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An Israeli District Court issued a decision earlier this month denying a motion to dismiss filed by Facebook in a purported class action asserting claims for breach of privacy. The court did so even though, as a general matter, Israeli courts are deferential to forum selection clauses in international commerce. See Encyclopedia of International Commercial Litigation (Israel Chapter) § A4.23.
As is the case globally, the user’s agreement between Israeli users and Facebook provided that California would be the exclusive forum for the resolution of any dispute relating to Facebook. The agreement also provided that it is governed by California law.
In deciding that the Israeli forum is proper, the court in the Facebook case relied upon Israel’s Standard Contracts Law (1982). Under that statute, certain types of provisions in “standard” contracts are presumed to be “unduly disadvantageous” and, therefore, subject to annulment or amendment. See Encyclopedia of International Commercial Litigation (Israel Chapter) § A1.31.
One such provision is a forum selection clause that “unduly” favors the “supplier” (in this case, the supplier of services, Facebook).
The Israeli court began its analysis by considering Facebook’s argument that the court should apply California law to determine the enforceability of the forum selection clause. The Israeli court rejected that contention (all quotations in this blog post omit citations):
[Were I to] accept Facebook’s contention that the forum selection clause be evaluated based upon the [choice of] law [clause] set forth therein, the result would be that, with respect to a standard contract, no forum selection clause or choice of law clause could be examined under Israeli law, and it would be impossible to determine that they constitute unduly disadvantageous provisions. Doing so would thwart the possibility of filing a class action in Israel against defendants of this type.
After concluding that Israeli law must be applied to determine the enforceability of the forum selection clause, the court proceeded to explain why the general rule of enforcing such clauses is not applicable to the case before it:
Although accepted choice of law rules give priority to a forum selection clause agreed to by the parties, [thereby favoring] a supplier that set forth [in its standard contract] that litigation would take place abroad . . ., [which favor] the development of international commerce and make it easier for manufacturers and importers – perhaps the time has come to consider this issue from a different angle, [namely] the perspective of the consumer, in particular a consumer [of services] from huge international bodies that deal with consumers throughout the world.
[This case involves] a standard contract, that services a large population in Israel, where it is clear that Facebook conformed its website for the use of users in Israel in Hebrew. [It does not matter] whether we are dealing with a personal suit, the value of which is not high, in which case it would be appropriate to allow it to be heard in Israel, because otherwise it would not be brought before any tribunal, or whether [we are dealing with] a collective suit regarding consumer matters.
[It is possible] that the right of a property owner, which distributed it throughout the world, to litigate in its home [court] and not to be dragged to the home [court] of each of its consumers, loses some of its weight when the property owner does not distribute small quantities of goods here and there but to a majority of the residents of a state. It is not clear that the weight [to be given to] the right of Facebook to litigate in [only] one place in the world, as set forth in the standard contracts that it [had] users sign, is greater than all of their [the consumers’] right to the availability of a remedy in their countries. It appears that one who distributes goods as described above must be prepared to be sued in any state in which it does significant business. This is particularly the case when there is a great gap between the size of Facebook in Israel, and apparently the value of its business, and all of the users, even [when they are] combined. The burden that would be placed on each of them to litigate abroad or pursuant to California law would be significant, and it would likely prevent the litigation in many cases.
The court concluded that the “real purpose” of the forum selection clause and choice of law clause was to deter the Israeli customer from exercising legal rights. Therefore the court held that those provisions are void and unenforceable.
Addition observations on the Facebook decision:
A. Facebook brought to the court’s attention the fact that a similar, putative class action against it had been filed in Canada and that the Canadian court decided (apparently due to the forum selection clause and choice-of-law clause) that the claims of Canadian users should be resolved in California. Facebook argued to the Israeli court that it should follow the lead of the Canadian court and refer the Israeli plaintiffs to California. The Israeli court gave little weight to the decision by the Canadian court.
B. The Israeli court’s choice-of-law analysis lacked consistency. Although the court gave little weight to the fact that the alleged “interception” of users’ messages took place outside Israel, the court gave significant weight to the assertion that Facebook violated its duty of care in Israel.
Did the Israeli court properly deny Facebook’s motion to dismiss? Probably yes – if ever there were a case for applying the presumption of the Standard Contracts Law that a forum selection clause in a standard contract is overly generous to the supplier, it would seem that a claim for breach of privacy, by Israeli consumers, would be such a case.
However, the court’s analysis appears to open the door to attacks on forum selection clauses merely because (a) of the parties’ unequal bargaining position and/or (b) a claim is non-contractual in nature. Hopefully subsequent cases will construe the Facebook decision narrowly.