552 F.2d 1228 (7th Cir. 1977)
In August 1974, C. Itoh & Co. (America) Inc. submitted a purchase order to Jordan International Company for a quantity of steel coils.1 Jordan responded with an acknowledgment form that included a statement on its face making acceptance expressly conditional on the buyer's assent to additional terms on the reverse side, one of which was a broad arbitration provision.2 Itoh did not expressly assent or object to the arbitration term.3
Itoh had separately contracted to sell the steel coils to Riverview Steel Corporation, Inc., under an agreement that provided for arbitration of controversies except those relating to quality.4 After Jordan delivered the steel and Itoh paid for it, Riverview informed Itoh that the coils were defective and did not conform to the contract standards, and refused to pay Itoh.5
Itoh then filed suit against both Riverview and Jordan in federal district court.6 Itoh claimed that Riverview wrongfully refused payment and that Jordan had sold defective steel with late delivery.7 Riverview raised defenses including that the steel was defective and delivery was late.8
Jordan moved for a stay of the proceedings pending arbitration pursuant to Section 3 of the Federal Arbitration Act.9 The district court denied the motion, concluding that because the quality issues between Itoh and Riverview were not subject to arbitration under their contract, the entire litigation should proceed in court to allow resolution in a single forum.10 Jordan appealed the denial to the Seventh Circuit.11
Whether the district court had discretion under Section 3 of the Federal Arbitration Act to deny a stay pending arbitration on the ground that sound judicial administration requires resolution of the entire lawsuit in a single forum?12
Section 3 of the Federal Arbitration Act addresses stays pending arbitration.13 If any suit or proceeding is brought upon an issue referable to arbitration under a written agreement, the court shall stay the trial upon application by a party not in default.14 The Supreme Court held in Prima Paint that in passing upon a Section 3 application for a stay, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate.15
No. The use of the word 'shall' rather than 'may' indicates that a district court must grant the requested stay where the issue is referable to arbitration under a written agreement and the applicant is not in default. Considerations of judicial economy bear no relation to the making and performance of an agreement to arbitrate.16 In the present case Jordan moved for a stay under Section 3 after Itoh sued both Jordan and Riverview.17 The district court denied the motion because quality issues between Itoh and Riverview were not referable to arbitration.18
The entire litigation should be resolved in a single forum.19
The district court lacked discretion to deny Jordan's application for a stay on the ground of judicial administration and therefore erred in relying on that basis.20
Whether an agreement in writing to arbitrate existed between Jordan and Itoh following the exchange of a purchase order and an acknowledgment form under the Uniform Commercial Code?21
Under UCC Section 2-207(1) an acceptance expressly conditional on assent to additional terms prevents contract formation by the exchange of forms.22 Under Section 2-207(3) conduct recognizing the existence of a contract establishes an agreement. The terms consist of those on which the writings agree together with supplementary terms supplied by the Code's gap-filler provisions such as Sections 2-308, 2-309 and 2-310.23 Arbitration is not such a supplementary term.24
No. Itoh's purchase order contained no arbitration provision.25 Jordan's acknowledgment form stated that acceptance was expressly conditional on assent to additional terms including a broad arbitration clause on the reverse side.26 Itoh never expressly assented.27 The exchange therefore did not form a contract under Section 2-207(1) and Jordan's form became a counteroffer.28
Subsequent performance by Jordan delivering the steel and Itoh paying for it created a contract under Section 2-207(3).29 Because the writings did not agree on arbitration and arbitration is not a gap-filler term supplied by the Code, the resulting contract contained no arbitration provision.30
No agreement in writing to arbitrate existed between Jordan and Itoh, so Jordan was not entitled to a stay under Section 3 of the Federal Arbitration Act.31