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Davis v. Dell

December 28, 2007

JAMES DAVIS, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, AS DEFINED HEREIN PLAINTIFF,
v.
DELL, INC., DEFENDANT.



The opinion of the court was delivered by: Donio, Magistrate Judge

[Doc. No. 14]

OPINION

This matter comes before the court by way of motion of Defendant Dell, Inc., ("Dell"), seeking a stay of the proceedings and to compel arbitration. In this proposed class action, Plaintiff James Davis ("Plaintiff"), on behalf of himself and all similarly situated New Jersey individuals and entities who own or have owned a Dell W2300, W2600, W3000, W3200, W3700, or W4200 series LCD television (the "putative class") filed a complaint against Dell on February 7, 2007.*fn1 Dell filed a motion dated February 23, 2007 seeking an extension of time to file an answer to the complaint. By Order dated February 27, 2007, the Court granted Dell's motion, extending the time to answer until April 14, 2007. In lieu of an answer, Dell filed the motion presently before the Court seeking to stay the proceedings and compel arbitration. Having considered the submissions of the parties, and for the reasons set forth below, the Court grants Dell's motion for a stay and to compel arbitration.

In his Amended Complaint, Plaintiff alleges that on or about December 2004, he purchased an LCD television by way of Internet sale.*fn2 Amended Complaint at ¶ 11. Plaintiff alleges that "[u]pon initial receipt of the TV, [he] was often unable to view the picture on the screen despite being [able] to clearly hear the audio." Id. The Amended Complaint also alleges that putative class members experienced the same problem and/or power supply failures, rendering their televisions inoperable. Id. at ¶ 6. Plaintiff further alleges that Dell sent defective replacement units until the warranties elapsed, "mask[ing] the problem for a short period of time but ultimately provid[ing] no relief[.]" Id. at ¶ 8. Plaintiff asserts that Dell sold the defective televisions "even though it knew, or was reckless in not knowing, that [the televisions] would prematurely fail[.]" Id. at ¶ 7. Plaintiff further asserts that the defects rendered the televisions unmerchantable. Id. at ¶ 23. Specifically, Plaintiff's alleged claims against Dell include claims for (1) "unfair and deceptive acts and practices" in contravention of the New Jersey Consumer Fraud Act; (2) breach of implied warranty of merchantability; and (3) unjust enrichment. Id. at 17-19. These claims are state law claims.

In the motion presently before the Court, Dell asserts that the sale of the product is governed by the Terms and Conditions of Sale ("Terms and Conditions"), which contain a provision mandating that "any claim, dispute or controversy . . . between customer and Dell . . . shall be resolved exclusively and finally by binding arbitration administered by the National Arbitration Forum . . . [.]" See Memorandum of Law in Support of Motion to Stay Proceedings and to Compel Arbitration ("Def. Br.") at 3-4; Declaration of Mary Pape dated April 12, 2007 ("Pape Decl."), Ex. A, at 3. Dell further asserts that Plaintiff was not only informed that the purchase was subject to the Terms and Conditions immediately prior to placing his order, but, in addition, he was required to affirmatively click a button indicating that he had agreed to the Terms and Conditions in connection with his purchase. See Def. Br. at 3-4; Pape Decl. at 5, ¶ 12. Dell avers that upon receipt of Plaintiff's order, it sent either an e-mail confirmation or written acknowledgment containing the Terms and Conditions, which included the full text of an arbitration clause and the following sentence, in bold lettering and all caps: "This document contains a dispute resolution clause." See Def. Br. at 4; Pape Decl., Exhs. C, D. Dell next asserts that upon receipt of the television, Plaintiff was provided with another copy of the Terms and Conditions, and that he had the opportunity to return his television within twenty-one (21) days for a full refund or credit. Def. Br. at 4-5.

