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FALBE v. DELL INC.

July 12, 2004.

LAWRENCE W. FALBE, Plaintiff,
v.
DELL INC., Defendant.



The opinion of the court was delivered by: JOHN GRADY, Senior District Judge

MEMORANDUM OPINION

Before the court is defendant's motion to stay proceedings and compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq. For the reasons set forth below, the motion is granted.

BACKGROUND

  The following facts are drawn from the parties' motion papers, including attached exhibits and affidavits.*fn1 Plaintiff Lawrence Falbe purchased a computer from defendant Dell over the telephone on or around May 25, 2003.*fn2 Falbe received the computer on May 28, 2003. Enclosed with the computer was a copy of Dell's standard "Terms and Conditions of Sale."*fn3 The Terms and Conditions' first page of text stated:
Please read this document carefully! It contains very important information about your rights and obligations, as well as limitations and exclusions that may apply to you. This document contains a dispute resolution clause.
This Agreement contains the terms and conditions that apply to purchases by . . . customers from the Dell entity named on the invoice ("Dell") that will be provided to you ("Customer") on orders for computer systems. . . . By accepting delivery of the computer systems, other products, and or services and support described on that invoice, Customer agrees to be bound by and accepts these terms and conditions. If for any reason Customer is not satisfied with a Dell-branded hardware system, Customer may return the system under the terms and conditions of Dell's Total Satisfaction Return Policy, which is located on-line at www.dell.com/us/en/gen/misc/policy_010_policy.htm or may be found in the documentation accompanying the system.
(Def.'s Mot., Ex. A1, "Terms and Conditions of Sale," p. 3.) A copy of Dell's "Total Satisfaction Return Policy" was in fact enclosed with Falbe's computer. The Policy provided, in relevant part:
If you are an end-user customer who bought new products directly from a Dell company, you may return them to Dell within 30 days of the date of invoice for a refund or credit of the product purchase price.
* * *
You must also prepay shipping charges and insure the shipment or accept the risk of loss or damage during shipment.
(Def.'s Mot., Ex. A2, "Total Satisfaction Return Policy," p. 7.)
  The Terms and Conditions set forth two additional provisions that are relevant to this motion. First, it included a choice-of-law provision:
Governing Law. THIS AGREEMENT AND ANY SALES THEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS OF LAW RULES.
(Def.'s Mot., Ex. Al, p. 4, ¶ 2.)
  Second, it contained an arbitration provision:
Binding Arbitration. ANY CLAIM, DISPUTE, OR CONTROVERSY (WHETHER IN CONTRACT, TORT, OR OTHERWISE . . .) AGAINST DELL . . . arising from or relating to this Agreement, its interpretation, or the breach, termination, or validity thereof, the relationships which result from this Agreement . . . Dell's advertising, or any related purchase SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM. . . .
(Id., p. 7, ¶ 13.)

  Several months after receiving the computer, in December 2003, Falbe brought this action against Dell in Illinois state court. The complaint alleges violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS §§ 5-5/1, et seq. (Count I), breach of contract (Count II), unjust enrichment (Count III) and common law fraud (Count IV). Each count is based on the same allegation: Dell misrepresented to Falbe the procedure for obtaining a $200 mail-in rebate on his computer purchase.*fn4

  Dell demanded that Falbe voluntarily dismiss his complaint and pursue arbitration pursuant to the arbitration provision in the Terms and Conditions. When Falbe failed to respond, Dell properly removed the action to this court and filed the present motion to stay proceedings and compel arbitration.

  DISCUSSION

  The Federal Arbitration Act, 9 U.S.C. § 1, et seq. ("the FAA" or "the Act") allows a party to invoke a district court's authority to enforce an arbitration agreement by compelling the reluctant party to arbitrate a dispute. See 9 U.S.C. § 4. Our threshold inquiry is whether the FAA applies.*fn5 The Act provides:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2 (emphasis added). Because the transaction at issue involved interstate commerce — a Delaware corporation with its principal place of business in Texas sold a computer to an Illinois citizen — the arbitration agreement in the Terms and Conditions is governed by the FAA. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-77, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (the FAA's "involving commerce" requirement should be read broadly to extend to the limits of Congress' Commerce Clause powers).*fn6

  Under sections 3 and 4 of the Act, when there is a valid arbitration clause, the court must grant a request for a stay and direct the parties to proceed to arbitration. See 9 U.S.C. § 3 & 4. Before taking these steps, we must resolve two related questions: (i) whether the parties entered into a valid and enforceable agreement to arbitrate, and if so, (ii) whether the present claims fall within the scope of that agreement. See AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).

  A. Existence of a Valid Arbitration Agreement

  Whether the parties entered into a valid arbitration agreement is a matter of contract law, see R.J. O'Brien & Assocs., Inc. v. Pipkin, 64 F.3d 257, 260 (7th Cir. 1995), and we apply ordinary state law principles of contract formation. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Our first inquiry is a choice of law question — which state's contract law applies? Dell summarily argues that Texas law controls under the choice of law provision in the Terms and Conditions. Falbe is silent on the issue, but by his citations, appears to be lobbying for Illinois law. In the end, as Dell points out, because Texas and Illinois have both adopted the Uniform Commercial Code, either state's law would yield the same result on the issue of whether there exists an agreement to arbitrate.*fn7 Nonetheless, we will briefly explain why it is that Texas law applies.

  District courts exercising diversity jurisdiction must apply the choice of law rules of the forum state to determine what substantive law governs the case. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Under Illinois's choice of law rules, which follow the Restatement (Second) of Conflicts (1977), an express choice of law provision will be given effect provided: (i) it does not contravene Illinois public policy, and (ii) the state chosen bears a reasonable relationship to the parties or the transaction. See Potomac Leasing Co. v. Chuck's Pub, Inc., 156 Ill. App.3d 755, 509 N.E.2d 751, 753-55 (1st Dist. 1987). We discern no "public policy" obstacle to enforcement of the choice of law provision, and are satisfied that Texas, as the principal place of Dell's business, bears a ...


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