NET2PHONE, Inc. v. Superior Court

• Court: California Court of Appeals
• Writing for the Court: Armstrong
• Citation: NET2PHONE, Inc. v. Superior Court, 109 Cal.App.4th 583, 135 Cal. Rptr.2d 149 (Cal. App. 2003)
• Decision Date: 09 June 2003
• Docket Number: No. B162210.,B162210.
• Parties: NET2PHONE, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent. Consumer Cause, Inc., Real Party in Interest.

135 Cal.Rptr.2d 149

109 Cal.App.4th 583

NET2PHONE, INC., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Consumer Cause, Inc., Real Party in Interest.

No. B162210.

Court of Appeal, Second District. Division 5.

June 9, 2003.

Review Denied Aug. 27, 2003.¹

Goldberg and Goldberg, Lawrence A. Goldberg; Greines, Martin, Stein & Richland and Timothy T. Coates, Los Angeles, for Petitioner.

No appearance for Respondent.

Morse Mehrban and Law Offices of Morse Mehrban, Los Angeles, for Real Party in Interest.

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 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 website. 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 website, 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 website. Language on the website 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."

Inciting 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.S.A. 56:8-1 to 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-USA of California, Inc. (1992) 11 Cal.App.4th 1490, 1493, 14 Cal.Rptr.2d 906, citing M/S Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 10, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513; Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, at p. 496, 131 Cal. Rptr. 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 plaintiffs 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 (1976) 17 Cal.3d 491, 495-496, 131 Cal. Rptr. 374, 551 P.2d 1206.) 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." (MIS Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513.)

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, supra, 11 Cal.App.4th at p. 1493, 14 Cal.Rptr.2d 906.)

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. 1522.)

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 non-par...