DeFONTES v. DELL, INC. Nos. 2004-137-Appeal, 2004-114-Appeal.
984 A.2d 1061 (2009)
Mary E. DeFONTES and Nicholas T. Long, individually and on behalf of a class of persons similarly situated v. DELL, INC., et al.
Supreme Court of Rhode Island.
December 14, 2009.
Christopher Whitney, Providence, Esq., Joseph Makalusky, Pro Hac Vice, for Plaintiff.
Stephen MacGilivray, Esq., Darlene Alt, Providence, Esq., Heather Pierce, Esq., John Shope, Pro Hac Vice, for Defendant.
Present: GOLDBERG, FLAHERTY, JJ., and WILLIAMS, C.J. (ret.).
WILLIAMS (ret), Chief Justice.
The defendants, Dell, Inc. f/k/a Dell Computer Corp. (Dell), Dell Catalog Sales LP (Dell Catalog), Dell Marketing LP (Dell Marketing), QualxServ, LLC (QualxServ), and BancTec, Inc. (BancTec), collectively (defendants), appeal from a Superior Court order denying their motion to stay proceedings and compel arbitration. This case is the first of two companion cases now before this Court. See Long v. Dell Inc., No.2007-346-M.P., 984 A.2d 1074 (R.I., filed Dec. 14, 2009). It arises out of a long-frustrated putative class-action suit brought against the defendants. For the reasons set forth below, we affirm the judgment of the Superior Court.
Facts and Travel
This litigation began on May 16, 2003, when Mary E. DeFontes, individually and on behalf of a class of similarly situated persons, brought suit against Dell, alleging that its collection of taxes from them on the purchase of Dell optional service contracts violated the Deceptive Trade Practices Act, G.L.1956 chapter 13.1 of title 6. Ms. DeFontes asserted that service contracts, such as the option service contract offered by Dell, were not taxable within the State of Rhode Island. Nicholas Long joined the suit as a plaintiff, and an amended complaint was filed on July 16, 2003, that also added Dell subsidiaries Dell Catalog and Dell Marketing, and two service providers, QualxServ and BancTec as defendants.
Dell is an international computer hardware and software corporation. Within the Dell corporate umbrella, Dell Catalog and Dell Marketing primarily are responsible for selling computers via the internet, mail-order catalogs, and other means to individual and business consumers. Dell ships these orders throughout all fifty states from warehouses located in Texas and Tennessee. As part of these purchases, Dell offers consumers an optional service contract for on-site repair of its products, with Dell often acting as an agent for third-party service providers, including BancTec and QualxServ. Parties opting to purchase a service contract are charged a "tax," which is either paid to the State of Rhode Island directly or collected by the third-party service provider and then remitted to the state.
The hearing justice issued a written decision on January 29, 2004. He first addressed which state law to apply to the parties' dispute. After determining that the choice-of-law provision included in the terms and conditions agreement, which identified Texas as the controlling jurisdiction, was enforceable, he then analyzed whether the parties had, in fact, agreed to be bound by the terms and conditions agreement. The hearing justice found that although plaintiffs had three opportunities to review the terms, none was sufficient to give rise to a contractual obligation. First, he noted that plaintiffs could have reviewed the terms and conditions agreement had they clicked a hyperlink that appeared on Dell's website. The hearing justice found, however, that this link was "inconspicuously located at the bottom of the webpage" and insufficient to place customers on notice of the terms and conditions.
The hearing justice noted that "courts generally recognize that shrinkwrap agreements,
The hearing justice found that this language was insufficient to give a reasonable consumer notice of the method of rejection. He found that defendants' failure to include an express disclaimer meant that
Although the hearing justice noted that it was unnecessary to address plaintiffs' alternative arguments that the contract was both illusory and unconscionable, he discussed them in his decision "for the sake of completeness." First, he rejected plaintiffs' argument that the agreement was unconscionable because it prevented them from asserting rights as a class. He found that there was no right under Texas law to proceed as a class action litigant. See AutoNation U.S.A. Corp. v. Leroy, 105 S.W.3d 190, 199-200 (Tex.App.2003).
