“Unfair” dispute resolution clauses: Much ado about nothing?

Boilerplate: The Foundation of Market Contracts

Volumn , Issue , 2007, Pages 45-65

  Marotta Wurgler, Florencia ^a  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

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EID: 77955725888     PISSN: None     EISSN: None     Source Type: Book    
DOI: 10.1017/CBO9780511611179.006     Document Type: Chapter

References (32)

1. This view was adopted by the Supreme Court in Carnival Cruise Lines v. Shute, 499U.S. 585 (1991). Justifying its decision to enforce a forum selection clause printed on a cruise ticket, the Court stated that “[I]t stands to reason that passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued.” Clayton P. Gillette, Rolling Contracts as an Agency Problem, 2004 Wis. L. Rev. 679.
2. Larry E. Ribstein & Bruce H. Kobayashi, State Regulation of Electronic Commerce, 51 Emory L. J. 1 (2002).
3. William J. Woodward, Jr., Contractual Choice of Law: Legislative Choice in an Era of Party Autonomy, 54 S.M.U.L. Rev. 697 (2001)
4. William J. Woodward, Jr., “Sale” of Law and Forumand theWidening Gulf Between “Consumer” and “Nonconsumer” Contracts in the UCC, 75 Wash. U. L. Q. 243 (1997).
5. America Online v. Booker, 781 So. 2d 423 (Fla. App. Ct. Feb. 7, 2001). It has been argued that sellers’ aggressive use of mandatory and choice of forum clauses has led to a significant reduction in judicial opinions, a consequent slowing down in the development of common law, and a disruption in consumers’ ability to obtain compensation for damages. Rex R. Perschbacher & Debra Lynn Bassett, The End of Law, 84 B. U. L. Rev. 1, 30 (2004).
6. Samuel Issacharoff & Erin F. Delaney, Credit Card Accountability, 73 U. Chi. L. Rev. 157 (2006).
7. William J. Jr., Woodward, Finding the Contract in Contracts for Law, Forum, and Arbitration, 2 Hast. Bus. L. J. 1 (2006).
8. For a detailed account of these issues in the credit-card market, Oren Bar-Gill, Seduction by Plastic, 98 Nw. U. L. Rev. 1373 (2004).
9. Robert Hillman & Jeff Rachlinski, Standard Form Contracts in the Electronic Age, 77 N. Y. U. L. Rev.429 (2002) (providing an overview of the behavioral biases that might lead buyers to underestimate the implications of contractual limitations).
10. UCC §1-105; RESTATEMENT (SECOND) OF CONFLICT OF LAWS §188(3) (1971)
11. A narrow restriction is that the law chosen should not violate a fundamental of the jurisdiction whose law would otherwise apply. UCC §1-103
12. V.I. CODE ANN. tit. 11A, § 1-301 (2003).
13. VA. CODE ANN. §§ 59.1-501.1 to 59.1-509.2 (2001 & Supp. 2005)
14. MD. CODE ANN., COM. LAW§§ 22-101 to 22-816 (LexisNexis Supp. 2003). This proposed law provides rules governing fair use, reverse-engineering consumer protection, and the enforceability of shrinkwrap licenses.
15. UCITA 109 (2000).
16. An exemption is a recent study by Geoffrey Miller and Theodore Eisenberg of the use of choice of law and forum clauses by large corporate parties in merger agreements. Theodore Eisenberg & Geoffrey P. Miller, ExAnte Choices of LawandForum:AnEmpirical Analysis of Corporate Merger Agreements, NYU Law and Economics Research Paper No. 06-31 (August 2006).
17. Florencia Marotta-Wurgler, Competition and Quality of Standard Form Contracts: An Empirical Analysis of Software License Agreements, NYU Law and Economics Paper No. 05-11 (2005)
18. Florencia Marotta-Wurgler, Are “Pay Now, Terms Later” Contracts Worse for Buyers? Evidence fromSoftware LicenseAgreements, NYULawand Economics Paper No. 05-10 (2005). Because the sample in this chapter overlaps heavily with that used in previous papers, I refer the reader to those papers for further details on the data-collection procedure.
