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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Microsoft blocks a CAFA Challenge on Transfer of Venue

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Mendoza v Microsoft Inc., 2014 WL 842929 (W.D. Tex. March 5, 2014).

In this action, a Texas district court found that CAFA cannot interfere with contractually valid forum selection clauses, and therefore, cannot preempt the transfer of the action to the venue agreed upon in the contracts.

Six former Xbox LIVE subscribers brought an action alleging that the defendant Microsoft, Inc. retained their personal information and unlawfully disclosed their information to data mining companies, for advertising and marketing for profit. The plaintiffs also claimed that Microsoft’s privacy policy was unclear and was located piecemeal in various sections of its corporate website and hidden in a third-level webpage not usually seen by consumers. The plaintiffs sought relief under (i) the Video Privacy Protection Act; (ii) California’s Consumer Records Act; (iii) California’s Unfair competition Law; and (iv) Texas’ Deceptive Trade Practices Act. Shortly after the plaintiffs filed this action, Microsoft filed a motion to dismiss pursuant to 28 U.S.C. § 1406(a) and Rule 12(b)(3), (6) or, in the alternative to Transfer Venue to the Western District of Washington Pursuant to 28 U.S.C. § 1406(a) or §1404(a).

Microsoft pointed that the plaintiffs had entered into contracts, the plaintiffs had reviewed the terms of conditions, and that according to the terms and conditions, the plaintiffs had agreed to submit their disputes to the exclusive jurisdiction and venue of state and federal courts of King County, Washington. Accordingly, Microsoft argued that the action should be transferred to the Western District of Washington. The Texas district court found that the plaintiffs failed to demonstrate extraordinary circumstances that would cause difficulties if the case was transferred to the Western District of Washington. Accordingly, the District Court concluded that the transfer of venue was warranted pursuant to the contractually valid forum-selection clause.

 

The plaintiffs pointed to CAFA in attempt to thwart the forum selection clause in the Xbox LIVE Terms of Use. The plaintiffs also relied on the transfer-venue analysis from Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S.Ct. 568 (2013). In Atlantic Marine, the United States Supreme Court held that a party may not enforce a forum-selection clause by seeking dismissal of the suit under 28 U.S.C. § 1406(a) and Rule 12(b)(3) because those provisions only apply when venue is “wrong” or “improper,” as determined by federal venue law, 28 U.S.C. § 1391. But the Atlantic Marine also held that a forum-selection clause may be enforced through a motion to transfer under 28 U.S.C. § 1404(a), which “permits transfer to any district where venue is also proper (i.e., ‘where [the] case] might have been bought’) or to any other district to which the parties have agreed by contract or stipulation.”

In short, Atlantic Marine held that if a contractually valid forum-selection clause exists and applies to the lawsuit, a court should grant the motion to transfer in accordance with the forum-selection clause absent extraordinary circumstances. The plaintiffs contended that because their lawsuit alleged a violation of the Video Privacy Protection Act and that Act did not contain a venue provision, the fallback position reverts to the permissive venue provisions of CAFA. The Texas district court, nevertheless, noted that CAFA does not specifically designate a particular venue for a class action. CAFA is only designed to confer diversity jurisdiction over class actions that satisfy certain criteria. Instead, 28 U.S.C. §§ 1391, 1392, the usual venue statutes for civil actions apply to class action lawsuits brought under CAFA.

For this reason, the district court found that CAFA, like other federal statutes subject to the civil venue statutes, does not preempt a valid forum-selection clause.  Accordingly, the district court concluded that CAFA does not alter the decision to transfer the instant action to the Western District of Washington pursuant to the contractually valid forum-selection clause contained in the Xbox LIVE Terms of Use.