Hill v. Gateway 2000

Citation: Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997).

Factual Background
Rich and Enza Hill (“buyers”) ordered a Gateway 2000 computer system from Gateway over the telephone and paid for it with a credit card. The system was delivered, and inside the box was a list of terms. The terms stated that they would govern the agreement “unless the customer returns the computer within 30 days.” Included in those terms was an arbitration clause.

More than 30 days later, the buyers were unhappy with their purchase and filed suit in federal court alleging that Gateway was a racketeer, and as a result, the buyers were entitled to damages under the Racketeer Influenced and Corrupt Organizations Act (RICO).

Trial Court Proceedings
Gateway argued that the arbitration clause included in the box was binding and should be enforced. However, the trial court declined to enforce the arbitration clause, finding that the arbitration clause was invalid. Relying on [ProCD v. Zeidenberg|ProCD, Inc. v. Zeidenberg]], the district court concluded that the contract was formed when the payment was given over the phone and thus only terms known to the buyer at the time of the contract formation were to be included in the agreement. Therefore, the district court held that the terms in the box were not included in the agreement and the arbitration clause was not binding.

Appellate Court Proceedings
On appeal, the Seventh Circuit reversed the district court’s ruling, holding that the terms within the box, including the arbitration clause were binding. The court reasoned that the 30-day return clause constituted an “approve-or-return” offer. Under an “approve-or-return” offer, a buyer may either accept the merchandise under the terms included in the box or return it. The court further stated that as a policy consideration, asking cashiers and telemarketers to recite the terms of the contract when they are attempting to make a sale would not benefit buyer or seller.

Thus, the buyers were deemed to have accepted Gateway’s terms when they kept the computer for longer than 30 days.