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California Appellate Court Releases Important Decision on Forum Selection and Class Action Restriction Clauses
In l In late November, a California appellate court ruled that a contractual provision requiring arbitration of a minor monetary claim was unenforceable due to the unrealistic geographic barrier it posed. In addition, a contractual provision barring class actions was held to be unenforceable because it involved a large number of consumers who each had small monetary claims.
Earthlink Inc., an Internet service provider, apparently overcharged its new clients. Clients were charged fees from the date that they signed on with Earthlink; however, the necessary equipment to access the service was not received until several weeks later. The service agreement provided for arbitration in the event of a dispute, and the state of Georgia was selected as the forum under the agreement. The agreement also precluded class actions or arbitration.
The court relied on the doctrine of unconscionably and found both of these provisions unenforceable: “[w]e believe that a forum selection clause that requires a consumer to travel 2,000 miles to recover a small sum is not reasonable”. The Court also found that it was unconscionable to preclude a class action when the case involves an allegation that a large number of consumers have each been cheated out of a small sum of money. The total loss of each plaintiff was estimated at $40-$50.
For a copy of the decision, visit:
Ozgur Aral v. Earthlink Inc. m>