FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MICHAEL OMSTEAD; MELISSA 

MALLOY; LISA SMITH, individually

and on behalf of all others No. 08-16479

similarly situated, D.C. No.

Plaintiffs-Appellants,  3:06-CV-06293-PJH

v. OPINION

DELL, INC.,

Defendant-Appellee. 

Appeal from the United States District Court

for the Northern District of California

Phyllis J. Hamilton, District Judge, Presiding

Argued and Submitted

October 7, 2009—San Francisco, California

Filed February 5, 2010

Before: Mary M. Schroeder and Marsha S. Berzon,

Circuit Judges, and Lyle E. Strom,* District Judge.

Opinion by Judge Strom

*The Honorable Lyle E. Strom, Senior United States District Judge for

the District of Nebraska, sitting by designation. 

2101
COUNSEL

Jonathan D. Selbin (argued) and Kristen E. Law, Lieff,

Cabraser, Heimann & Bernstein, LLP, New York, New York;

Cynthia B. Chapman and Cory S. Fein, Caddell & Chapman,

Houston, Texas; John L. Malesovas, Malesovas & Martin,

LLP, Waco, Texas; Anthony L. Vitullo, Fee, Smith, Sharp &

Vitullo, LLP, Dallas, Texas; and Paul R. Kiesel and Patrick

DeBlase, Beverly Hills, California, for the plaintiffsappellants.

Paul Schlaud (argued), Kim E. Brightwell, and Matt Frederick, Reeves & Brightwell, LLP, Austin, Texas; Douglas R.

Young and C. Brandon Wisoff, San Francisco, California, for

the defendant-appellee.

OPINION

STROM, District Judge:

Plaintiffs-appellants, Michael Omstead, Melissa Malloy,

and Lisa Smith (collectively, “plaintiffs”), brought a proposed

class action1 against Dell, Inc. (“Dell”), asserting various

1The proposed class consists, with limited exclusions, of “[a]ll individuals and entities in the State of California who own or have owned any one

or more of the following Dell Inspiron notebook computer models: 1100,

1150, 5100, or 5160.” 

2104 OMSTEAD v. DELL, INC.
claims under California state law predicated on the allegation

that Dell designed, manufactured, and sold defective notebook computers. The district court granted Dell’s motion to

stay proceedings and compel arbitration. Plaintiffs refused to

comply with the arbitration order, and the district court dismissed the action for failure to prosecute. Plaintiffs appeal the

dismissal and the underlying arbitration order. We

REVERSE.

I. BACKGROUND

Between July 2004 and January 2005 plaintiffs purchased

notebook computers for $1200 to $1500 through Dell’s website. At the time of purchase, plaintiffs were required to accept

a written agreement titled “U.S. Terms and Conditions of

Sale” (the “Agreement”). The Agreement contained the following provisions relevant to this appeal: 

. . . . 

11 Governing Law.

THIS AGREEMENT AND ANY SALES THERE

UNDER SHALL BE GOVERNED BY THE LAWS

OF THE STATE OF TEXAS, WITHOUT

REGARD TO CONFLICTS OF LAWS RULES.

. . . .

13 Binding Arbitration.

ANY CLAIM, DISPUTE, OR CONTROVERSY . . .

BETWEEN CUSTOMER AND DELL . . . SHALL

BE RESOLVED EXCLUSIVELY AND FINALLY

BY BINDING ARBITRATION ADMINISTERED

BY THE NATIONAL ARBITRATION FORUM

(NAF) . . . . NEITHER CUSTOMER NOR DELL

SHALL BE ENTITLED TO JOIN OR CONSOLIOMSTEAD v. DELL, INC. 2105
DATE CLAIMS BY OR AGAINST OTHER CUSTOMERS, OR ARBITRATE ANY CLAIM AS A

REPRESENTATIVE OR CLASS ACTION . . . . 

Dell moved to stay proceedings and compel individual arbitration pursuant to the Agreement, and the district court

granted the motion. Plaintiffs moved for reconsideration of

the arbitration order; the district court denied reconsideration

and directed the parties to file a joint status statement describing the status of their arbitration proceedings. 

