## Facts

- Raheel Ahmad Khan bought a Dell 600m laptop on Dell’s website in September 2004 and clicked assent to Dell’s Terms and Conditions of Sale.
- The terms included a broad arbitration clause requiring any dispute arising from or relating to the agreement to be resolved by binding arbitration.
- The clause provided that arbitration would be administered by the National Arbitration Forum (NAF) under NAF rules and the Federal Arbitration Act (FAA).
- After the purchase, NAF became unavailable to administer consumer arbitrations due to a consent decree barring it from that role.
- Khan filed a putative class action in federal court alleging design defects and related misrepresentations; Dell moved to compel arbitration and stay the case.
- Khan argued the arbitration agreement was unenforceable because it specified NAF as the exclusive forum and FAA § 5 did not permit substitution.

## Issues

1. Whether FAA § 5 requires a court to appoint a substitute arbitrator/forum when the contract’s designated arbitral forum (NAF) is unavailable.
2. Whether the designation of NAF was an “integral” term of the parties’ arbitration agreement such that NAF’s unavailability renders the clause unenforceable.

## Decision

- The Third Circuit reversed the district court’s order denying Dell’s motion to compel arbitration.
- The court adopted the “integral part” approach: a substitute may be appointed under FAA § 5 unless the chosen forum is integral to the agreement to arbitrate.
- The court held NAF was not integral to the parties’ agreement; the parties’ primary intent was to arbitrate disputes broadly.
- NAF’s unavailability was a failure in the parties’ method of selecting an arbitrator/forum, triggering FAA § 5.
- The case was remanded with instructions to appoint a substitute arbitrator and compel arbitration.

## Legal Principles

- FAA § 5 authorizes (and, when triggered, requires) a court to appoint a substitute arbitrator when the parties’ selection method fails or cannot be followed, or when there is a lapse in filling the arbitral role.
- When the contract’s designation of a particular arbitral forum is an integral condition of arbitration, the forum’s unavailability can make the arbitration clause unenforceable and bar substitution.
- Determining whether a forum is “integral” turns on contract interpretation: whether the parties agreed to arbitrate only before the named forum, or agreed primarily to arbitrate with the named forum serving as an administrative detail.

## Conclusion

The Third Circuit held that because the agreement reflected a general commitment to arbitrate and the reference to NAF was not an indispensable condition, FAA § 5 required the court to appoint a substitute arbitrator and enforce the arbitration agreement despite NAF’s unavailability.


Khan v. Dell Inc., 669 F.3d 350 (3d Cir. 2012)