California Court Grapples with Dispute Settlement in a Click-Through Agreement

In a recent case, Aral v Earthlink Inc, the California Court of Appeal wrestled with the complexities of overlapping federal, state and common law principles regarding the rights of a consumer bound by an online standard form contract to participate in a "reasonable" dispute settlement process. The ISP in question (Earthlink) and the California resident consumer (Aral) had entered into an online, "click-through" agreement for the DSL service of Earthlink. The agreement provided for mandatory arbitration of disputes in Georgia and purported to exclude class action suits. A dispute arose because Earthlink charged fees to Aral for services he could not use until Earthlink later provided him with equipment necessary to use the service. Aral instituted a class action suit under a California consumer statute seeking both damages and an injunction. A lower court dismissed the suit on the basis that since an arbitrator could not issue injunctive relief, the class action should proceed. However, the Court of Appeal upheld for different reasons. It found that the agreement could not exclude class action relief and that a forum selection clause mandating dispute settlement in Georgia for a small claim was unreasonable and should not be enforced. As a result, the action was allowed to go forward. Although the case involved added complexity because of overlapping jurisdiction between federal and state laws and because yet a third option for the consumer of filing a small claims court action existed, it is interesting that the Court of Appeal ultimately sided with the consumer on pragmatic grounds:

" … forcing consumers to travel to a far location and depriving them of any hope of class litigation would pose an insurmountable barrier to recovery of small sums … and undermine [statutory protections]".

Dispute settlement clauses frequently are treated as part of contractual "boilerplate". The risk associated with this perspective is increased when the contract is one entered into over the Internet, a transaction in which geography may seem less important. For the full text of Aral v Earthlink, see: http://www.courtinfo.ca.gov/opinions/documents/B177146.PDF Summary by: The Editor