In the joint status statement, plaintiffs stipulated that they

would not arbitrate their claims individually because it was

not economically feasible for them to do so, and because the

arbitration forum mandated by the Agreement was “blatantly

biased” against consumers. Plaintiffs requested the district

court enter a final order that would allow them to appeal the

arbitration order. Plaintiffs further clarified: “Plaintiffs are not

refusing to prosecute their claims; they are only refusing to

arbitrate them in a manner which . . . would be futile.” Dell

opposed plaintiffs’ request and argued the only final judgment

that would be appropriate under the circumstances would be

a dismissal for failure to prosecute. The district court directed

further briefing on the issue of whether the action should be

dismissed, and if so, on what grounds. 

Plaintiffs’ supplemental brief restated their position that

they were not refusing to prosecute their claims but were in

a “procedural bind” because they could not afford to arbitrate

their claims individually, and the arbitration order was not an

appealable order. Plaintiffs identified two alternatives to dismissal: (1) stay the action pending this Court’s ruling in

Oestreicher v. Alienware Corp., infra, which at that time, was

fully briefed and before the Court, or (2) certify the issue for

interlocutory review. Dell opposed these alternatives and

again argued for a dismissal for failure to prosecute. On May

21, 2008, the district court dismissed the action for failure to

prosecute pursuant to Federal Rule of Civil Procedure 41(b).

2106 OMSTEAD v. DELL, INC.
II. STANDARD OF REVIEW

We review a dismissal for failure to prosecute for abuse of

discretion. Ash v. Cvetkov, 739 F.2d 493, 495 (9th Cir. 1984).

We review a district court’s order compelling arbitration de

novo. Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th

Cir. 2007).

III. DISCUSSION

A. The District Court Abused Its Discretion When It 

Dismissed Plaintiffs’ Action for Failure to Prosecute.

[1] Federal Rule of Civil Procedure 41(b) provides: “If the

plaintiff fails to prosecute or to comply with these rules or a

court order, a defendant may move to dismiss the action or

any claim against it.” A Rule 41(b) dismissal “must be supported by a showing of unreasonable delay.” Henderson v.

Duncan, 779 F.2d 1421, 1423 (9th Cir. 1986). In addition, the

district court must weigh the following factors in determining

whether a Rule 41(b) dismissal is warranted: “(1) the public’s

interest in expeditious resolution of litigation; (2) the court’s

need to manage its docket; (3) the risk of prejudice to the

defendants; (4) the public policy favoring disposition of cases

on their merits and (5) the availability of less drastic sanctions.” Id. Where, as here, the district court does not make

explicit findings on each factor, we independently review the

record to determine whether the district court abused its discretion. Id. at 1424. 

[2] In this case, the district court abused its discretion

when it dismissed plaintiffs’ action for failure to prosecute.

Plaintiffs did not cause any unreasonable delay in the progression of their case below. Upon review of the record, there

were only two possible instances of delay: (1) plaintiffs waiting five months to file a motion for reconsideration of the district court’s arbitration order, and (2) plaintiffs waiting two

months to file the parties’ joint status statement after being

OMSTEAD v. DELL, INC. 2107
ordered to do so by the district court. Neither instance supports a Rule 41(b) dismissal. The motion for reconsideration

was properly filed under the Northern District of California’s

local rules, see Civil L.R. 7-9(a), and the joint status statement

was timely under the deadlines set by the district court and

simply reiterated positions that were well-known to the parties

and the district court. Further, the factors used in evaluating

a Rule 41(b) dismissal favor plaintiffs. The record does not

support a finding that plaintiffs’ actions placed unwarranted

stress on the district court’s docket or prejudiced Dell. The

public’s interest in a resolution on the merits weighed

strongly in plaintiffs’ favor, and less drastic and more appropriate alternatives were available. 

