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United States District Court, N.D. Illinois, Eastern Division

July 12, 2004.

DELL INC., Defendant.

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


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.


  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 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:

(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.


  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 reasonable relationship to the parties and the transaction in this case. Accordingly, the choice of law provision controls and we will apply Texas (or UCC) law to the issue of whether a valid agreement to arbitrate exists.

  The relevant facts are not in dispute. Falbe received copies of both the Terms and Conditions and the Return Policy with his computer. The Terms and Conditions clearly advised Falbe that "[b]y accepting delivery of the computer, . . . Customer agrees to be bound by and accepts these terms and conditions." (Def.'s Mot., Ex. Al, p. 3.) The Terms and Conditions included a mandatory arbitration provision. Under the Return Policy, Falbe could have returned the computer for a full refund within thirty days. (See Id., Ex. A2, p. 7.) He opted not to do so. These facts, according to Dell, give rise to an enforceable agreement to arbitrate: "terms and conditions shipped with computer equipment that are not rejected and returned by the purchaser within a specified time period are binding. . . ." (Def.'s Mot., p. 5.) Falbe contends otherwise, arguing that he did "not engage[] in any affirmative conduct in which he consented to the arbitration provision in the Terms and Conditions. He did not sign the Terms and Conditions or represent to Defendant he accepted the terms and conditions." (Pl.'s Resp., p. 3.)

  Our analysis begins, and could end, with the Seventh Circuit's decision in Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997). In Hill, plaintiffs had purchased a computer from defendant by telephone. Arriving with the computer was a list of terms, including an arbitration clause, said to govern unless the computer was returned within 30 days. More than 30 days later, plaintiffs brought suit based on defendant's warranty, and defendant petitioned to compel arbitration. The Seventh Circuit held, expressly applying UCC § 2-204, that once plaintiffs kept the computer beyond the return date, they had accepted the terms of the contract. See 105 F.3d at 1150. The Court explained:

A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance.
* * *
Customers as a group are better off when vendors skip costly and ineffectual steps such as telephonic recitation, and use instead a simple approve-or-return device. Competent adults are bound by such documents, read or unread. . . .
By keeping the computer beyond 30 days, the Hills accepted Gateway's offer, including the arbitration clause.
Id. at 1149-50 (citation omitted). Under Hill, it is plain that Falbe's conduct, i.e., keeping the computer beyond 30 days, manifested his assent to the Terms and Conditions, and created a valid and enforceable agreement to arbitrate.

  Falbe attempts to get out from under Hill by stating that the Court acknowledged that it might have reached a different result had plaintiffs (like Falbe) been required to pay shipping charges before returning their computer. Falbe misreads Hill. What the Court did say is that if plaintiffs had had no notice that any terms would be included with the computer, and were then dissuaded from returning it by the expense of shipping, that scenario would present an "interesting question": would a remedy be limited to those shipping charges? Id. at 1150. The Court, quickly concluded however that the question was not before it, and declined to pursue it further — given defendant's advertising of certain terms (warranty and customer support) and the availability of all terms prior to purchasing, either by requesting a copy or visiting the vendor's website, plaintiffs had sufficient notice that "the carton would include some important terms, and [plaintiffs] did not seek to discover these in advance." Id.

  So, contrary to Falbe's reading, the Hill Court assumed that plaintiffs would have incurred shipping costs. And to the extent Falbe intended to bring his case within the hypothetical actually posed by the Court, he gets no further. Like the defendant in Hill, Dell advertises its service and customer support and its Terms and Conditions are available by contacting Dell directly or by accessing its website. Therefore, like plaintiffs in Hill, Falbe was not without notice that some terms would be included with his computer.*fn8

