Lawsuit targets computer maker

Times Staff Writer

Dell Inc., struggling with declining market share, faces a sweeping consumer protection lawsuit that accuses the company of using bait-and-switch tactics to mislead consumers about financing plans, computer service offers and rebates.

The suit, filed by New York Atty. Gen. Andrew Cuomo, calls for the computer maker to refund money to hundreds of customers who say they were charged for services they didn’t get, put into high-rate financing plans without their permission or given the runaround when they applied for promised rebates. Cuomo’s office is also seeking civil penalties.

“Dell must respect consumer protection laws,” Cuomo said at a news conference Wednesday in New York. “Either truly offer the zero-percent financing and provide the promised customer service, or stop offering and selling such packages.”

The Round Rock, Texas-based company said it would vigorously defend itself against the suit, which industry analysts said could be followed by similar actions by other states.


“We are confident that our practices will be found to be fair and appropriate,” Dell spokesman Bob Pearson said in a statement.

“While even one dissatisfied customer is too many,” Pearson added, he said the allegations in the lawsuit were based on a small fraction of Dell’s 6 million customer transactions in New York during the period in question.

Cuomo said he had received more than 700 complaints.

One of them was from Jacqueline Scofield, who said she paid Dell $300 for an “on-site” service plan that was supposed to guarantee that a technician would go to her Ridge, N.Y., home and fix her computer if there was a problem. But when Scofield called for help, she said, the technician wanted the 75-year-old retiree to climb under her desk, dismantle the computer, pull out a memory chip and fix it herself from parts Dell promised to send.


Cuomo said Scofield was one of many consumers who paid hundreds of dollars to get “next-day” and “on-site” service but were “faced with a daunting array of obstacles” to get the promised assistance.

Dell, which at the end of last year lost its crown as the No. 1 personal computer maker worldwide to rival Hewlett-Packard Co. of Palo Alto, came under fire for its business practices in recent years when Kevin Rollins, Dell’s then-chief executive, exerted heavy pressure on managers to cut costs, industry analysts said. In January, Rollins was ousted and replaced by founder Michael Dell. The company has since taken measures, including opening new service centers, to stem complaints.

Analysts said the complaints described in Cuomo’s lawsuit might not have been limited to New York.

“It is possible that this thing could steamroll,” said Rob Enderle, an industry analyst with the Enderle Group in San Jose. “We have seen that happen in the past when one state took action against Microsoft, for example, and other states followed suit.”

Spokesmen for California Atty. Gen. Jerry Brown couldn’t be reached for comment about whether he might take action against Dell.

Cuomo’s suit is another move that could help him maintain the aggressive image that the attorney general’s office acquired under his predecessor, Eliot Spitzer, who is now New York’s governor. Cuomo recently has received a great deal of publicity for cracking down on perceived conflicts of interest in the issuing of student loans.

The lawsuit, which was filed late Tuesday, says dozens of Dell customers filed affidavits saying they had been misled into believing that they had qualified for no-interest financing offer when they hadn’t. What they really qualified for was a line of credit that would cost them 16% a year or more, but they didn’t discover that until it was too late to return the merchandise, the suit says.

Many of those turned down for zero-percent financing had excellent credit, according to the suit, but the criteria to get the deal were so strict that 85% of the applicants failed to qualify.


The suit also contends that Dell incorrectly billed customers for orders they had canceled or had never made -- and made it impossible to get refunds in those cases or for merchandise they had returned. The suit tells of customers who phoned Dell only to be transferred numerous times and left on hold for extended periods, then promised a credit that never materialized.

Whatever the outcome of the litigation, analysts said it was another blow to Dell.

“This clearly doesn’t help their reputation,” said Crawford Del Prete, senior vice president of IDC Research in Boston. “Do problems like this translate into customer leakage? They certainly can.”


Times staff writer Michelle Quinn contributed to this report.