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Net2Phone, Inc. v. The Superior Court of Los Angeles County

109 Cal. App. 4th 583 (Cal. Crt. App., June 9, 2003)

Browse-Wrap Agreement Can Be Created By Use Of Website

In this mandamus proceeding, California's Court of Appeals, by a two to one vote, holds a party suing as a private Attorney General subject to the same forum selection clause as the consumers it is seeking to protect.  As such consumers would be bound as a result of their use of Net2Phone's website to the provisions of its Terms of Use, so too is their private advocate.  The Court of Appeals accordingly directed that the action Consumer Cause commenced on the consumers' behalf in California be stayed because the Terms of Use contained a forum selection clause which mandated suit in New Jersey.  The Court upheld the forum selection clause notwithstanding the fact that New Jersey, unlike California, does not permit private advocates such as plaintiff to pursue claims on behalf of injured consumers.

Consumer Cause Alleges Ads Misleading

Net2Phone offers Internet telecommunication services to its customers.  These services permit Net2Phone's customers to make telephone calls over the Internet.

Consumer Cause alleged that Net2Phone misled its customers in advertising materials Net2Phone distributed to market its services.  More particularly, Consumer Cause alleged that these advertising materials failed to advise that, in calculating amounts due for phone calls, Net2Phone "rounded up" to the nearest minute, instead of using the actual duration of the call.  Consumer Cause complained that consumers were only apprised of this practice in their contracts with Net2Phone.

Consumer Cause sued on behalf of those consumers in California, under California's Unfair Competition Law (Bus. & Prof. Code §17200 et seq.).  Notably, this statute permits any person,  whether or not personally injured, to pursue an unfair competition claim, provided he acts on behalf of the general public. 

Website's Terms Of Use

Net2Phone moved to stay or dismiss the action, arguing that Consumer Cause was bound by the forum selection clause contained in its contracts with its customers.  The lower court rejected this contention. 

Net2phone then commenced this mandamus proceeding for review of the lower court's decision.  Holding that Consumer Cause was bound by the forum selection clause, the Court of Appeals directed the lower court to stay the proceeding commenced before it by Consumer Cause.

To utilize Net2Phone's services, consumers must visit, and download software from, Net2Phone's website.  They must also agree to be bound both by the site's Terms of Use, and an End User License Agreement.  Net2Phone placed a "Terms of Use" hyperlink on each page of its website.  Clicking on this link takes the user to the full Terms of Use.  According to the Court: "Language on the website advises the users 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.'"

While the Court's decision does not specify, this language is presently contained in the first paragraph of the Terms presented to the user when he clicks on the Terms of Use link.  Moreover, the Terms of Use link appears, today, at the bottom of Net2Phone's web pages, but above-the-fold.

Customers Would Be Bound To Website's Terms Of Use

The Court of Appeals held that Net2Phone's customers would be bound, by their use of Net2Phone's site, to the Terms of Use.  Said the Court:

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.

Court Upholds Forum Selection Clause

Because Consumer Cause was "closely related" to Net2Phone's customers, and was suing on their behalf, the Court held the forum selection clause applicable to it. 

Finally, the Court held the forum selection enforceable and its application to the case at bar reasonable, notwithstanding the fact that it mandated suit in New Jersey, where Net2Phone had its principal place of business.  In reaching this result, the Court rejected Consumer Cause's argument that New Jersey was not a suitable alternative forum, because, unlike California, it did not permit private parties who had not been personally injured by defendant's conduct to act on behalf of those who had been.  Instead, New Jersey only permits consumers who were themselves injured, individually or as a class, or the State's Attorney General, to pursue such claims.

The Court accordingly directed that the instant action be stayed, as it was commenced in California in violation of the forum selection clause.

Judge Mosk Dissents

Judge Stanley Mosk dissented, and would have allowed the action to proceed in California.  Judge Mosk argued that the forum selection clause was unenforceable in the case at bar, given the differences in the protection afforded consumers by the statutory schemes of California and New Jersey.  He also argued that the clause was neither applicable to Consumer Cause, which was purporting to act on behalf of the general public and not just those who had contracts with Net2Phone, nor to the dispute at issue, which was outside the scope of the contract.  Judge Mosk did not take issue, however, with the majority's statements concerning the enforceability of the Terms of Use against Net2Phone's customers.  (See e.g., "Although Consumer Cause purports to act on behalf of consumers, many of which are parties to contracts containing the former selection clause, it is not a party to such contracts.").

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