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In the wake of a Washington Supreme Court decision invalidating a class waiver, a federal district court in Washington revisited its decision to apply Texas law to the validity of a class waiver and held that upholding the waiver under Texas law did not violate a fundamental public policy of Washington because the amount in controversy was sufficient to warrant individual claims.
In Carideo v. Dell, Inc., No. C-06-1772, 2007 WL 3011096 (W.D. Wash. Oct. 15, 2007), Carideo bought a laptop computer from Dell. The “Terms and Conditions of Sale” included a Texas choice-of-law provision and an arbitration agreement with a class waiver (i.e., a bar on class-wide proceedings).
Carideo and another laptop buyer later filed a class action lawsuit against Dell, alleging that their laptops were defective. Dell moved to compel arbitration. In opposing the motion, Carideo argued that the class waiver rendered the arbitration agreement unconscionable under Washington law.
In ruling on the motion to compel, the Court applied Texas law and upheld the arbitration agreement. See Carideo v. Dell, Inc., 492 F.Supp.2d 1283 (W.D. Wash. 2007). More specifically, the Court honored the Texas choice-of-law provision based on its finding that the application of Texas law would not violate a fundamental public policy of Washington.
Following the Court’s ruling on Dell’s motion to compel, the Washington Supreme Court issued its decision in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), holding that a class waiver may render an arbitration agreement unconscionable under Washington law if the waiver functions as an exculpatory clause by insulating the drafting party from liability where individual damages are nominal.
The Scott decision prompted Carideo to move for relief from the order compelling arbitration. In support of her motion, Carideo argued that Scott established a policy against class waivers and, accordingly, that the Court’s application of Texas law violated a fundamental public policy of Washington.
As the Court noted, Scott calls for a case-specific approach to determining the enforceability of class waivers. Specifically, under Scott, a class waiver may be unenforceable where individual damages are nominal but widespread because, under those circumstances, the waiver supposedly functions as an exculpatory clause.
In applying Scott to this case, the Court found that the waiver would not prevent Carideo from vindicating her statutory rights because the alleged damages, ranging from $1,300 to $1,700, were not trivial. Accordingly, the application of Texas law did not violate a fundamental public policy of Washington, and the Court thus affirmed its order compelling arbitration.
In reaching its holding, the Court rejected Carideo’s argument that the cost of obtaining an expert opinion necessitated a class-wide proceeding. The Court rejected this argument partly on the basis that instead of obtaining an expert opinion, Carideo could print message board complaints about a particular model and submit those as proof of the alleged defect.
While message board complaints are hearsay and likely inadmissible in court, the arbitrator in this case would not be bound by the formal rules of evidence. See Rules 28(C) and 35(C) of the National Arbitration Forum Code of Procedure. This case thus illustrates the principle that the exclusion of “certain litigation devices,” such as class-wide proceedings and formal rules of evidence, “is part and parcel of arbitration’s ability to offer ‘simplicity, informality, and expedition,’ characteristics that generally make arbitration an attractive vehicle for the resolution of low-value claims.” Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 174 (5th Cir. 2004).
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