Wednesday, June 11, 2003
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‘Private Attorney General’ Bringing Consumer Suit Held Bound by Contract’s Forum Selection Clause
By a MetNews Staff Writer
A private citizen who brings an action under California’s unfair competition law, claiming that the inclusion of a particular provision in a contract constitutes an unfair or illegal business practice, is bound by a forum selection clause in the contract, the Court of Appeal for this district has ruled.
A divided panel in Div. Five Monday granted a writ of mandate requiring that Consumer Cause, Inc. litigate its unfair practices claim against Net2Phone, Inc. in the company’s home state of New Jersey. The ruling likely kills the group’s “private attorney general” action, the panel acknowledged, because New Jersey law only permits consumer protection actions to be brought by injured parties or by the state attorney general.
Consumer Cause, represented by Los Angeles attorney Morse Mehrban, has filed or threatened to file numerous lawsuits under state laws—such as the unfair competition law, Business and Professions Code Sec. 17200, and the toxics control statute, Proposition 65—that permit any member of the public to bring suit.
The organization has been described by one law firm whose clients were among those targeted as a “Proposition 65 bounty-hunter,” and its practice of sending out massive numbers of notices of intent to sue, then settling for donations plus attorney fees, was described by a Court of Appeal justice as “a form of judicial extortion.”
In its complaint against Net2Phone, which provides “telephony services”—enabling computers user to place phone calls over the Internet—Consumer Cause claimed the company engages in “false, misleading and fraudulent” advertising by failing to disclose that charges for each call are “rounded up” to the next full minute.
The suit also attacked the company for not disclosing its billing practices other than on the Internet, where “Terms of Use” and an “End User License Agreement” are accessed via hyperlink.
By clicking on the appropriate links, customers agree to be bound by certain terms, including the requirement that any litigation regarding the parties’ agreement be commenced in New Jersey and that the customer submit to the jurisdiction of that state’s courts.
Consumer Cause argued that it was not bound by the forum selection clause because it is not a Net2Phone customer and not a party to any contract with the company. It also argued that because it lacked standing in New Jersey, that state’s court were not a suitable alternative forum and the clause could not be enforced against it as a matter of public policy.
Los Angeles Superior Court Judge George H. Wu agreed and denied the motion. He commented that “and “had the real Attorney General brought this action, I would doubt if this court would be sending him to New Jersey to try the matter.”
But Justice Orville Armstrong, writing Monday for Div. Five, said that while the “real Attorney General” would not be prevented from filing suit in the state’s courts to protect its consumers, a private entity may be.
“Although the label ‘private attorney general’ is often used (or misused) to describe a private plaintiff in a UCL action, respondent court construed the term too literally,” the justice wrote. “The filing of a UCL action by a private plaintiff does not confer on that plaintiff the stature of a prosecuting officer, and the fact that the plaintiff may be acting as a so-called ‘private attorney general’ is irrelevant for purposes of the issue presented here.”
While the statute confers standing on a private citizen who is not a party to the contract, Armstrong reasoned, it does not confer any greater rights on such a plaintiff than it does on the parties. Since a party to the contract who brought the identical claim would be bound by the clause, Consumer Cause is as well, the justice concluded.
Armstrong professed to be unperturbed by Consumer Cause’s potential lack of standing in New Jersey. The consumers whom the organization purports to be seeking to protect, he noted, can protect their own interests by filing suit there.
“While it is true that Consumer Cause stands to lose the opportunity to recover attorney’s fees should it prevail in a California UCL action, our paramount consideration is the protection of consumers, not the enrichment of attorneys,” he wrote.
Presiding Justice Paul A. Turner concurred in the opinion, but Justice Richard Mosk dissented.
The suit, Mosk argued, was not being brought solely to benefit Net2Phone customers, but to protect the California public from allegedly false advertising. Since most members of that public are no more parties to Net2Phone’s contracts, he said, it is appropriate for Consumer Cause or any other member of that public to sue in the public interest in the state’s courts without regard to the forum selection clause.
The case is Net2Phone, Inc. v. Superior Court (Consumer Cause, Inc.), 03 S.O.S. 2901.
Copyright 2003, Metropolitan News Company