June 05, 2011
Forum Selection Clause in "Submerged" Terms of Service Presumptively Unenforceable -- Hoffman v. Supplements Togo
[Post by Venkat Balasubramani]
Hoffman v. Supplements Togo Mgmt. LLC, A-5022-09T3 (N.J. Ct. App.; May 13, 2011)
Plaintiff who happened to be a lawyer brought putative class claims against Supplements Togo, alleging that the "Erection MD" "dietary supplement" sold via defendants' website was not as performance enhancing as promised. The trial court dismissed the lawsuit, among other things, on the basis of a forum selection clause contained in the website's online terms. The appeals court reverses, finding that the forum selection clause was buried on the website and thus not presumptively enforceable.
Background: The background facts are somewhat interesting, but do not turn out to be particularly relevant to the court's analysis. As the court notes, the plaintiff has brought other lawsuits against online retailers asserting consumer protection violations. Defendants are a group of related companies which were started in the early 1980s by a weightlifting enthusiast. (The precise nature of the entities is unclear, but the court presumes a relationship between the various entities.) Defendants sold "Erection MD" in a bottle form for $59.99 per bottle. Their website said that Erection MD consisted of a proprietary blend, and promised numerous benefits from taking this product. The website also contained a disclaimer which stated that the information on the website "reflects the opinion of . . . staff and should not be interpreted as medical advice."
Plaintiff ordered one of these bottles, did not allege that he tried them out, but brought suit, arguing that defendants' representations regarding the product violated New Jersey's consumer protection laws. He argued that defendants were required under this law to substantiate claims regarding the "safety, performance, availability, efficiency, quality or price" of any advertised merchandise, and that defendants' failure to have any such substantiation renders their marketing practices a per se violation of the statute.
The trial court found that plaintiff:
made a conscious decision to order the product thereby manifesting both an agreement to purchase the product at the price offered and an acceptance of all relevant terms including that all litigation would be in Nevada.
The trial court also found that plaintiff failed to adequately allege damages--i.e., plaintiff did not allege that he used the product or that he asked for his money back. The trial court relied in part on the fact that plaintiff was "an experienced attorney" and "a repeat litigator in the field of Consumer Act Fraud Claims."
Discussion: The court ultimately reverses on the forum selection issue and its opinion contains a fairly useful summary of the basic principles at play:
as . . . internet transactions have become more prevalent, so too have legal disputes proliferated over the contractual rights created in cyberspace between buyers and sellers. The present case exemplifies such a modern-day dispute, raising the question of whether the presentation of the forum selection clause on defendants' website suffices, as a matter of law, to bind internet purchasers of defendants' merchandise. To resolve that issue in this contemporary setting, we consult basic and long-standing principles of law and jurisdiction.
The court notes that in order to be bound by a forum selection clause (or any other online contractual term) "there must have been a meeting of minds of the parties." Forum selection clauses are enforceable when they are presented "in a fair and forthright fashion." Where the online consumer must view the contractual term in order to complete the transaction, the term will be valid and enforceable. There is no particular placement necessary for a forum selection clause--the only requirement is that the party against whom the clause is sought to be enforced must have "reasonable notice." The court contrasted the clause in Caspi v. Microsoft, where the consumer had to click "I Agree" in order to complete the transaction, with Specht v. Netscape. in Specht, the online agreement contained an arbitration clause, but the clause "was located well below an icon inviting subscribers to download" the program. The Second Circuit found that the arbitration clause at issue in Specht was unenforceable because the plaintiffs were not provided "reasonable notice." The court in this case also distinguishes between "clickwrap" agreements (where users manifest assent by clicking "I Agree") with "browsewrap agreements, where the users ostensibly agree with online terms merely by browsing. The agreement in this case can be characterized as a browsewrap.
Here, the available evidence showed that consumers could complete the transaction without viewing the forum selection clause. In fact, the court found that:
the forum selection clause was unreasonably masked from the view of prospective purchasers because of its circuitous mode of presentation.
The court does not credit defendants' argument that plaintiff should have reasonably looked in to the applicable terms, and also does not take into account plaintiff's sophistication or experience in determining that the forum selection clause was unreasonably buried. On the other hand, the court also rejects plaintiff's argument that in order to be enforceable, the website had to have some affirmative manifestation of assent (other than completing the transaction). In the end the court states that the forum selection clause is "presumptively unenforceable," but also that defendants can overcome this presumption if they can show that plaintiff actually read and agreed to the terms.
The dust has long settled--online agreements are ordinarily enforceable. This case is a useful reminder that traditional contract principles still apply, and as a website, you should do everything you can to preempt the "I did not read the terms and could not agree to them" argument. In particular, as a merchant, there is no real excuse for not doing this. Consumers have to take certain steps to complete the transaction, and a simple check the box at the penultimate stage that says "I have read and agreed to the terms" should do the trick. This was the result in Feldman v. Google, where Google had a "leak proof" end user agreement ("Google AdWords Contract Upheld (Again)"): At the bottom of the webpage, viewable without scrolling down, was a box and the words, “Yes, I agree to the above terms and conditions.” The advertiser had to have clicked on this box in order to proceed to the next step. If the advertiser did not click on “Yes, I agree ...” and instead tried to click the “Continue” button at the bottom of the webpage, the advertiser would have been returned to the same page and could not advance to the next step. If the advertiser did not agree to the AdWords contract, he could not activate his account, place any ads, or incur any charges. Plaintiff had an account activated. He placed ads and charges were incurred.
This was also the result in Scherillo v. Dun & Bradstreet, where the court rejected the plaintiff's far-fetched argument as to why the agreement in that case was not "leak proof," even though there was a box which plaintiff had to check in order to complete the registration. ("Clickthrough Agreement With Acknowledgement Checkbox Enforced.")
There's some question as to whether particular clauses need to be highlighted, and the court's opinion here is not crystal clear as to whether forum selection clauses are more closely scrutinized in their presentation. (I think the answer is no, but there was some ambivalence in the court's opinion.) At the end of the day, the key is to make sure that no clause is buried. If the agreement was presented in a leak proof fashion in this case, I'm not sure it would have mattered either way. The plaintiff's argument would have received the same chilly reception as it did in Feldman. The argument that "although I'm a lawyer I didn't actually read the agreement" does not tend to resonate.
Posted by Venkat at June 5, 2011 11:15 AM | Licensing/Contracts