Meduri Farms, Inc. v. DutchTecSource B.V., No. 3:17-cv-906 (D. Or. Dec. 5, 2017) [click for opinion]

Plaintiff Meduri Farms, Inc. (“Meduri”), an Oregon-based dried fruit producer, filed a lawsuit in the circuit court of the state of Oregon against Defendant DutchTecSource B.V. (“DTS”), a Dutch food-processing equipment manufacturer, alleging two claims—breach of the implied warranty of fitness for a particular purpose and breach of contract. Meduri claimed that it purchased a machine from DTS that was meant to process 5,000 pounds of blueberries per hour, yet failed to do so, producing dried berries that were not fit for sale. DTS failed to reimburse Meduri or uninstall the machine.

After timely removing the action to federal court, DTS filed a request for arbitration with the International Court of Arbitration at the International Chamber of Commerce (“ICC”), seeking arbitration in Amsterdam. DTS argued that the operative contract between the parties contained a mandatory arbitration clause, under which they agreed to arbitrate any dispute pursuant to ICC rules. Meduri disagreed and argued that the operative agreement between the parties was different from that which was relied upon by DTS and did not contain an arbitration agreement.

At issue before the court were two motions: (1) a motion by DTS to stay the proceedings pending the arbitration before the ICC and (2) a motion for preliminary injunction filed by Meduri, seeking to enjoin DTS from pursuing the ICC arbitration against Meduri. According to DTS, Meduri’s motion for preliminary injunction failed both procedurally and on the merits. Procedurally, DTS argued that whether the parties are subject to arbitration is a gateway issue that should be decided by the arbitrator and not the court. Alternatively, DTS argued that if the court determined that it should decide the gateway issue, then it should deny the motion on the merits. Specifically, DTS argued that the operative contract between the parties expressly incorporated a set of conditions, which according to DTS, contained a mandatory ICC arbitration clause.

According to the Oregon federal court, a fundamental dispute regarding contract formation is presumptively for judicial resolution, absent other compelling reasons that could allow an arbitrator to consider such a challenge. Accordingly, the court took on the task of resolving the gateway issue of arbitrability. Specifically, the court considered whether an earlier offer (containing detailed technical specifications and an arbitration provision) was the operative contract, as modified by a later offer, or whether that later offer (containing minimal details and without an arbitration provision), was itself the operative contact.

Despite the parties’ disagreement over the applicable law, the court concluded that both under the law of the state of Oregon, which codified the Uniform Commercial Code (“UCC”), and under the United Nations Convention on the International Sale of Goods (“CISG“), the result was the same. According to both laws, a contract between merchants for the sale of goods need not contain all of the material terms and need only contain a few essential terms.

Accordingly, the court concluded that the operative contract between the parties was the later contract, despite not containing all of the terms of agreement between the parties. That contract did not contain an arbitration agreement, nor did it clearly and unmistakably delegate the question of arbitrability to the ICC. Thus, the court granted Meduri’s motion for preliminary injunction enjoining DTS from pursuing arbitration against Meduri before the ICC and denied DTS’s motion to refer the case to the ICC and stay the proceeding.