Mandatory Arbitration Clause Defeated in Carideo v. Dell, Inc.

After a long and complicated battle, a major victory for class action and product defect lawsuits was noted in the case of Carideo v. Dell, Inc. In light of new events, the United States District Court Judge found that the computer company’s mandatory arbitration clause and class action ban was “unenforceable”.

Citing product liability claims, Carideo alleged that Dell manufactured and marketed laptops priced between $1,300 and $1,700 that were defectively designed and manufactured. Upon the filing of Carideo, Dell moved to compel arbitration based on its mandatory arbitration clause. Under this clause, the National Arbitration Forum (NAF) was assigned as the arbitrator and class actions were banned. Furthermore, Dell’s forum consumer contract also has a Texas choice of law provision. In June 2007, at Dell’s urging, Texas law was applied to Carideo, which resulted in arbitration being ordered by the court.

However, the following year another case involving similar facts, McKee v. AT&T, the Washington Supreme Court struck down AT&T’s class action ban and held that the phone company’s new choice of law provision was unenforceable. Shortly after the McKee decision, Minnesota’s Attorney General sued NAF, which prompted the company to announce it would no longer be arbitrating consumer disputes. And because NAF was the mandatory arbitrator assigned to all of Dell’s cases, Carideo’s decision was reevaluated by the original judge.

Dell’s mandatory arbitration clause specifically set out NAF as its arbitrator and left no provisions for a substitute arbitrator. Given NAF’s decision to no longer arbitrate cases, the judge ruled that the removal of NAF from the clause “constitute[d] a wholesale revision of [Dell’s] arbitration clause”, which translated to “the failure of the arbitration clause”. And because Dell’s class action ban relied so heavily on its arbitration clause, that the clause’s failure meant that the class action ban could not stand and was therefore unenforceable in its entirety.

The Carideo decision has wide-reaching implications for all types of product liability and product defect cases. Class action lawsuits can be a powerful tool for consumers when the individual damages are minimal because it allows them to band together to make a stronger case. So manufacturing company’s bans on class action lawsuits can render an arbitration agreement unconscionable if the ban functions as an exculpatory clause that essentially insulating the manufacturer from liability where individual damages are nominal.

Kreisman Law Offices has been handling Illinois product liability and Illinois product defect cases for over 30 years, serving those areas in and around Cook County, including Evanston, Palatine, Oakbrook, and Blue Island.

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