Facebook Terms of Service: A Funny Thing Happened on the Way to the Forum Selection Clause
by Jerry Glover
April 20, 2012
Most contracts, whether negotiated or adhesive (boilerplate contracts that you enter into when, say, you buy a major household appliance for which no negotiation occurs), will contain what is known as a forum selection clause. If the parties end up in a breach of contract situation, this clause requires the parties to file a lawsuit only in a certain state, county, city and/or court (state and/or federal). Here’s one such clause:
The parties agree and consent that jurisdiction and venue of all matters relating to this Agreement shall be vested exclusively in the Federal, state and local courts within the State of Illinois.
This is often a hotly negotiated clause where the parties to the contract reside in different states. Attorneys for all parties know that where a dispute may be heard will often require one of those parties to litigate in a state in which they do not reside. This leads, of course, to additional time and expense for the out-of-state party (and that party’s attorney).
A federal trial court in Illinois last month was confronted with whether a forum selection clause utilized by Facebook in its website Terms of Service was enforceable against Facebook users who objected to Facebook’s “sponsored stories.” E.K.D. v. Facebook, Inc., No. 11-461-GPM (N.D. Ill. 2012). In order to join Facebook, a user must provide certain personally identifying information to Facebook (age, gender, e-mail address) and then click a “Sign Up” button that leads to the following message: “By clicking Sign Up, you are indicating that you have read and agree to [the Terms of Service].” Slip op. at 1. Along with that message, a hyperlink is provided to the Terms of Service. Id. at 2. Only by clicking on that hyperlink can a Facebook user see the specifics of the Terms of Service.
The Facebook Terms of Service (TOS) contains the following forum selection clause:
You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or related to [these TOS] or Facebook exclusively in a state or federal court located in Santa Clara County[, California]. The laws of the State of California will govern [these TOS], as well as any claim that might arise between you and us, without regard to conflict of law provisions. You agree to submit to the personal jurisdiction of the courts located in Santa Clara County, California for the purpose of litigating all such claims.
Id. at 4.
The plaintiffs filed suit in the Northern District of Illinois. Pointing to the forum selection clause, Facebook moved to transfer the case to the federal district court in the Northern District of California where the Facebook offices are located. The plaintiffs challenged the validity and enforceability of the TOS forum selection clause on several grounds. The Facebook forum selection clause is a mandatory clause in that it requires that all disputes be heard “exclusively” by Santa Clara County courts. No discretion is allowed to determine the venue of a dispute.
The district court first noted that mandatory clauses are “prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.” Id. at 8 quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.,S. 1, 10 (1972). Of course, the plaintiffs in this case claimed the clause was unreasonable. How does a court determine is a forum selection clause is “unreasonable?”
The court set out three situations which may lead to a conclusion that a forum selection clause is unreasonable: “(1) if their incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; (2) if the selected forum is so gravely difficult and inconvenient that the complaining party will for all practical purposes be deprived of its day in court; or (3) if enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.” Id. quoting Bonny v. Society of Lloyd’s, 3 F. 3d 156, 160 (7th Cir. 1993). The court added that these rules applied to adhesions contracts like the Facebook TOS as well as negotiated agreements.
The Facebook TOS is a clickwrap agreement (user must click a button stating that user has read and accepts the TOS) and most courts have had no difficulty finding that clickwrap agreements and the forum selection clauses found in them are enforceable. See e.g., Segal v. Amazon.com, Inc., 763 F. Supp. 2d 1367 (S.D. Fla. 2011). But Facebook had no method of determining whether a user had actually read the TOS. Therefore, the court had to decide whether the plaintiffs in this case had actual or constructive knowledge of the provisions of the TOS. Plaintiffs claimed they had no actual knowledge of the forum selection clause because they had never actually read the TOS. Even if that were true, the court reasoned, Facebook required users to state that they had read the TOS when users set up an account for the first time. In addition, the court noted that the TOS were hyperlinked on every Facebook web page with blue text with contrasting white background. The court concluded that plaintiff’s had been put on notice of the TOS. The fact that they may not have actually read the TOS was irrelevant since parties to a contract have an obligation to familiarize themselves with the terms of the agreement.
The court also held that the plaintiff’s would not be gravely inconvenienced by having to litigate in California noting that “additional expense [to the plaintiff] does not necessarily invalidate a forum-selection clause[.]” Id. at 11 q uoting Paper Express Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 576 (7th Cir. 1992). The court chided the plaintiffs noting that the time to worry about whether the TOS would disadvantage them would be when they agreed to those TOS.
Finally the court noted that Illinois had no statute or judicial opinion stating the forum selection clauses contravened a strong public policy of the State. Id. at 12-13.
This decision emphasizes the importance of website users reviewing the documents that govern their use of that website. This case also reached a result similar to several other recent cases involving a website terms of service document. For example, in Fteja v. Facebook, Inc., No. 11 Civ 918 (S.D.N.Y. 2012), a New York federal trial court recently reached essentially the same conclusion about the validity and enforceability of Facebook’s forum selection clause as the E.K.D. case discussed above.
Doe v. AOL LLC, 552 F.3e 1077 (9th Cir. 2009) (class action brought in California by AOL users; the appellate court held (i) that the phrase in the AOL forum election clause, “exclusive jurisdiction … resides in the courts of Virginia”, referred only to Virginia’s state, not federal, courts and (ii) the clause is not enforceable since an earlier California state case involving this same AOL forum selection clause had found that the clause violated the strong public policy of California against diminishing the rights of California consumers adding that remedies available in Virginia were not comparable to those in California)
Chudner v. Transunion Interactive, Inc., 626 F. Supp, 2d 1084 (D. Ore. 2009) (plaintiff complained that he would have had to scroll down the entire TOS to find the forum selection clause; court did not by this as a reason to deny enforcement; court also noted that an Oregon state statute that prohibited enforcement of a forum selection clause that required an Oregon resident to litigate outside of Oregon did not apply since plaintiff entered into a website transaction with defendant before the effective date of the statute)
Janson v. Legalzoom.com, Inc., 727 F. Supp. 2d 782 (W.D. Mo. 2010) (court noted that 28 U.S.C. Sec. 1404(a) gave the court the authority to transfer a civil action to any other district “for the convenience of parties and witnesses and in the interest of justice”; court decided that the clause which required that disputes be heard in California, would not be enforced and transfer would not be ordered because Missouri had a strong public policy against the unauthorized practice of law, the plaintiff’s primary allegation against the defendant)