Dell contends that a stay of these proceedings is warranted because the arbitration provision in question is binding and covers all of Plaintiff's claims. Id. at 6. In support of this proposition, Dell asserts that a consumer who is presented with contractual terms and given an opportunity to either reject or assent to them is bound by such terms. Id. at 8-9. Furthermore, Dell asserts that any doubt concerning the scope of arbitrable issues "'should be resolved in favor of arbitration.'" Id. at 11 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 (1983)).

Plaintiff opposes the motion for a stay and asserts that arbitration is not warranted for a number of reasons. First, Plaintiff contends that the Terms and Conditions do not apply to Plaintiff's purchase because the Terms and Conditions are expressly limited to the purchase of "computer systems and/or related products and/or services and support," and do not encompass the purchase of televisions. See Plaintiff's Opposition to Dell's Motion to Compel Arbitration (hereinafter "Pl. Br."), at 7. Additionally, Plaintiff alleges that even if the Terms and Conditions apply to the purchase at issue in this case, they should not be given effect because they are unconscionable under New Jersey contract law as they contain a class action waiver. Id. at 1. In support of this contention, Plaintiff, relying on the recent New Jersey Supreme Court case of Muhammad v. County Bank of Rehoboth, 189 N.J. 1, 912 A.2d 88 (2006), cert. denied, 127 S.Ct. 2032, 167 L.Ed. 2d 763 (2007), asserts that class action waivers in consumer fraud cases such as the present one - involving small amounts of damages - effectively act as exculpatory clauses relieving potential defendants of liability for wrongful conduct. Pl. Br. at 23-24. Furthermore, Plaintiff asserts that the class action waiver violates New Jersey's fundamental public policy of ensuring the availability of consumer class actions, and that New Jersey has a materially greater interest than Texas in having its law applied to this dispute. Id. at 16-17. Plaintiff additionally alleges that the arbitration clause is unconscionable because it contains "oppressive" rules and procedures of Dell's chosen arbitral forum, the National Arbitration Forum ("NAF"). Id. at 28.

Dell asserts that the arbitration clause is not procedurally unconscionable because Plaintiff was "free to purchase a television from any of Dell's competitors who do not include arbitration provisions as a term of sale." Def. Br. at 14. Dell further asserts that the parties' contractual choice of Texas law is enforceable for two reasons. First, Dell asserts that, because there is no fundamental New Jersey policy against class arbitration waivers, applying Texas law would not violate a fundamental New Jersey policy. See Reply in Support of Motion to Stay Proceedings and to Compel Arbitration ("Def. Reply Br."), at 6 (citing Homa v. American Express Co., 496 F. Supp. 2d 440 (D.N.J. 2007)). Second, Dell asserts that New Jersey does not have a materially greater interest in the dispute than Texas because "Texas has at least as significant an interest in protecting its resident business's [sic] expectations that its nationwide transactions will be subject to consistent legal standards, as does New Jersey in protecting a consumer whose television allegedly does not work." Id. at 9. Additionally, Dell asserts that the arbitration provision is not an exculpatory clause in contravention of a fundamental New Jersey policy for several reasons: the prospective recovery amount is not low enough to dissuade potential plaintiffs from pursuing litigation; the arbitral forum and "applicable law afford[] prevailing consumers a right to attorneys' fees;" and, expensive experts would not be needed to prove the fraud claims. Id. at 11-12. Finally, Dell alleges that the chosen arbitral forum has been "widely recognized . . . as offering 'a model[] for fair cost and fee allocation.'" Id. at 14 (quoting In re Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385, 412 (S.D.N.Y. 2003) (internal quotations omitted)).

