As its title probably indicates, this post examines an
opinion recently issued in a civil case:
Walker v. BuildDirect.com
Technologies, Inc., 2015 WL 2074964 (Oklahoma Supreme Court 2015). The Supreme Court begins the opinion by
explaining that the
United States Court of Appeals,Tenth Circuit, certified the following question of Oklahoma law under the
Revised Uniform Certification of Questions of Law Act, Oklahoma Statutes title20, §§ 1601–1611 (2011):
`Does a written consumer contract for
the sale of goods incorporate by reference a separate document entitled “Terms
of Sale” available on the seller's website, when the contract states that it is
“subject to” the seller's “Terms of Sale” but does not specifically reference
the website?’
Walker v.
BuildDirect.com Technologies, Inc., supra.
As Wikipedia explains,
[i]n the law of the United States,
a certified question is
a formal request by one court to one of its sister courts, usually but not
always in another jurisdiction, for an opinion on a question of law.
These cases typically arise when the
court before which litigation is actually pending is required to decide a
matter that turns on the law of another state or jurisdiction. If that other
jurisdiction's law is unclear or uncertain, a certified question can then be
sent to that jurisdiction's courts to render an opinion on the question of law that
arose in the court in which the actual litigation is pending. The courts to
whom these questions of law are certified are typically appellate
courts or state supreme courts.
If you would like to read more about the process, check out
this Wikipedia entry.
So here, a case pending in the U.S. Court of Appeals for the
10th Circuit involves this issue of law and, since it would not be
appropriate for a federal Court of Appeals, to declare what is, and is not,
Oklahoma law on the issue noted above, the Court of Appeals has asked the
Oklahoma Supreme Court to “declare” what that law is. As Wikipedia notes, the Court of Appeals for
the 10th Circuit is the U.S. Court of Appeals with jurisdiction over
cases arising the three U.S. District Court districts in Oklahoma, i.e., the
Eastern District, Northern District and the Western District.
The Supreme Court began the substantive part of its
opinion by explaining what facts produced the litigation that involved the
issue quoted above:
In April 2008, Shannon and Eric Walker
requested several samples of hardwood flooring from BuildDirect.com
Technologies, Inc., a Canadian corporation, through BuildDirect's website. The
next month they arranged, over the telephone, to purchase 113 boxes of flooring
from BuildDirect for $8,559.70. BuildDirect emailed a two-page written Contract
entitled `Quotation’ to Ms. Walker, who signed and dated the Contract and
returned it to BuildDirect via fax. The Contract describes the type, amount,
and price of the flooring purchased by the Walkers. And, it includes 14 bullet
points setting forth additional terms. The sixth bullet point states in full, `All
orders are subject to BuildDirect's “Terms of Sale.”’
Walkers allege that after they
installed the flooring, they discovered their home was infested with
nonindigenous wood-boring insects. According to the Walkers, the insects have
severely damaged the home, and have caused the home to be subject to quarantine
and possible destruction by the United States Department of Agriculture.
In July 2011, the Walkers filed suit
against BuildDirect and Fuzhou BuildDirect Limited, LLC (a Chinese company,
which . . . was later voluntarily dismissed from the action) in the United
States District Court for the Western District of Oklahoma, invoking diversity jurisdiction. See 28 U.S. Code § 1332. They alleged that the
flooring purchased from BuildDirect contained the larvae of wood-boring insects
and BuildDirect should have exterminated the larvae during the manufacturing
process. Claiming to represent a class of similarly situated purchasers of
BuildDirect's products, the Walkers asserted causes of action including fraud,
breach of contract, negligence, trespass, breach of implied warranties of merchantability and fitness for a particular use, deceptive trade practices,
products liability, and nuisance. They demanded a jury trial.
Walker v.
BuildDirect.com Technologies, Inc., supra.
BuildDirect responded by filing a motion to
compel arbitration. It pointed to the
bullet point of the Contract stating that the Walkers' purchase is `subject to
BuildDirect's “Terms of Sale.”’ It claimed that `Terms of Sale’ refers to a
specific document bearing that name, which was available on BuildDirect's
website. The document could be accessed by clicking on a hyperlink labeled
`Terms of Sale’ under the heading `Customer Service’ near the bottom of each page
of the website. The online `Terms of Sale’ contained 15 numbered paragraphs,
which provided, among other things, that the customer is responsible for
shipping costs, that BuildDirect bears the risk of loss during shipping, and
that the customer can return a product for any reason within 30 days of
delivery for a full refund.
One paragraph requires arbitration of
disputes. It states:
`12. ARBITRATION
All disputes arising out of or in
connection with this Agreement shall be referred to and finally resolved by a
single arbitrator (the “Arbitrator”) pursuant to the [Canadian] Commercial
Arbitration Act, R.S.B.C.1996, c. 55, as amended. The decision of the
Arbitrator on all issues or matters submitted to the Arbitrator for resolution
shall be conclusive, final and binding on all of the parties. The
Arbitrator shall determine who shall bear the costs of arbitration pursuant to
this section 12.’
