Raheel Khan v. Dell Inc

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 10-3655
RAHEEL AHMAD KHAN,
individually and on behalf of others similarly situated
v.
DELL INC.,
Appellant.
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3:09-cv-03703)
District Judge: Honorable Joel A. Pisano
Argued on April 28, 2011
Before: SLOVITER, GREENAWAY, JR and ROTH, Circuit
Judges
(Opinion filed January 20, 2012)
Kristine M. Brown, Esquire (Argued)
Derin B. Dickerson, Esquire
Alston & Bird, LLP
1201 W. Peachtree Street
One Atlantic Center
Atlanta, Georgia 30309
Craig Carpenito, Esquire
Alston & Bird, LLP
90 Park Avenue
New York, NY 10016-1387
Counsel for Appellant
F. Paul Bland, Jr., Esquire (Argued)
Public Justice
1825 K Street, N.W., Suite 200
Washington, D.C. 20006
Elizabeth Berney, Esquire
Eduard Korsinsky, Esquire
Shannon Hopkins, Esquire
Levi & Korsinsky, LLP
30 Broad Street, 15th Floor
New York, NY 10004
Michael Korsinsky, Esquire
Law Office of Michael Korsinsky
30 Broad Street, 15th Floor
New York, NY 10004
Counsel for Appellees
2
___________
OPINION
___________
ROTH, Circuit Judge:
This appeal involves a matter of first impression for
this Circuit – whether Section 5 of the Federal Arbitration Act
(FAA) requires the appointment of a substitute arbitrator
when the arbitrator designated by the parties is unavailable.
Dell, Inc., appeals from the District of New Jersey‟s denial of
Dell‟s Motion to Compel Arbitration and Stay Plaintiff‟s
Claims. Dell contends that the District Court erred in denying
its motion to compel arbitration based on the District Court‟s
belief that the arbitration provision was rendered
unenforceable because it provided for the parties to arbitrate
exclusively before a forum that was unavailable when Khan
commenced suit. The District Court also refused to appoint a
substitute arbitrator, finding that it could not compel the
parties to submit to an arbitral forum to which they had not
agreed.
I. FACTUAL BACKGROUND
Dell designed, manufactured, and distributed the 600m
computer from 2003 to 2006. Khan purchased a Dell 600m
computer in September 2004 for approximately $1,200.
Khan purchased the computer online through Dell‟s website,
www.Dell.com. To complete the purchase, Khan was
required to click a box stating “I AGREE to Dell‟s Terms and
Conditions of Sale.” Just beneath the box was a notice
stating:
3
The Terms and Conditions of Sale
contain very important
information about your rights and
obligations as well as limitations
and exclusions that apply to you.
They contain limitations of
liability and warranty information.
They also contain an agreement to
resolve disputes through
arbitration, rather than through
litigation. Please read them
carefully.
As Dell‟s notice indicated, its Terms and Conditions of Sale
contained an arbitration provision that reads as follows:
13. Binding Arbitration. 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, its agents, employees,
principals, successors, assigns,
affiliates (collectively for
purposes of this paragraph,
“Dell”) arising from or relating to
4
this Agreement, its interpretation,
or the breach, termination or
validity thereof, the relationships
which result from this Agreement
(including, to the full extent
permitted by applicable law,
relationships with third parties
who are not signatories to this
Agreement), Dell‟s advertising, or
any related purchase SHALL BE
RESOLVED EXCLUSIVELY
AND FINALLY BY BINDING
ARBITRATION
ADMINISTERED BY THE
NATIONAL ARBITRATION
FORUM (NAF) under its Code of
Procedure then in effect (available
via the Internet at http://www.arb-
forum.com, or via telephone at 1-
800-474-2371). The arbitration
will be limited solely to the
dispute or controversy between
customer and Dell. NEITHER
CUSTOMER NOR DELL
SHALL BE ENTITLED TO JOIN
OR CONSOLIDATE CLAIMS
BY OR AGAINST OTHER
CUSTOMERS, OR ARBITRATE
ANY CLAIM AS A
REPRESENTATIVE OR CLASS
ACTION OR IN A PRIVATE
ATTORNEY GENERAL
CAPACITY. This transaction
5
involves interstate commerce, and
this provision shall be governed
by the Federal Arbitration Act 9
U.S.C. sec. 1-16 (FAA). Any
award of the arbitrators shall be
final and binding on each of the
parties . . . . Information may be
obtained and claims may be filed
with the NAF at P.O. Box 50191,
Minneapolis, MN 55405.
