Dix v. ICT Group, Inc.Dix v. ICT Group, Inc.
¶ 1 The plaintiffs in this case allege that America Online, Inc. (AOL), unilaterally and wrongfully created and charged them for secondary membership accounts. The plaintiffs brought a putative class suit in Washington courts, alleging, among other things, violations of the Washington Consumer Protection Act,
FACTS
¶ 2 Suzy Dix and Jeffrey R. Smith (the plaintiffs) chose AOL as their Internet service provider. To obtain AOL membership, each selected a master, or primary, screen name for the membership, designated a method of payment (credit card, debit card, electronic fund transfer, or automatic billing to a telephone number), and consented to an online contract, the TOS agreement. The monthly charge under the pricing plan then in effect was $23.90 for unlimited access, with an additional $5.00 charge for plans paid for through electronic transfer or telephone billing. Under plaintiffs’ plan, a primary account holder can select up to six “secondary screen names,” permitting, for example, separate e-mail accounts that the primary account holder or another person (such as a family member or roommate) can use. An AOL member can also convert a secondary screen name into a separate AOL account, which is a new membership account subject to a separate monthly charge.
¶ 3 The TOS agreement covering the primary account contains a forum selection clause:
You expressly agree that exclusive jurisdiction for any claim or dispute with AOL or relating in any way to your membership or your use of the AOL Services resides in the courts of Virginia and you further agree and expressly consent to the exercise of personal jurisdiction in the courts of Virginia in connection with any such dispute including any claim involving AOL or AOL Services. The foregoing provision may not apply to you depending on the laws of your jurisdiction.
Clerk‘s Papers (CP) at 57.
¶ 4 The plaintiffs allege that AOL randomly used secondary screen names in “pop-up” advertisement screens inviting the user to create a new membership using the secondary screen name for the new account, i.e., to “spin off” the secondary screen name into a new AOL membership. The plaintiffs assert that most users do not want to create a new account and, when presented with the pop-up, users simply want to get rid of it. They say that the pop-up often has an “I agree” or a “Tell me more” button, but has no button to decline. Plaintiffs maintain that users who do not want a secondary account could choose the “x” in the upper right hand corner of the pop-up, attempt to close the AOL program completely, or shut down the computer. The plaintiffs allege that AOL nevertheless unilaterally and automatically “spins off” the advertised secondary name into a new AOL membership. Plaintiffs assert that once a member realizes that he or she is being billed for two accounts, the member calls AOL using a 1-800 telephone number provided by AOL, which actually connects to an employee of defendant ICT Group, Inc. (ICT) at a center in eastern Washington.
¶ 5 Plaintiffs claim that ICT is an agent of AOL hired to handle customer service inquiries. Plaintiffs allege that ICT‘s employees are trained to engage in deceptive practices, specifically, to recognize calls relating to spun-off secondary accounts, to provide no meaningful assistance, to convince the caller that he or she or someone in the household created the secondary account, and to offer relief in the case of only the most insistent customers and then only in the form of free future AOL service for a short period of time.
¶ 6 In support of their allegations, Dix and Smith have submitted their declarations and declarations of other members of the putative class, and declarations of former ICT employees.
¶ 7 On July 29, 2003, Dix and Smith filed a class suit against AOL and ICT on behalf of themselves and all others similarly situated, alleging conversion, unjust enrichment, and violation of the CPA.1 As to the latter, they
¶ 8 AOL and ICT moved for dismissal under
¶ 9 Dix and Smith sought direct review by this court, which instead transferred the case to the Court of Appeals. The Court of Appeals reversed, holding that the forum selection clause is not enforceable because the selected forum does not permit class suits and thus the clause violates public policy underlying the CPA. Dix v. ICT Group, Inc., 125 Wash.App. 929, 106 P.3d 841 (2005).
¶ 10 The day after the Court of Appeals’ decision was filed, the Class Action Fairness Act of 2005 (CAFA) was signed into law. Pub.L. No. 109-2, 119 Stat. 4 (2005). CAFA amended
¶ 11 AOL and ICT then sought discretionary review in this court; their petition for review was granted. The Attorney General of Washington and the Washington State Trial Lawyers Association Foundation have filed amicus curiae briefs.
