Net2Phone v. Superior Court

Citation: Net2Phone, Inc. v. Superior Court of Los Angeles, 109 Cal.App.4th 583 (2003).

Factual Background
Appellant, Net2Phone, Inc., provides Internet telecommunication services that allow computer users to place phone calls over the Internet either to another computer or to a regular telephone. In order to utilize Net2Phone’s services, customers are required to download software from Net2Phone’s website. As part of the installation process, customers must accept both the “End User License Agreement” and “Terms of Use” which may be accessed by clicking on hyperlinks located on Net2Phone’s site. Pertinent language on the site informs customers that they have the ability to either decline to be bound by the terms, in which case they are not able to access or use the “Site, Materials, or any of [Net2Phone’s] Services”, or they may choose to accept the terms, in which case they agree to be bound by the forum-selection clause that requires all disputes arising under the contract to be governed by New Jersey law.

Appellee, Consumer Cause, Inc., is a public interest consumer group that contends Net2Phone’s failure to disclose its billing practice of “rounding up” to the nearest minute in its advertising and promotional materials renders Net2Phone’s promotional materials and advertising “false, misleading and fraudulent.” Consumer Cause also contends that Net2Phone’s failure to disclose its billing practices except in its “Terms of Use” and “End User License Agreement,” which are accessed only via highlighted hyperlink, constitutes an unfair business practice. Consumer Cause seeks an injunction, restitution, and attorney’s fees on behalf of Net2Phone customers.

Trial Court Proceedings
The trial court found that Consumer Cause was not bound by the forum selection clause in Net2Phone’s user agreement and allowed the plaintiff to pursue the action in California so long as New Jersey law governed the matter. The court reasoned that Consumer Cause was acting as a private attorney general and “had the real Attorney General brought this action, [they] doubt that this court would be sending him to New Jersey to try the matter.”

Appellate Court Proceedings
On appeal, the appellate court vacated the lower court's decision and granted Net2Phone’s motion to stay. The court based this decision on two factors. First, the court determined that the Appellee is “closely related” to the contract between Net2Phone and its customers. Although Consumer Cause was not itself a party to the contract, it sued the Appellant in a representative capacity challenging certain contractual terms. By so doing, Consumer Cause asserted similar right of those that were parties to the contract and, if successful, would reap benefits of the victory such as attorney’s fees. The appellate court reasoned that if they were to uphold the trial court’s ruling, a plaintiff could avoid a valid forum selection clause simply by having a representative nonparty file the action.

Second, the district court determined that New Jersey was a suitable alternate forum. Although Consumer Cause was correct in stating that it stands to lose the opportunity to recover attorney’s fees if the forum selection clause is implemented, “the courts paramount consideration is the protection of consumers, not the enrichment of attorneys.” Since New Jersey would provide any Net2Phone customer who claims to have been injured by Net2Phone’s billing practice an adequate avenue to recover, the forum-selection clause should be given effect.

Dissent
In his dissent, Justice Mosk points to three reasons why the court should have upheld the trial courts ruling. First, Mosk notes that enforcement of such forum selection clauses acts to divest California of private attorney general cases and is contrary to California public policy. Second, the forum selection clause was only meant to apply to Net2Phone customers that were under contract. Since Consumer Cause brought this action as a representative, Mosk argues that the forum selection clause is inapplicable in this case. Finally, the dissent argues that New Jersey is not a suitable forum because the state does not confer upon private parties who are not personally inured to bring a representative action on behalf of others.