Are Online Forum Selection Clauses Enforceable? A N.Y. Court Takes a Closer Look

by Mike Mintz on June 13, 2012 · 0 comments

in Contract Law,Litigation,martindale.com

INTRODUCTION

It has become increasingly popular for people and entities to transact business via the internet.  In fact e-commerce sales in 2009 alone totaled more than $1.2 trillion. (Yes, you read that number correctly.)  E-commerce enables small, local businesses to transact business worldwide.  One of the main advantages is that local businesses can obtain wholesale merchandise from around the globe at even greater discounts.

In the instant action, Jerez v. JD Closeouts, LLC, CV-024727-11 (Dist Ct Nassau Co. 3/20/12), plaintiff Guillermo Jerez, a resident of Nassau County (a suburb of New York City) sued two Florida corporations in Nassau County District Court.  He sought the refund of the money he paid for certain closeout merchandise.  Defendants sought to have the lawsuit brought in Florida based on a forum selection clause they claim was part of a contract of sale between the parties.

The court noted that generally, forum selection clauses are presumptively enforceable.  Such clauses must be incorporated into a contract between the parties.  When it comes to e-commerce transactions, an e-commerce merchant can condition its sales upon a mandatory forum selection provision through various means.  These means include exchanging e-mails, a “click-through” agreement or other circumstances where the forum selection clause is incorporated by reference in conspicuous terms of sale.  However, where the terms of sale are hidden amongst other material and they are not specifically brought to the buyer’s attention, the forum selection clause will not be deemed part of the agreement between the parties.  If the terms of sale containing the forum selection clause are conspicuous and the forum selected is proper under long arm jurisdiction, the action will not be dismissed just because the terms of sale limit the buyer to a different forum.

FACTS

Defendants are in the business of selling closeout merchandise via the internet.  Plaintiff received an e-mail from defendants offering thousands of pairs of socks for sale. Defendants’ website represented the goods as first quality. Plaintiff agreed to buy the clothing for over $7,000.00.  After plaintiff received the socks he noted that they were defective.  Furthermore, nearly half the socks were not delivered.  Defendants refused to refund the payments, nor did they agree to accept return of the defective merchandise.

Plaintiff presented a prima facie case of long arm jurisdiction over defendants because defendants regularly solicit and transact business in New York; they regularly ship merchandise into New York State; and they earn significant income from their sale of goods in New York State.  Defendants, however, sought dismissal of plaintiff’s suit because of a forum selection clause designating Broward County, Florida as the jurisdiction for any disputes.  Defendants inserted the forum selection clause so that they would not be dragged into virtually every courtroom in the United States.  Plaintiff claims that he never saw the clause and that it was buried on defendants’ website.

DISCUSSION

The court initially noted that forum selection clauses are presumptively valid, and they are subject to scrutiny for “fundamental fairness”.  Form contracts containing such clauses are presumptively enforceable even if they were not subject to negotiation.

The court took special note of the need for forum selection clauses for transactions occurring throughout the world in connection with e-commerce transactions.

Plaintiff maintained, however, that he never saw the forum selection clause and defendants did not present any evidence that the terms of sale they provide on their website were ever communicated to plaintiff in connection with the subject transaction.  The absence of such communication is crucial when determining whether the forum selection clause is enforceable.

Plaintiff did not receive the forum selection clause through a printed contract, a confirming letter agreement incorporating these terms by reference or via a “click-through” acceptance of terms and conditions.  Instead, the forum selection clause was buried and it could only be found through an inconspicuous link on defendants’ “About Us” page.

The court concluded that defendants did not do enough to make sure that the forum clause became part of the parties’ contract. Especially in cases where the transaction is conducted via e-mail such as in the instant case, a seller must make an effort to “reasonably communicate” the essential terms of the contract of sale to the buyer.  Defendants could have informed the plaintiff where the terms of the contract could be found on its website.  This was especially essential in this instance because the terms of sale were not placed up front in a conspicuous place.  However, defendants failed to do so.

Since the forum clause was submerged too deeply in defendants’ website, it could not be a binding part of a sale agreement between the parties.  As a result, defendants’ motion to dismiss was denied.

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