUPPLY USA, INC., a California
corporation,
Defendant.
Plaintiff, Stella Marris, Inc., brings this products liability
action

asserting

damages

sustained

as

a

result

of

alleged

contaminated agglomerated corks purchased from defendant, Cork Supply
USA, Inc. for use in bottling wine.

Plaintiff alleges it purchased

agglomerated corks, in several lots, in 2009 and 2010 from defendant
for use in bottling wine it produced at wineries in St. Paul, Oregon
and Sunnyside, Washington.

Plaintiff contends that shortly after

selling wines bottled with the agglomerated corks, customers reported

that

they

believed

the

wines

were

contaminated

with

2,4,6-trichloroanisole (TCA).
Plaintiff asserts that an investigation revealed that all of the
wines bottled using defendant's agglomerated corks were contaminated
with TCA due to defective corks provided by defendant.

Plaintiff

alleges resulting damages of $1,719,470 as well as damage to its
reputation in the amount of $6,000,000.

Plaintiff alleges claims for

products liability, negligence, breach of express warranty, breach of
implied warranty of merchantability, breach of implied warranty of
fitness, and negligent misrepresentation.
Defendant seeks dismissal of all claims based on a binding
arbitration clause in the contracts regarding the sale of the corks.
Alternatively, defendant seeks a stay pending arbitration.
There are eight separate purchase agreements at issue.

The

purchases were made between October 27, 2009, and August 4, 2010.
Plaintiff would place an order for corks and defendant would send a
Confirmation and Purchase Contract to plaintiff.

A representative

for plaintiff would sign the contract and return it.

Each contract

explicitly stated:
Acceptance of your order by Cork Supply USA, Inc.
("Seller") is expressly conditioned on your acceptance to
the additional or different items in the Terms and
Conditions of Sale attached to an Order Confirmation*.
Your signature on this Order Confirmation constitutes such
acceptance.
PURCHASER'S ACCEPTANCE OF DELIVERY OF CORKS REPRESENTS
PURCHASER'S ACCEPTANCE OF THESE TERMS AND CONDITIONS. THIS

2

~

ORDER

DOCUMENT CONSTITUTES
PURCHASER AND SELLER.

THE ENTIRE CONTRACT BETWEEN
PLEASE REAP IT CAREFULLY.

THE

The terms of this contract take precedence over Purchaser's
terms and conditions.
Nei ther Seller's commencement of
performance nor delivery of corks shall be deemed or
construed as
acceptance of
Purchaser's
terms and
conditions.
*Please contact Seller for additional copies of the Terms
and Conditions of Sale.
Purchase Contracts (attached to Declaration of James Herwatt (#21) at
Ex. 1) at pp. 1-8.
However, the Terms and Conditions are contained in a separate
document.

Defendant asserts that the Terms and Conditions were

provided to plaintiff on about May 6, 2008, February 9, 2009, and
January 11, 2010. 1

Given the apparent one sided nature of the Terms

and Conditions, it is not difficult to understand why defendant chose
not to attach them to the all purchase agreements:'

Defendant also asserts that plaintiff received prior
versions of the Terms and Conditions on July 7, 2003,
and July 6, 2003, which also contained an arbitration
clause. Defendant provides evidence from its internal
records keeping system that it sent copies of the
Terms and Conditions to plaintiff on these dates. See
Declaration of James Herwatt (#21) and Supplemental
Declaration of James Herwatt (#38) and attached
exhibits.
2

Defendant states that it used to send a copy of the
Terms and Conditions with each purchase contract, but
that given the number of separate orders per year by a
given customer, including the terms with each order
resulted in too much paperwork.
3 - ORDER

CORK SUPPLY USA, INC. NEWPAK USA, INC.
TERMS AND CONDITIONS OF SALE
PART 1- Terms and Conditions of Sale Applicable to sale of
corks
collectively referred to herein as the
"Products" )

Section 4. Returns/Cancellations.

