January 16, 2009
AOL Loses Venue Selection Dispute in Ninth Circuit Due to an Unfortunate "Of"--Doe 1 v. AOL
By Eric Goldman
Doe 1 v. AOL LLC, 2009 WL 103657 (9th Cir. Jan. 16, 2009)
This is one of several lawsuits against AOL over AOL's 2006 posting of a database of improperly anonymized search queries. This particular lawsuit was brought by AOL members in California and alleges a variety of federal and state law claims against AOL.
AOL defended based on its venue selection clause in its member agreement, arguing that the contract required the lawsuit to be brought in Virginia. AOL has had a lot of success with its venue selection clause over the years, but it has had some prominent failures as well. One of those is America Online v. Superior Court (ex rel Mendoza) from 2001, in which a California appellate court struck down AOL's venue selection clause on public policy grounds because Virginia law did not provide adequate relief to California consumers--because, among other things, Virginia state courts do not permit class action lawsuits.
The Mendoza case was part of a broader judicial trend against online user agreements over the past decade. We've seen them fail for unconscionability, public policy and other reasons, making the successful drafting of such clauses tricky. Collectively, I think these cases have established pretty clearly that a venue selection clause designed to suppress class action lawsuits has a high risk of failure and, in California, is presumptively unenforceable.
What isn't clear to me is what, if anything, AOL did to modify its member agreement's venue selection clause in response to its Mendoza defeat. As a result, I can't tell if this court is interpreting the same contract language as was presented to the Mendoza court. But in all other respects this case is extremely similar to Mendoza: the plaintiff initiated a class action lawsuit in California, AOL defended on its venue selection clause to force the case back to Virginia, and the court is confronted with the public policy implications. Thus, if AOL did change its contract post-Mendoza, it didn't get the desired results, because it suffers another defeat here.
It appears that if the case could be heard in Virginia federal court, the class could form and the clause would not necessarily fail; but if the clause only permits Virginia state court, this is Mendoza redux and AOL loses. As a result, the court tries to figure out which venue the member agreement language specifies. AOL's agreement designates the exclusive venue as "the courts of Virginia." The court parses the grammar of the word "of" and looks at other precedent analyzing "the courts of [state]" and concludes that this language selects only Virginia state court. Because a California appellate court (the Mendoza court) had already said that Virginia state court isn't an acceptable choice for a putative class action of California consumers, the Ninth Circuit has no choice but to toss the venue selection clause.
This raises an obvious drafting point: courts are reading venue clauses specifying the venue as "state of X" to mean only state courts in the designated state, so don't use that grammar unless that's what you intend. I'm sure that most drafters using "state of X" language instead mean the parties can litigate in either federal or state court in that venue, but that's not the way courts are reading it. Accordingly, I think it would be prudent to avoid the "courts of X" grammar altogether, which isn't hard to do. Personally, I normally say "courts in X" (as opposed to "courts of X"). I would have to research the precedent interpreting that grammar (this case has made me a little nervous), but the "in" grammar should pretty clearly avoid the analysis in this Ninth Circuit opinion. Another alternative would be to expressly reference both federal and state courts as options; I've seen this language frequently, although I've previously thought that was unnecessarily wordy. Maybe it isn't.
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