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Summary of Opinion — Caspi v. The Microsoft Network

Factual and Procedural Background

Plaintiffs, four MSN subscribers (two residents of New Jersey, one of Ohio, one of New York) filed an amended, eighteen-count class action alleging breaches of contract, common law fraud and consumer fraud based on Microsoft's practice of "rolling over" MSN membership into more expensive plans and engaging in "unilateral negative option billing." Plaintiffs sought to represent a nationwide class and moved for multi-state class certification.

Defendants moved to dismiss for lack of jurisdiction and improper venue, relying on a forum selection clause in MSN's membership agreement (paragraph 15.1), which provided that the agreement "is governed by the laws of the State of Washington, USA, and you consent to the exclusive jurisdiction and venue of courts in King County, Washington in all disputes arising out of or relating to your use of MSN or your MSN membership." The trial court (Judge Fitzpatrick) dismissed the complaint based on that clause and denied plaintiffs' related motions; plaintiffs appealed. The Appellate Division affirmed.

Legal Issues Presented

  1. Whether the forum selection clause in the MSN membership agreement is valid and enforceable.
  2. Whether plaintiffs can meet any recognized exception to enforcement (fraud or overweening bargaining power; violation of New Jersey public policy; serious inconvenience to trial).
  3. Whether plaintiffs received adequate notice of the forum selection clause (and whether notice is a question for the court or a jury).

Arguments of the Parties

Plaintiffs' Arguments

  • The forum selection clause does not permit plaintiffs to sue Microsoft outside Washington or lacks adequate clarity.
  • The clause resulted from fraud or overweening bargaining power and/or enforcement would violate New Jersey public policy.
  • Plaintiffs did not receive adequate notice of the clause and notice is a factual issue for a jury.

Defendants' Arguments

  • The forum selection clause appears in every MSN membership agreement and binds the named plaintiffs and the class.
  • In the absence of fraud, a contracting party is bound by form-contract provisions even if he or she never reads them.
  • The clause met reasonable standards of conspicuousness; the sign-up process gave ample opportunity to review and reject the agreement.
  • Notice is a question of law for the court, not a jury.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
McNeill v. Zoref, 297 N.J. Super. 213 (App.Div. 1997) Forum selection clauses are prima facie valid and enforceable in New Jersey. Used to state New Jersey's general rule that such clauses are enforceable absent proof of an exception.
Wilfred McDonald, Inc. v. Cushman, Inc., 256 N.J. Super. 58 (App.Div.), certif. denied, 130 N.J. 17 (1992) Identified three exceptions to enforcement (fraud/overweening bargaining power; violation of public policy; serious inconvenience) and placed burden on objecting party. Applied to frame the exceptions plaintiffs needed to prove and to place the burden of proof on plaintiffs; court reaffirmed that enforcement is not contrary to public policy generally.
Carnival Cruise Lines v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991) Corporate vendor's inclusion of a forum selection clause in a consumer contract does not itself constitute overweening bargaining power; forum clauses like cruise ticket clauses enforceable. Analogized the on-line agreement to Carnival to support enforceability and to reject the contention that size difference alone invalidates the clause; noted plaintiffs retained option to reject.
Gennari v. Weichert Co. Realtors, 148 N.J. 582 (1997) Defines elements of fraud (material misrepresentation; knowledge; intent to induce reliance; reasonable reliance; resulting damages). Used to assess plaintiffs' fraud argument; court found plaintiffs did not show the forum clause constituted fraud.
Hodes v. S.N.C. Achille Lauro ed Altri-Gestione, 858 F.2d 905 (3d Cir. 1988), cert. denied, 490 U.S. 1001, 109 S.Ct. 1633, 104 L.Ed.2d 149 (1989) Imbalance in size must result in unfairly exploited inequality of bargaining power to invalidate clause. Quoted to show that plaintiffs must prove more than a mere size difference; court found plaintiffs showed little more than size difference.
Kubis Perszyk Assocs. Inc. v. Sun Microsystems, Inc., 146 N.J. 176 (1996) Example of a case where forum selection clause was held invalid or unenforceable for particularized policy reasons. Distinguished by the court as inapplicable to this case's facts and policy concerns.
McNeil v. Zoref, 297 N.J. Super. 213 (App.Div. 1997) Example (as cited) of a decision invalidating a forum clause for particularized policy reasons. Distinguished by the court as not controlling on policy grounds here.
Param Petroleum Corp. v. Commerce and Indus. Ins. Co., 296 N.J. Super. 164 (App.Div. 1997) Another example of a case where a forum selection clause was held invalid or unenforceable for particularized policy reasons. Distinguished by the court as not applicable to the circumstances of the MSN agreement.
Wilfred MacDonald, Inc. v. Cushman, 256 N.J. Super. 58 (App.Div.), certif. denied, 130 N.J. 17 (1992) As above: enforcement of forum selection clauses generally not contrary to public policy. Cited and reaffirmed by the court for the proposition that enforcement is not contrary to public policy in general.
Rudbart v. North Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 351-53 Principle that a contracting party may be bound by the terms of a form contract even if he or she has never read them. Invoked to support the proposition that plaintiffs are bound by the contract provisions presented to them electronically.
Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 9 (2d Cir. 1995) Holds that the issue of reasonable notice regarding a forum selection clause is a question of law for the court. Applied to support the court's conclusion that notice is a legal question and that plaintiffs had adequate notice as a matter of law.
Lauro Lines, S.R.L. v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989) Cited as having abrogated Hodes on other grounds (as noted in the opinion). Referenced in the discussion concerning the authority for treating notice as a question of law.