Products may not be returned and orders may not be canceled
without Seller's consent, which consent may be withheld for
any reason whatsoever.

Section 6. Force Majeure.

Seller has no liability for any delay in delivery or any
other failure to perform if such non-performance is caused
by circumstances beyond Seller's control, including, but
not limited to, strikes, work stoppages or labor demands,
lock-outs, fires, delays of carriers inability to obtain
materials or shipping space, government interference,
inclement weather, acts of God, acts of war, civil
disobedience or terrorism.
Section 7. Claims for Defects.

All claims for defects, shortages, or delays in delivery
shall be waived unless presented in writing within 90 days
from the date of receipt of the Products by Purchaser. If
delivery of the Products is to be in installments, any
delay or default with respect to any installment shall not
affect Purchaser's obligation to accept and pay for all
remaining installments.
Section 8.
Perform.

Suspension/Cancellation of seller's Duty to

If Purchaser fails to obtain any necessary license or
permit, fails to make timely payment of any Invoice or
otherwise is in breach of this contract, Seller may, in its
sole discretion and without waiving any other rights or
remedies which Seller may have, suspend delivery on any
4 - ORDER

unfilled Purchase Orders from Purchaser and unilaterally
cancel any obligation of Seller to later perform any
unperformed obligations under any contract with Purchaser.
Refusal to deliver under this provision shall not be
considered a breach of any contract by Seller, as obtaining
necessary licenses or permits and the timely payment of all
invoices shall be considered a necessary condition
precedent to the Seller's duty to perform.

Section 10. Delinquent Payment Charqe.

Payment to Seller is due in full as invoiced. Purchaser
agrees that in the event it fails to make payment when due,
including a failure to pay based on a returned check, a
late payment charge shall be assessed to cover Seller's
additional expenses in collection and its loss of the use
of the money due. The late payment charge shall consist of
a 1-1/2% service charge on the unpaid amount for each month
or part of a month following the Invoice Due Date during
which the amount owed remains unpaid until cash is finally
received. The parties do not intend that any action taken
in connection with any sale of Products arising out of this
contract constitute a loan or forbearance, nor that any
amount paid or agreed to be paid pursuant to such sale
exceed the maximum permissible under any applicable law.
The parties agree it is extremely difficult to ascertain
the actual damages resulting to Seller and that the late
payment charge provided for is a reasonable attempt to
estimate the actual damages that will be incurred by Seller
if Purchaser fails to pay amounts when due.
Section 11. Limitation of Liability.
SELLER SHALL NOT BE LIABLE FOR SPECIAL, DIRECT OR INDIRECT
OR CONSEQUENTIAL DAMAGES, SUCH AS, BUT NOT LIMITED TO,
DAMAGE FOR LOSS OF OTHER PROPERTY OR EQUIPMENT, LOSS OF
PROFITS OR REVENUE,
COST OF CAPITAL OR CLAIMS OF
PURCHASEEl' S CUSTOMEElS, OR FOR ANY PUNITIVE DAMAGES, ARISING
UNDER OR RELATING IN ANY WAY TO THIS CONTRACT OR ANY
ACTIONS TAKEN IN CONNECTION THEREWITH. The remedies of

Purchaser in this contract are exclusive. The liability of
Seller with respect to the sale, delivery or resale of any
Products pursuant to this contract, whether in contract, in
tort, under any warranty, or otherwise, shall not exceed
the difference between the price of the Products as
specified in this contract and the value of the Products as
5 - ORDER

delivered by Seller. All claims for breach of contract not
otherwise covered by Section 7 hereof shall be commenced by
Purchaser within one year from the date of shipment of the
Products.
Section 12. Arbitration.
ALL DISPUTES BETWEEN PURCHASER AND SELLER UNDER THIS
CONTRACT SHALL BE RESOLVED BY ARBITRATION ACCORDING TO THE
COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION. There shall be one arbitrator. If the parties

fail to select a mutually agreeable arbitrator within
30days after the demand for arbitration is mailed, the
American Arbitration Association
shall
select
the·
arbitrator. Arbitration shall take place in Solano County,
California. All decisions of the arbitrator shall be final,
binding and conclusive on the parties and arbitration shall
be the only method of resolving disputes under this
contract. In any arbitration or other proceeding, the
prevailing party shall be awarded its attorneys' fees.
Section 13. Governinq Law and Venue.

