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Posted by attorney Zachary Levine

Fadal Machining Centers, LLC v. Compumachine, Inc., 2011 WL 6254979 (9th Cir. December 15, 2011)

Fadal Machining Centers, LLC manufactures machines and parts that were distributed by

Compumachine, Inc. This relationship existed pursuant to a distributor agreement that was drafted by Fadal, which states that Fadal would unilaterally establish “the terms of sale . . . from time to time." Each invoice provided by Fadal to Compumachine made reference to the terms and conditions on Fadal’s website, which provided that within six months after any act or omission in controversy, claims or disputes “arising out of or related to this agreement, or the breach thereof" shall exclusively be submitted to arbitration in Los Angeles, California under the Commercial Arbitration Rules of the American Arbitration Association. When a dispute arose between the parties, however, Fadal filed a civil suit against Compumachine, ignoring its own arbitration provision. The district court dismissed the case without prejudice and the court of appeals upheld the dismissal finding that the district court did not err in concluding an arbitration agreement existed between the parties.

The distributor agreement executed by the parties clearly established the parties’ intent to have Fadal set the terms and conditions for each sale of machinery and parts. Each subsequent invoice then referred Compumachine to Fadal’s website for those terms and conditions. At all times during the relationship at issue, Fadal’s website listed terms and conditions, entitled “CONTRACT" in large bold type, which stated that the parties would be bound by an arbitration agreement. While Fadal argued that the district court placed too much emphasis on the language “arising out of or relating to" in the arbitration clause, there was sufficient evidence in the record for a clear and unmistakable intent to delegate questions of scope to the arbitrator. California law requires courts to accept provisionally extrinsic evidence that purports to explain the meaning of contract terms.

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