Court's Reasoning and Analysis

The court began with the principle that forum selection clauses are prima facie enforceable in New Jersey and that the party objecting to enforcement bears the burden of proving one of three exceptions (fraud/overweening bargaining power; violation of public policy; serious inconvenience). The court examined plaintiffs' contentions under those exceptions.

On fraud: applying the Gennari elements, the court found no material misrepresentation or other basis to conclude the forum clause constituted fraud.

On overweening bargaining power: relying on Carnival and Hodes, the court held that a size differential alone does not invalidate a clause; plaintiffs had choices among competing on-line services and were not compelled to accept MSN, and plaintiffs had the ability to reject the contract.

On public policy: the court distinguished prior New Jersey decisions where clauses were invalidated for particularized policy reasons (Kubis, McNeil v. Zoref, Param Petroleum) and reaffirmed that, in general, enforcement of forum selection clauses is not contrary to public policy (Wilfred MacDonald). The court also found no reason to conclude Washington's consumer fraud protections are materially less protective than New Jersey's.

On inconvenience: because plaintiffs and potential class members resided in multiple jurisdictions, enforcement of the Washington forum did not constitute a special inconvenience relative to other possible forums.

On notice: the court analyzed the electronic presentation of the membership agreement and concluded plaintiffs had the opportunity to review the terms on scrollable screens and to accept or reject by clicking "I Agree" or "I Don't Agree." The clause's placement and presentation did not appear designed to conceal it; the court treated reasonable notice as a legal question (citing Effron and Hodes) and concluded, absent a better showing, plaintiffs had adequate notice as a matter of law.

Holding and Implications

AFFIRMED.

Holding: The Appellate Division affirmed the trial court's dismissal of plaintiffs' complaint on the ground that the forum selection clause in the MSN membership agreement was valid, enforceable and required litigation in King County, Washington.

Implications: The direct effect is that plaintiffs are bound by the forum selection clause and must proceed in Washington as prescribed by the agreement. The court reaffirmed New Jersey's general rule favoring enforcement of forum selection clauses, subject to the established exceptions; no broader change in law was announced.

STEVEN J. CASPI, RONALD W. JONAS, ARDEN JEFFREY CONE III, and LAUREL BARRIE, On Behalf of Themsel v. s and All Others Similarly Situated, Plaintiffs-Appellants

The opinion of the court was delivered by

KESTIN, J.A.D.

We are here called upon to determine the validity and enforceability of a forum selection clause contained in an on-line subscriber agreement of the Microsoft Network (MSN), an on-line computer service. The trial court granted defendants' motion to dismiss the complaint on the ground that the forum selection clause in the parties' contracts called for plaintiffs' claims to be litigated in the State of Washington. Plaintiffs appeal. We affirm.

