Net2Phone, Inc. v. Superior Court

135 Cal. Rptr. 2d 149, 109 Cal. App. 4th 583, 2003 Daily Journal DAR 6247, 2003 Cal. Daily Op. Serv. 4936, 2003 Cal. App. LEXIS 835

• Court: California Court of Appeal
• Decided: June 9, 2003
• Docket: B162210
• Status: Published

Opinions

Opinion

ARMSTRONG, J.

In this mandamus proceeding, we hold that where a private plaintiff which has itself suffered no injury files a representative action under California’s unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) alleging that certain of defendant’s contractual provisions subject its customers to an “unlawful, unfair or fraudulent business . . . practice” and the contract contains a forum selection provision, the plaintiff is bound by that provision just as defendant’s customers would be bound had they filed the action themselves.

Facts and Procedural History

Net2Phone, Inc., provides internet telecommunication services, commonly known as “telephony services,” that allow a computer user to place phone calls over the Internet, either to another computer or to a regular telephone. Net2Phone has a worldwide customer base, but its principal place of business is in New Jersey. Customers who wish to utilize Net2Phone’s services must download software from Net2Phone’s Web site. The software has links to an “End User License Agreement” and “Terms of Use.” The customer must accept both in order to use the software. Net2Phone also offers a direct calling card, also purchased via Net2Phone’s Web site, that enables customers to use a regular telephone to make a call that is carried through the Internet and then switched back to a local telephone network. According to Net2Phone, both services allow customers to make long distance calls for substantially less than current rates for traditional calling methods. The “Terms of Use” hyperlink appears on each page of the Web site. Language on the Web site advises the user that in order to access the site, he or she must agree to be bound by the “Terms of Use.” The pertinent language concludes: “If you do not wish to be bound by these Terms of Use, you may not access or use the Site, Materials, or any of the Services. By using the Materials or Service, you are agreeing to be bound by these Terms of Use.”

Consumer Cause, Inc., contends Net2Phone’s failure to disclose in its advertising and promotional materials its billing practice of “rounding up” to the nearest minute (that is, charging for its services in full-minute increments regardless of use time) renders Net2Phone’s promotional materials and advertising “false, misleading and fraudulent in violation of Business and Professions Code section 17200.” Consumer Cause further contends Net2Phone’s failure to disclose its billing practices except in its “Terms of Use” and “End User License Agreement,” which are accessed via highlighted hyperlink, constitutes an unfair business practice under the UCL. It seeks an injunction, restitution and attorney’s fees.

The “End User License Agreement” and “Terms of Use” contain forum-selection clauses providing that disputes arising under the contract shall be governed by New Jersey law. The clauses further provide: “Any dispute between you and Net2Phone regarding this agreement will be subject to the exclusive jurisdiction of the state and federal courts in the State of New Jersey. You agree to submit to exclusive jurisdiction in the State of New Jersey, and you expressly waive all defenses to jurisdiction.”

Citing these forum selection provisions, Net2Phone filed a motion to stay or dismiss the action. (Code Civ. Proc., § 410.30, subd. (a).)² Consumer Cause opposed the motion, arguing it should not be bound by the forum selection clause in the contract because it was neither a party to the contract nor “closely related” to those who were. Consumer Cause further argued that its UCL claim was exempt from the forum selection clause because Net2Phone had failed to demonstrate that New Jersey was a suitable alternative forum for the action; unlike the UCL, which permits a plaintiff who himself has not suffered any injury to bring an action on behalf of the general public, New Jersey’s Consumer Fraud Act (N.J. Stat. Ann. § 56:8-1 to 56:8-20) permits only an injured party or the Attorney General to file such an action.

Respondent court found that Consumer Cause was not bound by the forum selection clause in Net2Phone’s user agreement because Consumer Cause was acting as a private attorney general, and “had the real Attorney General brought this action, I would doubt if this court would be sending him to New Jersey to try the matter.” The court ruled that Consumer Cause could pursue this action in California, but the action would be governed by New Jersey law.

