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According to a California federal court, classwide claims can be arbitrated on an individual basis when the arbitration process is inexpensive and fair.
In Provencher v. Dell, Inc., 409 F. Supp.2d 1196 (C.D. Cal 2006), Provencher purchased a Dell personal computer, which contained two written copies of a standard “approve-or-return” contract. Provencher had 30 days to return to the computer to Dell, or he could accept the terms of the agreement by keeping the computer. Unhappy with the computer, Provencher filed a class action lawsuit against Dell. Dell then sought to compel arbitration against Provencher pursuant to the arbitration language in the sales contract.
Because Provencher did not follow the return procedures and kept the computer, two significant contractual provisions bound him. First, the agreement contained a “choice-of-law” provision designating Texas law as the controlling authority. Second, an arbitration clause provided that all potential disputes between the parties would be resolved through individual arbitration before the National Arbitration Forum (FORUM).
While Provencher alleged that the Dell computer was defective, he never notified Dell of any problems, nor did he file for arbitration with the FORUM. Instead, Provencher filed a nationwide class action suit alleging ten separate causes of action, including breach of warranty, breach of contract, and deceptive and unfair practices.
In granting Dell’s motion to stay proceedings and compel arbitration, the District Court first noted that Texas law would apply unless it contravened a fundamental California policy. The California Supreme Court had previously held that there was no blanket policy prohibiting class action waivers in the consumer context. Discover Bank v. Superior Court, 36 Cal.4th 148, 162 (2005). Thus, the forum selection clause was valid and enforceable, and Texas law applied to the dispute.
Under Texas law, the arbitration agreement would be enforceable unless it was both procedurally and substantively unconscionable. To the extent that there was a right to proceed by class action, the District Court concluded that such a right did not supercede a “contracting party’s right to arbitrate under the [Federal Arbitration Act] FAA.” Also, Mr. Provencher voluntarily agreed to waive his right to class actions under the “plain and clear terms” of the arbitration agreement. On the basis of these findings, the District Court found no procedural or substantive unconscionability in the parties’ agreement.
The District Court, consistent with decisions of other courts, honored an agreement between parties to arbitrate claims individually, rather than as part of a putative class action suit, so long as the arbitration agreement is fair and not both procedurally and substantively unconscionable and not in conflict with a state’s public policy.
Furthermore, the Court added:
“Finally, and most significantly, the [FORUM] is an inexpensive, convenient, and efficient forum for Mr. Provencher to resolve his disputes with Dell. It certainly is not a device that Dell can use to escape liability for alleged wrongful conduct. Under the [FORUM], Mr. Provencher has a say in selecting the arbitrator. His filing fee is at most $35. Dell pays all other mandatory fees, including a commencement and administrative fee…. If he cannot afford any fees, Mr. Provencher can request an indigent fee waiver through a simple process that need not be disclosed to the other parties. If Mr. Provencher prefers an in-person hearing, one will be scheduled near his residence in California, instead of Dell’s home office in Texas. As Justice Ginsburg of the United States Supreme Court so aptly noted, the [FORUM] has developed ‘models for fair cost and fee allocation.’ [See Green Tree Fin. Corp. v. Randolph, 531 U.S. 79] (2000)”
Provencher recognizes that all parties – consumers and businesses – benefit from the FORUM, provide consumers with a fair and inexpensive process that safeguards and protects their rights and remedies while allowing companies to reduce costs for all.
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