The amended class action complaint in eighteen counts sought divers relief against two related corporate entities, The Microsoft Network, L.L.C. and Microsoft Corporation (collectively, Microsoft). Plaintiffs asserted various theories including breach of contract, common law fraud, and consumer fraud in the way Microsoft had "rolled over" MSN membership into more expensive plans. Among the claims was an accusation that Microsoft had engaged in "unilateral negative option billing," a practice condemned by the attorneys general of twenty-one states, including New Jersey's, with regard to a Microsoft competitor, America Online, Inc. Under the practice as alleged, Microsoft, without notice to or permission from MSN members, unilaterally charged them increased membership fees attributable to a change in service plans.

The complaint was initially filed on February 24, 1997. The "first amended complaint" was filed on March 5, 1997.

Defendants' March 26, 1997 petition to remove the matter to the U.S. District Court for the District of New Jersey was withdrawn on April 24, 1997.

The four named plaintiffs are members of MSN. Two reside in New Jersey; the others in Ohio and New York. Purporting to represent a nationwide class of 1.5 million similarly aggrieved MSN members, plaintiffs, in May 1997, moved for multi-state class action certification. See R. 4:32.

Shortly thereafter, defendants moved to dismiss the amended complaint for lack of jurisdiction and improper venue by reason of the forum selection clause which, defendants contended, was in every MSN membership agreement and bound all the named plaintiffs and all members of the class they purported to represent. That clause, paragraph 15.1 of the MSN membership agreement, provided:

This agreement is governed by the laws of the State of Washington, USA, and you consent to the exclusive jurisdiction and venue of courts in King County, Washington in all disputes arising out of or relating to your use of MSN or your MSN membership.

Plaintiffs cross-moved, inter alia, to strike a certification submitted in support of defendants' motion to dismiss and to compel the deposition of the certificant.

On November 13, 1997, Judge Fitzpatrick, in a written opinion, expressed his reasons for dismissing the complaint based upon the forum selection clause. Given that conclusion, plaintiffs' cross-motions were denied perforce, and plaintiffs' motion to certify the class was denied as moot. Conforming orders were entered on the same date. On December 19, 1997, Judge Fitzpatrick entered an order modifying a passage in his November 13 opinion.

The background of the matter was depicted in the amended opinion:

Before becoming an MSN member, a prospective subscriber is prompted by MSN software to view multiple computer screens of information, including a membership agreement which contains the above clause. MSN's membership agreement appears on the computer screen in a scrollable window next to blocks providing the choices "I Agree" and "I Don't Agree." Prospective members assent to the terms of the agreement by clicking on "I Agree" using a computer mouse. Prospective members have the option to click "I Agree" or "I Don't Agree" at any point while scrolling through the agreement. Registration may proceed only after the potential subscriber has had the opportunity to view and has assented to the membership agreement, including MSN's forum selection clause. No charges are incurred until after the membership agreement review is completed and a subscriber has clicked on "I Agree."

The trial court observed:

Generally, forum selection clauses are prima facie valid and enforceable in New Jersey. See McNeill v. Zoref, 297 N.J. Super. 213 (App.Div. 1997). New Jersey courts will decline to enforce a clause only if it fits into one of three exceptions to the general rule: (1) the clause is a result of fraud or "overweening" bargaining power; (2) enforcement would violate the strong public policy of New Jersey; or (3) enforcement would seriously inconvenience trial. Wilfred McDonald, Inc. v. Cushman, Inc., 256 N.J. Super. 58 (App.Div.), certif. denied, 130 N.J. 17 (1992). The burden falls on the party objecting to enforcement to show that the clause in question fits within one of these exceptions. Id. Plaintiffs have failed to meet that burden here.

Judge Fitzpatrick correctly discerned that

New Jersey follows the logic of the United States Supreme Court decision in Carnival Cruise Lines v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed. 2d 622 (1991). * * * In Carnival, cruise ship passengers were held to a forum selection clause which appeared in their travel contract. The clause enforced in Carnival was very similar in nature to the clause in question here, the primary difference being that the Carnival clause was placed in small print in a travel contract while the clause in the case sub judice was placed on-line on scrolled computer screens.