  Falbe proffers a second argument which need not detain us long. He contends that the Terms and Conditions, and the arbitration provision contained therein, is an unenforceable contract of adhesion because "it was drafted entirely by [Dell]" and because Dell "had superior bargaining power over defendant." (Pl's Resp., p. 4.) Under Texas law, "an adhesion contract [is] a contract in which one party has absolutely no bargaining power or ability to change the contract terms." In re. Media Arts Group, Inc., 116 S.W.3d 900, 911 (Tex. Ct. App. 2003). Under this definition, the contract between Dell and Falbe does appear to be one of adhesion; there was no bargaining over the terms. By Falbe's logic then, once we determine that the contract is adhesive, it follows, ipso jure, that it is unenforceable. This is not the law. Apart from (or perhaps because of) the fact that accepting Falbe's argument would render almost all consumer contracts unenforceable, Texas law is clear that disparate bargaining power is alone insufficient to render an arbitration agreement unenforceable. See Holeman v. National Business Institute, Inc., 94 S.W.3d 91, 100 (Tex. Ct. App. 2002). Instead, the party seeking to invalidate the agreement must show that the agreement is either procedurally or substantively unconscionable. See In re H.E. Butt Grocery Co., 17 S.W.3d 360, 371-72 (Tex. Ct. App. 2000) (noting that "[a]dhesion contracts are not automatically unconscionable or void" and upholding arbitration agreement where "[t]here is no proof that [defendant] hid or misrepresented the terms of the arbitration agreement or that it made any misrepresentations regarding arbitration"); Media Arts Group, 116 S.W.3d at 911 ("[A]n adhesion contract is not automatically unconscionable. . . . [T]he party opposing arbitration must also present some other evidence of unconscionability."); see also Metro East Center for Cond. and Health v. Quest Comm. Int'l, Inc., 294 F.3d 924, 926 (7th Cir. 2002) ("[W]e have held that form contracts, offered on a take-it-or-leave-it basis, are agreements for purposes of the Arbitration Act.") (citing Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997)). Absent any allegations of unconscionability beyond mere bargaining inequality, and there are none, Falbe's argument must fail.*fn9 In sum, we conclude that Falbe has entered into a valid and enforceable agreement to arbitrate.

  B. Scope of the Arbitration Agreement

  Turning to our second and final inquiry, Falbe argues that even if the arbitration provision is enforceable, the provision does not cover the claims presented in his Complaint. The arbitration provision in the Terms and Conditions compels arbitration of: "any claim, dispute, or controversy . . . arising from or relating to this Agreement . . . the relationships which result from this Agreement . . . Dell's advertising, or any related purchase." (Def.'s Mot., Ex. Al, p. 4, ¶ 13.) Each of Falbe's claims, whether sounding in contract or fraud, arises from the allegation that Dell misrepresented the procedure for obtaining a $200 mail-in rebate on his computer purchase. Falbe submits that because the word "rebate" does not appear in the Terms and Conditions, and alternatively, because the rebate "had nothing to do with the actual product sold," his claims are not within the scope of the arbitration provision. (Pl.'s Resp., p. 6.)

  We begin with the oft-cited rule that "any doubts as to whether [a plaintiff's] claims fall within the scope of the agreement must be resolved in favor of arbitration." Prudentialec. Inc. v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (citing Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25). Moreover, "[t]he policy in favor of enforcing arbitration agreements is so compelling that a court should not deny arbitration `unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'" Marshall, 909 S.W.2d at 899 (citations omitted). Finally, when, as here, the arbitration provision expressly includes "[a]ll disputes, claims or controversies arising from or relating to the contract," the party opposing arbitration is "required to present the most forceful evidence of purpose to exclude his claim from arbitration." In re Conseco Fin. Serv. Corp., 19 S.W.3d 562, 570 (Tex. Ct. App. 2000); see also AutoNation USA Corp. v. LeRoy, 105 S.W.3d 190, 196 (Tex. Ct. App. 2003) (Arbitration language "requiring arbitration of any controversy or claim `arising out of or relating to' the Purchase Agreement or the breach thereof, is recognized as broad language favoring arbitration."); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l., Ltd., 1 F.3d 639, 642 (7th Cir. 1993) (arbitration provisions stating that they include all disputes "arising out of" an agreement cover "all disputes having their origin or genesis in the contract, whether or not they implicate interpretation or performance of the contract per se").*fn10

  Against these standards, Falbe's argument borders on the frivolous. His claims, all of which involve Dell's rebate offer, clearly "arise from" and "relate to" his purchase contract with Dell. But for that contract, Falbe would have had no relationship whatsoever with Dell, and thus no standing to bring a claim challenging the rebate offer. Put simply, no computer purchase, no rebate offer. Because all of Falbe's claims fall squarely within the arbitration provision in the Terms and Conditions, they are subject to arbitration. CONCLUSION

  For the foregoing reasons, Dell's motion to stay these proceedings and compel arbitration is granted. The parties are hereby ordered to proceed to arbitration in accordance with the arbitration provision in the Terms and Conditions, and further, to notify this court within 21 days of the completion of the arbitration proceedings.

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