The rights and obligations of the parties in this contract
shall be governed by the internal laws of the State of
California. Purchaser and Seller agree that the United
Nations Convention on Contracts for the International Sale
of Goods ("CISG"), shall not be a part of the law
applicable to this contract.
Section 14. Assignment

Purchaser may not assign any of its rights or obligations
under this contract in whole or in part, without the prior
written consent of Seller.

PART 2 - Terms and Conditions of Sale Applicable only to
Corks sold by Cork Supply USA, Inc.
Section 16. Characteristics of Cork.

16.1. Grade. Purchaser understands that corks are a natural
product and con~ain such imperfections and inconsistencies
as occur in nature.
Purchaser further understands that
grading of corks is done by visual inspection of only the
6 - ORDER

outside of the cork. Each grade will contain a percentage
of corks of other grades. Corks of a particular grade sold
to Purchaser by this contract are a combination of corks.
Corks are subject to variations in weight, color, size,
coating ingredients and quantities as are standard in the
trade.
16.2. Use. Seller warrants that the corks have been coated
wi th a compound prepared by Seller, and appropriate for use
in bottling liquid. Purchaser has full responsibility for
its use of the corks including without limitation, the
tightness of the seal, the effect of the use of the corks
on the wine being bottled and the ability of the corks to
prevent seepage and leakage. Please note the Recommended
Corking Practices included with the corks and/or available
from Seller. CORRECT BOTTLING PRACTICES ARE CRITICAL FOR
PROPER PERFORMANCE OF CORKS.

16.3. Taste and Aroma. Purchaser understands that liquids
which have been bottled using natural cork closures may
occasionally exhibit what is commonly referred to as a
"corky" taste or aroma. Purchaser understands that a
percentage of all corks contain compounds which can result
in particular aromas or tastes. The presence of these
compounds is impossible to determine without destroying the
cork. Accordingly, Seller gives no representation or
warranty as to the effect of the use of the corks on the
taste and aroma of the liquid.
16.4. No Warranties. THE ~TY IN THIS SECTION 16 FOR
CORKS IS EXCLUSIVE AND IS IN LIEU OF ANY OTHER ~TY
WHETHER EXPRESS OR IMPLIED,
AND
INCLUDING WITHOUT
LIMITATION ANY ~TY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHER ~TY.

Terms and Conditions (attached to Declaration of James Herwatt (#21)
at Ex. 2) at pp. 1-3.
It is undisputed that none of the purchase contracts at issue
had the Terms and Conditions attached.
ever

received the

Terms

Plaintiff disputes that it

and Conditions.

Nonetheless,

defendant

contends that the Terms and Conditions are part of the contracts.

7 - ORDER

Before it can be determined whether the contracts at issue
include the above Terms and Conditions, including the arbitration
clause, the court must decide which law applies.
Although the parties purportedly agree to the law of California
as

the

governing law,

that agreement

unattached Terms and Conditions.

is

also contained in the

Because the issue is whether the

parties agreed to the Terms and Conditions,

it is necessary to

determine what law applies in determining the terms of the agreement.
The conflict of law rules of Oregon apply in this federal
action.

See, e.g., Klaxton Co. v. Stentor Co., 313 U.S. 487, 496

(1941) (The conflict of laws rules to be applied by the federal court
in Delaware must conform to those prevailing in Delaware's state
courts).
contracts.