Rule 1 of the NAF‟s “Code and Procedure,” referred to
in paragraph 13 above, provided that “[t]his Code shall be
administered only by the National Arbitration Forum or by
any entity or individual providing administrative services by
agreement with the National Arbitration Forum.” Also, as we
can see in paragraph 13, the arbitration provision did not
designate a replacement forum in the event that NAF was
unavailable for any reason. But, as we see, the Terms and
Conditions did incorporate the Federal Arbitration Act.
In addition, the Terms and Conditions provided that
Texas law would govern interpretation of the Agreement and
of any sales. The Terms and Conditions did not contain a
severance provision and any alterations to the Terms and
Conditions required the signature of both parties.
Khan alleged that his 600m suffered from design
defects, causing his computer to overheat and thereby destroy
the computer‟s motherboard. Khan replaced the motherboard
multiple times. After the third replacement, Dell refused to
issue another replacement, claiming the warranty had expired.
The 600m allegedly suffered from other design defects, which
6
prevented it from being used in a manner consistent with
Dell‟s marketing.
On July 24, 2009, Khan filed a putative consumer class
action on behalf of himself and other similarly situated
purchasers and lessees of defectively designed 600m
computers sold from approximately 2003 through 2006.
Khan asserted seven claims for (1) violations of the New
Jersey Consumer Fraud Act, (2) breach of express warranty,
(3) breach of implied warranty of merchantability or fitness
for particular purpose, (4) fraud, (5) negligent
misrepresentation, (6) breach of implied covenant of good
faith and fair dealing, and (7) unjust enrichment. At the time
the lawsuit was filed, the NAF had been barred from
conducting consumer arbitrations by Consent Judgment,
which resolved litigation brought by the Attorney General of
Minnesota.1 The Consent Judgment “barred [the NAF] from
the business of arbitrating credit card and other consumer
disputes and [ordered the NAF to] stop accepting any new
consumer arbitrations or in any manner participate in the
processing or administering of new consumer arbitrations.”
This was the result of government investigations revealing
that the NAF engaged in various deceptive practices that
1
See generally “„Arbitration’ or ‘Arbitrary’: The
Misuse of Mandatory Arbitration to Collect Consumer Debts”
Before the Subcomm. on Domestic Policy, Oversight and
Government Reform Comm. 3-5 (2009) (statement of
Minnesota Attorney General Lori Swanson),
http://oversight.house.gov/images/stories/Hearings/pdfs/2009
0722Swanson.pdf (recounting Minnesota Attorney General‟s
findings).
7
disadvantaged consumers.
According to Khan, such practices included:
(1) representing to consumers
and the public that it was
neutral;
(2) convincing credit card
companies and other
creditors to include exclusive
arbitration forum provisions
in their contracts and making
representations to such
entities that it would favor
the entities in the
arbitrations; and
(3) identifying and appointing
anti-consumer arbitrators
and withholding referrals to
arbitrators who decided
cases against companies.
Khan also alleged that the Minnesota investigations
found that these practices encouraged some corporations to
select the NAF as their arbitration forum because of this
prospect of favorable results. However, although Khan
suggested that Dell must have chosen the NAF based on its
corporate-friendly disposition, the record does not show that
Dell was aware of these practices at the time that it selected
the NAF as the arbitral forum governing Khan‟s purchase or
that Dell selected the NAF for any improper reason.