Plaintiffs sufficiently communicated to Dell and the district

court that they wanted to prosecute their claims on a classwide basis, they believed the district court’s arbitration order

was fatal to their action, and they wanted the district court to

enter an order that would permit appellate review of the arbitration issue. Not only was the district court’s Rule 41(b) dismissal unsupported by the facts of this case, it also failed to

accomplish plaintiffs’ requested result because under our law,

an appeal from a Rule 41(b) dismissal does not permit review

of interlocutory orders. See Al-Torki v. Kaempen, 78 F.3d

1381, 1386 (9th Cir. 1996).

Plaintiffs were not certain how they could procedurally

obtain appellate review of the arbitration order while maintaining consistency with circuit law, given the then pending

appeal from Oestreicher v. Alienware Corp., 502 F. Supp. 2d

1061 (N.D. Cal. 2007) (Oestreicher I), which presented similar issues. The appropriate order would have been a voluntary

dismissal with prejudice under Federal Rule of Civil Procedure 41(a)(2). We agree with the First Circuit’s reasoning in

John’s Insulation, Inc. v. L. Addison and Associates, Inc., that

“a plaintiff that deems an interlocutory ruling to be so prejudicial as to deserve immediate review . . . has the alternative of

dismissing the complaint voluntarily [with prejudice].” 156

2108 OMSTEAD v. DELL, INC.
F.3d 101, 107 (1st Cir. 1998). As John’s Insulation noted,

such a tactic is risky: “Plaintiffs pursuing such an avenue of

appeal risk forfeiting their potentially meritorious claims . . .

because the appellate court could affirm the dismissal.” Id.

Plaintiffs have demonstrated their understanding and acceptance of the risks involved. 

[3] To avoid a useless remand for entry of a modified judgment, we will construe the district court’s Rule 41(b) dismissal as a Rule 41(a)(2) voluntary dismissal with prejudice

and consider the underlying issue in this case, which is

whether the case should have been ordered to arbitration. 

B. The District Court Erred When It Granted Dell’s Motion

to Stay Proceedings and Compel Arbitration.

[4] Under the Federal Arbitration Act, 9 U.S.C. §§ 1-16, a

written arbitration provision is valid and enforceable “save

upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Generally applicable contract defenses, such as unconscionability, may render an

arbitration provision unenforceable. Shroyer v. New Cingular

Wireless Servs., Inc., 498 F.3d 976, 981 (9th Cir. 2007).

Whether an arbitration provision is unconscionable is governed by state contract law. See id. 

[5] The Agreement in this case contains a choice-of-law

provision that states the Agreement is governed by Texas law.

Plaintiffs argue the choice-of-law provision is unenforceable,

and California law applies. During this case’s pendency on

appeal, this Court decided, in an unpublished, nonprecedential memorandum disposition, Oestreicher v. Alienware Corp., 322 F. App’x 489 (9th Cir. Apr. 2, 2009) (mem.)

(Oestreicher II), which affirmed a district court decision that

appropriately dealt with a similar choice-of-law determination. See Oestreicher I, 502 F. Supp. 2d 1061. We adopt the

reasoning of Oestreicher I and apply it to this case. This Court

agreed that the choice-of-law provision was not enforceable

OMSTEAD v. DELL, INC. 2109
and that under California choice-of-law rules, California law

applied. Oestreicher II, 322 F. App’x at 491. 

In Oestreicher I, plaintiff Harry Oestreicher brought a proposed class action against Alienware Corporation

(“Alienware”), asserting various violations of California state

law arising out of Alienware’s alleged sale of defective notebook computers. Id. at 1064. Oestreicher purchased his computer through Alienware’s website and was required to accept

a sales agreement at the time of purchase, which contained an

arbitration provision with a class action waiver and a choiceof-law provision designating Florida law as the governing

law. Id. at 1063-64. Alienware moved to compel arbitration

pursuant to the terms of the sales agreement. Id. at 1064. The

district court denied the motion, id. at 1072, and this Court

affirmed on appeal, Oestreicher II, 322 F. App’x at 491-93.2

[6] Applying California’s choice-of-law rule, which adopts

section 187 of the Restatement (Second) of Conflict of Laws,

Oestreicher I found that the sales agreement’s choice-of-law

provision was unenforceable and that the validity of the arbitration provision should be determined in accordance with

