New York Will Be e-Commerce Case Forum, Not Florida As Terms Say

A Long Island resident who bought 50,000 pairs of tube socks from a Florida-based “closeout” merchandiser can pursue a claim against the supplier in New York court, a judge has ruled.

The decision of Nassau County District Court Judge Michael A. Ciaffa in Jerez v. JD Closeouts, CV-024727-11 (see, http://bit.ly/H5jhs3), explored a legal issue now prominent because of burgeoning e-commerce activity: Where should legal disputes of e-commerce issues that cross jurisdictions be resolved?

The judge noted that, thanks to Internet growth, once small businesses can sell their goods all over the world while local merchants have more opportunities to obtain discounted wholesale merchandise.

The judge quoted federal figures that e-commerce sales by “merchant wholesalers” in 2009 amounted to $1.2 trillion.

“When e-commerce transactions go smoothly, both parties benefit,” Judge Ciaffa observed. “But when disputes arise, the parties seek judicial resolution.”

On the Docket

Here, Guillermo Jerez paid $6,000 to JD Closeouts in Hollywood, FL, for thousands of tube socks he planned to sell in Chile or New York, Steven Moser, of Glen Cove, says. With shipping, his total outlay was more than $7,000. But after inspecting the socks, Jerez claimed they were too small and could easily tear. Moser claims JD Closeouts refused to refund Jerez's money, and he sued in Nassau District Court for breach of contract and other causes of action.

JD Closeouts sought to dismiss the suit, arguing that the terms of sale contains “a valid and enforceable forum selection clause” requiring that any litigation be commenced in Broward County, FL.

“It would be unconscionable to make JD Closeouts subject to jurisdiction in every state in every county in the country,” company principal Joseph Beyhan said in an affidavit. “The forum selection clause is an absolute necessity so that JD Closeouts can run its business. JD Closeouts is not a huge company and pulling officers away from the business to defend a lawsuit in New York would be detrimental to its operations.”

Judge Ciaffa acknowledged that an online merchant can condition its sales on a mandatory forum-selection provision through various means, but a seller must make a reasonable effort to communicate essential terms to the buyer. He held the sales terms purportedly required a Florida venue in this case were too deeply “submerged” in the website where the goods were advertised to create an obligation. Internet users had to click through links on the defendants' website to read the venue requirement.

“[e-C]ommerce merchants cannot blithely assume that the inclusion of sale terms, listed somewhere on a hyperlink page on its website, will be deemed part of any sale,” Judge Ciaffa wrote in a March 20 decision.

What Precedent Says

The judge surveyed a variety of precedents on the enforceability of forum-selection clauses. For instance, the U.S. Supreme Court in Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585 (1991), http://bit.ly/H7W3lo, upheld a forum-selection clause in a cruise passenger's ticket. But in that case, the passengers conceded they had been given notice of the provision, Judge Ciaffa noted. Jerez claimed he never saw the JD Closeouts forum-selection clause provision and the judge said the defendants presented no evidence that the “terms of sale” listed on the website were ever communicated to Jerez.

“Under the law of contract, the absence of such a communication is critically important in determining whether the forum clause will be enforced,” the judge wrote.

Judge Ciaffa also cited Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002), http://bit.ly/H7WlZk, an opinion written by then-Second Circuit Judge and now U.S. Supreme Court Judge Sonia Sotomayor. In that decision, Judge Ciaffa noted, the court found that placement of license terms on an unexplored portion of a Web page, below a download button, was not sufficient to bind customers to the terms.

Case Law Spare

Moser says there is sparse case law on the forum-selection issue in New York but the ruling confirms Justice Sotomayor's opinion.

“There has to be some type of express consent” of the sale terms, Moser says.

“I'm happy with it, because it's what we anticipated,” he says of Judge Ciaffa's ruling.

Defendants' attorney Meyer Silber of Manhattan says the “terms of sale were not quite as buried as the judge seems to think.”

“To force a website to essentially flash on its front page that the venue is going to be in Florida kind of undermines the website itself and essentially forces a small website like this to defend itself in every state in the country,” Silber says. “The requirements are ambiguous as to what is required to protect the seller.”

Beyhan said in an interview that allowing the case to proceed in New York “is not right.”

“It's supposed to be in Florida court,” he said, adding that he needs to talk with his lawyer to determine how to proceed.

Accept Terms Before Transactions

Peter Brown, a partner at Baker Hostetler who is not involved in the case, said that no matter where the terms of sale are located on a website, few people actually read them.

“The court is not being completely practical,” says Brown, who heads the firm's technology law practice. “The general perception is less than 1% or 2% of all users of websites ever read any part of the terms of the use, so the notion that it was somehow buried within the terms of the use assumes someone would use it.”

Brown added that many courts would disagree with Judge Ciaffa.

“But there was a legal basis for his opinion as to the lack of clear notice,” Brown explains.

The practical advice for sellers: A website should ask the user to accept the terms of use before the transaction is completed, Brown explains, adding that “it's really a difference between an active and a passive consent.”

