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William Carr, Indiv. and On Behalf of All Others Similarly Situated v. Gateway

February 3, 2011

WILLIAM CARR, INDIV. AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
APPELLEE,
v.
GATEWAY, INC.,
APPELLANT.



JUSTICE GARMAN delivered the judgment of the court, with opinion.

Chief Justice Kilbride and Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.

OPINION

In 2001, plaintiff, William Carr, and his wife purchased a computer from defendant, Gateway, Inc. Carr subsequently filed suit alleging misrepresentation by Gateway as to the speed of the computer's processor. Gateway sought to dismiss the suit and compel arbitration in accordance with the terms of the sales contract. The circuit court of Madison County denied the motion, holding, inter alia, that there was no valid arbitration agreement between the parties. Gateway appealed under Rule 307(a)(1) (Ill. S. Ct. R. 307(a)(1) (eff. Mar. 20, 2009)). While the case was on appeal, the National Arbitration Forum (NAF), the arbitral forum designated in the arbitration agreement, stopped accepting consumer arbitrations. Thereafter, the appellate court affirmed the circuit court on the basis that the arbitration agreement failed due to the unavailability of the arbitral forum. 395 Ill. App. 3d 1079. We allowed Gateway's petition for leave to appeal.

Ill.

S. Ct. R. 315 (eff. Feb. 26, 2010). The present appeal concerns whether section 5 of the Federal Arbitration Act (Arbitration Act or Act) (9 U.S.C. §5 (2006)) applies to permit the circuit court to appoint a substitute arbitrator due to the unavailability of the parties' designated arbitral forum.

BACKGROUND

Plaintiff Carr and others filed a class action complaint in June 2002, against defendants Intel Corporation, Gateway, Inc., and other computer manufacturers. The complaint alleged that defendants marketed Pentium 4 processors and computers in a misleading manner by claiming that the Pentium 4 processor was faster than its predecessor, the Pentium III. Carr alleged that, in fact, the Pentium 4 was slower than the Pentium III and Athlon processors from AMD (Advanced Micro Devices, Inc.).

Carr's allegations were contained in counts IV, V, and VI of the class action complaint. In 2003, the circuit court severed those counts and Carr's allegations proceeded separately. In the other action, styled Barbara's Sales, Inc. v. Intel Corp., the circuit court certified a class. The defendants in that action appealed and the case eventually came before this court, where we held that the class action could not proceed because the alleged representations made by the defendants in that case were not actionable under Illinois law. Barbara's Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 76 (2007).

With respect to the instant case, Carr alleged causes of action under California law and under Illinois's Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2000)). The allegations in Carr's complaint were identical to those contained in the original class action complaint. Gateway filed a motion to dismiss or, in the alternative, to compel arbitration, based on an arbitration clause in a "Limited Warranty Terms and Conditions Agreement" that was included in the materials sent with the computer when it arrived at Carr's home. Gateway argued that Carr agreed to arbitrate all disputes.

In November 2007, the circuit court held an evidentiary hearing on Gateway's motion. Following the hearing, the circuit court denied the motion, ruling that the agreement containing the arbitration clause was not part of the sales contract entered into by the parties. The court also found that, even if the arbitration clause were part of the sales agreement, it could not be enforced because it was unconscionable due to the following: (1) the clause was nonnegotiable; (2) it was part of a preprinted form and was not read by Carr until several days after the computer was purchased; (3) the terms of the arbitration clause were one-sided; (4) Carr could be saddled with large costs in pursuing his claim through the designated arbitral forum; (5) Carr would be prohibited from pursuing his claim as a class action; and (6) Carr would be prohibited from pursuing a claim for punitive damages.

Gateway timely appealed. When it became known that the NAF had stopped accepting consumer arbitrations, the appellate court ordered supplemental briefing regarding the effect of this development on the case. In its decision, the court noted the circuit court had ruled that the agreement to arbitrate was not a part of the contract for the purchase of the computer. The appellate court assumed, for purposes of the appeal, that there was a valid agreement to arbitrate. The court noted a split among courts as to whether section 5 of the Arbitration Act applies in such cases. The court then held that the specific designation of the NAF as the exclusive arbitration forum was an integral part of the arbitration clause, noting that the NAF has a "very specific set of rules and procedures that has implications for every aspect of the arbitration process." 395 Ill. App. 3d at 1085. As further support for its decision, the appellate court also pointed to a clause in the agreement that allowed the arbitrator to impose monetary penalties on a party for bringing a dispute in any forum other than the NAF. Thus, the court found that section 5 of the Act could not be used to reform the arbitration provision. Id. at 1086.

ANALYSIS

I

This appeal requires us to interpret the parties' arbitration agreement. An agreement to arbitrate is a matter of contract. Salsitz v. Kreiss, 198 Ill. 2d 1, 13 (2001). The interpretation of a contract involves a question of law, which we review de novo. ...


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