The Court begins its analysis by noting that on a motion to compel arbitration, the Court must decide: (1) whether the parties entered into a valid arbitration agreement, and, if so, (2) whether the scope of that agreement encompasses the claims at issue in this case. Trippe Mfg. Co. v. Niles Audio Corp, 401 F.3d 529, 532 (3d Cir. 2005). Once the party seeking to compel arbitration establishes its right to arbitration, if the opposing party does not defeat that right, the trial court has no discretion and is obligated to compel arbitration. Dell, Inc. v. Muniz, 163 S.W.3d 177, 181 (Tex. Ct. App. 2005) (citing Cantella & Co. v. Goodwin 924 S.W.2d 943, 944 (Tex. 1996)). The Court further notes that although "[t]he FAA establishes a strong federal policy in favor of compelling arbitration over litigation," Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 104 (3rd Cir. 2000), "federal case law dictates that general contract defenses such as fraud, duress or unconscionability, that are grounded in state contract law may be applied" to invalidate an arbitration agreement. B&S Ltd., Inc. v. Elephant and Castle Intern., Inc., 388 N.J. Super. 160, 175, 906 A.2d 511 (Ch. Div. 2006); see also 9 U.S.C. § 2. The Court also notes that New Jersey adheres to a general policy favoring the arbitration of disputes over traditional litigation. See, e.g., Sarbak v. Citigroup Global Markets, Inc., 354 F. Supp. 2d 531, 537 (D.N.J. 2004).

Before the Court addresses the questions of the validity and scope of the arbitration clause, the Court must, as a threshold matter, determine whether the Terms and Conditions containing the arbitration provision apply to Plaintiff's purchase of a television in this instance. If the Terms and Conditions do not apply to Plaintiff's purchase, the Court's inquiry is at an end. If, however, the Court finds that the Terms and Conditions apply to Plaintiff's purchase, the Court must next determine whether Texas law - the choice of law set forth in the Terms and Conditions - or New Jersey law will govern the validity of the provisions in the Terms and Conditions. Finally, the Court must determine whether the arbitration provision is valid under the appropriate state's law.

The Court notes that the Terms and Conditions read, in relevant part: "These terms and conditions ("Agreement") apply to your purchase of computer systems and/or related products and/or services and support." Pape Decl., Ex. A at 1 (emphasis added). Plaintiff relies upon this language in support of his assertion that the Terms and Conditions do not apply to the purchase of televisions from Dell. Pl. Br. at 7. Dell, however, argues that despite the wording, the Terms and Conditions cover the purchase of televisions. Specifically, Dell asserts that Plaintiff has "submitted no affidavit testimony or evidence of any kind that his agreement to the Terms and Conditions was intended for some other transaction," or that he was "confused in some way about the application of the Agreement to his purchase." Def. Reply Br. at 2 n.1. Dell alleges that at the time Plaintiff placed his order, Plaintiff "could not place his order without actively clicking a button indicating that he agreed to Dell's Terms and Conditions of Sale." See Pape Decl. at 5, ¶ 12. Moreover, Dell's online ordering process and the printed copy of the Terms and Conditions that shipped with the televisions informed Plaintiff that "[a]ll sales are subject to Dell's Terms and Conditions of Sale." Id. at 3, ¶ 5.

In making its threshold inquiry into whether Plaintiff entered into an agreement and accepted the Terms and Conditions in connection with his purchase of a television, the Court shall apply state law to the issue of contract formation. See, e.g., Specht v. Netscape Commc'n Corp., 306 F.3d 17, 27 (2d Cir. 2002)(finding district court "properly concluded that in deciding whether parties agreed to arbitrate a certain matter, a court should generally apply state-law principles to the issue of contract formation."). Plaintiff cites to New Jersey law in his argument concerning interpretation of the contract. Pl. Br. at 15. Defendant asserts that Texas law governs the issue of contract formation and performance, because the contract at issue contains a choice of law provision that states that Texas law shall apply to all disputes. Def. Reply Br. at 9 n.6. However, the choice of law provision contained within the Terms and Conditions does not govern the law to be applied in determining whether, as a threshold matter, there was a contract in the first place. Indeed, if the parties never entered into a contract, then a choice of law provision contained within the document purporting to be a contract would have no effect.

