Trial Court Order in Unfair Business Practice Class Action Against Dell Granting Defense Motion to Stay Class Action and Compel Plaintiff to Arbitration his Individual Claim must be Reversed because New Mexico’s “Fundamental Public Policy” Requires use of Class Action Device in Small Claims Matters New Mexico Supreme Court Holds
Plaintiff filed a putative class action lawsuit in New Mexico state court against Dell Computer alleging inter alia violations of the state’s unfair business practices laws and false advertising; the class action alleged that Dell “systematically misrepresents the memory size of its computers.” Fiser v. Dell Computer Corp., ___ P.3d ___ (N.M. June 27, 2008) [Slip Opn., at 3]. The class action further alleged that the monetary damage suffered by each class member was only $10-$20, id. Defense attorneys moved the trial court to stay the class action and to compel arbitration under the Federal Arbitration Act (FAA) of the plaintiff’s individual claim; the defense motion was premised on the fact that plaintiff purchased his computer online and that the “terms and conditions” applicable to such Dell website purchases required purchasers to individually arbitration their claims and precluded them pursuing a class action. Id., at 3-4. The trial court granted the defense motion, ruling that plaintiff was bound by the arbitration clause and the class action waiver. Id., at 4. The Court of Appeals affirmed, and plaintiff petitioned the New Mexico Supreme Court for a writ of certiorari. Id. The Supreme Court reversed, holding that “the class action ban is contrary to fundamental New Mexico public policy,” id.
Preliminarily, the Supreme Court addressed the question of whether New Mexico or Texas law applied. Fiser, at 4. The Court explained at page 4, “The threshold question in determining the validity of the class action ban is which state’s law must be applied to this potentially multi-state class action that was filed in New Mexico by a New Mexico resident against a defendant that maintains its principal place of business in Texas for damages relating to a contract that contains a choice-of-law clause directing that Texas law be applied.” The resolution of this issue was crucial because “[a]pplication of Texas law to the instant matter would likely require enforcing the class action ban.” Id., at 5. New Mexico law would respect the choice-of-law clause, and apply Texas law, “[u]nless enforcement of the class action ban would run afoul of fundamental New Mexico public policy,” id. The Supreme Court held that “[t]he class action device is critical to enforcement of consumer rights in New Mexico.” Id., at 6. The Court recognized that the state’s Uniform Arbitration Act – which “declares that arbitration clauses that require consumers to decline participation in class actions are unenforceable and voidable,” id., at 6 – “may be preempted by the FAA,” id., at 7. However, it also explained that “the class action functions as a gatekeeper to relief when the cost of bringing a single claim is greater than the damages alleged.” Id., at 7-8. Thus, “a contractual provision that purports to ban class actions for small claims implicates not just the opportunity for a class action but the more fundamental right to a meaningful remedy for one’s claims.” Id., at 8. Under the circumstances of this putative class action, the New Mexico Supreme Court found that, because plaintiff’s actual damages were no more than $20, denying class action relief would “essentially foreclose the possibility that Plaintiff may obtain any relief.” Fiser, at 8. And because “New Mexico’s fundamental public policy requires that consumers with small claims have a mechanism for dispute resolution via the class action,” applying Texas law would run contrary to this public policy so New Mexico law governed the dispute. Id., at 9.
Analyzed under New Mexico law, the Supreme Court reached the predictable conclusion (given its choice-of-law analysis) that the class action waiver was unconscionable and therefore unenforceable. See Fiser, at 9-11. The Court then examined whether the FAA preempted its ruling. Id., at 11. Because class action bans are against New Mexico public policy and unenforceable “regardless of the contracts to which they are found,” the Supreme Court held that its decision was not preempted by the FAA. Id., at 11-12. The Court therefore reversed the trial court order staying the class action and compelling arbitration of plaintiff’s individual claim. Id., at 12.