ORS §§ 81.100 -

81.135 governs the choice of laws for

Under ORS § 81.120(1) "the contractual rights and duties

of the parties are governed by the law or laws that the parties have
chosen,"

but

"[t 1he

choice

of

law must

be

express

demonstrated from the terms of the contract.

or

clearly

In a standard-form

contract drafted primarily by only one of the parties, any choice of
law must be express and conspicuous."

ORS

§

81.120(2).

If an

effective choice of law has not been made, "the rights and duties of
the parties with regard to an issue in a contract are governed by the
law, in light of the multistate elements of the contract, that is the
most appropriate for a resolution of that issue."
The most appropriate law is determined by:

8 - ORDER

ORS

§

81.130.

(1) Identifying the states that have a relevant connection
with the transaction or the parties, such as the place of
negotiation, making, performance or subject matter of the
contract, or the domicile, habitual residence or pertinent
place of business of a party;
(2) Identifying the policies underlying any apparently
conflicting laws of these states that are relevant to the
issue; and
(3) Evaluating the relative strength and pertinence of
these policies in;
(a) Meeting the needs and g~v~ng effect to the
policies of the interstate and international
systems; and
(b) Facilitating the planning of transactions,
protecting a party from undue imposition by
another party, gi ving effect to justified
expectations of the parties concerning which
state's law applies to the issue and minimizing
adverse effects on strong legal policies of
other states.
ORS

§

81.130.

The choice of law provision, as it appears in the Terms and
Conditions themselves,

is express and conspicuous.

Because the

contract purports to apply the law of California, the choice of law
provision is valid as to form if it meets the requirements
California

law.

The

primary

issue

is

whether

the

Terms

of
and

Conditions are validly part of the Purchase Contracts via the clause
incorporating the Terms and Conditions as a condition of acceptance.
That language incorporates the Terms and Conditions attached to an
order confirmation.

The language indicates that the attachment may

not necessarily mean the particular order confirmation, which is
confirmed by the notation that additional copies of the Terms and
9 - ORDER

Conditions are available via contact with the seller.'

For the court

to find, as a matter of law, that the Terms and Conditions are part
of

the

agreement

at

issue,

the

availability of

the

Terms

and

Conditions upon request must be sufficient to incorporate the terms.
A contract may validly include the provisions of a document
not physically a part of the basic contract .... QIt is, of
course, the law that the parties may incorporate by
reference into their contract the terms of some other
document ... But each case must turn on its facts .... For
the terms of another document to be incorporated into the
document executed by the parties, the reference must be
clear and unequivocal, the reference must be called to the
attention of the other party and he must consent thereto,
and the terms of the incorporated document must be known or
easily available to the contracting- parties."
Shaw v.
Regents of University of California (1997) 58 Cal.App.4th
44, 54, 67 Cal.Rptr.2d 850.
Wolschlager v. Fidelity Nat. Title Ins. Co., 111 Cal.App.4th 784, 790
(2003)

(emphasis added).

Here,

each

Purchase

Contract

referred

to

the

"Terms

and

Conditions of Sale attached to an Order Confirmation," and directed

Defendant maintains that it basically provides the
Terms and Conditions with the "first order, by and
large, or the first time a sample is sent to the
year." Deposition of James Herwatt, CEO of Cork
Supply, at pp. 36-37 (attached to Declaration of David
Earnst (#31) as Ex. 1). Plaintiff maintains that it
has never received a copy and defendant apparently has
no internal record of whether any customers actually
receive a copy of the Terms and Conditions only that
they are sent. In addition, it appears that
defendant's practice is to throw way the copy of the
Terms and Conditions it faxes to a customer after it
receives a signed order back from the customer.
Nonetheless, there is no evidence to suggest that a
request from a customer for a copy of the terms and
Conditions has been or would be denied.
10 - ORDER

the purchaser to contact the seller for additional copies of the
Terms and Conditions of Sale.
Terms

and Conditions

contacting the seller.

