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Raheel Ahmad Khan, Individually and On Behalf of Others Similarly Situated v. Dell Inc

January 20, 2012

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



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 3:09-cv-03703) District Judge: Honorable Joel A. Pisano

The opinion of the court was delivered by: Roth, Circuit Judge:

PRECEDENTIAL

Argued on April 28, 2011

Before: SLOVITER, GREENAWAY, JR and ROTH, Circuit Judges

OPINION

This appeal involves a matter of first impression for this Circuit - whether Section 5 of the Federal Arbitration Act (FAA) requires the appointment of a substitute arbitrator when the arbitrator designated by the parties is unavailable. Dell, Inc., appeals from the District of New Jersey‟s denial of Dell‟s Motion to Compel Arbitration and Stay Plaintiff‟s Claims. Dell contends that the District Court erred in denying its motion to compel arbitration based on the District Court‟s belief that the arbitration provision was rendered unenforceable because it provided for the parties to arbitrate exclusively before a forum that was unavailable when Khan commenced suit. The District Court also refused to appoint a substitute arbitrator, finding that it could not compel the parties to submit to an arbitral forum to which they had not agreed.

I. FACTUAL BACKGROUND

Dell designed, manufactured, and distributed the 600m computer from 2003 to 2006. Khan purchased a Dell 600m computer in September 2004 for approximately $1,200.

Khan purchased the computer online through Dell‟s website, www.Dell.com. To complete the purchase, Khan was required to click a box stating "I AGREE to Dell‟s Terms and Conditions of Sale." Just beneath the box was a notice stating:

The Terms and Conditions of Sale contain very important information about your rights and obligations as well as limitations and exclusions that 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.

As Dell‟s notice indicated, its Terms and Conditions of Sale contained an arbitration provision that reads as follows:

13. Binding Arbitration. 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, relationships 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.arb- forum.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). Any award of the arbitrators shall be final and binding on each of the parties . . . . Information may be obtained and claims may be filed with the NAF at P.O. Box 50191, Minneapolis, MN 55405.

Rule 1 of the NAF‟s "Code and Procedure," referred to in paragraph 13 above, provided that "[t]his Code shall be administered only by the National Arbitration Forum or by any entity or individual providing administrative services by agreement with the National Arbitration Forum." Also, as we can see in paragraph 13, the arbitration provision did not designate a replacement forum in the event that NAF was unavailable for any reason. But, as we see, the Terms and Conditions did incorporate the Federal Arbitration Act.

In addition, the Terms and Conditions provided that Texas law would govern interpretation of the Agreement and of any sales. The Terms and Conditions did not contain a severance provision and any alterations to the Terms and Conditions required the signature of both parties.

Khan alleged that his 600m suffered from design defects, causing his computer to overheat and thereby destroy the computer‟s motherboard. Khan replaced the motherboard multiple times. After the third replacement, Dell refused to issue another replacement, claiming the warranty had expired. The 600m allegedly suffered from other design ...


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