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Khan v. Dell

August 18, 2010

RAHEEL AHMAD KHAN, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
DELL, INC. DEFENDANTS.



The opinion of the court was delivered by: Pisano, District Judge.

OPINION

Plaintiff Raheel Ahmed Khan brings this putative consumer class action against Defendant Dell, Inc ("Dell") on behalf of himself and all other persons who have purchased or leased a Dell Inspiron 600m laptop computer. Khan alleges that the Dell Inspiron 600m laptop computer suffers from a design defect that causes, among other things, the computer to overheat easily under normal operating conditions, thereby shortening the useful lifespan of the machine. Presently before the Court is a motion by Dell to compel arbitration and stay Plaintiff's claims. For the reasons below, Dell's motion is denied.

I. Background

Dell is a Delaware corporation that maintains its principal place of business in Texas. Comp. ¶ 8. Dell designed, manufactured and distributed the Inspiron 600m computer. Id. This product was sold by Dell from approximately 2003 through 2006. Id. Plaintiff is a customer of Dell who purchased the Inspiron 600m, which he alleges suffers from a design defect. According to Plaintiff, because of its allegedly defective design, his 600m overheated and "burned" his motherboard, which he had to repeatedly have replaced. Compl. ¶ 4. He stopped replacing the motherboard the third time it failed, and Plaintiff alleges that Dell refused to replace the motherboard after Dell said the warranty had expired. Id.

Plaintiff further alleges that although Dell represented that the Inspiron 600m was suitable for multimedia applications, because of its allegedly defective design the computer overheated when it was used for such applications in as little as fifteen minutes of use, and it also overheated at other times even if used for non-multimedia functions. Id. ¶ 10. According to Plaintiff, when the computer overheated certain parts of it became too hot to touch comfortably, its processor slowed down, and its vital components degraded, reducing the computer's useful life. Id. ¶ 12-13. Plaintiff contends that Dell failed to properly design, manufacture and/or test the 600m, did not provide an acceptable solution for the problems caused by the alleged defect, and concealed the existence of the alleged defect. Plaintiff paid approximately $1,200 for his computer.

II. Dell's Motion

In its motion presently before the Court, Dell alleges that Plaintiff's purchase of his 600m is governed by certain "Terms and Conditions of Sale" ("Terms and Conditions"). The issue at the center of the motion involves the application and interpretation of the Terms and Conditions, which, at the time Plaintiff purchased his computer, contained an arbitration provision that read:

ANY CLAIM, DISPUTE, OR CONTROVERSY (WHETHER IN CONTRACT, TORT, OR OTHERWISE, WHETHER PRE-EXISTING, PRESENT OR FUTURE, AND INCLUDING STATUTORY, COMMON LAW, INTENTIONAL TORT AND EQUITABLE CLAIMS) BETWEEN CUSTOMER AND DELL, its agents, employees, principals, successors, assigns, affiliates (collectively for purposes of this paragraph, "Dell") arising from or relating to this Agreement, its interpretation, or the breach, termination or validity thereof, the relationships which result from this Agreement (including, to the full extent permitted by applicable law, relationship with third parties who are not signatories to this Agreement), Dell's advertising, or any related purchase SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF) under its Code of Procedure then in effect (available via the Internet at http://www.arbforum. com, or via telephone at 1-800-474-2371). The arbitration will be limited solely to the dispute or controversy between customer and Dell. NEITHER CUSTOMER NOR DELL SHALL BE ENTITLED TO JOIN OR CONSOLIDATE CLAIMS BY OR AGAINST OTHER CUSTOMERS, OR ARBITRATE ANY CLAIM AS A REPRESENTATIVE OR CLASS ACTION OR IN A PRIVATE ATTORNEY GENERAL CAPACITY. This transaction involves interstate commerce, and this provision shall be governed by the Federal Arbitration Act 9 U.S.C. sec. 1-16 (FAA).

Declaration of Mary Pape ("Pape Dec."), Ex. 1. According to Dell, in order for Plaintiff to purchase his 600m through Dell's Internet site (dell.com), Plaintiff was required to click a box indicating that he agreed to Dell's Terms and Conditions, which was available to him on Dell's website. Id. ¶ 8. Also, Dell states that it had a policy in place at the time Plaintiff purchased his computer pursuant to which Dell provided the Terms and Conditions along with the delivery of any purchased computer. Id., ¶ 5. Dell contends that the instant matter should be stayed pending arbitration because the arbitration provision above is binding and covers all of Plaintiff's claims.

Plaintiff opposes Dell's motion. Plaintiff does not dispute that Terms and Conditions governs the transaction at issue. Rather, Plaintiff first asserts that the arbitration provision of the Terms and Conditions is unenforeceable because it provides for arbitration to be administered exclusively by the National Arbitration Forum ("NAF") and the NAF is no longer administering consumer arbitrations. Plaintiff argues that the designation of the NAF (as well as its Code of Procedures) was integral to the arbitration provision and, therefore, the arbitration provision of the Terms and Conditions fails.

Alternatively, Plaintiff contends the arbitration provision is unconscionable and therefore invalid. Plaintiff argues that the class action waiver is unconscionable under New Jersey law because it violates New Jersey public policy in that it prevents consumers from vindicating low-value, expensive-to-prosecute claims.

Whether The Arbitration Provision Fails Due to the Unavailability of the NAF

When an arbitrator named in an arbitration agreement is unavailable or unable to arbitrate the dispute, such a failure is not necessarily fatal to the parties' agreement to arbitrate. See, e.g., McGuire, Cornwell & Blakey v. Grider, 771 F.Supp. 319, 320 (D. Colo. 1991) ("where the arbitrator named in the arbitration agreement cannot or will not arbitrate the dispute, a court does not void the agreement but instead appoints a different arbitrator"). Some courts have held that § 5 the Federal Arbitration Act ("FAA")*fn1 provides a mechanism for the appointment of an arbitrator when a chosen arbitrator is unavailable. See Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222 (11th Cir. 2000) ("Where the chosen forum is unavailable. or has failed for some reason, § 5 applies and a substitute arbitrator may be named."); Carideo v. Dell, Inc., 2009 WL 3485933, at *3 (W.D. Wash. Oct.26, 2009) ("In general, the FAA provides that where a chosen arbitrator is unavailable, the court may appoint a substitute arbitrator."); Zechman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 742 F.Supp. 1359, 1365 (N.D. Ill. 1990) ("In cases where the failed term establishes the identity of the arbitrator or arbitrators, the [§ 5 of the] Federal Arbitration Act steps in to cure the defect").

While it appears that the Third Circuit has not spoken on the issue, there are three decisions from federal appeals courts that address the issue of whether a court may appoint a substitute arbitrator when the arbitrator specified in the arbitration agreement is unavailable. See Reddam v. KPMG L.L.P., 457 F.3d 1054 (9th Cir. 2006); Brown v. ITT Consumer Financial Corp., 211 F.3d 1217 (11th Cir. 2000); In re Salomon Inc. Shareholders' Derivative Litigation, 68 F.3d 554 (2d Cir. 1995). Under both Reddam and Brown, an arbitration agreement will not fail because of the unavailability of a chosen arbitrator unless the parties' "choice of forum is an integral part of the agreement to arbitrate, rather than an 'ancillary logistical concern.'" Brown, 211 F.3d at 1222. Under the approach in these two decisions, a court must determine whether the forum choice is "integral," that is, "so central to the ...


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