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

Wanna Avoid CAFA? Have a Forum Selection Clause.

Posted in Case Summaries

Norris v. Commercial Credit Counseling Services, Inc., Slip Copy, 2010 WL 1379732 (E.D. Tex., Mar 31, 2010)(No. 4:09-CV-206).

The District Court in Texas dismissed the action without prejudice for improper venue holding that CAFA does not preempt the contractual forum selection/choice-of-law clause.

The plaintiffs brought a class action in a federal District Court in Texas asserting CAFA jurisdiction, alleging violation of the Texas Uniform Fraudulent Transfer Act, the Texas Deceptive Trade Practices Act, and the Texas Debt Management Services Act. The plaintiffs had entered into a ‘Debt Reconciliation & Security Agreement’ with the defendant, which contained a forum selection clause stating that “venue and jurisdiction for any lawsuit in connection with this Agreement will be the Superior Court within Bergen County in the State of New Jersey.”

In response to the filing of the federal action, the defendant filed a motion to dismiss for improper venue arguing that the parties were bound by the contractual forum selection clause.  

The plaintiffs’ argued that venue was proper in the federal District Court in Texas because the Court was vested with original jurisdiction under CAFA and that CAFA preempted the forum selection clause.  

The Court declined to adopt the plaintiffs’ assertion.

The Court noted that although the Fifth Circuit has not yet analyzed the role of forum selection clauses with respect to CAFA, other circuit and district courts have.  Piechur v. Redbox Automated Retail, LLC, 2010 WL 706047, at *2-*4 (S.D. Ill. 2010) found the forum selection clause enforceable, and remanded the lawsuit to state court. Guenther v. Crosscheck Inc., 2009 WL 1248107, *5 (N.D. Cal. 2009) held that although CAFA gave federal courts ‘original’ jurisdiction over class actions, it did not give federal courts exclusive jurisdiction over the action; thus, CAFA does not trump a valid, enforceable and mandatory forum-selection clause by which parties agreed to litigate in state court.  (Editors’ Note:  See the CAFA Law Blog analysis of Guenther posted on August 25, 2009).

The plaintiffs relied on the decision in Doe 1 v. AOL LLC, 552 F.3d 1077, 1083-84 (9th Cir. 2009) for the proposition that the forum selection clause violated Texas public policy. In Doe 1 the plaintiff argued that the forum selection clause was unenforceable because it violated public policy. Doe 1 found a forum selection clause violative of California public policy because California public policy strongly favors consumer class actions and consumer class actions are not available in Virginia state courts, and enforcement of the forum selection clause violates the anti-waiver provision of the California Consumer Legal Remedies Act.  

According to the plaintiffs, the New Jersey Debt Adjustment and Credit Counseling Act, N.J.S.A. 17:16G-1 et seq., regulates the defendant and the business in which it is engaged.  Relying on a bulletin, the plaintiffs contended that the Act provided protection only to New Jersey residents but not to residents of the other states.  Thus, the plaintiffs argued that the forum selection/choice-of-law clause was unenforceable because it diminished the rights of Texas consumers. Additionally, the plaintiffs argued that the remedies available in New Jersey were not ‘comparable’ to those in Texas. 

After reviewing the Act, the Court concluded that any remedies available under the Act are not limited to New Jersey residents.  Specifically, the definition in N.J.S.A. 17:16G-8, does not limit recovery to New Jersey residents, but to all “debtors.” The bulletin relied upon by the plaintiffs served as nothing more than an advisory to the residents of New Jersey regarding debt management services.

As such, the Court found that the forum selection clause was enforceable as it did not contravene Texas public policy.