Last week, a federal district court in New Jersey issued an interesting decision involving the fallout of NAF’s departure from consumer arbitration, and the case also involves interesting procedural issues in connection with the enforcement of an arbitration agreement. Khan v. Dell, Civil Action No. 09–3703 (D.N.J. Apr. 26, 2013).
The plaintiff in this case brought a class action complaint against Dell for selling defective laptops, and the terms and conditions of sale included an arbitration clause providing that any disputes would be resolved in arbitration before the National Arbitration Forum (NAF). When Dell tried to enforce the agreement, the district court refused to compel arbitration because the National Arbitration Forum had ceased handling consumer arbitration proceedings. On appeal, the Third Circuit vacated the district court’s denial because section 5 of the Federal Arbitration Act supplies a method for courts to appoint an arbitrator when an arbitrator is not available, and the Third Circuit remanded the case back to the district court for further proceedings. However, the Third Circuit found there was ambiguity regarding whether the parties intended to utilize solely NAF, i.e., whether the use of NAF was central to the agreement.
On remand, the plaintiff requested permission to obtain discovery regarding the ambiguity/centrality of the parties’ decision to designate NAF as the arbitration institution, and the plaintiff also sought discovery regarding unconscionability defenses. The court verbally denied the plaintiff’s request, and upon a motion for reconsideration, the court again denied the plaintiff’s request for discovery. The court, however, noted that the plaintiff may raise the issue of discovery regarding unconscionability when opposing Dell’s motion to compel arbitration.
When litigating the enforceability of an arbitration agreement, it is important to consider whether discovery could assist in resolving the issue of enforceability.