The agreement clearly references the

and those

terms

were

easily available

by

Although plaintiff denies ever receiving a

copy of the terms,' a representative signed the agreement next to the
portion where the

incorporation by reference

appears.

Indeed,

plaintiff's office manager, who signed the purchase agreements at
issue, states that she saw the language incorporating the Terms and
Conditions.

Declaration of Mary Radcliffe (#33) at

~

6.

Although,

she states that none of the Purchase Contracts had additional terms
and conditions attached, the agreement clearly directs the purchaser
to contact the seller for copies.

Cf.

id.

at 791

(arbitration

provision upheld where a preliminary report referred to the policy
containing the arbitration provision and copies of the policy were
available from the office which issued the report even though not
attached to the report).

Even though plaintiff contends it was

unaware of the arbitration provision, or any of the terms in the
Terms and Conditions, the Terms and Conditions were easily available
and thus binding upon plaintiff.

See id. (" [E] ven if plaintiff did

To refute evidence that the Terms and Conditions
were sent, plaintiff provides declarations of two
employees who state they never saw the Terms and never
heard anyone say they had seen them. This is
insufficient to defeat summary judgment because under
California law, it is only necessary that the
incorporated terms be clearly referenced and easily
available.
11 - ORDER

not know about the arbitration clause, the Policy with the clause was
easily available to him. The preliminary report identified the Policy
by name and directed the plaintiff to where he could inspect it.
Nothing further was needed to bind the plaintiff.")
The fundamental goal of contract interpretation is to give
effect to the mutual intention of the parties as it existed at the
time they entered into the contract.

Bank of the West v. Superior

Court

That

2 Cal. 4th

1254,

1264

(1992).

intent

is

interpreted

according to objective, rather than subjective, criteria. Wolf v.
Walt Disney Pictures & Television 162 Cal.App.4th 1107, 1126 (2008).
When the contract is clear and explicit,

the parties'

intent is

determined solely by reference to the language of the agreement. Cal.
Civ.

Code,

§

1638

(ftlanguage

of

a

contract

is

to

govern

its

interpretation, if the language is clear and explicit, and does not
involve an absurdity"; Cal. Civ. Code,

§

1639 (ft[wJhen a contract is

reduced to writing, the intention of the parties is to be ascertained
from

the

writing

alone,

if

possible").

The

words

are

to

understood ftin their ordinary and popular sense." Cal. Civ. Code

be
§

1644.
Although

plaintiff

interprets

the

purchase

agreements

to

reference only terms attached to each Purchase Contract, the contract
language does not support such an interpretation.

The agreements, as

noted above, incorporate "the Terms and Conditions of Sale attached
to

£ll

Order Confirmation" (emphasis added).

12 - ORDER

Nothing in the language

requires

the terms

to be

attached to that

specific agreement.

Moreover, the context of the statement indicates that the terms are
separate as indicated by the notation to call for copies.

Because

the clear and explicit language incorporated additional terms easily
available by calling the seller, the intention of the parties was to
include such terms.
Moreover,

the integration clause does not serve to prevent

inclusion of the additional terms expressly incorporated by each
Purchase Contract.
440

See Bell v. Rio Grande Oil Co. 23 Cal.App.2d 436,

(1937) ("A written agreement may, by reference expressly made

thereto, incorporate other written agreements; and in the event such
incorporation is made, the original agreement and those referred to
must be considered and construed as one.")
Because,

under

California

law,

the

Terms

and

Conditions

containing the choice of law provision is validly incorporated into
the

purchase

agreements

at

issue,

California

plaintiff is bound by the Terms and Conditions.

law

applies

and

Those terms include

the obligation to arbitrate disputes under the contract.
Plaintiff also contends that the Terms and Conditions should not
be enforced because they are unconscionable.

As noted above, the

Terms and Conditions incorporated into each Purchase Contract appear
one-sided and plaintiff focuses on many of the terms in an effort to
show unconscionability.

In reading the Terms and Conditions as a

whole, the court is inclined to agree.

