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Keywords

contractlawsuitarbitrationmotionarbitration clause

contractplaintiffarbitrationequitytrialmotionclass actionarbitration clausejury trial

Related Cases

Lima v. Gateway, Inc., 886 F.Supp.2d 1170

Facts

Mark D. Lima purchased a Gateway XHD 3000 monitor in March 2008, during which he was informed that the sale was subject to Gateway's Limited Warranty. However, he was not made aware of the arbitration clause within the warranty until after the purchase. Lima experienced issues with the monitor and sought assistance from Gateway, but after repeated problems, he filed a lawsuit when Gateway refused to repair the monitor, claiming it was outside the warranty period.

In March 2008, Gateway offered the XHD 3000 30″ LCD Flat–Panel Display for a total purchase price of $1,638.75. Plaintiff Mark D. Lima purchased an XHD 3000 monitor by telephone on March 28, 2008. Although Lima does not recall Gateway mentioning during this call that he was waiving any rights to a jury trial or to participate in a class action, Gateway had procedures in place at the time requiring its phone sales representatives to disclose to customers that Gateway's “One Year Limited Warranty Agreement” (“Limited Warranty”) applied to their purchase.

Issue

The main legal issue was whether the arbitration clause in Gateway's Limited Warranty was enforceable, particularly in light of claims of unconscionability.

Rule

The court applied the Federal Arbitration Act, which mandates that arbitration agreements are valid and enforceable unless there are grounds for revocation under contract law, such as unconscionability.

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 – 16, provides that written provisions to arbitrate disputes are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Analysis

The court determined that the arbitration provision was procedurally unconscionable due to the lack of negotiation power and the surprise element, as Lima was not informed of the arbitration clause at the time of purchase. Additionally, the substantive unconscionability was evident as the arbitration clause imposed overly harsh terms that exceeded a consumer's reasonable expectations, particularly by requiring arbitration for all disputes, not just those related to the warranty.

For several reasons, the arbitration provision at issue here is procedurally unconscionable to a high degree. Lima had no ability to negotiate the terms of the Limited Warranty. It arrived on a preprinted form in the box along with his monitor. Moreover, this was not a typical agreement of adhesion offered on a “take it or leave it” basis. Lima could not simply “leave it.” He needed to affirmatively reject the Limited Warranty by notifying Gateway and returning the monitor. This affirmative duty was further oppressive because Lima had a very short time—15 days—within which to make his decision.

Conclusion

The court concluded that the arbitration provision was unenforceable due to its unconscionable nature, thus denying Gateway's motion to compel arbitration.

Who won?

Mark D. Lima prevailed in this case because the court found the arbitration clause to be unconscionable, which rendered it unenforceable.

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