Corporate Dispute Management

LEGAL MATTERS COLUMN - OCTOBER 19, 2007


Corporate Dispute Management

By Stephen Gizzi

Among life's many little irritations, we've all experienced the frustration of trying to straighten out a problem with a large, faceless corporate monolith. As if getting caught up in the voice jail abyss is not bad enough, who among us has not finally quit the good fight and simply paid what then seemed like the small pittance of $5, $10 or even $20 in charges we knew were not owed because we simply didn't have the time to correct a billing or other account error.

It seems that as companies grow, merge and the customer base naturally increases, the first department to be reduced always seems to be customer “service.” This causes a certain number of prospective disputes to go away simply because people don't have the patience to wait the extra time it will take to speak to a real human being.

Many large corporations intentionally develop policies that make it difficult for customers to pursue claims against the company. For example, America Online had a provision in its agreement that required its users to bring any disputes or claims they had against AOL only in the state of Virginia. This is called a “forum selection” clause and is now a part of many contracts. The AOL forum selection clause was contained in the very small print contained in the user agreement. This made it difficult for users, whose claims rarely exceeded a couple of hundred dollars, to enforce their rights under the agreement without incurring significant expense.

In the late 1990s, AOL was accused of continuing to debit credit cards of former users after they terminated service. A class-action suit was brought against AOL in California for the wrongful charges. In its response, AOL sought dismissal of the case claiming that its user agreements required that any claims be heard in the State of Virginia. The California Appellate Court court in America Online v Superior Court (2001) 90 Cal.App.4th refused to enforce the contract provision, reasoning that enforcement would violate public policy and substantially diminish the rights of California consumers.

In 2002, the California Legislature adopted Code of Civil Procedure Section 116.225 which provides that an agreement which establishes a forum outside of California for an action arising from an offer or the provision of goods, services, property or credit, for personal, family or household purposes, that would normally be under the jurisdiction ($7,500) of a small claims court, is contrary to California public policy and is therefore void and unenforceable.

This legislation is extremely important for California consumers. Regardless of what may be contained in the boilerplate provisions of user agreements, product warranty provisions or other similar contracts which purport to define the terms governing the relationship between the manufacturer or provider of services, and the ultimate consumer, those terms will not necessarily stand up to judicial scrutiny. At the end of the day, regardless of what the written provisions may state, because of the unequal bargaining power of the parties, and the fact that in most cases the consumer has not had an opportunity to negotiate the terms under which they have agreed to purchase the product or service, it is the job of courts to ensure that contract terms are fair, accurately reflect the intent of the parties and do not violate public policy.



The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.