A Single Preposition Makes Forum Selection Clause Unenforceable
There has been lots of commentary -- academic and not-so-scholarly -- about the enforceability of class action waivers. Particularly in California, the law seems to be that such waivers typically are held unenforceable as against public policy.
On Friday, the Ninth Circuit issued an opinion in a consumer class action interpreting a forum selection clause. The contract at issue did not contain a class action waiver, and the defendant was not arguing that class actions were barred under the agreement; it simply wanted the benefit of its Virginia forum. Thus, class action waiver law should not come up in the opinion, right? Ah, if only the law were that easy.
In Doe1 v. AOL LLC, 2009 WL 103657 (9th Cir. Jan. 16, 2009), plaintiffs were members of an on-line service provider that was alleged to have made roughly 658,000 members' personal data (including addresses, phone numbers, credit card numbers, and internet search terms) available to the public. Plaintiffs sued for violation of the federal Electronic Communications Privacy Act, federal common law unjust enrichment, and a subclass of California residents sued for violations of California's Consumer Legal Remedies Act, False Advertising Act, Unfair Competition Law, Customer Records Act, and for the California common law tort of public disclosure of private facts.
The Members Agreement governing the class members' claims did not seek to bar class actions. Rather, it provided that Virginia law governed members' claims, and it had a forum selection clause providing that "exclusive jurisdiction resides in the courts of Virginia." The defendant moved to dismiss for improper venue under Fed. R. Civ. P. 12(b)(3), and the trial court granted the motion.
The Ninth Circuit, however, chose to parse prepositions. The forum selection clause says "courts of Virginia," not "courts in Virginia." Accordingly, the Ninth Circuit concluded, despite the protestations of the defendant that presumably authored the Members Agreement, the forum selection clause only allows for actions to be brought in the state courts of Virginia, not those federal courts that exist within Virginia's borders.
This presents a problem, the Ninth Circuit concluded, because Virginia state courts do not allow for consumer class actions. The court then used the test set forth in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) to determine whether the forum selection clause is unenforceable: "'if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or judicial decision.'"
The analysis was hardly difficult. The California Court of Appeal already had concluded that the exact same forum selection clause was unenforceable because it violated public policy favoring class actions, and it amounted to a disfavored waiver of rights under the Consumer Legal Remedies Act. See America Online, Inc. v. Superior Ct. of Alameda County, 108 Cal. Rptr. 2d 699 (Cal. App. 2001).
Thus, the Ninth Circuit concluded that the Bremen test had been met, and the "forum selection clause in the instant member agreement is unenforceable as to California resident plaintiffs bringing class action claims under California consumer law." Accordingly, it reversed and remanded the trial court's decision.
Judge Bea filed a concurrence arguing that on remand, the plaintiff class representatives should have to plead and prove that they "really are California consumers by stating facts which make California substantive law applicable to them, pursuant to the well-known rules of federal choice of law, set forth in the Restatement." According to Judge Bea, "it doesn't really require one to be 'imaginative and creative' to suspect the class representatives may not have become California residents for reasons other than class action litigation and are not really California consumers entitled to California protection."
