Washington State to AOL: You've Got Nailed

The Internet Cases blog comes through again, reporting on this decision, holding that the forum selection clause in AOL's terms of service does not trump the State of Washington's consumer fraud law.

I litigated a similar issue in a case called Kubis & Perszyk., Inc. v. Sun Microsystems, Inc., 146 N.J. 176 (1996). (I wrote the Appellate Division brief before leaving the Lowenstein Sandler firm.) In Kubis, the New Jersey Supreme Court ruled that franchisees are entitled to the protection of that state's Franchise Practices Act, and that to enforce a forum selection clause would eviscerate that act's little-guy-protective purposes.

"Little guy?" Does Coleman mean "consumer"? Because, Coleman, if you mean consumer, that would put New Jersey squarely in line with Washington (the "New Jersey of the Pacific Northwest"). Well, glad you asked. It reminds me of another of my no-name-on-the-decision(don't ask - grr!) specials when I was at the same firm. After a mixed jury verdict, we got the Third Circuit to overturn the District Court in a case called J & R Ice Cream and rule that, under New Jersey law, the Consumer Fraud Act does not protect franchisees, because franchising is a commercial transaction, not a consumer transaction. (A related article -- good but dated -- is here.) Since that time, however, New Jersey's Appellate Division came to the opposite conclusion in a case called Kavky v. Herbalife Int'l of America, regarding which I have written before, and which is reported on at page 2 of this article. The New Jersey Supreme Court has not spoken on the issue, but considering its historical predilections, it's a good bet that we were wrong, and the District Court judge in J & R and the Appellate Division in Kavky were right. Not "right" about what the legal analysis, but right about how the state's highest court would rule.

What's the point? Consumer-friendly laws -- including, perhaps, laws that don't contain the word "consumer" in them -- contemplate that consumers and those similarly situated will have recourse to local courts. Forum selection clauses, a valuable tool of the side with the superior bargaining power, undercut that recourse. The AOL case is particularly interesting, then, and not only because it is another court drawing a line on the effectiveness of the forum clause bomb. It's interesting, too, because it took place in the State of Washington -- not home to AOL (obviously), but to another big-time licensor of intellectual property and technology-related services. In fact, see this article on on this topic, which discusses the application of a forum selection clause in a case involving MSN (it just so happens to be by that self-same former law firm of mine!).

A smart lawyer, next time he is faced with this situation on the part of a little guy with a consumer fraud claim -- or maybe even a franchise or distributorship case -- against one of those many Washington-based tech companies, in a court far from Washington, may well urge that the public policy of Washington itself recommends the application of local consumer fraud statutes to the detriment of forum selection clauses.