We agree with respondent court that an unfair competition action brought by a public prosecutor would not be subject to the forum selection clause. This is because of the fundamentally different nature of an action brought by a prosecutor and privately pursued representative actions. (See Payne v. National Collection Systems, Inc. (2001) 91 Cal.App.4th 1037, 1045-1047 [111 Cal.Rptr.2d 260].) Although the label “private attorney general” is often used (or misused) to describe a private plaintiff in a UCL action, respondent court construed the term too literally. The filing of a UCL action by a private plaintiff does not confer on that plaintiff the stature of a prosecuting officer, and the fact that the plaintiff may be acting as a so-called private attorney general is irrelevant for purposes of the issue presented here. The relevant inquiry in determining whether a plaintiff, not a party to a contract, is bound by the contract’s forum selection clause is whether (1) the third party is “closely related to the contractual relationship,” and (2) the contractual forum state (in this case, New Jersey) provides a “suitable alternative forum” for the lawsuit. Both requirements are met here.

Discussion

Both the United States Supreme Court and the California Supreme Court have recognized that “[f]orum selection clauses play an important role in both national and interstate commerce.” (Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490, 1493 [14 Cal.Rptr.2d 906], citing The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 10, 15 [92 S.Ct. 1907, 1913, 1916, 32 L.Ed.2d 513]; Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496 [131 Cal.Rptr.2d 374, 551 P.2d 1206].) Such clauses provide a degree of certainty, both for businesses and their customers, that contractual disputes will be resolved in a particular forum. (Carnival Cruise Lines, Inc. v. Shute (1991) 499 U.S. 585, 593-594 [111 S.Ct. 1522, 1527, 113 L.Ed.2d 622].) California courts routinely enforce forum selection clauses even where the chosen forum is far from the plaintiff’s residence. (See, e.g., Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 196-202 [127 Cal.Rptr.2d 847] [Hamburg, Germany, forum]; CQL Original Products, Inc. v. National Hockey League Players’ Assn. (1995) 39 Cal.App.4th 1347, 1355-1356 [46 Cal.Rptr.2d 412] [Ontario, Canada, forum].)

When a forum selection clause appears in “a contract entered into freely and voluntarily by parties who have negotiated at arm’s length, . . . forum selection clauses are valid and may be given effect, in the court’s discretion and in the absence of a showing that enforcement of such a clause would be unreasonable.” (Smith, Valentino & Smith, Inc. v. Superior Court, supra, 17 Cal.3d 491, 495-496.) This rule “accords with ancient concepts of freedom of contract and reflects an appreciation of the expanding horizons of American contractors who seek business in all parts of the world.” (The Bremen v. Zapata Off-Shore Co., supra, 407 U.S. 1, 11 [92 S.Ct. 1907, 1914].)

A forum selection clause may also be enforced against a plaintiff who is not a party to the contract in question if the plaintiff is “closely related to the contractual relationship.” The plaintiff challenging the forum selection clause has the burden of showing, in response to a defendant’s motion to stay or dismiss, that enforcement of the clause would be unreasonable under the circumstances. (Lu v. Dryclean-U.S.A. of California, Inc., supra, 11 Cal.App.4th at p. 1493.)

Consumer Cause is “closely related" to the contract between Net2Phone and its customers.

As a threshold matter, we find that the forum selection clause would be enforceable had Net2Phone’s customers filed this action themselves. We perceive no unfairness in Net2Phone’s requirement that certain contractual terms must be accessed via hyperlink, a common practice in Internet business. The fact that the forum selection clause may have been a “take it or leave it” proposition, and not vigorously “bargained for” as Consumer Cause contends, does not make the clause unenforceable. (Carnival Cruise Lines, Inc. v. Shute, supra, 499 U.S. at pp. 593, 601 [111 S.Ct. at pp. 1527, 1531].)