In this diversity case, New Jersey choice of law analysis governs which law applies. See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Henry v. Richardson-Merrell Inc., 508 F.2d 28, 31 (3d Cir. 2003). This Court will therefore follow New Jersey choice-of-law rules to determine whether a contract was formed between the parties. New Jersey courts consider the factors listed in Sections 6 and 188 of the Restatement (Second) of Conflicts of Laws in determining issues with respect to contract validity and rights created thereby. Gen. Am. Life Ins. Co. v. International Ins. Co., No. Civ. A. 98-5588, 2000 WL 35547519, at *10 (D.N.J. Jan. 3, 2000) (citing Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 134 N.J. 96, 102 (1993)). According to Section 188 of the Restatement, the general rule in contract actions is that the law of the state with "the most significant relationship to the transaction and the parties" under the principles stated in Section 6 of the Restatement governs. See Gilbert Spruance Co., 134 N.J. at 102. Here, Plaintiff is a New Jersey resident and purports to represent a class of New Jersey residents. Dell maintains its principal place of business in Texas. See Pape Decl. at 2, ¶ 3. Clearly, then, both states have an interest in having their law apply to the Court's contract analysis here. The Court notes, however, that there is no conflict between Texas and New Jersey law regarding the relevant issue of contract formation, and therefore, the Court applies New Jersey law in determining whether the Terms and Conditions constitute the contract terms. The agreement at issue in this case may be characterized as a "clickwrap" agreement, which has been explained by one court as follows: "[a] clickwrap agreement appears on an internet webpage and requires that a user consent to any terms or conditions by clicking on a dialog box on the screen in order to proceed with the internet transaction . . . . Even though they are electronic, clickwrap agreements are considered to be writings because they are printable and storable." Feldman v. Google, Inc., 513 F. Supp. 2d 229, 236 (E.D. Pa. 2007)(internal citations omitted). Under both New Jersey and Texas law, when a party uses his computer to click on a button signifying his acceptance of terms and conditions in connection with an online transaction, he thereby manifests his assent to an electronic agreement. See Recursion Software, Inc. v. Interactive Intelligence, Inc., 425 F. Supp. 2d 756, 782-83 (N.D. Tex. 2006) (finding that clicking "yes" to terms of software license agreement on website, where software could not be installed without clicking "yes," constituted acceptance of terms of license agreement); Hotels.com, L.P. v. Canales, 195 S.W.3d 147, 154-55 (Tex. Ct. App. 2006) ("'[c]lick-wrap' agreements require the user to review or scroll through terms and assent to the contractual terms by clicking a button that reads 'I Agree' or manifesting some other means of express assent[.]"); Caspi v. Microsoft Network, L.L.C., 323 N.J. Super. 118, 122, 125, 732 A.2d 528 (App. Div. 1999) (prospective members could scroll through MSN's membership agreement and "assent to the terms of the agreement by clicking on 'I Agree' using a computer mouse," so plaintiffs "were free to scroll through the various computer screens that presented the terms of their contracts before clicking their agreement."), cert. denied, 162 N.J. 199, 743 a.2d 851 (1999). Therefore, under both Texas and New Jersey law, a party may manifest assent to a contract by clicking on an "I Accept" button in connection with an internet transaction.

Having reviewed the submissions, the Court concludes that the clicking of the accept box constituted a manifest assent by Plaintiff to Dell's Terms and Conditions. There has been no submission by Plaintiff contradicting Dell's position that Plaintiff "clicked" the box accepting the Terms and Conditions. Moreover, Plaintiff does not dispute that the click through stated that "[t]he Terms and Conditions of Sale contain very important information about your rights and obligations as well as limitations and exclusions that may apply to you. They contain limitations of liability and warranty information. They also contain an agreement to resolve disputes through arbitration, rather than through litigation. Please read them carefully." Pape Decl. at 5, ΒΆ 12. Moreover, as noted by Dell, Plaintiff has not presented any evidence that contradicts the declaration of Dell that Plaintiff assented to the terms and conditions with the click through. To the contrary, in his brief, Plaintiff states that "assuming the arbitration agreement constitutes a contract, . . . the place of contracting was New Jersey," and Plaintiff further states that "[a] contract was not formed until the consumer clicked the 'accept' ...


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