On January 9, 2017, the Northern District of California granted Facebook’s motion to dismiss for claims brought under New Jersey’s Truth-in-Consumer Contract, Warranty, and Notice Act (“the TCCWNA”). In Palomino v. Facebook, Inc., a putative class of New Jersey residents challenged Facebook’s Terms of Service, which, among other provisions, require users to waive potential claims for misconduct such as deceptive and fraudulent practices. Plaintiffs argued that this violated two provisions of the TCCWNA that prohibit such waivers. The case was resolved before advancing to the merits.
When plaintiffs agreed to Facebook’s Terms of Service, they also consented to a choice-of-law provision setting California law to govern the Terms of Service and “any claim that might arise between [a user] and [Facebook].” California courts generally respect parties’ choice of law if (1) the chosen state has a “substantial relationship” to the parties and (2) the chosen law is not contrary to a “fundamental policy” of an alternative state that has a “materially greater interest” in the issue.
In Palomino, the court found both prongs satisfied. First, California had a substantial relationship to the parties because Facebook’s headquarters and principal place of business were in California. Second, assuming that protecting consumers from deceptive practices was a fundamental New Jersey policy, the court concluded that California’s consumer protection laws were not contrary, but rather complementary or even superior to New Jersey’s protections. As such, California law applied to any claims arising out of Facebook’s Terms of Service. As the plaintiffs’ relied solely on the TCCWNA and no corresponding provisions of California law, they failed to state a claim for which relief could be granted under Federal Rules of Civil Procedure Rule 12(b)(6).
There are the broader implications of Palomino. Facebook is not the only social media company whose Terms of Service, Terms of Use, or User Agreements include a California choice of law provision. Twitter, LinkedIn, Reddit, Instagram, Pinterest, Snapchat, WhatsApp, and Flickr all have California law govern the Terms and potential disputes that arise out of them. In fact, of commonly known social media sites, only Tumblr’s Terms of Service apply another state’s laws (those of New York). Billions of users have consented to one or multiple of these sites’ Terms of Service and those Terms could be the subject of future litigation.
How likely are courts, then, when faced with similar facts, to come to the same conclusion as Palomino? Based on this case and prior decisions cited in it, social media companies are likely to satisfy the first, “substantial relationship” prong in favor of applying California law because virtually all of them are headquartered in the California. Crucially, if a court applied the prong in the same manner as in Palomino, it would not consider where plaintiffs reside, where the litigation was initially brought, or where other relevant activities took place. From there, courts applying California conflict-of-law rules could find that the challenged issue does not constitute a fundamental policy of another state and thereby ending the conflict of law analysis. Alternatively, given California’s extensive consumer protection laws and regulations, a court could find it difficult to say California’s laws actually conflict with another states’ protections. As such, it would appear that issues involving social media companies’ Terms of Service – like Facebook’s in Palomino – are likely to be resolved under California law in the future.
