America Online, Inc. v. Superior Court
108 Cal. Rptr. 2d 699, 90 Cal. App. 4th 1 (2001)
Rule of Law:
A contractual forum selection clause is unenforceable as contrary to California public policy when it would substantially diminish the statutory rights and remedies afforded to California consumers, particularly under the California Consumers Legal Remedies Act (CLRA), by requiring litigation in a foreign state whose laws offer significantly less protection, such as prohibiting class actions.
Facts:
- A1 Mendoza, Jr. (Mendoza) and other individuals were subscribers to America Online, Inc.'s (AOL) proprietary Internet service.
- Mendoza and the putative class members entered into 'Terms of Service' (TOS) agreements with AOL, which included a forum selection clause designating Virginia as the exclusive jurisdiction for disputes and a choice of law provision applying Virginia law.
- Mendoza and other class members terminated their subscriptions to AOL's Internet service.
- Without authorization, AOL continued to automatically debit the credit cards of Mendoza and other class members for monthly service fees after their subscriptions were terminated.
- Mendoza individually alleged that he gave AOL notice of cancellation in October 1999, but AOL continued to charge his credit card through at least February 2000, at which point he cancelled his credit card to stop the debits.
Procedural Posture:
- A class action lawsuit was filed by A1 Mendoza, Jr. (Mendoza) against America Online, Inc. (AOL) in California trial court, alleging violations of California's Unfair Business Practices Act and the California Consumers Legal Remedies Act (CLRA), along with common law claims.
- AOL filed a motion to stay or dismiss the action in the California trial court, based on a forum selection clause in its Terms of Service agreement.
- The California trial court denied AOL's motion, finding the forum selection clause unfair and unreasonable and that AOL failed to meet its burden of showing that California consumer rights would not be diminished.
- AOL filed a petition for writ of mandamus with the California Court of Appeal.
- The Court of Appeal initially issued an order to show cause, then discharged it as improvidently granted, and denied the petition.
- AOL petitioned the California Supreme Court for review.
- The California Supreme Court granted AOL's petition for review and transferred the matter back to the Court of Appeal with directions to issue a new order to show cause.
- The Court of Appeal issued a new order to show cause as directed by the Supreme Court.
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Issue:
Does a contractual forum selection clause requiring litigation in a foreign state violate California public policy and become unenforceable when it would substantially diminish the statutory rights and remedies afforded to California consumers under California's consumer protection laws, specifically the CLRA, by requiring application of the foreign state's less protective laws?
Opinions:
Majority - Ruvolo, J.
Yes, a contractual forum selection clause is unenforceable when it requires litigation in a forum that would substantially diminish the statutory rights and remedies of California consumers, particularly under the CLRA, due to the application of less protective foreign state law. The court found two independent reasons for this conclusion. First, one of the causes of action sought class action relief under the California Consumers Legal Remedies Act (CLRA), which contains an anti-waiver provision (Civil Code § 1751) stating that any waiver of CLRA provisions is contrary to public policy and void. The court reasoned that enforcing the forum selection and choice of law clauses, which would lead to the application of Virginia law, would be the functional equivalent of a contractual waiver of CLRA protections, thus violating California public policy, akin to the reasoning in Wimsatt v. Beverly Hills Weight etc. Internat., Inc. (1995). Second, a statutory comparison of California's CLRA and Virginia's Consumer Protection Act (VCPA) revealed that Virginia law provides significantly less consumer protection. Critically, Virginia law generally does not allow consumer lawsuits to be brought as class actions, a right that California courts, notably in Vasquez v. Superior Court (1971), have extolled as fundamental to consumer protection. The unavailability of class action relief alone is sufficient to preclude enforcement. Additionally, Virginia law offers more limited remedies, such as no punitive damages, no enhanced remedies for disabled or senior citizens, reduced recovery for 'unintentional' acts, a shorter limitations period (two years versus three years), and less robust attorney fee recovery. The court also affirmed the trial court's decision to shift the burden of proof to AOL (the party seeking enforcement) to show that California consumer rights would not be diminished, a departure from the general rule justified by the CLRA's anti-waiver provision. While acknowledging that mere inconvenience or additional expense is typically not a basis for invalidating forum selection clauses (Smith, Valentino & Smith, Inc. v. Superior Court, 1976), the court clarified that the comprehensive diminution of statutory rights, including the practical inability to pursue claims through class actions, constitutes a valid basis for non-enforcement.
Analysis:
This case significantly reinforces California's strong public policy favoring robust consumer protection and anti-waiver statutes. It establishes a high bar for companies attempting to enforce forum selection clauses that would effectively strip California consumers of their statutory rights, particularly the critical right to collective redress through class actions. The ruling emphasizes that the convenience of a chosen forum does not outweigh the fundamental public policy interests embedded in state consumer protection laws. This decision provides a powerful precedent for protecting California residents from contracts designed to circumvent their state's protective legal framework, impacting future cases involving online contracts and interstate commerce where differences in state consumer protection laws are salient.