ANALYSIS
¶ 12 The Court of Appeals applied an abuse of discretion standard of review in this case on the basis that it is the only standard expressly applied in any previous Washington decision assessing the validity of forum selection clauses. Dix, 125 Wash.App. at 933-34, ¶ 8, 106 P.3d 841; see Exum v. Vantage Press, Inc., 17 Wash.App. 477, 479, 563 P.2d 1314 (1977) (applying abuse of discretion standard). As the court noted, in other cases the Court of Appeals had reasoned that under either a de novo standard or an abuse of discretion standard the trial court correctly determined that the party challenging a forum selection clause had not met the burden of establishing its unenforceability. Bank of Am., N.A. v. Miller, 108 Wash.App. 745, 748, 33 P.3d 91 (2001); Voicelink Data Servs., Inc. v. Datapulse, Inc., 86 Wash.App. 613, 617, 937 P.2d 1158 (1997).
¶ 13 Other jurisdictions are split over whether a de novo or abuse of discretion standard applies when reviewing decisions on enforceability of forum selection clauses.4
¶ 14 We conclude that generally the abuse of discretion standard applies. Under this standard of review, a trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds. Wash. State Physicians Ins. Exch. & Ass‘n v. Fisons Corp., 122 Wash.2d 299, 339, 858 P.2d 1054 (1993). If the trial court‘s ruling is based on an erroneous view of the law or involves application of an incorrect legal analysis it necessarily abuses its discretion. Id.; State v. Kinneman, 155 Wash.2d 272, 289, ¶ 35, 119 P.3d 350 (2005). Thus, the abuse of discretion standard gives deference to a trial court‘s fact-specific determination on enforceability of a forum selection clause, while permitting reversal where an incorrect legal standard is applied. If, however, a pure question of law is presented, such as whether public policy precludes giving effect to a forum selection clause in particular circumstances, a de novo standard of review should be applied as to that question. See Ang v. Martin, 154 Wash.2d 477, 481, ¶ 9, 114 P.3d 637 (2005) (questions of law are reviewed de novo); Motor Contract Co. v. Van Der Volgen, 162 Wash. 449, 454, 298 P. 705 (1931) (question whether a contract is against public policy is a question of law).
¶ 15 Forum selection clauses are prima facie valid. Kysar v. Lambert, 76 Wash.App. 470, 484-85, 887 P.2d 431 (1995); see The Bremen v. Zapata Off-Shore Co., 407. U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). In general, a forum selection clause may be enforced even if it is in a standard form consumer contract not subject to negotiation. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 589-95, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991). “[E]nforcement of forum selection clauses serves the salutary purpose of enhancing contractual predictability.” Voicelink, 86 Wash.App. at 617, 937 P.2d 1158; see Carnival Cruise Lines, 499 U.S. at 593-94, 111 S.Ct. 1522. Additionally, such clauses may reduce the costs of doing business, thus resulting in reduced prices to consumers. Id. at 594, 111 S.Ct. 1522.
¶ 16 A number of courts rely on the analyses in Bremen and Carnival Cruise Lines for determining the enforceability of a forum selection clause. A typical synthesis of the Bremen and Carnival Cruise Lines analyses that has been set out by a number of courts is as follows:
(1) [A] forum-selection clause is presumptively valid and enforceable and the party resisting it has the burden of demonstrating that it is unreasonable, (2) a court may deny enforcement of such a clause upon a clear showing that, in the particular circumstance, enforcement would be unreasonable, and (3) the clause may be found to be unreasonable if (i) it was induced by fraud or overreaching, (ii) the contractually selected forum is so unfair and inconvenient as, for all practical purposes, to deprive the plaintiff of a remedy or of its day in court, or (iii) enforcement would contravene a strong public policy of the State where the action is filed.
Gilman v. Wheat, First Sec., Inc., 345 Md. 361, 378, 692 A.2d 454 (1997) (discussing Bremen, Carnival Cruise Lines, and their progeny).
¶ 18 In assessing a forum selection clause for enforceability, the court does not accept the pleadings as true. Bank of Am., 108 Wash.App. at 748, 33 P.3d 91; Voicelink, 86 Wash.App. at 618, 937 P.2d 1158. Rather, the challenging party must present evidence to justify nonenforcement. Voicelink, 86 Wash.App. at 618, 937 P.2d 1158.
¶ 19 In holding that the forum selection clause at issue here violates public policy embodied in the CPA, the Court of Appeals reasoned that the CPA was designed to offer broad protection to all citizens of the state from unfair methods of competition and unfair or deceptive acts or practices in conducting trade or commerce, rather than merely to provide protection for individual parties, and its purpose would be undermined if claims must be brought in another state without the benefit of a class action procedure. Dix, 125 Wash.App. at 936-37, ¶ 14, 106 P.3d 841.