8
On October 2, 2009, Dell moved to compel arbitration,
arguing that the arbitration provision was binding and
covered all of Khan‟s claims. Khan did not dispute that the
Terms and Conditions governed the contract. Khan did,
however, assert that the arbitration provision was
unenforceable because the NAF, which the arbitration
provision designated as the arbitral forum, was no longer
permitted to conduct consumer arbitrations. Khan further
contended that the NAF‟s designation was integral to the
arbitration provision. He argued, for that reason, that, because
the NAF could not perform its function, the arbitration
provision in the Terms and Conditions should not be enforced
and the parties should proceed to litigation.
On August 18, 2010, the District Court denied Dell‟s
motion to compel arbitration and stay claims. See Khan v.
Dell, Inc., No. 09-3703 (JAP), 2010 WL 3283529 (D.N.J.
August 18, 2010). After surveying the relevant case law, and
acknowledging that “the Third Circuit has not spoken on the
issue,” id. at *3, the District Court found that the clause in the
Terms and Conditions – “SHALL BE RESOLVED
EXCLUSIVELY AND FINALLY BY BINDING
ARBITRATION AND ADMINISTERED BY THE
NATIONAL ARBITRATION FORUM (NAF) under its
Code of Procedure then in effect” – demonstrated “the
parties‟ intent to arbitrate exclusively before a particular
arbitrator, not simply an intent to arbitrate generally.” Id. at
*4. The District Court noted that “[s]ome courts have held
that § 5 [of] the Federal Arbitration Act (“FAA”) provides a
mechanism for the appointment of an arbitrator when a
chosen arbitrator is unavailable”, id. at *2, but that the
designation here of the NAF as the arbitrator was “integral”
to the arbitration clause. Id. (citing Carideo v. Dell, Inc., No.
9
C06-1772JLR, 2009 WL 3485933 (W.D. Wash. Oct. 26,
2009), and Ranzy v. Extra Cash of Texas, Inc., No. H-09-
3334, 2010 WL 936471 (S.D. Tex. March 11, 2010)). The
court concluded that granting Dell‟s motion to compel and
appointing a substitute arbitrator would improperly force the
parties to “submit to an arbitration proceeding to which they
have not agreed.” Id. at 4.
II. JURISDICTION AND STANDARD OF REVIEW
A district court decides a motion to compel arbitration
under the same standard it applies to a motion for summary
judgment. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co.,
Ltd., 636 F.2d 51, 54 & n.9 (3d Cir. 1980). “The party
opposing arbitration is given the benefit of all reasonable
doubts and inferences that may arise.” Kaneff v. Delaware
Title Loans, Inc., 587 F.3d 616, 620 (3d Cir. 2009) (internal
quotations omitted). We exercise plenary review of questions
concerning the “validity and enforceability of an agreement to
arbitrate.” Edwards v. HOVENSA, LLC, 497 F.3d 355, 357
(3d Cir. 2007). Although we subject underlying factual
matters to the clearly erroneous standard, id., the “legal
question whether the [appellee] may be compelled to arbitrate
[his] claims” is reviewed under the plenary standard. Pritzker
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110,
1113 (3d Cir. 1993).
III. ANALYSIS
In this appeal, we must determine whether the
provision in the Terms and Conditions that the NAF be the
arbitrator is exclusive to the NAF and is an integral part of the
agreement between Dell and Khan, thus preventing the
10
appointment of a substitute arbitrator. Because this is a
question of arbitrability, it is governed by the FAA. Puleo v.
Chase Bank USA, N.A., 605 F.3d 172, 180 (3d Cir. 2010).
Congress passed the FAA “in response to widespread judicial
hostility to arbitration agreements.” AT&T Mobility LLC v.
Concepcion, __ U.S. __, __, 131 S. Ct. 1740, 1745 (2011).
The FAA reflects a “liberal federal policy favoring
arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983). The Supreme Court has
unequivocally stated “that questions of arbitrability must be
addressed with a healthy regard for the federal policy
favoring arbitration.” Id. However, the FAA respects the
“fundamental principle that arbitration is a matter of
contract,” Rent-A-Center, West, Inc. v. Jackson, __ U.S. __, __,
130 S. Ct. 2772, 2776 (2010), and that “arbitration „is a matter
of consent, not coercion,‟” Stolt-Nielsen S.A. v. AnimalFeeds
Int’l Corp., __ U.S. __, __, 130 S. Ct. 1758, 1773 (2010)
(quoting Volt Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford
Junior Univ., 489 U.S. 468, 479 (1989)).
