215 F.3d 219, 223 (2d Cir. 2000)
Bayway Refining Company and Oxygenated Marketing and Trading A.G. are businesses engaged in buying and selling petroleum products.1 On February 12, 1998, OMT faxed Bayway a confirmation letter that operated as an offer to purchase 60,000 barrels of MTBE.2 Bayway responded the next day with its own confirmation fax that operated as an acceptance.3 Bayway incorporated by reference its General Terms and Conditions dated March 1, 1994, which included a Tax Clause providing that the buyer shall pay the seller the amount of any federal excise taxes paid or incurred by the seller with respect to the product sold.4
OMT did not object to Bayway's acceptance or the incorporated terms.5 OMT accepted delivery of the MTBE on March 22, 1998.6 After delivery, Bayway learned that OMT was not registered with the Internal Revenue Service under 26 U.S.C. § 4101, resulting in a federal excise tax liability of $464,035.12 that Bayway paid.7
Bayway then demanded that OMT pay the tax amount pursuant to the Tax Clause, but OMT refused.8 Bayway filed this diversity action in the United States District Court for the Southern District of New York alleging breach of contract.9 The district court granted summary judgment in favor of Bayway.10
OMT appealed the judgment to the United States Court of Appeals for the Second Circuit.11
Whether under N.Y. U.C.C. § 2-207(2)(b) the party opposing inclusion of an additional term bears the burden of proving that the term amounts to a material alteration?12
Under N.Y. U.C.C. § 2-207(2), additional terms between merchants become part of the contract unless the party opposing inclusion proves that the term materially alters it under subsection (b), because the general rule operates as a presumption of the parties' intent.13
Yes. The structure of § 2-207(2) creates a presumption favoring inclusion of additional terms, so the opposing party must prove material alteration to rebut it.14 In the ESTABLISHED FACTS, Bayway's acceptance incorporated the Tax Clause by reference as an additional term after OMT's offer, OMT accepted delivery without objection, and OMT later refused payment on the tax, thereby opposing inclusion.15 OMT therefore bore the burden to prove the Tax Clause was a material alteration but failed to carry it, as the district court granted summary judgment to Bayway.16
The party opposing inclusion of an additional term bears the burden of proving that the term amounts to a material alteration.17
Whether the Tax Clause materially altered the contract between Bayway and OMT?18
A material alteration is one that would result in surprise or hardship if incorporated without express awareness by the other party, with surprise requiring both subjective and objective elements and hardship typically involving open-ended or prolonged liability.19
No. OMT failed to prove objective surprise because allocating excise tax liability to the buyer is the custom and practice in the petroleum industry, as confirmed by unchallenged expert testimony and standard contracts from CITGO, Conoco, and Enron.20 In the ESTABLISHED FACTS, OMT controlled whether tax liability arose by failing to register under 26 U.S.C. § 4101, accepted delivery of the MTBE on March 22, 1998 without objection to the Tax Clause, and faced only a discrete, limited liability on this specific transaction rather than open-ended hardship.21 The Tax Clause therefore did not materially alter the contract.22
The Tax Clause did not materially alter the contract between Bayway and OMT.23
Whether the district court properly admitted evidence of custom and practice in the industry that was first proffered in the moving party’s reply papers?24
Reply papers may properly address new material issues raised in the opposition papers so as to avoid giving unfair advantage to the answering party.25 This is particularly true when the opposing party had notice of the potential rebuttal evidence and did not seek leave to file a sur-reply.
Yes. OMT first raised the material alteration argument in its papers opposing summary judgment, making Bayway's reply the initial opportunity to introduce evidence of industry custom and practice.26 In the ESTABLISHED FACTS, the district court considered this evidence and granted summary judgment to Bayway, and the Second Circuit reviewed the admission for abuse of discretion before affirming.27 OMT knew such evidence could refute its claim yet introduced none of its own and made no request for sur-reply, confirming the district court acted within its discretion.28
The district court properly admitted evidence of custom and practice in the industry that was first proffered in the moving party’s reply papers.29