A class action alleging that Dell shipped faulty laptops is set to reopen, after a federal appeals court reversed a 2008 district court ruling dismissing the case.
The suit was brought by lead plaintiffs Michael Omstead, Melissa Malloy, and Lisa Smith, who allege that their Inspiron laptops contained defective cooling fans, power supplies, and other essential materials. The suit concerns Inspiron 5160 and 1150 models sold between July 2004 and January 2005.
The case's dismissal arose out of a complicated back-and-forth between Dell and the plaintiffs shortly after the case was filed. Dell moved to compel individual arbitration, pointing to a clause in its terms and conditions that requires all disputes to be "resolved exclusively and finally by binding arbitration administered by the National Arbitration Forum (NAF)."
The plaintiffs contended that individual actions would be a waste of time and money, and that the NAF is "blatantly biased" against consumers. Because of the plaintiffs' refusal to arbitrate their cases, Dell filed a motion to dismiss based on failure to prosecute. The court granted the motion, and the plaintiffs were seemingly out of luck.
However, in the order reinstating the case, Judge Lyle Strom of the U.S. Court of Appeals for the Ninth Circuit held that the dismissal was an "abuse of discretion," and stated emphatically that "[the p]laintiffs did not cause any unreasonable delay in the progression of their case."
The court went on to hold Dell's arbitration provision unenforceable in its entirety when judged under California law. The court cited California case law holding that an arbitration agreement is unenforceable when "(1) the waiver is found in a contract of adhesion, (2) the contractual setting is one in which disputes between the contracting parties predictably involve small amounts of damages, and (3) it is alleged that the party with the superior bargaining power [here, Dell] has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money."
The court's ruling is a major victory for the named plaintiffs, who had no recourse after the case was thrown out. The very purpose of class actions is to provide relief to consumers whose damages are too small to justify the time and money necessary to bring an individual lawsuit. Indeed, plaintiffs in class action lawsuits do not have to pay their attorneys; legal fees come out of the eventual settlement (assuming there is one).
Counsel for the plaintiffs were predictably satisfied with the ruling. "We got the courtroom doors open, which was our primary goal," said Jonathan Selbin, one of the attorneys for the plaintiffs.
Arbitration clauses have come under increasing scrutiny in recent years. In March 2009, the Supreme Court ruled last year that consumers can sometimes fight such provisions. And in July, NAF agreed to stop arbitrating all credit card cases pursuant to an agreement reached with Minnesota Attorney General Lori Swanson.