The particular problem presented in this case – the
unavailability of the NAF – is addressed in section 5 of the
FAA, which provides a mechanism for substituting an
arbitrator when the designated arbitrator is unavailable.2 See
2
Section 5 provides:
If in the agreement provision be made for a method of
naming or appointing an arbitrator or arbitrators or an umpire,
such method shall be followed; but if no method be provided
therein, or if a method be provided and any party thereto shall
fail to avail himself of such method, or if for any other reason
there shall be a lapse in the naming of an arbitrator, or
arbitrators or umpire, or in filling a vacancy, then upon the
11
Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1222
(11th Cir. 2000) (“Where the chosen forum is unavailable . . .
or has failed for some reason, § 5 applies and a substitute
arbitrator may be named.”). In determining the applicability
of Section 5 of the FAA when an arbitrator is unavailable,
courts have focused on whether the designation of the
arbitrator was “integral” to the arbitration provision or was
merely an ancillary consideration. See, e.g., Reddam v.
KPMG LLP, 457 F.3d 1054, 1061 (9th Cir. 2006), abrogated
on other grounds by Atlantic Nat'l Trust LLC v. Mt. Hawley
Ins. Co., 621 F.3d 931 (9th Cir. 2010); Brown, 211 F.3d at
1222. As the Eleventh Circuit has articulated the standard:
“[o]nly if the choice of forum is an integral part of the
agreement to arbitrate, rather than an „ancillary logistical
concern,‟ will the failure of the chosen forum preclude
arbitration.” Id. In other words, a court will decline to
appoint a substitute arbitrator, as provided in the FAA, only if
the parties‟ choice of forum is “so central to the arbitration
agreement that the unavailability of that arbitrator [brings] the
agreement to an end.” Reddam, 457 F.3d at 1061. In this
light, the parties must have unambiguously expressed their
intent not to arbitrate their disputes in the event that the
designated arbitral forum is unavailable.
application of either party to the controversy the court shall
designate and appoint an arbitrator or arbitrators or umpire, as
the case may require, who shall act under the said agreement
with the same force and effect as if he or they had been
specifically named therein; and unless otherwise provided in
the agreement the arbitration shall be by a single arbitrator.
12
According to Khan, this standard has been met because
the Terms and Conditions designate the NAF as the exclusive
arbitral forum, implying that disputes should not be arbitrated
if the NAF is unavailable. Khan relies on the contract
language that states that all disputes “SHALL BE
RESOLVED EXCLUSIVELY AND FINALLY BY
BINDING ARBITRATION ADMINISTERED BY THE
NATIONAL ARBITRATION FORUM.”
In our view, this language is ambiguous:
“EXCLUSIVELY” could be read to modify “BINDING
ARBITRATION,” “THE NATIONAL ARBITRATION
FORUM,” or both.
Khan, however, points out that the NAF‟s rules are
incorporated into the contract, and that these rules provide
that all arbitrations must be conducted by the NAF or an
entity having an agreement with it. We conclude, however,
that this requirement is also ambiguous as to what should
happen in the event that the NAF is unavailable. The NAF‟s
rules provide that they shall be interpreted in a manner
consistent with the FAA and that, if any portion of the NAF
rules are found to be unenforceable, that portion shall be
severed and the remainder of the rules shall continue to apply.
Our finding of ambiguity is confirmed by the
conflicting interpretations of this language adopted by the
courts that have considered it.
The court in Brown supports Dell‟s position that
“exclusively” modifies “binding arbitration.” The arbitration
agreement in Brown was interpreted as demonstrating an
intent to arbitrate that trumped the designation of a particular
13
arbitrator who was no longer available. In Brown, a former
ITT employee argued that the arbitration clause between the
parties – which was virtually identical to the clause here –
was void because the NAF had been dissolved. Id. at 1220,
1222. The Eleventh Circuit found that the unavailability of
the NAF did not destroy the arbitration clause because
Section 5 of the FAA provided a mechanism for appointing a
replacement arbitrator. Id. at 1222. The court did note the
“integral” exception but found that there was no evidence
supporting the employee‟s claim that the forum provision was
integral to the arbitration clause. Id.
