The "terms and conditions" or "terms of service" found on Websites serve a number of functions, but all too many Webmasters simply copy terms from another site (which, incidentally, can constitute copyright infringement) rather than securing legal advice and drawing up terms and conditions specifically designed to serve their particular needs. Results of this self-help sometimes can cause disaster, the paradigm of which is the classic term that requires the subscriber to agree that he or she is not a law enforcement officer - serving to announce to the world that the Webmaster believes that there is something illegal about the site (see Legal FAQs, Legal Commentary, AVN Online, June, 2001). By comparison, a term that appears on most every Website - and one that serves a very important purpose - is a "choice of forum" clause that requires disputes to be resolved where the Webmaster is situated.
This column has previously noted the problems associated with resolving disputes in the Information Age using a legal system designed for brick-and-mortar businesses (see Legal FAQs, Legal Commentary, AVN Online, February, 2001). Nonetheless, the principles of law designed to resolve long-distance disputes between brick-and-mortar businesses indeed do apply to the Internet, and they are all the more important now.
At issue here is what happens when there is a dispute between a customer in one state and the vendor of services, such as a Webmaster, in another. There is a very general rule in law that you have a privilege to be sued in the state where you live or do business. The legislatures of every state, however, have carved exceptions to that rule called "long-arm" statutes. These statutes for the most part allow an in-state suit against a nonresident so long as it is not an unconstitutional burden on the resident of the other state. Accordingly, the Supreme Court has, for the most part, defined the circumstances under which someone can be sued in other than his own state.
There are two sets of circumstances that allow a suit in one state against a citizen of another. One is where a company has such a substantial presence in another state that it effectively does business there; presence that is sufficiently "continuous and systematic" as to render the company fair game to be sued in that state in any event. Thus, for example, a company that is incorporated in Delaware (which is the case with some large corporations for reasons beyond the scope of this article) but has its home office in Detroit can always be sued in Michigan.
The one more relevant here, however, is where the lawsuit arises out of or is related to purposeful contacts by the defendant with the state in question, such as when a Website has signed up the plaintiff to a subscription in that state. Unless there is something manifestly unfair about it, the subscriber is allowed to sue the Webmaster in the subscriber's home state.
Thus, to prevent having to defend lawsuits from all over the United States (or the world, for that matter), Webmasters systematically include in their terms and conditions a so-called "forum selection clause." That simply is a provision whereby the subscriber agrees that, in the event of a dispute between the subscriber and the Webmaster, the action will be heard in a court on the Webmaster's home turf. There also usually is a "choice-of-law" provision, whereby the parties agree that the law of a particular state will be applied, universally in the chosen forum state.
America Online presumably obtained first-class legal representation in drafting its "terms of service," one of which terms required the subscriber to agree that any legal dispute between AOL and the subscriber would be resolved in Virginia and according to Virginia law. AOL, of course, "lives" in Virginia.
Al Mendoza, Jr., a former AOL subscriber in California, complained that AOL engaged in unauthorized recurring billing when it charged about 20 bucks to his credit card for four months after he had terminated his service. He sued AOL in Oakland, California, presumably because he lives in Alameda County where Oakland is the county seat. His complaint alleged that AOL violated California consumer protection laws and unfair business practices laws. So why didn't AOL just pay him his claimed $80 or so and be done with it? You guessed it - he was seeking to make his claim into a class action.
AOL filed a motion to dismiss based upon the "term of service" requiring that any dispute be resolved in Virginia - AOL's home turf - and applying Virginia law. The trial judge disagreed, finding that the case should stay right there in Oakland. The Court of Appeal agreed, rendering a decision that will hit the Internet industry, across the board, like the shock wave from a nuclear explosion.
In order to understand why this was such a devastating loss to AOL, and why they brought an emergency "writ" (a sort of a motion) in the Court of Appeal, you need to know something about California consumer-protection laws. They are killers, probably the harshest in the nation.
California has more cons and scoundrels than anywhere, and it always has - that is, more cons and scoundrels per capita. California specializes in double-talk. Just ask anyone that doesn't live there. Everything is done with smoke and mirrors. Hollywood!
In response, the California Legislature has enacted a tough series of anti-con consumer protection laws. The teeth in these consumer protection laws is that someone who files an action that succeeds in accomplishing a benefit for the general public can recover attorneys fees. This is sort of a bounty for lawyers.
First, California has what is called its Unfair Competition Law. Unfair competition means any business practice that violates a statute or that is unfair. "Unfair" is pretty much anything that the judge thinks is not fair, which causes this to be a very powerful law.
