Two recent Northern California federal court decisions have held that arbitration, choice of law and class action waiver provisions in computer purchase contracts were not enforceable, and that the consumers could proceed with class action claims in federal court against the computer sellers.
In Brazil v. Dell, Inc., (N.D. Cal. No. 5:07-CV-01700 RMW, 8/3/07), the plaintiffs filed a class action claiming that Dell had misrepresented the price of its computers by artificially inflating prices before advertising discounts. Dell moved to stay the action and compel arbitration due to the following clause in the Dell contracts:
Binding Arbitration. ANY CLAIM, DISPUTE, OR CONTROVERSY . . . BETWEEN CUSTOMER AND DELL . . . SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF) . . . . NEITHER CUSTOMER NOR DELL SHALL BE ENTITLED TO JOIN OR CONSOLIDATED CLAIMS BY OR AGAINST OTHER CUSTOMERS, OR ARBITRATE ANY CLAIM AS A REPRESENTATIVE OR CLASS ACTION OR IN A PRIVATE ATTORNEY GENERAL CAPACITY.
Judge Ronald Whyte held in Brazil that:
- Although the purchase contract called for application of Texas law, California law should be applied because application of Texas law would violate a fundamental policy of California law.
- Despite a clause allowing the consumer to rescind the contract if the terms were unacceptable, the purchase contract was procedurally unconscionable because it was a contract of adhesion presented without an opportunity to meaningfully negotiate.
- Substantive unconscionability was also found because there was an allegation of a scheme to cheat large numbers of customers, and small damages would be suffered by many consumers.
In Oestreicher v. Alienware Corp. (N.D. Cal. No. 3:07-CV-00512 MHP, 8/10/07), the plaintiff had filed a class action claiming that Alienware had knowingly sold defective computers. Alienware moved to stay the case and compel arbitration. Judge Marilyn Patel refused to compel arbitration. Like Judge Whyte did in the Brazil decision, Judge Patel found that California law should be applied due to a conflict with the law provided in the contract (in this case, Florida law). Judge Patel concluded that the agreement was procedurally and substantively unconscionable, and that the class action and arbitration provisions should not be enforced.