MOUNT VERNON-The Fifth District Appellate Court affirmed a ruling by St. Clair County Circuit Judge Lloyd Cueto in a class action case against Dell in which Cueto found that a prohibition on class arbitration in Dell's arbitration clause was unenforceable, entering an order striking prohibition and compelling arbitration.
Dell appealed Cueto's Jan. 11, 2007 ruling arguing that the arbitration clause in the agreement is not severable and is enforceable in its entirety.
The plaintiff, Stephen Wigginton, an attorney with Weilmuenster and Wigginton of Belleville purchased $4,535.67 in computer equipment for
his law firm on Dec. 17, 2002 and claims he was offered a $500 rebate on the equipment, which could be redeemed after the purchase.
Wigginton claims he made several attempts to obtain the rebate forms, including calling Dell and attempting to download the forms from Dell's website but was unable to obtain them for several months.
He claims once he was able to get the forms and submit them, his claim was rejected because the rebate period had expired.
Wigginton claims that he was never told that there was an expiration date to claim his rebate.
Represented by Brad Lakin of Wood River, Wigginton filed the class action complaint July 22, 2003, alleging Dell failed to pay rebates to members of the class.
In October 2003, Dell filed a motion to dismiss, or in the alternative, asked Cueto to compel arbitration arguing its terms and conditions of sale, which contain a provision that all disputes or claims against Dell are subject to binding arbitration, to be administered by the National Arbitration Forum.
Dell also argued that its arbitration clause provides that "arbitration will be limited solely to the dispute or controversy between Customer and Dell" and that the terms and conditions also include a choice-of-law provision making disputes subject to Texas law.
After Wigginton filed an amended complaint earlier in the year, Dell filed a new motion to dismiss on May 7, 2004, or in the alternative, to compel arbitration and stay litigation pending the arbitration process.
Cueto finally held a hearing on the motion two years later on Dec. 19, 2006.
During the hearing, Wigginton conceded that the dispute was subject to arbitration, but argued that the prohibition on class arbitration was unconscionable.
Cueto agreed and issued a written order striking the class arbitration prohibition and compelling arbitration causing Dell to file an interlocutory appeal pursuant to Supreme Court Rule 307(a) on Feb. 9, 2007.
In the appeal, Dell argued that in the case Hubbert v. Dell Corp. the Fifth District applied Texas law to the same arbitration provision at issue in this case and found it to be enforceable.
Authoring the opinion for the court, Judge Melissa Chapman wrote, "While the provision involved here is identical to the provision involved in Hubbert, the circumstances surrounding the formation of the contract in the instant case differ greatly from those in Hubbert."
Chapman said in Hubbert the Fifth District explained that it will only apply the law of another state pursuant to a choice-of-law provision if there is some relationship between that state and the controversy at issue and applying the other state's law does not violate the public policy of Illinois.
Chapman said in Hubbert, the Fifth District found no public policy reason not to apply Texas law and that their conclusion has been undermined by subsequent decisions of the Illinois Supreme Court.
"In Kinkel v. Cingular Wireless, LLC, 223 Ill. 2d 1, 857 N.E.2d 250 (2006), the supreme court found a class arbitration prohibition similar to the one here at issue to be unconscionable," she wrote.
"This holding presents a conflict between Illinois law and Texas law that did not exist when we decided Hubbert."
Chapman said it would violate the public policy of Illinois to enforce the provision at issue, even assuming it would be enforceable under Texas law.
Chapman also said the circumstances surrounding the contract in this case is different from the Hubbert case because Wigginton purchased his computers over the phone, not over the internet as in the Hubbert case.
In the Hubbert case, computers were purchased online and customers had to go to five different pages within Dell's Web site to complete their order all of which had a blue hyperlink leading online purchasers to the purchase agreement at the top of each page. In addition, three of the web pages had a statement informing customers purchasing online that all sales are subject to Dell's terms and conditions of sale.
"Unlike the plaintiffs in Hubbert, he did not go through a series of five steps during which he was repeatedly alerted to the fact that the purchase would be subject to terms and conditions that he could easily discover by clicking on a link," Chapman wrote. "Unlike the plaintiffs in Hubbert, he did not see the terms and conditions until after he had purchased the computer systems."
Chapman said since Wigginton did not see the terms and conditions until after the purchase, he is on a different footing than the plaintiffs in the Hubbert case.
She also noted that if Wigginton was to proceed in arbitration alone instead of as a class action, the amount he would be able to recover would be less than the cost to proceed with arbitration.
"This court has found that where a portion of an arbitration clause is found to be unconscionable, Illinois's strong policy in favor of enforcing arbitration agreements is best served by severing the unconscionable provision and enforcing the remainder of the arbitration clause," Chapman wrote.
"This is because the courts are still testing the bounds of mandatory arbitration agreements. Given this state of flux, to invalidate entire arbitration agreements every time a minor provision is found to be unenforceable would undermine this policy."
Presiding Judge Bruce Stewart and James Donovan concurred with Chapman.
Dell was represented by Robert J. Bassett of Belleville and Michael T. Brody, Jerold S. Solovy, Kathy A. Karcher, Benjamin K. Miller and Suzanne M. Courtheoux of Jenner & Block in Chicago.
The case was originally decided on April 28 in a Rule 23 decision and the motion to publish was granted on June 2.