Adler v. Dell, Inc., 2009 WL 4580739 (E.D. Mich.
Dec. 3, 2009), also supports Dell‟s position. The facts and
arguments proffered in Adler are identical to those before us.
After noting the “integral” exception, the Adler court
articulated the presumption in favor of enforceability of
Section 5 of the FAA as follows: “when the arbitrator named
in the arbitration agreement cannot or will not arbitrate the
dispute, the court does not void the arbitration agreement.
Instead, it appoints a different arbitrator, as provided in the
Federal Arbitration Act.” Id. at *2. In addition, the Adler
court found the clause “SHALL BE RESOLVED
EXCLUSIVELY AND FINALLY BY BINDING
ARBITRATION ADMINSTERED BY THE NATIONAL
ARBITRATION FORUM” was ambiguous on the issue of
whether the NAF‟s exclusive designation was integral to the
provision or whether the intent to arbitrate superseded the
NAF‟s designation. Id. The court concluded that the
arbitration provision did not meet the standard that an
arbitration provision will fail only when the designation of an
arbitrator is “as important a consideration as the agreement
itself.” Id. at *3.
14
On the other hand, in Carideo v. Dell, Inc., No. C06-
1772JLR, 2009 WL 3485933 (W.D. Wash. Oct. 26, 2009), a
case factually similar to this one, the plaintiff who had bought
an allegedly defective Dell computer, brought suit against
Dell. Dell moved to compel arbitration, pursuant to the
arbitration provision that designated the NAF as the arbitral
forum. Applying the Ninth Circuit‟s decision in Reddam, the
court in Carideo held that the parties‟ selection of the NAF
was integral to the arbitration agreement. Carideo, 2009 WL
3485933 at *4. Because the court found that the selection of
the NAF and of its rules was integral to the arbitration
provision, it concluded that appointing a substitute arbitrator
would be a wholesale revision of the arbitration agreement.
Id. at *6. In coming to its conclusion, however, the court
stated that “[i]n general, the FAA provides that where the
chosen arbitrator is unavailable, the court may appoint a
substitute arbitrator.” Id. at *3 (emphasis added). We do not
agree with the language used by the Carideo court. We note
that Section 5 provides that in the case of an unavailable
arbitrator, “upon the application of either party to the
controversy the court shall designate and appoint an
arbitrator.” 9 U.S.C. § 5 (emphasis added). The difference
between may and shall significant. We do not find Carideo
persuasive.
Although courts are divided on the issue, we conclude
that the “liberal federal policy in favor of arbitration”
counsels us to favor the Brown line of cases. The language
relied on by Khan is at best ambiguous as to whether the
parties intended to have their disputes arbitrated in the event
that NAF was unavailable for any reason. Because of the
ambiguity, it is not clear whether the designation of NAF is
ancillary or is as important a consideration as the agreement
15
to arbitrate itself. See Brown, 211 F.3d at 1222. Therefore,
we must resolve this ambiguity in favor of arbitration. See
Seus v. John Nuveen & Co., Inc., 146 F.3d 175, 186 (3d Cir.
1998), overruled on other grounds by Green Tree Fin. Corp.
Al. v. Randolph, 531 U.S. 79 (2000).
We note moreover that the arbitration provision in the
Terms and Conditions specifically incorporated the FAA, 9
U.S.C. §§ 1-16, suggesting that, in the event of the NAF's
unavailability, the FAA's procedures for addressing such a
problem should apply. Finally, we note the notice, provided
to Khan when he accepted the Terms and Conditions, which
stated that they “contain an agreement to resolve disputes
through arbitration, rather than through litigation.”