Walker v.
BuildDirect.com Technologies, Inc., supra.
The Supreme Court goes on to explain that the Walkers
responded that they were unaware of the
online document and that it was not a part of the Contract because it was not
adequately referenced in the Contract. The district court denied BuildDirect's
motion, explaining that the Contract was ambiguous and it could not say as a
matter of law that the Contract incorporated the `Terms of Sale’. BuildDirect
then initiated an interlocutory appeal to the U.S. Courts of Appeals, Tenth
Circuit. See 9 U.S. Code § 16(a)(1)(B) (authorizing immediate
appeal of order denying motion to compel arbitration). That court certified a
limited question of Oklahoma law to this Court.
Walker v.
BuildDirect.com Technologies, Inc., supra.
The Supreme Court begins its analysis of that question by explaining that the
Federal Arbitration Act (FAA) governs
the enforcement of written arbitration provisions in contracts involving
commerce. See Thompson v. Bar–S Foods Co., 2007 OK 75,
174 P.3d 567 (Oklahoma Supreme Court 2007). State law, however, governs
contract formation and the terms contained therein. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (holding,
courts generally—though with a qualification—should apply ordinary state-law
principles that govern contract formation). The parties here do not dispute
Oklahoma law is controlling and neither party contends a conflict of law
analysis is necessary.
In Oklahoma, as in most jurisdictions,
the paramount objective of contract interpretation is to effectuate the intent
of the parties as expressed by the terms of the contract. Currey v.
Willard Steam Service, Inc., 321 P.2d 680 (Oklahoma Supreme Court 1958).
`The cardinal rule’ in interpreting written contracts is to ascertain the
parties expressed intent and give effect to the same, `if it can be done
consistently with legal principles.’ Continental Supply Co. v. Levy,
247 P. 967 (Oklahoma Supreme Court 1926). `The language of a contract is to
govern its interpretation, if the language is clear and explicit, and does not
involve an absurdity.’ Oklahoma Statutes title 15, § 154. Thus, unambiguous,
clear, and consistent contract terms will be enforced as written to carry out
the expressed intention of the parties. Phillips v. Estate of
Greenfield, 859 P.2d 1101 (Oklahoma Supreme Court 1993); Oklahoma Statutes title 15, § 153.
Walker v.
BuildDirect.com Technologies, Inc., supra.
The Supreme Court then went on to explain that the
paramount question facing this Court is
whether the `Terms of Sale’ located on BuildDirect's website, was incorporated
into the parties' written contractual agreement by reference. This case raises
an issue of first impression. Oklahoma's jurisprudence in contract law on the
doctrine of incorporation, commonly referred to as incorporation by reference,
is sparse.
While Oklahoma's recognition of the
principles of incorporation are abundant, a bright-line standard has yet to be
formulated. The limited precedent that exists, however, permits incorporation
of an extrinsic document by reference where the incorporated material was
clearly identified in the text, See Monkey Island Dev. Auth. v. Staten,
76 P.3d 84 (Oklahoma Supreme Court 2003); or words of express incorporation
were utilized. See High Sierra Energy, L.P. v. Hull, 241 P.3d
1139 (Oklahoma Supreme Court 2010). But, standards to effectively incorporate
by reference sufficient to resolve the underlying dispute before this Court are
lacking.
Walker v.
BuildDirect.com Technologies, Inc., supra.
Notwithstanding that, the court went on to explain that a
contract may include a separate writing
or portions thereof, if properly incorporated by reference. See
Continental Supply Co. v. Levy, 247 P. 967 (Oklahoma Supreme Court 1026); Aetna
Life Ins. Co. v. Bradford, 45 Okla. 70, 145 P. 316 (Oklahoma Supreme Court
2014). As Samuel W. Williston explains, extrinsic material is properly
incorporated when the underlying contract makes clear reference to the separate
document, the identity of the separate document may be ascertained beyond
doubt, and the parties to the agreement had knowledge of and assented to the
incorporation. See 11 Williston on Contracts § 30:25 (4th ed.1999).
Incorporation however, is ineffective
to `accomplish its intended purpose when the provisions to which reference is
made do not have a reasonably clear and ascertainable meaning.’ Williston on Contracts, supra. When
incorporated material is properly referenced, `that other document, or portions
to which reference is made, becomes constructively a part of the writing,’
forming a single instrument. Williston
on Contracts, supra; See High Sierra
Energy, L.P., 241 P.3d 1139 (Oklahoma Supreme Court 2010). See
also Oklahome Statutes title 15, § 158. Although the contract at issue here
concerns the incorporation of an extrinsic document warehoused in cyberspace --
contract formation, incorporation therein, and basic principals of contract law
remain fundamentally unchanged. See One Beacon Ins. v. Crowley Marine
Serv., Inc., 648 F.3d 258 (U.S. Court of Appeals for the 5th Circuit 2011) (although
Internet commerce has exposed courts to many new situations, contract
principles remain unchanged).
