January 23, 2017
On January 9, 2017, the United States District Court for the Northern District of California upheld the California choice-of-law provision in Facebook, Inc.’s Terms of Service in the case Jose Palomino et al. v. Facebook Inc., Case No. 3:16-cv-04230 (N.D. Cal. Jan. 9, 2017) (“Palomino”).
In Palomino, various citizens of New Jersey filed a putative class action against Facebook, Inc. (“Facebook”) alleging Facebook’s Terms of Service violated the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”).
Facebook’s Terms of Service state:
You will resolve any claim, cause of action or dispute (claim) you have with us arising out of or relating to this Statement or Facebook exclusively in the U.S. District Court for the Northern District of California or a state court located in San Mateo County, and you agree to submit to the personal jurisdiction of such courts for the purpose of litigating all such claims. The laws of the State of California will govern this Statement, as well as any claim that might arise between you and us, without regard to conflict of law provisions.
The Terms of Service also state:
OUR AGGREGATE LIABILITY ARISING OUT OF THIS STATEMENT OR FACEBOOK WILL NOT EXCEED THE GREATER OF ONE HUNDRED DOLLARS ($100) OR THE AMOUNT YOU HAVE PAID US IN THE PAST TWELVE MONTHS. APPLICABLE LAW MAY NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY OR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. IN SUCH CASES, FACEBOOK’S LIABILITY WILL BE LIMITED TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW.
In their complaint, plaintiffs alleged that the aforementioned provisions violated their established legal rights under New Jersey law. Facebook moved to dismiss plaintiffs’ complaint. Facebook primarily argued that plaintiffs agreed to Facebook’s Terms of Service containing a California choice-of-law provision, and thus California law, and not New Jersey’s TCCWNA, governed the parties’ relationship. In granting Facebook’s motion to dismiss, District Court Judge Gilliam agreed with Facebook and noted that the plaintiffs conceded that they agreed to Facebook’s Terms of Service, which contained the California choice-of-law provision. The Court was, therefore, authorized to resolve the dispute in question under California law. Next, Judge Gilliam stated that the choice-of-law provision itself was valid for two reasons. First, California had a “substantial relationship to the parties” since Facebook is headquartered in California. Second, the TCCWNA and California consumer protection law aim to accomplish the same end, and thus California law is not contrary to fundamental New Jersey policy.
The Court observed that not only are California’s consumer protection laws “among the strongest in the country,” they arguably are even stronger than the New Jersey law at issue, which, unlike California law, does not shield consumers from unfair or fraudulent business practices. According to Judge Gilliam, plaintiffs’ argument that California’s consumer protection laws were fundamentally incompatible with New Jersey’s law “misse[d] the point” of a choice-of-law analysis by focusing on the laws’ different potential remedies rather than their overall intent. Judge Gilliam wrote: “[T]he 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 … [t]he court finds that it is not.”
In summary, the Court held that the California choice-of-law clause in Facebook’s Terms of Service was enforceable because California had a substantial relationship to the parties based on the fact that Facebook is headquartered in California and California law is not contrary to fundamental New Jersey policy. Accordingly, the Court granted Facebook’s motion and dismissed plaintiffs’ complaint with prejudice.
The Palomino decision has wide-reaching implications and illustrates California courts’ support for choice-of-law provisions in various terms of service agreements.