Second, the hearing justice addressed whether the agreement was illusory. He found that the arbitration agreement was not illusory merely because it required plaintiffs to submit to arbitration while allowing defendants to litigate any of its claims in court. He noted the well-settled principle that "although mutuality of obligation is necessary to create a valid contract, `equivalency of obligation' is not." The hearing justice went on, however, to find that the terms and conditions agreement was illusory because it included the language "[t]hese terms and conditions are subject to change without prior written notice, at any time, in Dell's sole discretion."
An order of final judgment was entered on March 29, 2004, from which defendants timely appealed. Additionally, defendants filed a motion to stay the Superior Court proceedings. That motion was denied and, after defendants appealed that decision, the two matters were consolidated. On June 13, 2005, upon discovery that Ms. DeFontes was an employee of plaintiffs' counsel, plaintiffs filed an assented to motion to substitute a proposed class representative that replaced Ms. DeFontes with Julianne Ricci.
We review the trial court's denial of a motion to compel arbitration de novo. See Kristian v. Comcast Corp., 446 F.3d 25, 31 (1st Cir.2006). The parties acknowledge that because their transactions involved interstate commerce, the Federal Arbitration Act (FAA) is applicable. See 9 U.S.C. §§ 1 through 16. Congress enacted the FAA to "overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-20, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). It requires enforcement of privately negotiated arbitration agreements "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Thus, once a court is "satisfied that the making of the agreement for arbitration or the failure to comply therewith is not an issue" it "shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4.
Yet, the United States Supreme Court has been equally insistent that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)); see also Mirra Co. v. School Administrative District No. 35, 251 F.3d 301, 304 (1st Cir.2001) ("Arbitration is a contractual matter, and no party may be forced to arbitrate a dispute unless she has expressly agreed to do so by contract."). The determination of whether the parties have formed an agreement to arbitrate is a matter of state contract law. See 9 U.S.C. § 2; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Moreover, a hearing justice's determination of "[w]hether a party has agreed to be bound by arbitration is a question of law subject to this Court's de novo review." Stanley-Bostitch, Inc. v. Regenerative Environmental Equipment Co., 697 A.2d 323, 325 (R.I.1997) (citing Providence Teachers' Union v. Providence School Committee, 433 A.2d 202, 205 (R.I.1981)).
Before addressing the merits of this issue, we pause to briefly discuss the appropriate law that should be applied in this case, an issue not adequately addressed by the parties. The terms and conditions agreement that is the subject of this litigation contains a choice-of-law provision designating Texas as the controlling jurisdiction. Generally, "parties are permitted to agree that the law of a particular jurisdiction will govern their transaction." Terrace Group v. Vermont Castings, Inc., 753 A.2d 350, 353 (R.I.2000) (quoting Sheer Asset Management Partners v. Lauro Thin Films, Inc., 731 A.2d 708, 710 (R.I. 1999)). "Moreover, the Restatement (Second) Conflict of Laws § 187(2)(a) (1971)
The plaintiffs initially argued before the hearing justice that, because the entire "agreement" was unenforceable, the choice-of-law provision should not be given effect. Nevertheless, in submissions both to the hearing justice and to this Court, plaintiffs assert that the issue is irrelevant because both jurisdictions require "the proponent of arbitration to prove the existence of a written agreement to arbitrate" and have adopted the Uniform Commercial Code (U.C.C). Relying on Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the hearing justice ruled that he was obligated to enforce the choice-of-law provision because he was precluded from resolving questions regarding the validity of the entire contract. As neither party contests the hearing justice's application of the choice-of-law provision, and noting that both jurisdictions have adopted the U.C.C, we will assume without deciding that Texas law governs questions pertaining to the formation of the purported arbitration agreement. See Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1092 (1st Cir.1989) ("When a choice-of-law question has been reduced to the point where nothing turns on more precise refinement, that should be the end of the matter."); see also Superior Boiler Works, Inc. v. R.J. Sanders, Inc., 711 A.2d 628, 633 (R.I.1998) (U.C.C. Article 2, § 2-207 "adopted largely verbatim" in Rhode Island); Rogers v. Dell Computer Corp., 138 P.3d 826, 831 (Okla.2005) (labeling conflict-of-law issue under nearly identical circumstances "contrived"); Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 59 n. 3 (Tex.2008) ("Because the transaction here involved a sale of goods, the Uniform Commercial Code * * * applies.").
