THIRD CIRCUIT HOLDS THAT DISTRICT COURT ERRED IN REFUSING TO APPOINT SUBSTITUTE ARBITRATOR UNDER FAA SECTION 5
Plaintiff Khan filed a putative class action lawsuit against Dell alleging, among other claims, violations of a state consumer protection statute and common law fraud. The arbitration clause at issue provided that disputes: “SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF). . . .” At the time Dell filed its motion to compel arbitration, however, NAF had been barred from conducting consumer arbitrations pursuant to the terms of a consent decree with the Minnesota Attorney General that NAF had entered into after being investigated for allegedly engaging in deceptive practices disadvantaging consumers.
The district court held that NAF’s designation was “integral” to the arbitration provision such that it could not be enforced without using NAF and denied Dell’s motion to compel arbitration. The Third Circuit reversed. It determined that the arbitration clause was ambiguous because “EXCLUSIVELY” could refer either to “BINDING ARBITRATION,” to “NAF,” or to both and that the provision thus did not indicate the parties’ “unambiguous intent not to arbitrate their disputes if NAF is unavailable.” The Third Circuit held that the district court, accordingly, should have appointed a substitute arbitrator under FAA Section 5 and remanded the case for further proceedings consistent with its opinion. Khan v. Dell Inc., No. 10-3655 (3rd Cir. Jan. 20, 2012).
This post written by Ben Seessel.
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