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Class Action Defense Cases-Omstead v. Dell: California Federal Court Grants Defense Motion To Stay Class Action Litigation And Compel Arbitration Where Arbitration Clause Contains Class Action Waiver

In Putative Class Action Against Computer Manufacturer, California Federal Court Holds that Texas Choice of Law Provision in Computer Sales Agreement is Valid and Arbitration Clause Containing Class Action Waiver is Enforceable

Plaintiffs filed a class action against Dell alleging defects in its notebook computers. Omstead v. Dell, 473 F.Supp.2d 1018, 1021 (N.D. Cal. 2007). Defense attorneys moved to stay the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), id., at 1020. The arbitration clause contained a class action waiver, prohibiting customers from initiating or participating in class action litigation with Dell, id., at 1022. The district court granted the defense motion, holding that the class action waiver did not invalidate the arbitration clause.

Plaintiffs propose to litigate a class action on behalf of purchasers of Dell notebook computers alleging that they were “manufactured with three defects – inadequate cooling systems, a power supply that prematurely fails when used as intended, and motherboards that prematurely fail when used as intended.” Omstead, at 1021. The defense moved to stay the class action and compel arbitration based on the sales agreement provided to its computer purchasers; that agreement states that Texas law shall apply to any dispute arising out of the purchase of the computer and contains an arbitration clause governed by the FAA. Id. Further, all sales confirmations advised purchasers that the “Conditions and Terms of Sale” contain “a dispute resolution clause.” Id. Plaintiffs did not dispute receiving the sales agreement; rather, they argued that California law governed whether the arbitration clause therein was enforceable, not Texas law, and that under California law the class action waiver provision was unenforceable. Omstead, at 1022.

The federal court began its analysis by explaining the constraints placed upon it by the FAA: “The FAA eliminates district court discretion and requires the court to compel arbitration of issues covered by the arbitration agreement.” Omstead, at 1021 (citing Dean Witter Reynolds, Inc., v. Byrd, 470 U.S. 213, 218 (1985)). “The role of the federal courts in these circumstances is limited to determining whether the arbitration clause at issue is valid and enforceable under § 2 of the FAA.” Id., at 1022 (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)).

The district court then turned to the applicable choice of law, and held that Texas law applied. Omstead, at 1022-25. In so holding, the court concluded that its analysis was complete because plaintiffs “do not contend that it is unconscionable under Texas law,” id., at 1026. Indeed, plaintiffs essentially conceded that the class action waiver would be enforceable under Texas law, id., at 1024. At bottom, “The arbitration provision in the Agreement provides for binding arbitration of ‘any claim, dispute, or controversy (whether in contract, tort, or otherwise, whether preexisting, present or future, and including statutory common law, intentional tort and equitable claims) between customer and Dell.’” Id., at 1025-26. The federal court held that the claims raised in the class action complaint fell within the scope of the arbitration agreement, id., at 1026. Accordingly, it granted the motion to stay the class action and compel arbitration, id.

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