California court invalidates Alienware arbitration provision in online terms and conditions

Oestreicher v. Alienware Corp., —F.Supp.2d—-, 2007 WL 2302490 (N.D. Cal. Aug. 10, 2007)

Plaintiff Oestreicher bought a laptop on the Alienware website. Six months later the computer overheated and was irretrievably broken. Oestreicher filed a class action suit against Alienware in California state court, and Alienware removed the case to the U.S. District Court for the Northern District of California. Alienware then moved to compel arbitration, citing to the terms and conditions of purchase, which had been presented to Oestreicher in the form of a “click-wrap” agreement during check-out.

The court denied the motion to compel arbitration. The first two-thirds of the opinion addressed the question of whether California or Florida law should govern the enforceability of the arbitration provision. Disregarding the express provisions of the agreement providing for application of Florida law “without regard to conflicts of laws principles,” the court decided that California law should apply. It held that enforcement of the provision requiring arbitration (and the attendant waiver of the right to pursue a class action) violated a fundamental policy of the state of California. Furthermore, California had a materially greater interest in the litigation, based on the fact that California residents were invoking consumer protection laws to seek recovery for allegedly defective products shipped into California.

Applying California law, the court determined that the class action waiver was unconscionable and unenforceable. It was procedurally unconscionable because it was a take-it-or-leave-it contract of adhesion. It was substantively unconscionable because the dispute implicated by the class action waiver involved a small amount of damages and Oestreicher had alleged Alienware carried out a scheme to deliberately cheat large numbers of customers out of individually small sums of money.

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