Dell must defend suit alleging defective notebooks

NEW YORK Fri Feb 5, 2010 2:36pm EST

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NEW YORK (Reuters) - A federal appeals court reinstated on Friday a proposed class-action lawsuit accusing Dell Inc of selling defective notebook computers.

A panel of the U.S. Ninth Circuit Court of Appeals in San Francisco reversed a federal district court's 2008 dismissal of the case against the third-largest personal computer maker.

That dismissal followed the plaintiffs' refusal to comply with a district court order that their claims be arbitrated.

Dell, based in Round Rock, Texas, did not immediately return a request for comment.

In their lawsuit, the plaintiffs alleged that Dell violated California consumer laws by selling Inspiron notebooks that had inadequate cooling systems, power supplies and motherboards.

They said the defects caused their notebooks to shut down without warning, fail to boot up, or deteriorate too quickly.

The notebooks were bought between July 2004 and January 2005. It is not clear how many customers were affected.

In Friday's ruling, Judge Lyle Strom said the district court abused its discretion in dismissing the case and "the public's interest in a resolution on the merits weighed strongly" in favor of letting the case continue.

The judge also called it "unconscionable" to enforce a provision in customers' sales contracts requiring arbitration, in part because customers may decide not to pursue claims over the $1,200 to $1,500 computers individually.

"Dell has fought very, very hard," said Jonathan Selbin, a New York-based partner at Lieff Cabraser Heimann & Bernstein LLP representing the plaintiffs. "We got the courtroom doors open, which was our primary goal."

The appeals court sent the case back to the district court for further proceedings. Strom is a senior district court judge in Nebraska, who was sitting in California by designation.

Shares of Dell were down 2 cents at $12.99 in afternoon trading on the Nasdaq.

The case is Omstead et al v. Dell Inc, U.S. Ninth Circuit Court of Appeals, No., 08-16479.

(Reporting by Jonathan Stempel; Additional reporting by Gabriel Madway in San Francisco; editing by Gerald E. McCormick)

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