Khan, however, argues that, even if the NAF‟s
designation as the arbitral forum was not integral to the
Terms and Conditions, Section 5 of the FAA nevertheless did
not apply here because NAF‟s unavailability was not a
“lapse” within the meaning of statute. In support of this
argument, Kahn cites In re Salomon Inc. S’holders’
Derivative Litig., 68 F.3d 554, 560 (2d Cir. 1995), a case in
which the arbitral forum, the NYSE, had refused to arbitrate.
Khan argues that the word “lapse” in Section 5 of the FAA
means “a lapse in the naming of the arbitrator or in the filling
of a vacancy on a panel of arbitrators or some other
mechanical breakdown in the arbitrator selection process,”
not the NYSE‟s refusal to arbitrate the dispute – or the NAF‟s
unavailability to do so.
We find In re Salomon unpersuasive. First, we do not
see why the NAF‟s unavailability is not a “mechanical
breakdown in the arbitrator selection process.” Apparently,
16
the NAF‟s Consent Judgment with the State of Minnesota
prevents it from acting as an arbitrator. This unavailability
appears to us to be a breakdown in the mechanics of the
appointment process. To take a narrower construction of
Section 5 would be inconsistent with the “liberal federal
policy in favor of arbitration” articulated in the FAA.
We conclude therefore that the unavailability of NAF
to hear the disputes between Khan and Dell constitutes a
“lapse” within the meaning of Section 5.3
IV. CONCLUSION
The contract‟s language does not indicate the parties‟
unambiguous intent not to arbitrate their disputes if NAF is
unavailable. Section 5 of the FAA requires a court to address
such unavailability by appointing a substitute arbitrator. The
District Court‟s contrary conclusion is at odds with the
fundamental presumption in favor of arbitration. We will
therefore vacate the judgment of the District Court and
remand this case for further proceedings consistent with this
opinion.
3
Because the District Court denied Dell‟s motion to
compel arbitration, it did not address Khan‟s alternative
argument that the arbitration provision in the contract is
unconscionable. We leave it to the District Court to address
this argument on remand.
17
Raheel Ahmad Khan v. Dell, Inc., No. 10-3655
SLOVITER, Circuit Judge, dissenting.
The majority opinion acknowledges that the Supreme
Court has stated the “fundamental principle that arbitration is
a matter of contract,” Rent-A-Center, West, Inc. v. Jackson,
____ U.S. ____, 130 S. Ct. 2772, 2776 (2010). Indeed it has
so stated more than once. I dissent because the majority has
given mere lip service to this “fundamental principle,” and its
holding as applied in this particular case violates that
principle. There is no ambiguity in the arbitration agreement.
The plain text of the arbitration agreement clearly
states that the selection by Dell of the NAF as arbitrator was
integral to the agreement, and leads me to conclude that
Section 5 of the FAA is inapplicable and the unavailability of
the NAF precludes arbitration.
The arbitration clause in Dell’s Terms and Conditions
of Sale states:
13. Binding Arbitration. 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, its agents, employees, principals,
successors, assigns, affiliates, (collectively for
purposes of this paragraph, “Dell”) arising from or
relating to this Agreement, its interpretation, or the
breach, termination or validity thereof, the
relationships which resulted from this Agreement
(including, to the full extent permitted by applicable
law, relationship with third parties who are not
signatories to this Agreement), Dell’s advertising, or
any related purchase SHALL BE RESOLVED
EXCLUSIVELY AND FINALLY BY BINDING
ARBITRATION ADMINISTERED BY THE
NATIONAL ARBITRATION FORUM (NAF) under
1
its Code of Procedure then in effect (available via the
Internet at http://www.arb-forum.com, or via
telephone at 1-800-474-2371). The arbitration shall
be limited solely to the dispute or controversy
between customer and Dell. NEITHER
CUSTOMER NOR DELL SHALL CONSOLIDATE
CLAIMS BY OR AGAINST OTHER
CUSTOMERS, OR ARBITRATE ANY CLAIM AS
A REPRESENTATIVE OR CLASS ACTION OR
IN A PRIVATE ATTORNEY GENERAL
CAPACITY. This transaction involves interstate
commerce, and this provision shall be governed by
the Federal Arbitration Act, 9 U.S.C. sec. 1-16
(FAA). Any award of the arbitrator shall be final
and binding on both of the parties . . . . Information
may be obtained and claims may be filed with the
NAF at P.O. Box 50191, Minneapolis, MN 55404.