19. Althoughthe inclusionof class-action waivers in credit-cardformcontracts has attracted a lot of attention from legal academics, I find no evidence of their use in software license contracts. For this reason, I don’t record whether the EULA has a class-action waiver. The same is true for clauses requiring that the parties meet with a mediator before going to court. I found only one EULA that required mediation.
20. Some companies have offices in several states but, for practical purposes, I only record the location of their headquarters.
21. For example, a scrapbooking software product would be categorized as a “consumer” product and a client management productwould be categorized as a “business” product.
22. Eisenberg & Miller, supra note 13.
23. In most states, forum selection clauses are per se enforceable absent unconscionability. The same is true for forum selection clauses in software license agreements and online contracts., e.g., Cairo, Inc. v. Crossmedia Serv., Inc., 2005 WL 756610 (N.D. Cal. Apr. 1, 2005) (upholding forum selection clause in license agreement). However, the states of Idaho, North Carolina, and Montana have enacted statutes prohibiting the enforcement of forum selection clauses in consumer transactions. In addition, Georgia courts have refused to enforce forum selection clauses in consumer contracts. See, e.g., Fidelity & Deposit Co. v. Gainesville Iron Works, Inc., 125 Ga. App. 829 (Ga. Ct. App. 1972).
24. Supra note 14.
25. As an alternative to simple “linear probability” models, I have also estimated logit models, with virtually identical results in terms of statistical significance and implied economic significance. I report the linear probability models because they are simpler to interpret.
26. Section IV, infra. 23. A choice of law clause, if priced, would probably have an effect of price of a few cents of the dollar for most products. James J. White, Contracting Under Amended 2-207, 2004 Wis. L. Rev. 723, 742 (stating that “[f]or a nickel or a dime, almost all of us would [… ] agree to arbitrate”).
27. This finding is consistent with my earlier finding that the EULAs of larger companies tend to have more restrictive contracts than those of smaller companies. See Marotta-Wurgler, supra note 14. 25. I am grateful to Jean Braucher and BillWoodward for providing this taxonomy.
28. When incorporation alone is the sole relationship to the selected law, there has been disagreement among courts on whether that state is “reasonably related” to the transaction. Thus, enforcement will depend on the forum that hears the dispute. For cases in which incorporation alone suffices to establish a relationship, see, e.g., CIENA Corp. v. Jarrard, 203 F.3d 312, 324 (4th Cir. 2000) and Valley Juice Ltd. v. EvianWaters of France, Inc., 87 F.3d 604, 608 (2d Cir. 1996). See also Restatement (Second) of Conflicts of Laws §187.
29. Eisenberg & Miller, supra note 13, also find that companies are more likely to select Delaware for incorporation than they are likely to select Delaware law in their choices of law and forum. The remaining off-diagonal 14 percent includes a number of U.S. subsidiaries of foreign-owned firms whose EULA specifies the law of the firms’ home country and firms that have been acquired in the recent past but whose EULAs still stipulate the law of the state of the original firm.
30. Lucian Bebchuk and Alma Cohen, Firms Decisions Where to Incorporate, 46 J. of L. & Econ 383 (2003).
31. For example, the California Arbitration Act mandates a waiver of arbitration fees for low-income consumers and requires arbitration organizations to publish its consumer arbitration decisions. California Code of Civil Procedure Sections 1284.3, 1281.96.
32. The consumer section of the AAAWeb site reads: “The AAA will only administer your dispute if the arbitration clause meets certain fairness standards that are contained in the AAA’s Consumer Due Process Protocol…. [U]under the AAA’s procedures, you may claim any amount of special damages such as attorney’s fees or punitive damages, without an increase in fees.” At http://www.adr.org/Consumer.