¶ 20 AOL6 argues, however, that the only question here relating to enforceability of the forum selection clause is whether enforcement “would be so seriously inconvenient as to deprive the party of a meaningful day in court.” Bank of Am., 108 Wash.App. at 748, 33 P.3d 91. AOL describes the Court of Appeals’ basis for invalidating the forum selection clause as “newly articulated public policy.” Pet. for Review at 8. AOL says that class suits have always been the exception, not the rule, both in Washington and nationally. AOL maintains that no Washington statute or case articulates the public policy basis relied on by the Court of Appeals in invalidating the forum selection clause.
¶ 21 We agree with the United States Supreme Court that “[a] contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.” Bremen, 407 U.S. at 15, 92 S.Ct. 1907. The stated purpose of the CPA is “to complement the body of federal law governing restraints of trade, unfair competition and unfair, deceptive, and fraudulent acts or practices in order to protect the public and foster fair and honest competition.”
¶ 22 Prior to 1970, the CPA did not allow private suits for damages for violations of
¶ 23 The private right of action to enforce
¶ 24 The individual consumer action to enforce
¶ 25 Given the importance of the private right of action to enforce the CPA for the protection of all the citizens of the state, we conclude that a forum selection clause that seriously impairs a plaintiff‘s ability to bring suit to enforce the CPA violates the public policy of this state. It follows, therefore, that a forum selection clause that seriously impairs the plaintiff‘s ability to go forward on a claim of small value by eliminating class suits in circumstances where there is no feasible alternative for seeking relief violates public policy and is unenforceable.
¶ 26 AOL contends, however, that the Court of Appeals in this state has previously determined that contractual forum selection provisions can and do preempt the use of class action procedures. AOL relies on Stein v. Geonerco, Inc., 105 Wash.App. 41, 17 P.3d 1266 (2001) and Heaphy v. State Farm Mut. Auto. Ins. Co., 117 Wash.App. 438, 72 P.3d 220 (2003).7 In Stein, the plaintiff brought suit under the CPA against the seller of a home he bought that had defects in the siding. The seller moved to compel arbitration under an arbitration agreement between the parties that was silent on the question whether a class procedure could be used. The plaintiff argued that the arbitration clause was unenforceable because it prevented him from bringing a class suit. The court disagreed and enforced the arbitration clause as written, both because the clause was silent on the question of a class action and because the plaintiff failed to demonstrate any conflict with statutory provisions, contract law, or due process requirements. Stein, 105 Wash.App. at 49, 17 P.3d 1266. The court also declined to permit arbitration on a classwide basis because the plaintiff had failed to cite relevant statutory provisions authorizing class arbitration. Id. at 50, 17 P.3d 1266. In Heaphy, the court disagreed with the plaintiffs’ claim that the ruling in Stein did not apply, and, “[m]ore importantly,” found that the plaintiff had failed to show that there were any questions of law or fact common to a class, as is required for a class suit. Heaphy, 117 Wash.App. at 447-48, 72 P.3d 220. Accordingly, the “possibility” of class certification could not overcome the agreement to arbitrate. Id. at 448, 72 P.3d 220.
¶ 27 Heaphy is not a CPA case, and it does not involve individually small consumer claims; it is thus unlike the present case. In Stein, the court noted that the plaintiff had not argued any due process or policy grounds for permitting class arbitration and therefore
¶ 28 We note that other courts are split on the question whether forum selection clauses are unenforceable when they preclude class actions in the consumer setting. In America Online, Inc. v. Pasieka, 870 So.2d 170 (Fla. Dist.Ct.App.2004), the court found AOL‘s forum selection clause requiring suit be brought in Virginia to be unenforceable where the action was a class suit under the state‘s consumer protection laws. The court noted that such laws do not exist merely for the benefit of the individual parties but rather for the purpose of providing broader protection for the citizens of Florida as a whole. Id. at 171-72. The court noted the importance of class suits to further the goals of such laws, given the small monetary amounts involved, because most individual plaintiffs likely would not pursue claims in Virginia. Id. at 171.