Although Consumer Cause is not itself a party to the contract, it has sued in a representative capacity challenging certain contractual terms. By so doing, Consumer Cause purports to assert the rights of those who are parties to the contract. If it prevails, Consumer Cause will succeed in altering the terms of the contract, and reap the fruits of victory including attorney’s fees. Consumer Cause is “closely related” to the contractual relationship because it stands in the shoes of those whom it purports to represent. Its argument to the contrary is inconsistent with its position as a representative plaintiff. Were we to hold otherwise, a plaintiff could avoid a valid forum selection clause simply by having a representative nonparty file the action. (See Lu v. Dryclean-U.S.A. of California, Inc., supra, 11 Cal.App.4th at p. 1494.)

In Lu, a franchisor’s corporate parent was found to be “closely related” to the contractual relationship between the franchisor and its franchisee, because the franchisor was alleged to have participated in the fraudulent misrepresentations that induced the plaintiff to enter into the franchise agreement. Consumer Cause correctly points out that the case is factually distinguishable on that basis. However, the plaintiff in Lu also alleged that the parent was the “alter ego” of the franchisor that signed the franchise agreement; in other words, for purposes of the lawsuit, the two were one and the same. The position of Consumer Cause, the representative plaintiff, is similar in that respect.

Bancomer, S. A. v. Superior Court (1996) 44 Cal.App.4th 1450 [52 Cal.Rptr.2d 435], cited by Consumer Cause in its return to the petition, is distinguishable. That case involved a bank that had no relationship to the contractual dispute other than being thrust into a position as trustee, and which was attempting to enforce, not defeat, a forum selection clause. Unlike Consumer Cause, the bank in that case had nothing to gain from resolution of the contractual dispute.

America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1 [108 Cal.Rptr.2d 699], cited by Consumer Cause, is also factually distinguishable. In that case, a class action filed pursuant to the California Consumers Legal Remedies Act (CRLA) (Civ. Code, § 1750 et seq.), the court held a forum selection clause invalid because the CRLA contains a provision that voids any purported waiver of rights as being contrary to California public policy. The UCL, under which Consumer Cause brought this action, contains no such limitation.

New Jersey is a suitable alternate forum.

The New Jersey Consumer Fraud Act (CFA) (N.J. Stat. Ann. § 56:8-1 to 56:8-20), is similar in many ways to the UCL. However, it differs from the UCL in one crucial respect: an action under the CFA must be filed by either the Attorney General or “[a]ny person who suffers any ascertainable loss of moneys or property. . . .” Because Consumer Cause has itself suffered no ascertainable loss from Net2Phone’s alleged unlawful business practices, it argues that enforcement of the forum selection clause would be unreasonable because it would not have standing to bring this action in New Jersey.

Although the New Jersey Legislature has not seen fit to confer on private parties who are not injured the right to bring a representative action on behalf of those who are, this does not necessarily mean that New Jersey does not provide the means to protect injured consumers. Any customer of Net2Phone who claims to have been injured by Net2Phone’s billing practices may bring an action in New Jersey, or may prevail on the Attorney General of New Jersey to do so. Significantly, Consumer Cause does not claim Net2Phone’s customers would not be adequately protected were they required to pursue their claims in New Jersey. Instead, Consumer Cause has focused only in its own lack of standing. While it is true that Consumer Cause stands to lose the opportunity to recover attorney’s fees should it prevail in a California UCL action, our paramount consideration is the protection of consumers, not the enrichment of attorneys.

Disposition

The petition for writ of mandate is granted. A peremptory writ shall issue directing respondent court to vacate its order of October 1, 2002, denying the motion of defendant Net2Phone to stay or dismiss the action, and enter a new and different order granting the motion to stay. Costs are awarded to Net2Phone.

Turner, P. J., concurred.

2 Code of Civil Procedure section 410.30, subdivision (a), provides: “When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.”