By Craig A. Roeb and Karen D. Morse
Edited by Barbara Kate Repa
California's Forum Factor in Cyberspace
The evolution of the Internet and related technology connects people and business in such a way that states and countries are now virtually borderless, commercially. Commerce is often consummated with the click of a computer key rather than the strokes of pens at signing ceremonies around boardroom tables. This smaller, more connected world shakes the reasoning, and sometimes the viability, of the time-tested doctrine of forum non conveniens.
The doctrine, codified in California Code of Civil Procedure section 410.30, states that "when a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just."
Therefore, what is considered in the "interest of substantial justice" is a matter of advocacy skills. And often, the availability of witnesses and evidence play a large role. But when laws are more favorable in a certain state or country, such choice-of-law considerations play a role in determining whether a particular forum is appropriate.
In the seminal decision of Stangvik v. Shiley (54 Cal. 3d 744 (1991)), the California Supreme Court held that the equitable doctrine of forum non conveniens should be based instead on whether the alternative forum is suitable, after balancing the private and public interests involved.
Suitability of the Forum
In Stangvik, the California Supreme Court defined a suitable forum as one in which a valid judgment may be obtained against a defendant. To determine whether a "valid judgment may be obtained," it directed that three issues must be considered: personal jurisdiction, the statute of limitations, and the remedy available.
Personal jurisdiction. If a court cannot mandate the defendant's presence and he or she is unwilling to stipulate to service of process there, then the case must remain in the forum in which it was filed. Typically, this element is easily satisfied because the defendant is usually the party alleging that the interests of justice require the action to be filed and tried in another forum.
Statute of limitations. If the statute of limitations poses a bar to filing the plaintiff's claim in the alternative forum, the action must remain where it was initially filed. However, this element can be satisfied if the defendant stipulates to waiving the limitations bar. Therefore, neither the issue of the statute of limitations nor of personal jurisdiction typically result in denying a defendant's motion on the basis of forum non conveniens. The defendant, as the moving party, will most likely comply with the requirements to meet the burden of proof that the case should be transferred.
Available remedy. The majority of the court's consideration is grounded in the third element: whether a remedy is available to a plaintiff whose claim is heard in the alternative forum. Therefore, the court simply looks to whether a remedy is available and does not consider other issues. The Stangvik court refused to consider the plaintiff's argument that she might be entitled to more recovery in California as a factor in its forum non conveniens analysis. In so doing, the court did not inquire into choice-of-law principles, holding that, "advantages of procedural or substantive law cannot be considered as a factor."
As noted, the personal-jurisdiction and statute-of-limitations conditions must be satisfied before the court can consider the forum a suitable alternative. However, in Stangvik, the state Supreme Court included five additional conditions. It held that a defendant can increase the chances of proving original forum unsuitability by agreeing to: comply with discovery orders; produce documents and evidence at his or her own expense; make past and present employees and witnesses available to testify in the alternative forum, also at his or her own expense; and pay costs on any final judgments rendered in the foreign court.
Assuming the alternative forum is "suitable," the court will next identify and balance the private and public interests at stake.
Private interests. The Stangvik court identified private-interest factors as those that enable an "expeditious and inexpensive" resolution of the matter before the court. It noted the following examples: ease of access to sources of proof, the cost of obtaining witnesses, and the availability of a compulsory process for attendance of unwilling witnesses.
Public interests. Next, Stangvik identified the following public-interest concerns: the degree of congestion in the court's calendar, the interests of potential jurors in deciding cases in which their community is concerned, and the competing interests of California and the alternative jurisdiction proposed.
After outlining the factors for consideration in the private-interest versus public-interest balancing determination, the Stangvik court discussed the U.S. Supreme Court's landmark forum non conveniens case, Piper Aircraft v. Reyno (454 U.S. 235 (1981)). The Stangvik court noted Piper's cautionary language to take care not to place "undue emphasis" on a single factor that may be "especially threatening to a balanced analysis because some matters to be weighed will by their nature point to a grant or denial of the motion." Therefore, the California Supreme Court emphasized that all of the foregoing factors should be given equal consideration in each case.
In Stangvik, the trial court found that Sweden and Norway were both adequate alternative forums. Defendants produced evidence that, as in the United States, either country might permit recovery under a strict liability theory, that Norway might allow special damages in some circumstances, and that actions could be pursued there without undue delay. The state Supreme Court concluded that the fact that California law would likely provide the plaintiffs with certain advantages of procedural or substantive law could not be considered in the plaintiffs' favor in the forum non conveniens balance.
The court then considered the effect of the parties' residence. It noted that many cases hold that a plaintiff's choice of forum should rarely be disturbed unless the balance is strongly in favor of the defendant. But Piper holds that, when the plaintiff resides in a foreign country, the plaintiff's choice of forum is much less reasonable and is not entitled to the same preference as a resident of the state where the action is filed. The defendant's residence is also a factor to be considered in the balance of convenience. If a corporation is a defendant, then the state of incorporation or its principal place of business is presumptively a convenient forum.
However, the presumption of convenience is not conclusive. A resident defendant may overcome the presumption with evidence that the alternate jurisdiction is a more convenient place for the action to be tried.
The state Supreme Court in Stangvik considered four factors in holding that the public interest favored granting the motions: California's interest in avoiding undue congestion of its courts due to the trial of foreign causes of action; the state's deterrent and regulatory interests in products manufactured here; appropriate deference to the laws and policy decisions of foreign governments; and the competitive disadvantage to California business if resident corporations were required to defend lawsuits here based on injuries incurred in other jurisdictions.