We therefore evaluate whether plaintiffs are bound by the terms and conditions agreement by resorting to a careful review of the provisions of the U.C.C. Under U.C.C. § 2-204, contracts for the sale of goods may be formed "in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Tex. Bus. & Com.Code Ann. § 2.204 (Vernon 1994). The U.C.C. creates the assumption that, unless circumstances unambiguously demonstrate otherwise, the buyer is the offeror and the seller is the offeree. See Klocek v. Gateway, Inc., 104 F.Supp.2d 1332, 1340 (D.Kan.2000). Moreover, U.C.C. § 2-206 provides in relevant part,
If contract formation occurred at the moment Dell's sales agents processed the customer's credit card payment and
The eminent Judge Frank Easterbrook has authored what are widely considered to be the two leading cases on so-called "shrinkwrap" agreements. In ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452-53 (7th Cir.1996), the court challenged the traditional understanding of offer and acceptance in consumer transactions by holding that a buyer of software was bound by an agreement that was included within the packaging and later appeared when the buyer first used the software.
The defendants argue that ProCD represents the majority view and we have found considerable support for their contention. See, e.g., O'Quin v. Verizon Wireless, 256 F.Supp.2d 512, 515-16 (M.D.La. 2003) ("Terms and Conditions Pamphlet" binding where acceptance expressed by activation and use of wireless services as long as "opportunity to return"); Bischoff v. DirecTV, Inc., 180 F.Supp.2d 1097, 1101 (C.D.Cal.2002) ("Customer Agreement" mailed to each customer along with the first billing statement valid when clearly advised "[i]f you do not accept these terms, please notify us immediately and we will cancel your service"); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 676 N.Y.S.2d 569, 572 (N.Y.App.Div.1998) (arbitration clause of standard terms and conditions agreement valid where consumer informed that by keeping product beyond thirty days after delivery he was accepting terms); M.A. Mortenson Co., v. Timberline Software Corp., 140 Wn.2d 568, 998 P.2d 305, 308 (2000) (adopting ProCD analysis but noting shrinkwrap agreement explicitly instructed consumers "IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY RETURN * * * TO THE PLACE OF PURCHASE AND YOUR PURCHASE PRICE WILL BE REFUNDED"). Moreover, as plaintiffs' counsel has initiated nationwide litigation, a number of sister jurisdictions have decided more or less the precise issue put before us in defendants' favor. For instance, in Stenzel v. Dell, Inc., 870 A.2d 133 (Me.2005), the Maine Supreme Judicial Court reviewed a similar terms and conditions agreement sent to Dell customers that included the language,
The court held that by "accepting delivery of the computers, and then failing to exercise their right to return the computers as provided by the agreement, [the plaintiffs] expressly manifested their assent to be bound by the agreement * * *." Id; see also Carideo v. Dell, Inc., 520 F.Supp.2d 1241, 1244 (W.D.Wash.2007); Omstead v. Dell, Inc., 473 F.Supp.2d 1018, 1025-26 (N.D.Cal.2007); Adams v. Dell Computer Corp., No. CIV AC-06-089, 2006 WL 2670969 (S.D.Tex. Sept.18, 2006); Sherr v. Dell Inc., No. 05 CV 10097(GBD) 2006 WL 2109436, *3 (S.D.N.Y. July 27, 2006) ("customer need only return the product according to the return policy in order to reject the Agreement"); Falbe v. Dell, Inc., No. 04-C-1425, 2004 WL 1588243, *3 (N.D.Ill.2004) ("Our analysis begins, and could end, with * * * Hill v. Gateway 2000, Inc.").
