Felter v. Dell Technologies, Inc.

Filing 43

Order by Judge Vince Chhabria granting 32 Motion to Compel Arbitration. (vclc1, COURT STAFF) (Filed on 7/29/2022)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA

ROBERT FELTER, et al.,

Case No. 21-cv-04187-VC

Plaintiffs,
ORDER GRANTING MOTION TO
COMPEL ARBITRATION

v.
DELL TECHNOLOGIES, INC.,

Re: Dkt. No. 32

Defendant.

Felter and Washington assented to the arbitration provision in Dell’s Terms of Sale when
they clicked “Accept” on the start-up screen of their computers. Although there are reasonable
arguments that the arbitration agreements should be invalidated, the parties clearly delegated the
question of enforceability to the arbitrator, and so those issues are for the arbitrator to decide.1
Felter and Washington argue that, notwithstanding their acceptance of the Terms of Sale,
no contract was formed because “the writing [did] not appear to be a contract and the terms
[were] not called to the attention of the recipient.’” Marin Storage & Trucking, Inc. v. Benco
Contracting & Engineering, Inc., 89 Cal. App. 4th 1042, 1049–50 (2001). In Norcia v. Samsung
Telecommunications America, LLC, the Ninth Circuit applied this rule to hold that a consumer
was not bound by an arbitration agreement contained in a brochure entitled “Product Safety &
Warranty Information.” 845 F.3d 1279, 1289 (9th Cir. 2017). The court explained that “[a]
reasonable person in [the consumer’s] position would not be on notice that the brochure
Dell’s Terms of Sale include a Texas choice-of-law provision. Felter and Washington argue
that California law applies to this motion because the Court is sitting in diversity. Dell asserts
that the questions raised in its motion are “answered the same way under both Texas and
California law,” and so California law will be applied.
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contained a freestanding obligation outside the scope of the warranty,” and so no arbitration
agreement was formed. Id. But here, the start-up screen clearly appeared to be a contract and
drew attention to its terms. While the top of the start-up screen said, “Windows 10 License
Agreement,” the remainder of the screen was split into two columns: one for the Windows 10
License Agreement and one for Dell’s Terms of Sale. The second column stated, in the same size
font as the Windows 10 License Agreement: “Your purchase and use of this product is subject to
and governed by Dell’s applicable Terms of Sale…By the act of clicking, ‘I accept’ you agree
(or re-affirm your agreement to) the foregoing terms and conditions.” Dkt. No. 32-8. The
“Accept” button was immediately below the Terms of Sale. This design was sufficient to put the
plaintiffs on inquiry notice of the agreement.
It is true that the arbitration provision did not appear on the start-up screen itself; the
plaintiffs needed to scroll down to see it. But “courts have long upheld contracts where ‘the
consumer is prompted to examine terms of sale that are located somewhere else.’” Tompkins v.
23andMe, Inc., No. 5:13-CV-05682-LHK, 2014 WL 2903752, at *8 (N.D. Cal. June 25, 2014),
aff’d, 840 F.3d 1016 (9th Cir. 2016) (quoting Fteja v. Facebook, Inc., 841 F. Supp. 2d 829, 839
(S.D.N.Y. 2012)). In the context of clickwrap and browsewrap agreements, a consumer is bound
by an arbitration agreement if “a reasonably prudent Internet consumer” would be put on
“inquiry notice” of the “agreement’s existence and contents.” Dohrmann v. Intuit, Inc., 823 F.
App’x 482, 483 (9th Cir. 2020) (quoting Long v. Provide Commerce, Inc., 245 Cal. App. 4th
855, 863 (2016)). Here, a reasonably prudent computer user would understand that they needed
to scroll down to see the agreement’s terms. See also id. at 484.
Felter and Washington additionally argue that because the contract was formed when
they agreed to purchase their computers, no additional terms could be added after the fact. They
suggest these “in-the-box” contracts—contracts provided after the purchase of a product—are
unenforceable in California. But the analogy to in-the-box contracts is misplaced here because
Felter and Washington affirmatively accepted the Terms of Sale. Tompkins, 2014 WL 2903752,
at *8.

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To be sure, there are problems with accepting the idea that Dell can add new material
terms after a consumer’s purchase. For one, it would not have been easy for Washington to
decline the Terms of Sale.2 Washington purchased his computer directly from Dell, and Dell’s
return policy permitted it to charge a 15% restocking fee and return shipping fees. That could
have been upwards of $500. (Dell argues that it allowed free returns during the relevant period.)
It is quite possible that this restocking fee renders the Terms of Sale unconscionable, at least for
Washington. See Tompkins, 2014 WL 2903752, at *14–15. See also Hill v. Gateway 2000, Inc.,
105 F.3d 1147, 1150 (7th Cir. 1997). Perhaps the fee could also support an argument for
economic duress. See, e.g., Rich & Whillock, Inc. v. Ashton Development, Inc., 157 Cal. App. 3d
1154, 1158–59 (Ct. App. 1984).
More generally, if a contract is formed when a consumer agrees to purchase a computer,
and if they had no notice of any additional terms at that point, then there is a colorable argument
that Dell breached that contract by conditioning use of the computer on acceptance of additional
terms. Perhaps this could also implicate the concept of duress—especially for consumers subject
to the restocking fee. See Rich & Whillock, 157 Cal. App. 3d at 1159 (“[A] a bad faith threat to
breach a contract…may constitute a wrongful act for purposes of the economic duress
doctrine.”).3
But the arbitration agreement clearly delegates these questions to the arbitrator. Dkt. No.
32-6 (“The arbitrator shall have exclusive authority to resolve any dispute relating to arbitrability
and/or enforceability of this arbitration provision including any unconscionability challenge or
any other challenge that the arbitration provision or the Agreement is void, voidable or otherwise
invalid.”). The plaintiffs have not challenged the delegation clause specifically, and so Supreme

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Felter purchased his computer from Best Buy, which offered free returns, though he still would
have needed to go back to the store.
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Some courts have held that a contract is formed only when a consumer keeps the product—not
when they make the initial purchase. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452–
53 (7th Cir. 1996). Professor Mark A. Lemley describes this conclusion as “questionable,”
noting that the courts arguably should treat “the additional terms as a proposed modification” to
the contract formed at purchase. Mark A. Lemley, Terms of Use, 91 Minn. L. Rev 459, 468
(2006).

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Court precedent requires the Court to enforce it, “leaving any challenge to the validity of the
Agreement as a whole for the arbitrator.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 72
(2010). See also Farnsworth v. Towboat Nantucket Sound, Inc., 790 F.3d 90, 97 (1st Cir. 2015).
Accordingly, the motion to compel arbitration is granted, and the case is dismissed
without prejudice. Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1073–74 (9th Cir.
2014).

IT IS SO ORDERED.
Dated: July 29, 2022
______________________________________
VINCE CHHABRIA
United States District Judge

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