The court held there can be no question that the already congested courts of California would be burdened by trying the numerous and complex actions brought by plaintiffs who reside in foreign countries. It also found that only negligible additional deterrence would result if the defendants were called to account for their allegedly wrongful conduct in a California court rather than in the courts of Scandinavia. And it held that a detailed discussion of the additional factors was unnecessary because the court was justified in upholding the judgment based on the other public-interest and private-interest factors it considered.
The supreme court then considered an additional factor alleged by the plaintiffs: the defendants' connection with California. It held that the cumulative connection of the defendant and its conduct within the state is relevant in deciding whether retention of the action would place an undue burden on the courts, but that it must also consider the complexity of the case, whether it would consume considerable court time, and the condition of the court's docket.
The court found there was substantial evidence to sustain the trial court's determination that the balance of private and public interests favors defendants under the traditional rules laid down in prior cases. Much of the evidence concerning liability was in California, but all the evidence relating to damages was in Scandinavia. It held that the public-interest factors clearly favored the defendants' position, based on the burden on the California courts. It also reasoned that the state's interest in deterring future improper conduct by defendants would be amply vindicated if the actions filed by California plaintiffs resulted in judgments in their favor.
Finding a Forum in Cyberspace
In response to the possibility of myriad suitable alternative forums being created in an increasingly connected world, parties in commerce can agree to adjudicate disputes in a particular forum, and pursuant to the laws of a particular state, by including forum-selection clauses in contracts. However, given how the Internet has significantly diminished the number of face-to-face business negotiations, the enforcement of these clauses is potentially problematic.
To date, little case law has developed applying the Stangvik-defined forum non conveniens doctrine to the advent of the Internet and related cyberspace. As a general rule, though, California favors contractual forum-selection clauses so long as they are entered into freely and voluntarily and their enforcement would not be unreasonable. (Smith, Valentino & Smith, Inc. v. Superior Court, 17 Cal. 3d 491 at 495–96 (1976).)
In Net2Phone, Inc. v. Superior Court (109 Cal. App. 4th 583 (2003)) a consumer-protection organization brought a class action in California under the state's unfair competition law against Net2Phone, a telecommunications company with a worldwide customer base and its principal place of business located in New Jersey. Net2Phone moved to dismiss or stay the action pursuant to the terms-of-use provision to which its customers must agree before using Net2Phone's services. Pursuant to that provision, New Jersey was the designated forum, and choice of law.
The plaintiff, Consumer Cause Inc., argued that, as a "public prosecutor" in an unfair competition action, it was not bound by the forum-selection clause. The court of appeal rejected the argument, holding that forum-selection clauses may be enforced against a plaintiff that, although not a party to the contract itself, sues in a representative capacity on behalf of allegedly injured plaintiffs. Because there was no indication the plaintiffs would be afforded less protection if required to litigate their claims in New Jersey, the forum-selection clause was held enforceable.
However, although generally favored, forum-selection clauses are not boundless, as the court of appeal reiterated in America Online, Inc. v. Superior Court (90 Cal. App. 4th 1 (2001)). In America Online, the court refused to enforce a forum-selection clause designating Virginia as the selected forum and choice of law, because to do so would have violated California public policy.
In that case, former subscribers to America Online brought a class action under California's Consumer Legal Remedies Act, or CLRA (Cal. Civ. Code §§ 1750–84), lleging that their debit cards had been charged after they canceled their subscriptions. America Online argued that California was an inconvenient forum given the forum-selection clause in the terms-of-service agreement, which designated Virginia as the selected forum and choice of law.
The appellate court disagreed, holding that Virginia was not a suitable forum to adjudicate the dispute. The court focused on Virginia's Consumer Protection Act, which provided significantly less consumer protection than the CLRA and did not allow such suits to proceed as class actions. Consequently, the court concluded that enforcing America Online's forum-selection clause would equate with a waiver of the statutory remedies of the CLRA, in violation of that law's antiwaiver provision (Cal. Civ. Code §§ 1751) and California public policy.
Also instructive is Panavision International, L.P. v. Toeppen (141 F.3d 1316 (1998)). Although the court of appeal in that case did not deal directly with the doctrine of forum non conveniens, it addressed one of the considerations included in the forum analysis: personal jurisdiction.
Relying on Cybersell, Inc. v. Cybersell, Inc. (130 F.3d 414 (9th Cir. 1997)), the court analyzed what may constitute "purposeful availment" in determining personal jurisdiction in cyberspace. In Cybersell, the Ninth Circuit held that merely posting a home page accessible on the Internet was insufficient "contact" upon which to exercise personal jurisdiction. In reaching this decision, it examined cases from other circuits and determined that no court had ever held that an advertisement over the Internet was enough to warrant personal jurisdiction. Rather, something more is needed to establish personal jurisdiction. Many courts focus on the "effects doctrine" when determining whether that "something more" has been established, concluding that purposeful availment is realized when the defendant's conduct is intentionally directed at or has an "effect" in another state.
In Panavision, the plaintiff maintained its principal place of business in California. It alleged that defendant Toeppen had stolen its trademarks and established Internet domain names for the purpose of using the trademarks to sell the domain names back to their rightful owners. Toeppen argued that California could not demonstrate personal jurisdiction over him because his only contact with the state was his registration of domain names online, which he did from Illinois.
However, because Panavision suffered injury in California as a result of Toeppen's intentional acts, California retained jurisdiction over him. Specifically, Toeppen intentionally registered Panavision's trademarks as his own in a scheme to coerce Panavision to pay him money, with Panavision suffering harm and damages in California.
Craig A. Roeb (firstname.lastname@example.org) is a partner and Karen D. Morse (email@example.com) is an associate in the Los Angeles office of Chapman, Glucksman & Dean, where both are members of the firm's business, employment, and products liability practice groups.
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