The trial court opinion went on to analyze plaintiffs' contentions:

Plaintiffs' consent to MSN's clause does not appear to be the result of fraud or overweening bargaining power. In New Jersey, fraud consists of (1) material misrepresentation of a past or present fact; (2) knowledge or belief by the declarant of its falsity; (3) an intention that the recipient rely on it; (4) reasonable reliance by the recipient; and (5) resulting damages. Gennari v. Weichert Co. Realtors, 148 N.J. 582 (1997). Plaintiffs have not shown that MSN's forum selection clause constitutes fraud. The clause is reasonable, clear and contains no material misrepresentation.

Further, plaintiffs were not subjected to overweening bargaining power in dealing with Microsoft and MSN. The Supreme Court has held that a corporate vendor's inclusion of a forum selection clause in a consumer contract does not in itself constitute overweening bargaining power. Carnival, 499 U.S. 585. In order to invalidate a forum selection clause, something more than merely size difference must be shown. Id. A court's focus must be whether such an imbalance in size resulted in an inequality of bargaining power that was unfairly exploited by the more powerful party. See, e.g., Hodes v. S.N.C. Achille Lauro ed Altri-Gestione, 858 F.2d 905 (3d Cir. 1988), cert. denied, 490 U.S. 1001, 109 S.Ct. 1633, 104 L.Ed. 2d 149 (1989). Plaintiffs have shown little more than a size difference here. The on-line computer service industry is not one without competition, and therefore consumers are left with choices as to which service they select for Internet access, e-mail and other information services. Plaintiffs were not forced into a situation where MSN was the only available server. Additionally, plaintiffs and the class which they purport to represent were given ample opportunity to affirmatively assent to the forum selection clause. Like Carnival, plaintiffs here "retained the option of rejecting the contract with impunity." 499 U.S. 585. In such a case, this court finds it impossible to perceive an overwhelming bargaining situation.

Judge Fitzpatrick opined that application of MSN's forum selection clause did not contravene public policy. He distinguished three cases cited by plaintiffs in support of the contrary proposition: Kubis Perszyk Assocs. Inc. v. Sun Microsystems, Inc., 146 N.J. 176 (1996); McNeil v. Zoref, 297 N.J. Super. 213 (App.Div. 1997); and Param Petroleum Corp. v. Commerce and Indus. Ins. Co., 296 N.J. Super. 164 (App.Div. 1997). In each of these cases, a forum selection clause was held to be invalid or unenforceable for particularized policy reasons not applicable here. On the other hand, Judge Fitzpatrick also noted our holding in Wilfred MacDonald, Inc. v. Cushman, 256 N.J. Super. 58 (App.Div.), certif. denied, 130 N.J. 17 (1992), that, as a general matter, enforcement of forum selection clauses is not contrary to public policy, a view we now reaffirm.

Finally, Judge Fitzpatrick held that enforcement of the forum selection clause would not inconvenience a trial. Given the fact that the named plaintiffs reside in several jurisdictions and that, if the class were to be certified, many different domestic and international domiciles would also be involved, "the inconvenience to all parties is no greater in Washington than anywhere else in the country."

After reviewing the record in the light of the arguments advanced by the parties, we are in substantial agreement with the reasons for decision articulated by Judge Fitzpatrick. We reject as meritless plaintiffs' arguments on appeal that the terms of the forum selection clause do not prevent plaintiffs from suing Microsoft outside of Washington or, alternatively, that the forum selection clause lacks adequate clarity. The meaning of the clause is plain and its effect as a limiting provision is clear. Furthermore, New Jersey's interest in assuring consumer fraud protection will not be frustrated by requiring plaintiffs to proceed with a lawsuit in Washington as prescribed by the plain language of the forum selection clause. As a general matter, none of the inherent characteristics of forum selection clauses implicate consumer fraud concepts in any special way. If a forum selection clause is clear in its purport and has been presented to the party to be bound in a fair and forthright fashion, no consumer fraud policies or principles have been violated. Cf. id. at 63-64. Moreover, as a matter of policy interest and apart from considerations bearing upon the choice-of-law provision in the forum selection clause, plaintiffs have given us no reason to apprehend that the nature and scope of consumer fraud protections afforded by the State of Washington are materially different or less broad in scope than those available in this State.

