X Litigation Forum Selection Clause Is Unenforceable, Court Rules

From Judge Casey Pitts (N.D. Cal.) yesterday in Doe v. SpaceXAI Corp:

Plaintiffs Jane Doe, South Carolina Roe, New Jersey Doe, and Ohio Doe sue defendants SpaceX.AI Corp. and SpaceX.AI LLC, alleging that their artificial intelligence product Grok permits users to alter real photos of people so that they are depicted undressed or in sexualized or otherwise explicit scenarios or videos, and that plaintiffs have all been the victims of such alterations. Defendants now move to … transfer [this action] to the Northern District of Texas…. The forum-selection clause is unconscionable.

Defendants’ motion to transfer is premised on the forum-selection clause…. Under California law, a contract is unconscionable if it is both procedurally unconscionable because “one of the parties lacked a meaningful choice in deciding whether to agree,” and substantively unconscionable because it “contains terms that are unreasonably favorable to the other party.”Procedural and substantive unconscionability are considered on a sliding scale, meaning that a finding of great procedural unconscionability requires a lesser degree of substantive unconscionability to render the provision unenforceable, and vice versa….

A contract is procedurally unconscionable if there was “oppression” or “surprise” involved in its formation. Oppression means a “lack of negotiation and meaningful choice.” Defendants presented X’s terms of service “on a take-it-or-leave-it basis without room for negotiation.” Thus, there is at least “an element of adhesion” and a “lack of negotiation and meaningful choice.” Adhesion alone renders a contract procedurally unconscionable. [Note that the Ninth Circuit precedent relied on by the court notes that adhesion renders a contract "procedurally unconscionable to at least some degree" (emphasis added). -EV]

Surprise “can arise when the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms.” Defendants include Version 20 of X’s Terms of Service in full. As plaintiffs note, the forum-selection clause appears towards the end of the terms of service, in the middle of the second paragraph in the section titled “General.” … This is precisely the kind of hiding of a term “in a prolix printed form drafted by the party seeking to enforce the dispute term” that the Ninth Circuit has recognized can support a finding of surprise….

Defendants’ terms of service are also substantively unconscionable. Substantive unconscionability depends on the fairness of the contract’s terms, especially “whether one party used their superior bargaining position to impose terms that are ‘overly harsh, unduly oppressive, or unfairly one-sided.’” One-sided provisions in particular can be substantively unconscionable.

Here, plaintiffs have demonstrated that the forum-selection clause is excessively one-sided. X’s terms of service compel plaintiffs to adjudicate disputes “exclusively in the federal or state courts located in Tarrant County, Texas, United States.” But unlike plaintiffs, defendants “may bring any claim, cause of action, or dispute [they] have against [users] in any competent court in the country in which [users] reside that has jurisdiction and venue over the claim.” … Defendants do not “offer any business-related justification for imposing” such a one-sided venue-selection restriction on plaintiffs “but not [themselves].”

The forum-selection clause’s lack of mutuality is therefore highly substantively unconscionable. Given its significant degree of procedural unconscionability as well, the forum-selection clause is unconscionable….

James Hannaway and Sophia Marie Rios (Berger Montague PC) represent plaintiffs.

The post X Litigation Forum Selection Clause Is Unenforceable, Court Rules appeared first on Reason Magazine.