Locke Lord QuickStudy: Facebook Defeats New Jersey TCCWNA Claim Based on its California Choice-of-Law Provision

January 18, 2017

Facebook, Inc. recently dodged a putative class action alleging that it violated New Jersey’s Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”) when a California federal court dismissed a New Jersey resident’s class action complaint based on a California choice-of-law provision in Facebook’s online Terms of Service (“TOS”). See Palomino v. Facebook, Inc., No. 16-cv-04230, 2017 WL 76901, at *5 (N.D. Cal. Jan. 9, 2017).

By way of background, TCCWNA is a consumer protection statute that prohibits sellers from including in their consumer contracts, warranties, notices, or signs any provision that “violates any clearly established legal right of a consumer” N.J.S.A. 56:12-15. The Act also calls into question the viability of common savings provisions like “void where prohibited by law” since it provides, in part, that “[n]o consumer contract, notice or sign shall state that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey”. N.J.S.A § 56:12-16. TCCWNA’s use of undefined terms, and its statutory damages and attorney’s fees provisions have made it a recent favorite amongst the plaintiffs’ bar. N.J.S.A § 56:12-17.

In Palomino, plaintiffs alleged that Facebook’s online TOS violated TCCWNA because they contained certain provisions purporting to (1) “disclaim liability for claims brought for [Facebook’s] negligent, willful, malicious and wanton misconduct”; (2) “bar claims for personal and economic injury and punitive damages”; and (3) “ban consumers from asserting claims against [Facebook] for deceptive and fraudulent conduct.” Palomino, 2017 WL 76901, at *1. The Palomino plaintiffs further alleged that Facebook violated TCCWNA because the TOS provided that its limitations on liability might be inapplicable in certain jurisdictions, without specifying whether the limitations were applicable in New Jersey. Id. at *2. Facebook argued, however, that its TOS contained an enforceable California choice-of-law provision, and thus New Jersey’s TCCWNA could not govern the TOS. Id. Applying California’s choice-of-law analysis, the court concluded that plaintiffs could not maintain statutory causes of action premised on New Jersey law and dismissed plaintiffs’ claims. Id. at *2-3.

First, the court found that plaintiffs’ TCCWNA claims fell within the scope of the California choice-of-law provision in the TOS. Id. at *3 (finding plaintiffs’ claims arose from or related to Facebook’s TOS). Next, the court addressed whether the choice-of-law provision was enforceable. Id. Plaintiffs contended that the California choice-of-law provision was contrary to fundamental New Jersey policy because “enforcement of the choice of law provision ‘would effectively write out of existence New Jersey’s fundamental policy of protecting its citizens from illegal contract terms’” and that “California law does not ‘provide the same protections as the TCCWNA’ or ‘afford plaintiffs the same rights.’” Id. at *4. To the contrary, the court found that “California not only has its own robust body of consumer protection law that strives to prevent consumer deception by prohibiting unlawful business practices and unconscionable contract provisions, but California law arguably goes further than the TCCWNA by also proscribing unfair or fraudulent business practices.” Id. Therefore, the court found 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.” Id. Accordingly, the court held that the California choice-of-law provision was valid and enforceable and that plaintiffs could not maintain their New Jersey TCCWNA claims. Id.

The outcome in Palomino could have been different had Facebook’s choice-of-law provision provided for a different, less consumer-friendly state’s laws. For example, in a recent TCCWNA case, the New Jersey Appellate Division enforced a Pennsylvania forum selection clause in a consumer contract, but called into question the enforceability of a choice-of-law provision providing for the application of Pennsylvania law. See Carfaro v. Blue Haven Pools Ne., Inc., No. A-2803-13T3, 2015 WL 1980705, at *8-9 (N.J. Super. Ct. App. Div. May 5, 2015). In Carfaro, a concurring opinion “respectfully urge[d] the Pennsylvania tribunal to apply New Jersey law” notwithstanding the contract’s Pennsylvania choice-of-law provision because “[i]t would be presumptuous to assume that a Pennsylvania court would arbitrarily apply the law of its own state and ignore without justification the more stringent laws of plaintiffs’ home state of New Jersey”. Id. at *8.

New Jersey state and federal courts are likely to confront these issues again as they address the many pending TCCWNA cases on their dockets. In many of those cases, it is anticipated that defendants will argue that TCCWNA causes of action should be dismissed where the allegedly offensive consumer contracts contain non-New Jersey choice-of-law provisions. It will be important to watch where the courts come out on the enforceability of choice-of-law provisions, whether those choice-of-law provisions can preempt TCCWNA causes of action for New Jersey consumers, and whether the decision in Palomino will bear any influence on the courts’ analyses.

Finally, the Palomino decision serves as a reminder for companies to think through their decisions on governing law in consumer contracts and to be cognizant of developments in consumer protection laws throughout the county like TCCWNA that might call into question the viability of companies’ choice-of-law provisions.