As we have previously written about, 2016 saw a wave of litigation brought under New Jersey’s Truth-in-Consumer Contracting, Warranty, and Notice Act (“TCCWNA”) regarding website Terms of Use.  While service providers await the outcome of many of these cases and direction from New Jersey courts on how the TCCWNA generally applies to online contracts, one California court recently offered some helpful guidance.

In January, a California federal court dismissed a TCCWNA claim against Facebook upon finding that the California choice-of-law provision in Facebook’s Terms of Service was enforceable.  Palomino v. Facebook, Inc., No. 16-cv-04230, 2017 WL 76901 (N.D. Cal. Jan. 9, 2017). The plaintiffs – Facebook users representing a purported class – claimed that Facebook’s Terms violated the TCCWNA by, among other things, disclaiming liability for negligence and misconduct, barring recovery of certain types of damages, and indicating that some limitations on liability may not apply in all jurisdictions without specifying whether they apply to New Jersey residents.  (Because the Palomino court found Facebook’s choice-of-law provision enforceable, it did not have to reach the issue of whether provisions like this actually violate the TCCWNA – a question that remains open in other pending cases.)

California uses a two-factor test for evaluating the enforceability of a choice-of-law provision.  “The Court must first determine (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties’ choice of law.”  If either factor is satisfied, the court will enforce the choice-of-law provision unless the party asserting that another state’s law should apply “can establish both that the chosen law is contrary to a fundamental policy of the alternate state and that the alternate state has a materially greater interest in the determination of the particular issue.”

Facebook being headquartered in California, it easily satisfied the first criterion.  The burden then shifted to the plaintiffs to “show that application of California law would violate fundamental New Jersey policy.” The Court, relying on California’s own expansive consumer protection laws, held that the plaintiffs failed to make such a showing. The Court found that California law was not contrary to fundamental New Jersey policy because “the TCCWNA and California consumer protection law aim to accomplish the same end,” notwithstanding that application of the TCCWNA may have “afford[ed] different rights and remedies.”

While this is undoubtedly good news for website operators that are based outside of New Jersey and that include a non-NJ choice-of-law provision in their terms, we caution against too broad a reading at this stage.  The Palomino court clearly relied on California’s status as the gold standard in consumer protection laws, specifically referencing its false advertising and deceptive practices laws, as well as its Consumer Legal Remedies Act.   It is not clear whether a court asked to apply a choice-of-law provision from another state would necessarily reach the same conclusion as in Palomino.