¶ 29 Similarly, the court in America Online, Inc. v. Superior Court, 90 Cal.App.4th 1, 108 Cal.Rptr.2d 699 (2001), held a forum selection clause unenforceable because it violated fundamental California policy embodied in the state‘s consumer protection law. The plaintiff sought class action relief under the state‘s Consumers Legal Remedies Act, which contains a provision for class suits and also contains an antiwaiver provision declaring waiver of any provision of the act to be against public policy and void. The court said that “California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state‘s public policy.” Id. at 12, 108 Cal.Rptr.2d 699. The court discussed the importance of class suits in consumer litigation, where individual actions by each of numerous defrauded consumers would be impracticable because the amount of the individual recovery would be insufficient to justify bringing a separate action. Id. at 17, 108 Cal.Rptr.2d 699. The “unscrupulous seller” would then retain benefits of its wrongful conduct. The court observed that “`[a] class action by consumers produces several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance to the judicial process of the burden of multiple litigation involving identical claims.‘” Id. (quoting Vasquez v. Superior Court, 4 Cal.3d 800, 808, 484 P.2d 964, 94 Cal.Rptr. 796 (1971)). The court held that unavailability of class action relief in the selected forum was sufficient in and of itself to preclude enforcement of the forum selection clause. America Online, 90 Cal.App.4th at 18, 108 Cal.Rptr.2d 699. The decision in America Online was approved by the California Supreme Court in Discover Bank v. Superior Court, 36 Cal.4th 148, 158-59, 113 P.3d 1100, 30 Cal.Rptr.3d 76 (2005).8
¶ 30 AOL points out, however, that unlike California‘s consumer protection law, which contains an antiwaiver provision applying to class actions, this state‘s CPA does not contain an antiwaiver provision. We do not believe that the absence of an express class action antiwaiver provision in the CPA undercuts the public policy expressed in the dual enforcement scheme enacted by the legislature. It is clear that the legislature‘s addition of the private right of action to enforce
¶ 31 We affirm the Court of Appeals’ holding that the forum selection clause in the AOL contract at issue is unenforceable on public policy grounds if the lack of a class action procedure leaves the plaintiff with no feasible avenue for seeking relief for violations of the CPA. Thus, for example, where the value of an individual claim is significant or the absence of a class action option would not, when viewed objectively, be likely to deter an individual action, public policy does not defeat a forum selection clause.
¶ 32 The next question is whether, as AOL contends, congressional enactment of the CAFA dictates that this action should be dismissed. As noted, after the Court of Appeals handed down its decision in this case, the federal CAFA was signed into law. Pub.L. No. 109-2, 119 Stat. 4 (2005). CAFA amended
¶ 33 AOL urges this court to reverse the Court of Appeals’ decision on the grounds that enactment of CAFA mooted the sole basis relied on by the Court of Appeals for invalidating the forum selection clause. AOL reasons that once this case is dismissed plaintiffs can file a class action under CAFA in federal court in Virginia.
¶ 34 This case was commenced over two years before CAFA was enacted and it is still a pending case. The only way CAFA would be remotely relevant would only be if this court were to dismiss this case. Then, several assumptions would have to be made before such a dismissal could be considered, including the assumption that refiling suit would be considered “commencement” of a new action, that the “new” action would be filed within the relevant statute of limitations (and persons qualifying as members of the putative class, including the named plaintiffs, would not be time-barred as a result of dismissal and refiling), and that the plaintiffs’ claims would in the aggregate amount to $5,000,000. We decline to dismiss this action on the highly speculative ground that an action will then proceed under CAFA.
¶ 35 In light of our disposition of the main issue in this case, we need not reach other issues raised by the plaintiffs.
¶ 36 Finally, the Court of Appeals reasoned that because the forum selection clause is unenforceable as to AOL, the trial court‘s dismissal of ICT cannot stand. See Dix, 125 Wash.App. at 937 n. 2, 106 P.3d 841. We agree and affirm the Court of Appeals’ reversal of dismissal of the plaintiffs’ claims against both AOL and ICT.
CONCLUSION
¶ 37 Although forum selection clauses are prima facie valid, a forum selection clause may be invalid if it violates the public policy of this state. A decision regarding the enforceability of a forum selection clause is evaluated for an abuse of discretion. If a forum selection clause precludes class actions and thereby significantly impairs Washington citizens’ ability to seek relief under the CPA for small-value claims, the clause violates the public policy underlying the CPA‘s dual enforcement scheme expressed in the attorney general and private rights of action under the act. Because AOL‘s forum selection
WE CONCUR: GERRY L. ALEXANDER, Chief Justice, TOM CHAMBERS, CHARLES W. JOHNSON, SUSAN OWENS, MARY E. FAIRHURST, RICHARD B. SANDERS, JAMES M. JOHNSON and BOBBE J. BRIDGE, Justices.