App. at A67.
The majority reasons that this language is
“ambiguous” because “‘EXCLUSIVELY’ could be read to
modify ‘BINDING ARBITRATION,’ ‘THE NATIONAL
ARBITRATION FORUM,’ or both,” see Majority Opinion
supra page 13, and that the “liberal federal policy in favor of
arbitration” thus compels the court to resolve this
“ambiguity” in favor of arbitration. See Majority Opinion
supra page 15. However, “the FAA’s proarbitration policy
does not operate without regard to the wishes of the
contracting parties.” Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52, 57 (1995). The majority’s
conclusion focuses solely on the language used rather than
giving appropriate weight to the additional clues that
demonstrate the parties’ clear intent.
The phrase “EXCLUSIVELY AND FINALLY BY
BINDING ARBITRATION ADMINISTRATED BY THE
NATIONAL ARBITRATION FORUM” is written in all
capital letters yet surrounded by clauses written in lower case
letters. This aesthetic prominence indicates the parties’ intent
for the entire phrase to be read together and emphasized as an
essential part of the agreement. Moreover, as noted by the
District Court, “[t]he NAF is expressly named, the NAF’s
2
rules are to apply, . . . no provision is made for an alternate
arbitrator [, and the] language used is mandatory, not
permissive.” App. at A12. The agreement also states that
“[i]nformation may be obtained and claims may be filed with
the NAF at P.O. Box 50191, Minneapolis, MN 55404,” again
illustrating the central role that NAF was intended to play in
arbitrations pursuant to this agreement.
Given “the consensual nature of private dispute
resolution,” courts must respect the principle that “parties are
generally free to structure their arbitration agreements as they
see fit.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.
Ct. 1758, 1774 (2010) (internal quotation marks and citation
omitted). Here, the parties agreed only to binding arbitration
administered by the NAF. Full analysis of the plain text of
the agreement as a whole shows that the selection of the NAF
as arbitrator was an integral part of the agreement to arbitrate.
Therefore, Section 5 of the FAA is inapplicable and the
unavailability of the NAF precludes arbitration. I respectfully
dissent.
There is yet another reason why Dell’s request to
proceed via arbitration rather than trial should not be granted,
and that reason applies to this defendant in this case. The
majority avoids any discussion of the underlying reason why
arbitration by NAF is unavailable. In an action pending in
Minnesota, the Minnesota Attorney General made public the
results of its year-long investigation that showed that NAF,
far from being the neutral arbitration forum contemplated by
Congress when it enacted the Federal Arbitration Act,
represented to corporations that it would appoint anti-
consumer arbitrators and discontinue referrals to arbitrators
who decided cases in favor of consumers. See Amicus Curiae
Br. at 8, 13-15; see also Arbitration or “Arbitrary”: The
Misuse of Mandatory Arbitration to Collect Consumer Debts:
Hearing Before the H. Domestic Policy Subcomm. of Comm.
on Oversight and Gov’t Reform, 111th Cong. (July 22, 2009).
Rather than disputing the allegations, NAF accepted a
consent judgment that barred it from administering and
participating in all consumer arbitrations. See id. (testimony
of Lori Swanson, Minnesota Attorney General, at 3) (“Under
the Consent Judgment, [NAF] is barred from the business of
3
arbitrating credit card and other consumer disputes and must
stop accepting any new consumer arbitrations or in any
manner participate [sic] in the processing or administering of
new consumer arbitrations.”); see also App. at A273-76. It
cannot be insignificant that Dell named NAF as the exclusive
forum in its arbitration clauses. It followed that the District
Court refused Dell’s request to designate a substitute
arbitrator. It was certainly not error for the District Court in
this case to deny substitution at the behest of Dell. Even
assuming that in the usual case, substitution of a neutral
arbitrator would be an acceptable alternative, it is evident that
this is not an ordinary case and we should affirm the District
Court’s denial of Dell’s motion.
4