Facebook recently beat a class action lawsuit that claimed its Terms of Service violated New Jersey’s consumer protection law, the Truth-in-Consumer Contract Warranty and Notice Act, after a judge enforced the California choice-of-law clause in Facebook’s terms of use. The decision in Palomino v. Facebook shows choice-of-law clauses used by online retailers that are based outside New Jersey can preclude TCCWNA claims. This is especially true for those, like Facebook, who are headquartered in California, which has consumer protection laws that are “among the strongest in the country.”
Background
In order to access Facebook users must agree to the Terms of Service, which contains provisions that, among other things, disclaim liability for negligent and willful misconduct, bar claims for “personal and economic injury,” and ban consumers from bringing claims for deceptive and fraudulent conduct.
Jose Palomino and Jason Huhn filed a lawsuit in June 2016 claiming the terms of use violate the TCCWNA. The law prohibits sellers of products and services from including terms in consumer contracts that violate “any clearly established legal right of a consumer” under New Jersey or federal law. Facebook argued the case should be dismissed for two reasons. First, it said the plaintiffs had agreed to its Terms of Service, which also contained a California choice-of-law provision. As such, California law, not New Jersey’s TCCWNA, controlled the parties relationship. Second, it said even if the TCCWNA applied, Facebook was not a “seller” and plaintiffs were not “consumers.”
Decision
U.S. District Judge Haywood S. Gilliam Jr. did not address the second question in his Jan. 9 decision to dismiss the lawsuit with prejudice, holding instead that Facebook’s choice-of-law clause was enforceable and the plaintiffs were therefore precluded from suing under the TCCWNA.
California’s test for enforcing a choice-of-law clause begins by asking whether California has a “substantial relationship” to the parties. This requirement was met because Facebook is headquartered in California. The second question was whether the plaintiffs could show that applying California law would violate “fundamental New Jersey policy.” Ruling the plaintiffs had failed to meet this burden, the judge noted California’s consumer protection laws have been recognized as among the strongest in the country and arguably go even further than the TCCWNA.
“Accordingly, the Court finds that 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 judge rejected the plaintiffs argument that California law was contrary to New Jersey because the laws afforded different rights and remedies, saying courts shouldn’t refrain from applying the chosen just because it would lead to a different result.
Conclusion
This case comes amid a recent wave of class action lawsuits from plaintiffs alleging that sellers of products and services violate the TCCWNA. While each company’s situation is different, the decision gives hope to non-New Jersey retailers, especially those headquartered in California, who have choice-of-law clauses in their terms of service that they will be able avoid such lawsuits.