California law. 502 F. Supp. 2d at 1065-69. The district court

first concluded that application of Florida law would be contrary to a fundamental policy of California because the sales

agreement’s class action waiver was unconscionable under

California law. Id. at 1067-68. Specifically, the district court

found the class action waiver satisfied all three prongs of the

Discover Bank3 test: (1) the sales agreement was an adhesion

2After the district court denied Alienware’s motion to compel, it dismissed plaintiffs’ action for failure to state a claim upon which relief can

be granted. See Oestreicher v. Alienware Corp., 544 F. Supp. 2d 964

(N.D. Cal. 2008). This Court also reviewed and affirmed that ruling on

appeal. Oestreicher II, 322 F. App’x at 493. At this time, we do not

address the impact of this second ruling to the case-at-hand. 

3Under Discover Bank v. Superior Court, 113 P.3d 1100, 1110 (Cal.

2005), class action waivers are unconscionable under California law if (1)

2110 OMSTEAD v. DELL, INC.
contract, (2) $4000, which was the approximate purchase

price of Oestreicher’s computer, was a small enough amount

to prevent consumers from pursuing their individual claims,

and (3) Oestreicher alleged a deliberate practice to deprive

consumers of money because he alleged “Alienware was

aware of material defects in its products, concealed these

defects from consumers, and chose to sell defective products.”

Id. The district court next found that California had a materially greater interest in applying its law because the proposed

class consisted solely of California residents asserting violations of California consumer protection laws for goods

shipped into California. Id. at 1069. California’s interest

therefore outweighed Florida’s interest as the place of contracting and place of performance. Id. 

[7] Here, the Agreement’s choice-of-law provision is

unenforceable for the same reasons identified in Oestreicher

I.

4

 The class action waiver is unconscionable under California

law because it satisfies the Discover Bank test, and California

has a materially greater interest than Texas in applying its

own law. Accordingly, the validity of the arbitration provision

is governed by California law. Having found the class action

waiver unconscionable under California law, the only remaining question is whether the class action waiver can be severed

from the remainder of the arbitration provision. See Cal. Civ.

“the waiver is found in a consumer contract of adhesion,” (2) the contractual setting is one in which “disputes between the contracting parties predictably involve small amounts of damages,” and (3) “it is alleged that the

party with the superior bargaining power has carried out a scheme to

deliberately cheat large numbers of consumers out of individually small

sums of money.” 

4However, unlike the district court in Oestreicher I, see id. at 1065-66

& n.2, we decline to resolve whether the burden of proof set forth in

Washington Mutual Bank, FA v. Superior Court, 15 P.3d 1071, 1079 (Cal.

2001) or America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 9-11

(Cal. Ct. App. 2001) applies in this case, as we would find the choice-oflaw provision unenforceable regardless of which burden of proof applies.

OMSTEAD v. DELL, INC. 2111
Code § 1670.5(a) (making discretionary a court’s decision to

sever an unconscionable contract clause). We find it cannot be

severed because the class action waiver is “central” to the

arbitration provision. See Circuit City Stores, Inc. v. Mantor,

335 F.3d 1101, 1109 (9th Cir. 2003). Because we decline “to

assume the role of contract author rather than interpreter,” id.

(quoting Ingle v. Circuit City Stores, Inc., 328 F.3d 1165,

1180 (9th Cir. 2003)), the class action waiver renders the

entire arbitration provision unenforceable. The district court

erred when it found to the contrary and granted Dell’s motion

to stay proceedings and compel arbitration.

IV. CONCLUSION

We reverse the district court’s Rule 41(b) dismissal and

construe the dismissal as a voluntary dismissal with prejudice

under Rule 41(a)(2). We also reverse the district court’s order

granting Dell’s motion to stay proceedings and compel arbitration. We remand for further proceedings consistent with

this opinion.

REVERSED and REMANDED.

2112 OMSTEAD v. DELL, INC.