The only viable issues that remain bear upon the argument that plaintiffs did not receive adequate notice of the forum selection clause, and therefore that the clause never became part of the membership contract which bound them. A related, alternative argument is that the question of notice is a factual matter that should be submitted to a jury. Defendants respond by arguing that 1) in the absence of fraud, a contracting party is bound by the provisions of a form contract even if he or she never reads them; 2) this clause met all reasonable standards of conspicuousness; and 3) the sign-up process gave plaintiffs ample opportunity to review and reject the agreement. Defendants also contend that notice is a question of law, decidable by a court, not a jury.

The holding in Carnival Cruise Lines v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed. 2d 622 (1991), does not dispose of the notice question because the plaintiffs there had "essentially . . . conceded that they had notice of the forum-selection provision[,]" by stating that they "`[did] not contest . . . that the forum selection clause was reasonably communicated to [them], as much as three pages of fine print can be communicated.'" Id. at 590, 111 S.Ct. at 1525, 113 L.Ed. 2d at 630. The dissenting justices described the format in which the forum selection clause had been presented as "in the fine print on the back of the [cruise] ticket." Id. at 597, 111 S.Ct. at 1529, 113 L.Ed. 2d at 634 (Stevens, J., dissenting).

The scenario presented here is different because of the medium used, electronic versus printed; but, in any sense that matters, there is no significant distinction. The plaintiffs in Carnival could have perused all the fine-print provisions of their travel contract if they wished before accepting the terms by purchasing their cruise ticket. The plaintiffs in this case were free to scroll through the various computer screens that presented the terms of their contracts before clicking their agreement.

Also, it seems clear that there was nothing extraordinary about the size or placement of the forum selection clause text. By every indication we have, the clause was presented in exactly the same format as most other provisions of the contract. It was the first item in the last paragraph of the electronic document. We note that a few paragraphs in the contract were presented in upper case typeface, presumably for emphasis, but most provisions, including the forum selection clause, were presented in lower case typeface. We discern nothing about the style or mode of presentation, or the placement of the provision, that can be taken as a basis for concluding that the forum selection clause was proferred unfairly, or with a design to conceal or de-emphasize its provisions. To conclude that plaintiffs are not bound by that clause would be equivalent to holding that they were bound by no other clause either, since all provisions were identically presented. Plaintiffs must be taken to have known that they were entering into a contract; and no good purpose, consonant with the dictates of reasonable reliability in commerce, would be served by permitting them to disavow particular provisions or the contracts as a whole. See Rudbart v. North Jersey Dist. Water Supply Comm'n, 127 N.J. 344, 351-53 (referring to the principle that a contracting party may be bound by the terms of a form contract even if he or she has never read them), cert. denied, 506 U.S. 871, 113 S.Ct. 203, 121 L.Ed. 2d 145 (1992).

We have not considered the CD-ROM version of the contract, presented in the record on appeal, since none of the present plaintiffs used that means in joining MSN.

The issue of reasonable notice regarding a forum selection clause is a question of law for the court to determine. See Effron v. Sun Line Cruises, Inc., 67 F.3d 7, 9 (2d Cir. 1995); Hodes v. S.N.C. Achille Lauro ed Altri-Gestione, 858 F.2d 905, 908 (3d Cir. 1988), petition for cert. dismissed, 490 U.S. 1001, 109 S.Ct. 1633, 104 L.Ed. 2d 149 (1989), abrogated on other grounds, Lauro Lines, S.R.L. v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed. 2d 548 (1989). We agree with the trial court that, in the absence of a better showing than has been made, plaintiffs must be seen to have had adequate notice of the forum selection clause. The resolution of this notice issue, at this stage of the litigation between plaintiffs and defendants must, of course, be seen to be without prejudice to any showing either party may have the opportunity to make in another jurisdiction in a plenary proceeding on the contract regarding issues apart from the validity and enforceability of the forum selection clause.

Affirmed.

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CASPI v. THE MICROSOFT NETWORK
(Jul 2, 1999)