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A federal district court in Texas ordered arbitration of a dispute arising from the sale of a personal computer, finding that the buyer’s alleged attempt to return the computer did not operate as a rescission of the sales agreement or its arbitration clause.
In Adams v. Dell Computer Corp., No. CIV A C-06-089, 2006 WL 2670969 (S.D. Tex. Sep. 18, 2006), Adams ordered a Dell computer from a shopping mall kiosk. The computer was shipped to Adams along with a copy of a sales agreement that provided for mandatory arbitration. The sales agreement gave Adams 21 days to return the computer for any reason.
According to Adams, the computer sent to her did not have the requested capabilities, and she did not receive a promised rebate. When Adams called to discuss those issues, Dell allegedly agreed to retrieve the computer.
Some time later, a collection agency, I.C. System (“ICS”), contacted Adams because she was not making payments on the computer. ICS allegedly threatened to ruin Adams’ credit if she failed to pay the entire amount.
Adams sued Dell and ICS, alleging fraud, breach of contract, and unlawful collection practices. Dell and ICS moved to compel arbitration pursuant to the sales agreement. In opposing the motion, Adams argued that the sales agreement was rescinded when Dell allegedly agreed to retrieve the computer. She further argued that ICS was not a signatory to the sales agreement and therefore could not invoke the arbitration clause.
In discussing the rescission argument, the Court noted that under Texas law, parties may rescind a contract by mutual agreement, but if one party’s repudiation of a contract is not accepted by the other party, “the contract is kept alive for the benefit of both parties.” Applying this rule, the Court found that Dell never agreed to rescind the sales agreement because even if Dell had retrieved the computer, the sales agreement still would have governed the transaction.
The Court applied the doctrine of equitable estoppel in ruling that ICS, despite being a non-signatory, could invoke the arbitration clause. Under the doctrine of equitable estoppel, a non-signatory may invoke an arbitration clause in two situations: (1) when a signatory must rely on the terms of the underlying agreement in asserting claims against the non-signatory; and (2) when a signatory raises allegations of substantially interdependent and concerted misconduct by both a non-signatory and one of the signatories. The Court found the second situation was present because Adams was raising allegations of substantially interdependent and concerted misconduct by ICS and Dell.
Under some circumstances, a party has a right to rescind a contract regardless of the other party’s consent. However, if the contract contains an arbitration clause, the party’s right to rescind is a question for the arbitrator. See, e.g., Unity Pictures Corp. v. Universal City Studios, Inc., No. B179350, 2006 WL 1828336, *8 (Cal. Ct. App. July 5, 2006) (noting “right to rescind is a question for the arbitrator”).
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