Anyone in California can file a suit claiming unfair competition - anyone! In the classic example of that, a lawyer set up a for-profit corporation called "Stop Youth Addiction, Inc." His mother, not by coincidence, was the corporation's sole shareholder, officer, and director. The corporation then sent undercover 17 year olds to grocery stores all over the place to purchase cigarettes - a California statute prohibits sale of cigarettes to anyone under 18. Apparently, every time an undercover shopper scored, Stop Youth Addiction, Inc. hired the attorney-son of its owner to file a lawsuit against the merchant company. The retainer was always on a contingency, of course. Because it is illegal, selling cigarettes to minors is a line-item unfair business practice. Blatantly, the corporation was solely in the business of suing people so that the owner's son could collect attorneys fees. This company was sort of an anti-teen-smoking vigilante, except its interest in curtailing teen smoking appeared doubtful and certainly subservient to the goal of lining the pockets of the attorney.
After a successful undercover purchase, the attorney then would engineer a stick-up: Either the grocery store paid him a relatively huge amount of money or he would come after them. The more they fought, the more money in attorneys fees that he would recover, he would tell them.
Lucky, a large chain of California grocery stores, allegedly fell into Stop Youth Addictions' trap by virtue of a sales clerk who was fooled by a 17-year-old undercover shopper, as a result of which he was accused of selling a pack of cigarettes to a minor. Stop Youth Addiction then brought an unfair competition action against Lucky. Lucky fought the case all the way to the California Supreme Court, and lost, Stop Youth Addiction v. Lucky, Inc., 17 Cal.4th 553, 950 P.2d 1086, 71 Cal.Rptr.2d 731 (1998).
As a result, one of the justices of the California Supreme Court described California's Unfair Competition Law as a "standardless, limitless, attorneys fees machine." A non-judge commentator noted,
"The [UCL] is on the verge of making California a national laughingstock. Call it Gonzo Law. How else can you describe a statute that lets a lawyer in private practice, without a client and without tangible evidence of harm, sue a defendant for being 'unfair' and know the allegation will rocket past summary judgment motions? It's the kind of law which... lets you proceed with any claim so long as you can state it with a straight face...
"Then we have the plaintiff's attorneys with this agenda item on their annual Hawaii seminar: 'How Business and Professions Code Section 17200 [the UCL] Can Be a 'Value Added' Component of Your Litigation.'"
There are almost 140,000 attorneys in California! The chances that this "attorneys fees machine" will be pressed into service against illegal, out-of-California Websites are significant.
California also has the California Consumers Legal Remedies Act, which allows consumers remedies against companies that have dealt with them unfairly. Attorneys fees, again, supply teeth.
In evaluating the AOL case, the court took note of a number of factors. One was that a feature of the California Consumers Legal Remedies Act is a provision that says any waiver of it is null and void. The choice-of-forum and choice-of-law provisions of AOL's terms of service have the effect of waiving the Consumer Legal Remedies Act. Also, California is very big on class actions. Comparatively speaking, Virginia is not.
The complexities of the legal analysis that resulted in this decision against AOL are substantial and beyond the scope of this article. However, suffice it to say that we likely have not heard the last of it, since AOL can petition the California Supreme Court for review; and the court can hear or not hear the case according to its discretion. What happens in the California Supreme Court will be very significant, not only for the obvious reason that it will impact the extent to which Webmasters outside of California have to face California unfair competition claims but also because the result may create precedent that will be followed elsewhere.
Another issue is whether other Stop-Youth-Addiction-type bounty hunters will come after Webmasters outside of California claiming, among other things, that the choice-of-forum term is itself an unfair business practice. And who knows what else will be drummed up, America Online, Inc. v. Superior Court (Mendoza), ___ Cal.App.4th ___, ___ Cal.Rptr. ___, 2001 WL 695166 (1st Dist., June 21, 2001).
The greatest difficulty with being in the Internet business corresponds to its greatest benefit: It is world-wide. California is an important part of the world. So are other countries. The problem is that the dispute-resolution mechanism designed for brick-and-mortar businesses creates a mess when it comes to the Internet. This is a classic example.
Clyde DeWitt is a partner in the Los Angeles, California law firm of Weston, Garrou & DeWitt. He can be reached through AVN Online's offices, at his office at 12121 Wilshire Boulevard, Suite 900 Los Angeles, CA 90025 or over the Internet at [email protected]. Readers are considered a valuable source of court decisions, legal gossip, and information from around the country, all of which is received with interest. Books, pro and con, are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