A Long Island resident who bought 50,000 pairs of tube socks from a Florida-based “closeout” merchandiser can pursue a claim against the supplier in New York court, a judge has ruled.

The decision of Nassau County District Court Judge Michael A. Ciaffa in Jerez v. JD Closeouts, CV-024727-11 (see, http://bit.ly/H5jhs3), explored a legal issue now prominent because of burgeoning e-commerce activity: Where should legal disputes of e-commerce issues that cross jurisdictions be resolved?

The judge noted that, thanks to Internet growth, once small businesses can sell their goods all over the world while local merchants have more opportunities to obtain discounted wholesale merchandise.

The judge quoted federal figures that e-commerce sales by “merchant wholesalers” in 2009 amounted to $1.2 trillion.

“When e-commerce transactions go smoothly, both parties benefit,” Judge Ciaffa observed. “But when disputes arise, the parties seek judicial resolution.”

On the Docket

Here, Guillermo Jerez paid $6,000 to JD Closeouts in Hollywood, FL, for thousands of tube socks he planned to sell in Chile or New York, Steven Moser, of Glen Cove, says. With shipping, his total outlay was more than $7,000. But after inspecting the socks, Jerez claimed they were too small and could easily tear. Moser claims JD Closeouts refused to refund Jerez's money, and he sued in Nassau District Court for breach of contract and other causes of action.

JD Closeouts sought to dismiss the suit, arguing that the terms of sale contains “a valid and enforceable forum selection clause” requiring that any litigation be commenced in Broward County, FL.

“It would be unconscionable to make JD Closeouts subject to jurisdiction in every state in every county in the country,” company principal Joseph Beyhan said in an affidavit. “The forum selection clause is an absolute necessity so that JD Closeouts can run its business. JD Closeouts is not a huge company and pulling officers away from the business to defend a lawsuit in New York would be detrimental to its operations.”

Judge Ciaffa acknowledged that an online merchant can condition its sales on a mandatory forum-selection provision through various means, but a seller must make a reasonable effort to communicate essential terms to the buyer. He held the sales terms purportedly required a Florida venue in this case were too deeply “submerged” in the website where the goods were advertised to create an obligation. Internet users had to click through links on the defendants' website to read the venue requirement.

“[e-C]ommerce merchants cannot blithely assume that the inclusion of sale terms, listed somewhere on a hyperlink page on its website, will be deemed part of any sale,” Judge Ciaffa wrote in a March 20 decision.

What Precedent Says

The judge surveyed a variety of precedents on the enforceability of forum-selection clauses. For instance, the U.S. Supreme Court in Carnival Cruise Lines Inc. v. Shute , 499 U.S. 585 (1991), http://bit.ly/H7W3lo , upheld a forum-selection clause in a cruise passenger's ticket. But in that case, the passengers conceded they had been given notice of the provision, Judge Ciaffa noted. Jerez claimed he never saw the JD Closeouts forum-selection clause provision and the judge said the defendants presented no evidence that the “terms of sale” listed on the website were ever communicated to Jerez.

“Under the law of contract, the absence of such a communication is critically important in determining whether the forum clause will be enforced,” the judge wrote.

Judge Ciaffa also cited Specht v. Netscape Communications Corp. , 306 F.3d 17 (2d Cir. 2002), http://bit.ly/H7WlZk , an opinion written by then-Second Circuit Judge and now U.S. Supreme Court Judge Sonia Sotomayor. In that decision, Judge Ciaffa noted, the court found that placement of license terms on an unexplored portion of a Web page, below a download button, was not sufficient to bind customers to the terms.

Case Law Spare

Moser says there is sparse case law on the forum-selection issue in New York but the ruling confirms Justice Sotomayor's opinion.

“There has to be some type of express consent” of the sale terms, Moser says.

“I'm happy with it, because it's what we anticipated,” he says of Judge Ciaffa's ruling.

Defendants' attorney Meyer Silber of Manhattan says the “terms of sale were not quite as buried as the judge seems to think.”

“To force a website to essentially flash on its front page that the venue is going to be in Florida kind of undermines the website itself and essentially forces a small website like this to defend itself in every state in the country,” Silber says. “The requirements are ambiguous as to what is required to protect the seller.”

Beyhan said in an interview that allowing the case to proceed in New York “is not right.”

“It's supposed to be in Florida court,” he said, adding that he needs to talk with his lawyer to determine how to proceed.

Accept Terms Before Transactions

Peter Brown, a partner at Baker Hostetler who is not involved in the case, said that no matter where the terms of sale are located on a website, few people actually read them.

“The court is not being completely practical,” says Brown, who heads the firm's technology law practice. “The general perception is less than 1% or 2% of all users of websites ever read any part of the terms of the use, so the notion that it was somehow buried within the terms of the use assumes someone would use it.”

Brown added that many courts would disagree with Judge Ciaffa.

“But there was a legal basis for his opinion as to the lack of clear notice,” Brown explains.

The practical advice for sellers: A website should ask the user to accept the terms of use before the transaction is completed, Brown explains, adding that “it's really a difference between an active and a passive consent.”