California District Court Dismisses Facebook’s TCCWNA “Website Terms and Conditions” Lawsuit in Light of Valid Choice-of-Law Provision

New Jersey’s Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”) ushered in a wave of class actions last year, targeting various provisions in retailers’ websites “terms and conditions.” Broadly speaking, the TCCWNA prohibits “consumer contracts” from containing language that violates any “clearly established legal right[s].”

New Jersey courts have not been alone in adjudicating these cases, however, as a number of similar lawsuits have been brought in other jurisdictions, including California federal district courts. For example, on September 7, 2016, the Central District of California dismissed the complaint in Candelario v. Rip Curl, Inc. on standing grounds, holding that because the plaintiff’s “only connection to the Terms and Conditions appears to be her decision to read them” and because her complaint essentially alleged only “bare procedural violation[s]” of the TCCWNA – without more – she could not satisfy “the injury-in-fact requirement of Article III.”

Even more recently, although on different grounds, the Northern District of California dismissed a “website terms and conditions” class action against Facebook. In Palomino v. Facebook, Inc., as in Candelario, the plaintiffs alleged that the social media company’s website terms and conditions violated the TCCWNA because of “provisions that purport to ‘1) disclaim liability for claims brought for Defendant’s negligent, willful, malicious and wanton misconduct; 2) bar claims for personal and economic injury and punitive damages; and 3) bar consumers from asserting claims against Defendant for deceptive and fraudulent conduct,’” among others.

Instead of focusing on the substance of the TCCWNA claim (or any standing arguments), the District Court instead emphasized another aspect of Facebook’s Internet agreement: That “[i]n order to access Facebook’s website, users must create a Facebook account and agree to Facebook’s Terms of Service,” which “contain a California choice-of-law provision.”

The court first noted that “Plaintiffs concede that they agreed to Facebook’s Terms of Service.” It then highlighted the reality that “California has a ‘strong policy favoring enforcement of’ choice of law provisions,” before continuing on to ask whether, even given this policy, there was any basis to disregard the choice-of-law clause. To that end, the District Court explained, first, that California “has a substantial relationship to the parties,” given Facebook’s principal place of business in the state, and, second, that California law itself is not contrary to “fundamental New Jersey policy.”

For the second point, the District Court quoted the landmark New Jersey Supreme Court decision on the TCCWNA, Shelton v. Restaurant.com, Inc., that the purpose of the TCCWNA “is to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties in consumer contracts.” The California District Court then summarized a host of California consumer protection laws that further similar aims. And, although the court acknowledged that the TCCWNA affords certain protections and remedies not necessarily encompassed in those California statutes, the District Court rejected the suggestion that the details of such differences should affect the choice-of-law assessment: “Rather, the inquiry is whether California consumer protection law is contrary to New Jersey’s arguably fundamental policy of protecting consumers from confusion and deception caused by businesses. The Court finds that it is not.”

Finally, although the court in Palomino did not emphasize the distinctions between browsewrap agreements (which purport to bind the user whether he or she manifests agreement or not) and clickwrap agreements (which require some affirmative action demonstrating the user’s consent), that Facebook’s Terms of Service is constructed as the latter was almost certainly integral to the court’s decision and further underscores the need for retailers and other website operators to give careful thought to both the substance and structure of their Internet agreements.

Michael R. McDonald, a Director in the Gibbons Business & Commercial Litigation Department, and Joshua S. Levy, an Associate in the Gibbons Business & Commercial Litigation Department, authored this post.
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