Internet Library of Law
and Court Decisions

Melissa Westendorf v. Gateway 2000, Inc.

Following Hill v. Gateway 2000, Inc., the court held that plaintiff, an intended beneficiary of a third parties' purchase of a computer from defendant, entered into a contract with defendant by retaining that computer for 30 days in accordance with the terms of the agreement provided her at the time she received the computer. The court further held plaintiff bound to the arbitration clause contained in those terms, even though she received the computer as a gift.

In December 1997, plaintiff ordered a personal computer from defendant Gateway 2000, Inc. ("Gateway") and requested that it be delivered directly to one Brian Pawlak. Plaintiff was billed for this computer. In August 1998, Mr. Pawlak apparently returned the favor, and ordered a personal computer from defendant which he requested be shipped directly to the plaintiff, for which he paid.

At the time of these purchases, Gateway offered those who purchased its computers access to Gateway.net, which provided Gateway PC owners with Internet access, an e-mail account and technical support. Only purchasers of Gateway PC's could utilize this service, which required installation of software delivered to the customer along with the Gateway PC.

Accompanying the computers delivered to both plaintiff and Mr. Pawlak were Gateway's Standard Terms and Conditions ("Standard Terms"). The Standard Terms provide that they become a binding agreement between Gateway and its customer if the customer retains the computer for more than 30 days. The Standard Terms further provide that the customer may return the computer within this thirty day period for any reason for a full refund (less shipping costs). The Standard Terms contain an arbitration clause. Also delivered to both plaintiff and Mr. Pawlak with their computers was a second set of Terms and Conditions which governed the use of Gateway.net ("Service Terms"). The Service Terms did not contain an arbitration clause.

Plaintiff retained the computer she received from defendants for more than thirty days. In addition, she registered for use of Gateway.net in her own name, and was billed therefor.

Complaining that the service at Gateway.net was inadequate, plaintiff sought to bring a class action lawsuit on behalf of herself and other users of defendant's service. Defendant moved to dismiss plaintiff's claim, arguing that she was obligated to arbitrate her dispute. The court agreed and dismissed plaintiff's claim.

The court held that the Standard Terms became a binding agreement between Gateway and plaintiff when she retained the computer purchased by Pawlak for over 30 days. Relying on Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir.), cert. denied, 552 U.S. 808 (1997), the court said:

The Seventh Circuit [in Hill v. Gateway 2000]... found the agreement [reflected in the Standard Terms] enforceable as written. Judge Easterbrook, writing for the unanimous panel, noted "by keeping the computer beyond 30 days, the (buyers) accepted Gateway's offer, including the arbitration clause." Undeniably, plaintiff in the present case retained the computer and accessories for more than thirty days. The same rationale, therefore, applies to this plaintiff as in the case before the 7th Circuit.

The court further held that the arbitration clause contained in the Standard Terms was binding on plaintiff, even though she did not purchase the computer from defendant, but instead was merely an intended third party beneficiary of another's purchase. According to the court "one who knowingly accepts the benefits entered as the consideration, coming to him or her under a contract voluntarily made by another in his or her behalf, becomes bound by reason of such acceptance to perform his or her part of the contract." Applying this doctrine, the court held that:

Because plaintiff, as an intended beneficiary of her friend's computer purchase, accepted the benefits of that purchase and otherwise met the requisite conditions for the agreement to become effective, I find she is bound by the arbitration clause.

Lastly, the court held that plaintiff was bound to arbitrate this dispute even though the Service Terms did not contain an arbitration clause. Said the court:

When evaluating the effect of an arbitration clause that is present in only one agreement of a series of related agreements, courts have examined "the totality of circumstances," while also recognizing the policy concerns favoring arbitration. Applying that analysis to this case, I find that Gateway was not required by law to include an arbitration clause in each separate agreement. "Where an arbitration clause is broad enough to encompass the disputed question, the court has no choice but to refer to the controversy to arbitration in the agreed manner." In this case, the arbitration clause is sufficiently broad enough to cover the dispute.