Courts Endorse Businesses’ Using Forum-Selection Clauses As Litigation Management Tools

Guest Commentary

by Ross Coker*

Since its debut in the early 2000s, Google has grown at a startlingly rapid pace, becoming not only a global behemoth in the online search engine and advertising markets, but expanding its reach through smartphones, computer operating systems, and more.  Just this month, Google surpassed ExxonMobil as the world’s second largest company by market capitalization.

In the United States, such success inevitably makes one a target of class-action lawsuits.  To avoid being dragged into one of the country’s notorious Judicial Hellholes,® companies like Google include venue and forum selection clauses in their consumer contracts.  In addition to avoiding plaintiff-friendly jurisdictions, such clauses allow companies to resolve legal disputes close to “home” in a manner that minimizes disruption to conducting business.

A recent federal district court ruling, Rudgayzer et al. v. Google Inc., reflects the importance and effectiveness of these forum-selection clauses and clarifies their strategic underpinning.  Rudgayzer filed suit in the Eastern District of New York (EDNY) alleging improper notice after Google settled another class action suit involving the now-defunct “Buzz” product.  The judge dismissed Rudgayzer’s suit because the plaintiff had assented to Google’s consumer contract, which contained the forum-selection clause.

Santa Clara County, CA
Santa Clara County, CA

In order to reach that conclusion, the court had to first determine whether the clause could be enforced.  The court noted that the federal circuits are split on the legal standard to apply in this situation.  The Second Circuit, whose precedents bind the EDNY, permits dismissal under Federal Rule of Civil Procedure 12(b)(3) if the consumer was made aware of the forum-selection clause, the clause is mandatory by the terms of the contract, and state contract law permits the imposition of such a clause.  The plaintiff can escape the clause only if it can show that the transfer of its case would be “unreasonable or unjust.”  Continue reading “Courts Endorse Businesses’ Using Forum-Selection Clauses As Litigation Management Tools”