A federal appeals court reinstated on Friday a proposed class-action lawsuit against Dell Inc, alleging that the company sold defective notebook computers.

The U.S. Ninth Circuit Court of Appeals in San Francisco reversed a federal district court's dismissal of the case against Dell, which concerned computers bought between July 2004 and January 2005.

The district court agreed with Dell that the plaintiffs' claims, which were brought under California state law, should be arbitrated, and dismissed the case entirely when the plaintiffs refused to comply with the arbitration order.

But a three-judge appeals court panel said that the district court lacked authority to dismiss the case, and that a class-action waiver in the applicable sales agreement was unconscionable under California law governing contracts.

The court sent the case back to the district court for further proceedings.

Dell was not immediately available for comment.

Shares of Dell were down 3 cents at $12.98 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, editing by Gerald E. McCormick)

California Dell Electronics