13 - ORDER

However, an attack to an

agreement, beyond the arbitration clause, is to be determined by the
arbitrator if a valid arbitration clause is present.
Corp. v. Flood and Conklin Mfg. Co., 388

Prima Paint

u.s. 395, 403-04 (1967)

(attacks on the validity of an entire contract, as distinct from
attacks on the arbitration clause, are for the arbitrator); Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 446 (2006) (claim
that contract void ab initio under state law is within the province
of the arbitrator).

Accordingly,

the court may only determine

whether the arbitration clause itself is unconscionable.
Unconscionability has a procedural and a substantive element.
Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1071 (2003).

The

procedural element focuses on oppression or surprise due to unequal
bargaining power, and the substantive element focuses on overly harsh
or one-sided results.

12.

The procedural element of an unconscionable contract generally
takes the form of a contract of adhesion forcing one party only the
opportunity to adhere to the contract or reject it.

Id.

Adhesion is

not enough to show a contract is unduly oppressive.

Oppression

arises from an inequality of bargaining power which results in no
real negotiation and an absence of meaningful choice.
Co. v. FMC Corp., 135 Cal.App.3d 473, 486 (1982).

A & M Produce

Surprise involves

the extent to which the supposedly agreed-upon terms are hidden in a
printed form drafted by the party seeking to enforce the disputed
terms.

12.

14 - ORDER

Contracts necessarily allocate risks.
is

substantively

suspect

if

it

A contractual provision

reallocates

objectively unreasonable or unexpected manner.

the

risks

in

rd. at 487.

an

To be

unenforceable, a contract provision must be both procedurally and
substantively unconscionable, although the greater the procedural
unconscionability, the less unreasonable the risk reallocation that
will be tolerated.

rd.

There is evidence in the record to suggest that defendant would
not entertain any changes to the arbitration clause and indeed the
Purchase Contract itself indicates that the Purchaser's terms would
not be accepted.

So the arbitration clause might well be

to be on a take it or leave it basis.

co~sidered

However, plaintiff never

attempted to negotiate the terms and there is no suggestion that
plaintiff was unable to utilize another supplier.

Plaintiff fails to

establish a substantial degree of inequality of bargaining power.
The arbitration clause itself is not particularly oppressive.
Although

plaintiff

asserts

it

has

never

seen

the

Terms

and

Conditions, at a minimum, they were easily available upon request.
The clause is highlighted with bold print and capital letters.

The

only one-sided part of the clause involves the location of the
arbitration, otherwise both parties give up their rights to have a
court resolve any disputes.
expenses

or

discovery

There are no one-sided allocations of

rights,

etc.

The

arbitration

certainly cannot be read so as to shock the conscience.

15 - ORDER

provision
See Walnut

Producers of California v. Diamond Foods, Inc., 187 Cal.App.4th 634,
648

(2010)

(courts should not change a contractual term that the

parties have agreed to merely because the court believes the terms
are unreasonable, the term must shock the conscience).
of the arbitration clause is not unconscionable.

The

i~clusion

Thus, the issue

reduces to what did the parties agree to arbitrate.
Federal substantive law governs the question of arbitrability.
See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
240

(1983). The FAA reflects Congress'

intent to provide for the

enforcement of arbitration agreements within the full reach of the
Commerce Clause.

See Republic of Nicaragua v. Standard Fruit Co.,

937 F.2d 469, 475 (9 th Cir. 1991)
483, 490 (1987)).
of arbitration.

(citing Perry v. Thomas, 482 U.S.

The FAA embodies a clear federal policy in favor
See 9 U.S.C.

§

2

"[AJny doubts concerning the scope

of arbitrable issues should be resolved in favor of arbitration."
Moses H. Cone, 460 U.S. at 24-25.
The standard for demonstrating arbitrability is not high. The
FAA leaves no place for the exercise of discretion by a district
court, but instead requires that a district court direct the parties
to proceed to arbitration on issues as to which an arbitration
agreement has been signed.
U.S. 213, 218 (1985).

