Raheel Khan v. Dell Inc
2012 U.S. App. LEXIS 1167
| 3rd Cir. | 2012Background
- Dell’s arbitration clause requires exclusive binding arbitration administered by the National Arbitration Forum (NAF) and incorporates the FAA.
- The clause does not designate a replacement forum if NAF is unavailable and is tied to Texas law governing interpretation; no severability provision.
- Khan bought a Dell 600m in 2004; he filed a putative consumer class action in New Jersey in 2009 alleging multiple consumer-protection claims arising from alleged defects.
- NAF had been barred from consumer arbitrations by a Minnesota Consent Judgment, creating doubt about NAF’s ability to arbitrate Khan’s claims.
- Dell moved to compel arbitration; Khan argued the NAF unavailability voids arbitration and requires a court to deny arbitration or appoint a substitute arbitrator; the district court denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §5 FAA applies when the designated arbitrator is unavailable | Khan argues unavailability terminates arbitration. | Dell contends §5 permits appointing a substitute arbitrator when the designated forum cannot proceed. | §5 applies; substitute arbitrator permitted when forum unavailable. |
| Whether the NAF designation is integral to the agreement, precluding substitution | Khan argues exclusivity makes arbitration non-arbitrable if NAF is unavailable. | Dell argues the designation is not so integral that unavailability ends arbitration. | Ambiguity exists; arbitration should be favored; substitution permitted. |
Key Cases Cited
- Brown v. ITT Consumer Fin. Corp., 211 F.3d 1222 (11th Cir. 2000) (NAF unavailability does not destroy arbitration when §5 allows substitution)
- Reddam v. KPMG LLP, 457 F.3d 1054 (9th Cir. 2006) (integral vs. ancillary forum designation test for §5)
- Sens v. John Nuveen & Co., Inc., 146 F.3d 175 (3d Cir. 1998) (ambiguous arbitration clauses resolved in favor of arbitration)
- In re Salomon Inc. S’holders’ Derivative Litig., 68 F.3d 554 (2d Cir. 1995) (unpersuasive to narrow §5 scope; mechanical ‘lapse’ applies to forum shortcomings)