AOL Class Action Defense Cases–Doe 1 v. AOL: Ninth Circuit Reverses Dismissal Of Class Action Holding Forum Selection Clause Unenforceable In CLRA/UCL Class Action Because Virginia State Courts Would Not Provide Class Action Relief

Jan 26, 2009 | By: Michael J. Hassen

District Court Erred in Dismissing Class Action under Rule 23(b)(3) for Improper Venue because Forum Selection Clause in Internet Member Agreement Effectively Precluded Class Action Relief Ninth Circuit Holds

Plaintiffs filed a nationwide class action against AOL alleging violations of the federal electronic privacy law; the class action complaint asserted that AOL “made publicly available the internet search records of more than 650,000 of its members” that “contained personal and sometimes embarrassing information about the members.” Doe 1 v. AOL LLC, ___ F.3d ___ (9th Cir. January 16, 2009) [Slip Opn., at 686]. The class action also defined a subclass of California residents and asserted separately claims for violations of various California state laws, including California’s Consumers Legal Remedies Act (CLRA). Id. Plaintiffs filed their class action complaint after AOL accidentally made publicly available, for 10 days, “roughly twenty million AOL Internet search records”; the class action complaint alleged that the data disclosed by AOL included “addresses, phone numbers, credit card numbers, social security numbers, passwords and other personal information of AOL members.” Id., at 688. In addition to asserting claims for relief under the federal Electronic Communications Privacy Act and California’s CLRA, the class action additionally asserted claims under California’s Customer Records Act, False Advertising Law, and Unfair Competition Law. Id., at 688-89. Plaintiffs filed the class action in the Northern District of California, id., at 687-88; however, the Member Agreement governing plaintiffs’ use of AOL included both a choice of law clause, which stated that Virginia law governed any disputes between AOL and its members, and a forum selection clause, which designated Virginia as the fora for disputes between AOL and its members. Id., at 687. Defense attorneys moved to dismiss the class action under Rule 12(b)(3) on the grounds of improper venue given the forum selection clause; plaintiffs argued that class action relief would not be available to them in Virginia and, accordingly, “violates California public policy favoring consumer class actions and renders the forum selection clause unenforceable.” Id. The district court granted AOL’s motion and dismissed the class action without prejudice, id.; the Ninth Circuit reversed.

AOL is headquartered in Dulles, Virginia. AOL, at 689. As a prerequisite to using AOL’s online services, each member must agree to the terms of the AOL Member Agreement, and must manifest their agreement by clicking a box that “states the member has agreed to the terms of the Member Agreement,” id., at 689-90. As noted above, the Member Agreement contains both a choice of law clause and a forum selection clause, which declare that Virginia law governs disputes and that disputes must be brought in Virginia state or federal courts. Id., at 690. The district court granted AOL’s Rule 12( b)(3) motion holding that the forum selection clause “expressly requires that this controversy be adjudicated in a court in Virginia” and that “[p]laintiffs agreed the courts of Virginia have ‘exclusive jurisdiction’ over any claims or disputes with AOL” thus rendering venue in California improper. Id., at 691. The Ninth Circuit reversed, concluding that the forum selection clause was unenforceable.

The Ninth Circuit began its analysis by determining the scope of the phrase “exclusive jurisdiction…resides _in the courts of Virginia_”: the Circuit Court agreed with plaintiffs that this phrase limited jurisdiction to Virginia state courts only, not (as AOL argued) Virginia state and federal courts. See AOL, at 691-94. Under the Ninth Circuit’s analysis, “the plain meaning of the forum selection clause’s designation of the ‘courts of Virginia’ is state courts of Virginia; it does not include federal district courts located in Virginia.” Id., at 694 (footnote omitted). This holding governed the outcome of the appeal. AOL argued that plaintiffs could pursue class action relief in Virginia federal courts; plaintiffs argued that class action relief is not available in Virginia state courts. Id. The Ninth Circuit noted that AOL did not dispute that class action relief would be unavailable to plaintiffs if they were required to file suit in a Virginia state court, id. Under California law, class action waivers are generally unenforceable, see id., at 694-97, so the Circuit Court held that AOL’s Member Agreement was “unenforceable as to California resident plaintiffs bringing class action claims under California consumer law.” Id., at 697. Accordingly, it reversed the district court order dismissing the class action, id. However, the Ninth Circuit left open the extent to which a nationwide class action could be pursued in the California court because non-residents of California generally may not seek relief under California’s consumer protection laws. See id,. n.14.

NOTE: The author notes the anomaly in the Ninth Circuit’s belief that any ambiguity, being construed “against AOL as the drafter,” would support its conclusion that the forum selection clause limited the appropriate fora to Virginia state courts. See AOL, at 694 n.10. AOL’s interpretation would subject it to liability in a greater number of courts – as it includes all state and federal courts in Virginia – and as a general rule, and as a matter of common sense, it is against a party’s self-interest to expand the number of locations where it can be sued. In other words, if a Virginia resident filed suit against AOL in a Virginia federal court, and AOL argued that venue was improper because the only appropriate fora were Virginia state courts, then construing the language against the drafter (AOL) a court would conclude that the forum selection clause was broad enough to include both state and federal courts.

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