Walker v.
BuildDirect.com Technologies, Inc., supra.
The Supreme Court then took up the issue involved in this
case, noting that
BuildDirect contends its `Terms of
Sale’, housed on its website, was incorporated by reference into the Contract.
It asserts that the quotation marks encapsulating the phrase `Terms of Sale’ in
the written contract places the Walkers on notice to the existence of an
extraneous document to be incorporated into the parties' agreement.
The Walkers, on the other hand, contend
they neither had notice of nor assented to the additional terms housed on
BuildDirect's website. Rather, the Walkers maintain that the Contract contained
all relevant terms and failed to identify or give the location of an internet
sales agreement.
Walker v.
BuildDirect.com Technologies, Inc., supra.
It went on to explain that a
chief consideration of incorporation is
whether the party to be bound had reasonable notice of and assented to the
terms to be incorporated. One Beacon
Insurance Co. v. Crowley Marine Services, Inc., 648 F.3d 258 (U.S. Court of
Appeals for the 5th Circuit 2011). A party is deemed to have notice
of incorporated terms where a reasonable prudent person, under the particular
facts of the case, should have seen them. One Beacon Insurance,
supra. See generally Cooper v.
Flesner, 24 Okla. 47, 103 P. 1016 (Oklahoma Supreme Court 1909) (`notice’
is knowledge of facts and circumstances that would alert a reasonable, prudent
person to investigate). But, a party's failure to read duly incorporated terms
will not excuse the obligation to be bound. See McDonald v. McKinney
Nursery Co., 44 Okla. 62, 143 P. 191 (Oklahoma Supreme Court 2014).
Further, neither physical attachment nor magic
words are necessary. See Monkey Island Development Authority, 76
P.3d 84 (Oklahoma Supreme Court 2003) (finding incorporation by reference
of additional provisions not affixed to the parties' contract where express
language of incorporation was used); 11 Williston on Contracts § 30:25.
But, incorporation will fail when this Court must employ a forced construction
to `construe an ambiguity . . .to import a more favorable consideration to
either party than that expressed in the contract.’ Porter v. Oklahoma Farm
Bureau Mutual Ins. Co., 330 P.3d 511(Oklahoma Supreme Court 2015). Such
a standard ensures that Oklahoma consumers are protected from deceptive and
unfair trade practices.
Walker v.
BuildDirect.com Technologies, Inc., supra.
The Supreme Court then outlined its response to the issue
certified for its decision:
Applying the foregoing principles to
the facts of this case, this Court concludes that BuildDirect's `Terms of Sale’
were not properly incorporated into the parties' Contract. `A contract must be
so interpreted as to give effect to the mutual intention of the parties, as it
existed at the time of contracting, so far as the same is ascertainable and lawful.’
Scungio v. Scungio, 291 P.3d 616 (Oklahoma Supreme Court 2012) (quoting Oklahoma Statutes title 15, § 152 (2011)).
This Court ascertains the parties'
mutual intentions from the four corners of the contract. Scungio v.
Scungio, supra. Merely placing
quotation marks around the phrase terms of sale, without more, was insufficient
to convey to the Walkers that BuildDirect was making reference to anything
other than the multitude of sales terms already expressly enumerated within the
four-corners of the Contract.
The Contract, as presented, embodied
all relevant contract terms and conditions. Certainly the phrase `Terms of
Sale’ fails to clearly and unambiguously state that the parties intended to
incorporate any additional terms beyond the four-corners of the Contract. That
oblique reference falls short of this Court's demanding standard. And, it
buttresses this Court's conclusion that, the Walkers neither assented to nor
had notice of the additional online terms.
If BuildDirect intended to make the
online `Terms of Sale’ part of the parties' agreement, BuildDirect could easily
have accomplished that purpose by drafting the Contract employing words of
express incorporation or clearly referencing, identifying and directing the
Walkers to the document to be incorporated.
In this Court's view, BuildDirect's
reliance upon incorporation by reference must, as a matter of law, fail.
Indeed, the Contract as presented gives every appearance of being a complete
agreement -- capturing the price, payment method, delivery and sales terms
expressly enumerated in the Contract. No reasonable prudent person, under the
particular facts of this case, would have notice to think otherwise. Therefore,
BuildDirect's attempt at incorporation was nothing more than a vague allusion.
Walker v.
BuildDirect.com Technologies, Inc., supra.
The court therefore held that
[f]or the reasons stated herein,
Oklahoma law does not recognize a vague attempt at incorporation by reference
as demonstrated in this action. Under the Oklahoma law of contracts, parties
may incorporate by reference separate writings, or portions thereof, together
into one agreement where (1) the underlying contract makes clear reference to
the extrinsic document, (2) the identity and location of the extrinsic document
may be ascertained beyond doubt, and (3) the parties to the agreement had
knowledge of and assented to its incorporation.
Walker v.
BuildDirect.com Technologies, Inc., supra.
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