By Amanda Avila on February 12, 2009 at 11:34 am
Author: Jenny Kim
The U.S. District Court for the Northern District of California dismissed Bennett v. Hosting.com for improper venue last November. The plaintiff’s company, HowFastTheyGrow.com, had signed an agreement to litigate all disputes in Jefferson County, Kentucky when contracting the defendant’s web-hosting services. The court upheld the forum selection clause despite Bennett’s contention that it was unenforceable for unconscionability and inapplicable to her tort claims.
The contract for web hosting services at issue in Bennett v. Hosting.com was a signed business contract between two sophisticated parties. However, Bennett argued that the forum selection clause should be void because she did not have an opportunity to negotiate the contract and was in a weaker bargaining position. Hosting.com maintained that it never would have entered into a contract with Bennett without a forum selection clause requiring disputes to be litigated in Jefferson County, Kentucky, and pointed out that the contract expressly stated that the pricing for its services was based largely on the contract’s limitations. About half of Bennett’s 30 claims either were based on contract causes of action—such as Hosting.com’s alleged failure to use the specified software—or required interpreting the contract in order to assess damages. The remaining 15 claims were tort claims, including an alleged violation of the Lanham Act, 15 U.S.C. §§ 1051-1141(n).
The court relied on Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 for the proposition that forum selection clauses are prima facie valid, and held that neither unfair bargaining power nor inability to negotiate is reason enough for invalidating them. Rather, the court said that the reasonableness of a forum selection clause is determined by whether (1) the contract was formed under fraud, undue influence, or overweening bargaining, (2) the forum is so difficult or inconvenient as to deprive the plaintiff of her day in court, or (3) there is a strong public policy for not enforcing the clause. Argueto v. Banco Mexicano, S.A., 87 F.3d 320,325 (9th Cir. 1996).
The court reasoned that even if there were some bargaining inequalities in the contract’s formation, such conditions are never sufficient to overcome the enforceability of a forum selection clause. Here, any disadvantage to the plaintiff was not severe enough to satisfy the first factor of the test. The court did not directly address the second factor—whether or not Jefferson County, Kentucky was a difficult or inconvenient forum—presumably because the plaintiff relied on the unavailability of Kentucky law for her causes of action in order to assert that she would be deprived of her day in court. The court criticized Bennett’s conflation of a forum selection clause with a choice-of-law clause, and pointed out that a Kentucky court could apply California law without difficulty. Finally, the court ruled that the challenge to the forum selection clause failed on the third factor, as California had a strong public policy favoring enforcement.
As for the tort claims falling outside the application of the forum selection clause, the court ruled that judicial economy favored their being litigated in Kentucky alongside the contract claims. Many of the tort claims were based on the same factual determinations as the contract claims. For example, Bennett’s allegation that Hosting.com did not use the specified software, ColdFusion MX 7.0.2, gave rise to two separate causes of action: first, breach of contract, and second, misrepresentation under the Lanham Act. Because claims such as these required nearly identical fact-finding, the court ruled that the tort claims should be resolved in the same forum as the contract claims.
Decision: 2008 WL 4951020 (N.D. Cal. November 18, 2008)
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