Clickwrap forum selection clauses - a summer refresher
Despite the apparently unending deluge of regulations, rules and legislation flowing from the swamps of Washington, D.C., the dog days of August are usually time for lounging around the pool with family while catching up on that yard-high backlog of cases, articles and bills you piled up in the past few months. Summer's also a great time for revisiting the basics.
With this in mind, when a recent short decision from the Eastern District of California covering that old online staple of enforceability of a clickwrap forum selection clause appeared in my inbox I added it to the top of my summer reading pile. The decision, Meier v. Midwest Recreational Clearinghouse, LLC, 2010 WL 2738921 (E.D.Ca.) (No. 210-cv-01026), makes for some light reading around the pool and it remains a testament to hope over experience that so many plaintiffs continue to challenge forum selection clauses despite virtually overwhelming upholding of such clauses that has all but gutted the once widely held traditional rule that contractual provisions limiting where an action may be brought were contrary to public policy. While creative arguments are frequently worth pursing for strategic and other reasons, at a certain point fundamental reality can't be denied. But let's have some summer fun.
District Judge Morrison England, Jr.' opinion, issued in response to defendant's 12(b)(3) motion to dismiss due to improper venue, relates the facts as presented in the Meier's complaint. Basically, the Meiers went shopping back in February 2009 for a used motorhome, eventually bidding on and winning the auction for a 2005 National Tropical T399 RV, at an online auction being run by defendant Midwest Recreational Clearinghouse at www.crankyape.com. In utilizing defendant's website, the Meier's were required to consent to the website's terms and conditions (the Crankyape.com current Terms and Conditions is available here) which contained a straightforward forum selection clause whereby a bidder “consent[s] to the exclusive jurisdiction and venue of courts in Washington County, Minnesota, U.S.A., in all disputes arising out of or relating to the use of CrankyApe.com.”
Needless to say, the Meier's discovered that their rush to the wide open road would be delayed by a variety of unexpected expensive problems they discovered in their newly purchased used RV, above and beyond those listed in the RV's website description as “'a few small scratches on the exterior' in addition to a broken passenger headlight.” Slip Op at *1. The Meier's thereafter filed suit in federal court within their home district, the Eastern District of California, seeking compensation and damages for, among other things, breach of contract and fraud.
Forum selection clauses 101
Since the Supreme Court's 1972 decision of Bremen v. Zapata Off-Short Co., 407 U.S. 1, 10 (1972) (available here), blackletter law has held that, at least as between international business entities operating at arms length, a forum-selection clause is “prima facie valid” and will be upheld unless the party objecting to the forum stipulated meets “the heavy burden of showing that its enforcement would be unreasonable, unfair or unjust” under the circumstances. Id. at 10.
Indeed, J. England calls upon Breman v. Zapata as the starting point for his analysis, with a quick nod to the corollaries that any determination that a forum selection clause is unreasonable should be narrowly held such that a forum selection clause is unreasonable only if the clause is the “result of fraud, undue influence, or overwhelming bargaining power”. Slip Op at *2 (citing to Argueta v. Banca Mexicano, S.A., 87 F.3d 320, 325 (9th Cir. 1996)(available here)).
Needless to say this is tough medicine if you're trying to attack a forum selection clause. Further, with the Supreme Court's subsequent Carnival Cruise Lines v. Shute decision in 1991 (499 U.S. 585, available here), extending forum selection clauses to consumer transactions and specifying that courts should uphold such clauses unless they were the result of a “bad-faith motive” designed to deter potential plaintiff's from pursuing legitimate actions, id. at 595, the die was essentially cast as to enforceability up until the Internet and clickwrap contracts temporarily complicated matters.
The Carnival Cruise Connection
Faced with this heavy burden, however, the Meier's argued, mirroring the nearly identical failing arguments put forth in Carnival Cruise, that upholding the forum selection clause would deprive them of their day in court and that the provision had not been freely bargained for by the parties. J. England charitably dismissed both arguments with a terse “[u]nfortunately for Plaintiffs, the weight of authority renders their position untenable.” Slip Op at *3.
With nary a nod to the Internet, J. England's next performs a straightforward literal application of Carnival Cruise's three justifications for upholding consumer forum-selection clauses; namely, that (a) companies have a special interest in limiting the fora where they can be sued; (b) forum-selection clauses eliminate the need for pretrial motions to determine venue and thereby limit court costs (query this opinion, however); and, (c) the somewhat conclusory claim that customers presumably benefit from reduced prices companies offer due to saved costs in limiting the fora in which they may be sued.
With Carnival Cruise's three rationals applied, and finding each point arguing in favor of upholding the clause in the instance case, J. England then conducted a final inquiry as to whether any discernible “bad faith motive” sat behind the forum selected. Noting defendant's principal place of operation is in Minnesota and noting that the clause specifies Minnesota as the exclusive forum, the court stated “[t]here is no evidence that Defendant choose this forum to prevent parties from pursuing legitimate claims”, also including for good measure that “Minnesota is not a foreign forum, and pursing a lawsuit in another state is not per se unreasonable.” Slip Op at *3.
At this point it was pretty much all over but the screaming as far as the plaintiff's attempt to continue the action in the eastern district of California was considered.
The takeaway refresher lessons from this opinion are: (a) never take forum selection clauses for granted; (b) it may be more productive to attempt a good faith collateral attack on the validity of the contract itself rather than embarking on what is a Sisphyean task of convincing a court not to enforce a forum selection clause; (c) if Company X is located in City, State Z and provides that the state and federal courts of City, State Z will be the sole and exclusive forum you had best be able to demonstrably prove bad-faith in the contracting procedure and process to even begin to have more than a tiny chance of getting the forum-selection tossed; and (d) the Internet is no longer special when it comes to application of basic contracting principles. Virtually nothing in this Meier v Midwest Recreational Clearinghouse opinion hinged on the fact that the auction occurred online, that the applicable and binding terms and conditions were website based or that a website named "CrankyApe.com" was the site of the controversy.
This said, though, be forewarned that if you're going to challenge a forum selection clause used by a website named “CrankyApe.com” you may be the one that winds up looking like a monkey at the end of the day.
And with that it's back out to the pool where my nearly yard-high pile of reading materials is waiting.