See Dean Witter Reynolds v. Byrd, 470

A district court can determine only whether a

written arbitration agreement exists, and if it does, enforce it in

16 - ORDER

accordance with its terms.
754 F.2d 847, 849

(9~

~

Howard Elec. & Mech. v. Briscoe Co.,

Cir. 1985).

A court, in construing a valid arbitration agreement within the
coverage of the FAA, applies ordinary principles of state contract
law to determine whether the parties have agreed to arbitrate a
particular dispute.
U.S.

938,

First Options of Chicago, Inc. v. Kaplan, 514

944 (1995).

As noted above, under California law, the

parties have agreed to arbitrate disputes under the contract.
However, in the Ninth Circuit, arbitration clauses are not as
liberally construed as in other circuits.

Generally arbitration

clauses such as "arising under" an agreement or "arising out of" as
opposed to

arising

"in

connection

with"

or

"related to"

are

interpreted more narrowly to involve an agreement to arbitrate only
claims relating to interpretation and performance of the contract
itself and not collateral to the contract.

See, e.g., Mediterranean

Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (1983).
The arb'i tration clause at issue refers to disputes
contract."

"under this

Accordingly, the parties in this case only agreed to

arbitrate claims relating to interpretation and performance of the
contracts themselves. s
5

This is further demonstrated by the parties use of
the language "arising under or relating in any way to
this contract," with respect to the limitation of
liability in section 11 (emphasis added). Had the
parties intended such broad coverage for the
arbitration provision, they would have included
(continued ... )

17 - ORDER

Plaintiff's contract claims and claims relying on interpretation
of the contracts necessarily fall under the arbitration provision.
Moreover, the products liability claim requires examination of the
negotiation

of

interpretation
Westinghouse

the
of

Elec.

allocation

the

contract.

Corp.,

55

of

risks
See

which

Kaiser

Cal.App.3d

737,

depends

Steel
748

Corp.
(Since

on
v.
the

manufacturer and buyer have bargained in a commercial setting not
only

for

the

product

but

also

for

the

measure

and

mode

of

reimbursement for defects in the product, any societal interest in
loss shifting is absent. Whether the loss is thrust initially upon
the manufacturer or customer, it is ultimately passed along as a cost
of doing business included in the price of the products of one or the
other and thus spread over a broad commercial stream).

The issue of

whether a products liability claim can be applied in this situation
should be reserved to the arbitrator initially.

See, id.:

the doctrine of products liability does not apply
between parties who: (1) deal in a commercial setting;
from positions of relatively equal economic strength;
bargain the specifications of the product; and
negotiate concerning the risk of loss from defects in

as
(2)
(3)
(4)
it.

If the arbitrator concludes that a products liability claim can
apply,

then the claim should be determined by this court at the

conclusion of the arbitration of the contract claims.
The parties

appear to have

similarly allocated the

risk

traditionally associated with negligent manufacture of the corks to
'I ... continued)

similar language in the arbitration clause.
18 - ORDER

the

purchaser via

the

contract.

Thus,

it

is

unclear

if

the

negligence and negligent misrepresentation claims can survive after
interpretation of the agreement by the arbitrator.

Section 11 of the

Terms and Conditions purports to limit all tort liability.

If the

arbitrator concludes that the provision is not unconscionable and may
be enforced, that is likely the end of the matter.

Otherwise, the

court retains jurisdiction to hear the tort claims if necessary.
Accordingly, this action is stayed pending arbitration.

After the

results of arbitration are received, the court will adjudicate the
issues which fall outside the scope of arbitration if any remain
after interpretation of the agreement. See Mediterranean Enterprises,
Inc., 708 F.2d at 1465.

CONCLUSION
For the reasons stated above, defendant's motion to stay pending
arbitration (#19) is granted to the extent noted above.
DATED this

19 - ORDER

~~ay

of April, 2012.