Hill v. Gateway 2000, Inc.

Facts

A customer ordered a Gateway 2000 computer over the phone and gave a credit card number. The order-taker did not read any terms over the phone. A box then arrived with the computer and a list of terms, said to govern unless the customer returned the computer within 30 days. The box held a four-page statement of terms, and one term was an arbitration clause (an agreement to settle disputes before an arbitrator instead of in court). Rich and Enza Hill bought a system this way. They kept it more than 30 days before complaining about its components and performance. They conceded that they noticed the statement of terms but denied reading it closely enough to find the arbitration agreement. Gateway's ads said its products came with limited warranties and lifetime support, so the Hills knew before ordering that the carton would include some important terms. They did not try to learn those terms in advance. The box was also full of software, including an operating system, and Gateway offered lifetime service and a round-the-clock telephone hotline. The Hills sued in federal court. They argued, among other things, that the product's shortcomings made Gateway a racketeer, with mail and wire fraud as the predicate offenses, so that RICO gave treble damages to them and to a class of all other purchasers.

Issues

1. Do the terms in the box, which the customer could reject by returning the computer within 30 days, become the parties' contract, so that the arbitration clause binds the Hills even though no terms were read to them on the phone?
2. Do the Hills' attempted distinctions from ProCD (the product is a computer rather than software, performance was complete, they are not merchants, and Gateway's box gave no notice of terms inside) take this case outside that decision?

Holding

The terms in Gateway's box, including the arbitration clause, became part of the parties' contract when the Hills kept the computer beyond 30 days. The Hills' attempts to distinguish ProCD failed, so the district court should have compelled arbitration.