9th Circ. Reboots Dell Laptop Class Action

By Nick Malinowski

Law360, New York (February 05, 2010) -- The U.S. Court of Appeals for the Ninth Circuit has revived a putative class action against Dell Inc. over allegedly defective laptops, reversing a lower court order and ruling that the conflict resolution clause of Dell's online purchasers' contract violates California law.

A three-judge appellate panel ruled Friday that the U.S. District Court for the Northern District of California had abused its discretion in dismissing the suit. The judges also found the class action waiver of the arbitration clause of the purchasers' agreement was unenforceable in California and that the district court had erred earlier in the case by compelling the two sides to arbitrate.

“We are gratified that the Ninth Circuit saw things our way,” plaintiffs' attorney Jonathan Selbin said in an e-mail Friday evening. “This appeal was focused on simply getting the doors to the courthouse open for our clients, and we have now done so.”

Named plaintiffs Michael Omstead, Melissa Malloy and Lisa Smith sued Dell in 2006 on behalf of a proposed class of Californians accusing the computer company of designing, manufacturing and selling defective laptop computers. The suit sought compensatory and punitive damages, and a permanent injunction.

The plaintiffs purchased laptop computers between July 2004 and January of the next year through Dell's Web site and were required to accept a written agreement of terms and conditions, the order said. The agreement included language describing that all conflicts between customers and Dell would be resolved individually through binding arbitration.

The district court granted Dell's motion to stay the case and compel arbitration per the agreement, but, after further legal wrangling, the plaintiffs refused to arbitrate, arguing that it was not economically feasible to pursue the case outside of the class.

However the arbitration order was not appealable, and finally the district court dismissed the case in May 2008 due to the plaintiffs’ failure to prosecute.

On Friday the appellate panel decided that the district court should not have dismissed the case because the plaintiffs had not caused any unreasonable delay and their actions did not place unwarranted stress on the court's docket or prejudice Dell. More importantly for the plaintiffs, the Ninth Circuit removed the procedural issue of the compel order, by ruling the arbitration clause unenforceable.

“The importance of this decision is that it unties a procedural bind that prior law had placed plaintiffs in: if you were ordered to arbitrate but could not afford to do so (at least not on an individual basis), you essentially could not seek immediate appeal and had to go arbitrate and lose and appeal then,” Selbin said. “For small consumer claims like these, that was a practical impossibility.”

The action will now move back to district court and turn to the merits, and although this ruling does not win the plaintiffs the case, they will have their claims heard by a court rather than an arbiter, Selbin said.

A spokeswoman for Dell said the company did not comment on pending litigation.

“This ruling is part of a growing line of cases in the Ninth Circuit and California appellate courts making it clear that, under California law at least, attempts by companies to force consumers into individual (i.e. nonclass) arbitration violate a fundamental policy,” Selbin said.

The proposed class consists of all individuals and entities in California who own or have owned a Dell Inspiron notebook computer of the model numbers 1,100; 5,100; or 5,160.

The plaintiff-appellants were represented by Lieff Cabraser Heimann & Bernstein LLP, Caddell & Chapman PC, Malesovas & Martin LLP, Fee Smith Sharp & Vitullo LLP, Paul R. Kiesel and Patrick DeBlase.

Dell was represented by Reeves & Brightwell LLP, Douglas R. Young and C. Brandon Wisoff.

Circuit Judges Mary M. Schroeder and Marsha S. Berzon, and District Judge Lyle E. Strom, ruled on the appeal.

The case is Michael Omstead et al. v. Dell Inc., case number 08-16479, in the U.S. Court of Appeals for the Ninth Circuit.