The Supreme Court of Oklahoma, which has also been drawn into this nationwide class-action suit against defendants, has rejected Hill's reasoning as well. See Rogers, 138 P.3d at 833. Although remanding the case to determine whether the arbitration provision was included in the parties' agreement, it noted,
We therefore decline to adopt the minority view, as urged by plaintiffs, that a contract is fully formed when a buyer orders a product and the seller accepts payment and either ships or promises to ship. Instead, formation occurs when the consumer accepts the full terms after receiving a reasonable opportunity to refuse them. Yet in adopting the so-called "layered contracting"
On the first question, defendants notified plaintiffs that "[b]y accepting delivery of the computer systems, related products, and/or services and support, and/or other products described on that invoice[,] You (`Customer') agrees to be bound by and accepts those terms and conditions." This language certainly informed plaintiffs that defendants intended to bind them to heretofore undisclosed terms and conditions, but it did not advise them of the period beyond which they will have indicated their assent to those terms. The defendants argue that the meaning of the term "accepting delivery" is apparent to a reasonable consumer. We are not so sure. See Licitra, 734 N.Y.S.2d at 392 ("All terms of the `Agreement' should not be enforced merely because the consumer retains the equipment for 30 days after receipt, especially because it is unclear when the 30-day period to protest begins. Does it commence upon delivery of the goods to the carrier since the `Agreement' states that title passes upon `delivery to the carrier' * * * or does it commence upon receipt by the consumer? Is the time period stayed in the all too common situation where a parent buys the computer as a
Significantly, the agreement sent to Ms. DeFontes, who is no longer a plaintiff in this case, contained additional language advising her of the method of rejection. The introductory provision of the terms and conditions agreement that defendants sent to her stated, "[i]f 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 * * *." In doing so, defendants explicitly contrasted acceptance of the terms with rejection of the goods, albeit while retaining some ambiguity whether rejection of defendants' proposed terms could reasonably be construed as dissatisfaction with "Dell-branded hardware." Many of the cases upholding shrinkwrap agreements cite explicit disclaimers advising consumers of their right to reject the terms. See, e.g., ProCD, Inc. v. Zeidenberg, 908 F.Supp. 640, 644 (W.D.Wis.1996) ("If you do not agree to the terms of this License, promptly return all copies of the software, listings that may have been exported, the discs and the User Guide to the place where you obtained it."); Bischoff, 180 F.Supp.2d at 1101 ("[i]f you do not accept these terms, please notify us immediately and we will cancel your service"); M.A. Mortenson Co., 998 P.2d at 308 ("IF YOU DO NOT AGREE TO THESE TERMS AND CONDITIONS, PROMPTLY RETURN * * * TO THE PLACE OF PURCHASE AND YOUR PURCHASE PRICE WILL BE REFUNDED"). Such explicit language is also present in some of the foreign cases in which defendants have prevailed. See, e.g., Sherr, 2006 WL 2109436, at *1 ("[a]greement informs the consumer that by returning the product or refusing delivery in accordance with Dell's return policy, he can reject the terms and conditions"). Although the above language is significantly clearer, the terms and conditions agreement sent to Ms. DeFontes nevertheless made the important connection between acceptance of the terms by accepting delivery and rejection by returning the goods.
In reviewing the language of the terms and conditions agreement it cannot be said that it was reasonably apparent to the plaintiffs that they could reject the terms simply by returning the goods. We believe that too many inferential steps were required of the plaintiffs and too many of the relevant provisions were left ambiguous. We are not persuaded that a reasonably prudent offeree would understand that by keeping the Dell computer he or she was agreeing to be bound by the terms and conditions agreement and retained, for a specified time, the power to reject the terms by returning the product. Because we hold that the hearing justice properly denied the defendants' motion to compel arbitration on the ground that the plaintiffs did not agree to be bound by the terms and conditions agreement, we need not discuss any of the alternative grounds the hearing justice offered for denying the defendants' motion to compel arbitration. We must note, however, that the hearing justice found that the purported agreement "fails to bind Defendants in any genuine way" because it gave the defendants the right to change the terms of the agreement "without prior written notice at any time, in Dell's sole discretion." Although we recognize the existence of a formidable argument that such language rendered the purported agreement illusory, we shall leave the analysis of that argument for another day, in keeping with our general aversion towards reaching issues that prove unnecessary for the disposition of the case at bar. See Irons v. Rhode Island Ethics Commission, 973 A.2d 1124, 1135 (R.I.2009).
For the reasons set out above, the judgment of the Superior Court is affirmed.
Chief Justice SUTTELL and Justice ROBINSON did not participate.
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