Rudder v. Microsoft Corp.

MICHAEL RUDDER and MARK LA ROCHELLE, Plaintiffs v. MICROSOFT

CORPORATION, Defendant

NO. 97-CT-046534CP

ONTARIO SUPERIOR COURT OF JUSTICE

October 4, 1999, Heard

October 8, 1999, Released

PRIOR HISTORY: [*1] Proceeding under the Class Proceedings Act, 1992.

COUNSEL: Craig M. Houle for the Plaintiffs (Respondents).

Deborah Glendinning and Joseph Starkman for the Defendant (Moving Party).

JUDGES: WINKLER J.

OPINIONBY: WINKLER

OPINION:

REASONS FOR DECISION

WINKLER J.:

This is a motion by the defendant Microsoft for a permanent stay of this

intended class proceeding. The motion is based on two alternative grounds, first

that the parties have agreed to the exclusive jurisdiction, and venue, of the

courts in King County in the State of Washington in respect of any litigation

between them, and secondly, that in any event, Ontario is not the appropriate

forum for the conduct of this proceeding and that the service ex juris of the

Statement of Claim ought to be set aside.

The Microsoft Network ("MSN"), is an online service, providing, inter alia,

information and services including Internet access to its members. The service

is provided to members, around the world, from a "gateway" located in the State

of Washington through computer connections most often made over standard

telephone lines.

The proposed representative plaintiffs in this action were subscriber members

of MSN. Both are [*2] law school graduates, one of whom is admitted to the Bar

in Ontario while the other worked as a legal researcher. They were associated

with the law firm which originally represented the intended class. The

plaintiffs claim under the Class Proceedings Act, 1992, S.O., C.6 on behalf of a

Canada-wide class defined as:

All persons resident in Canada who subscribed for the provision of Internet

access or information or services from or through MSN, The Microsoft Network,

since September 1, 1995.

This class is estimated to contain some 89,000 MSN members across Canada.

The plaintiffs claim damages for breach of contract, breach of fiduciary

duty, misappropriation and punitive damages in the total amount of $

75,000,000.00 together with an accounting and injunctive relief. The plaintiffs

allege that Microsoft has charged members of MSN and taken payment from their

credit cards in breach of contract and that Microsoft has failed to provide

reasonable or accurate information concerning accounts. The Statement of Claim

was served on Microsoft at its offices in Redmond, Washington on January 5,

1998.

The contract which the plaintiffs allege to have been breached is identified

[*3] by MSN as a "Member Agreement". Potential members of MSN are required to

electronically execute this agreement prior to receiving the services provided

by the company. Each Member Agreement contains the following provision:

15.1 This Agreement is governed by the laws of the State of Washington, U.S.A.,

and you consent to the exclusive jurisdiction and venue of courts in King

County, Washington, in all disputes arising out of or relating to your use of

MSN or your MSN membership.

The defendant relies on this clause in support of its assertion that the

intended class proceeding should be permanently stayed.

Although the plaintiffs rely on the contract as the basis for their causes of

action, they submit that the court ought not to give credence to the "forum

selection clause" contained within. It is stated in support of this contention

that the representative plaintiffs read only portions of the Member Agreement

and thus had no notice of the forum selection clause. Alternatively, the

plaintiffs contend, in any event, that the Washington courts are not appropriate

for the conduct of this lawsuit.

I cannot accede to these submissions. In my view, the forum selection clause

[*4] is dispositive and there is nothing in the factual record which persuades

me that I should exercise my discretion so as to permit the plaintiffs to avoid

the effect of the contractual provision. Accordingly, an order will go granting

the relief sought by the defendant. My reasons follow.

Analysis and Disposition

Forum selection clauses are generally treated with a measure of deference by

Canadian courts. Madam Justice Huddart, writing for the court in Sarabia v.

"Oceanic Mindoro" (1996), 4 C.P.C. (4th) 11 (B.C.C.A.), leave to appeal denied

[1997] S.C.C.A. No. 69, adopts the view that forum selection clauses should be

treated the same as arbitration agreements. She states at 20:

Since forum selection clauses are fundamentally similar to arbitration

agreements, ...there is no reason for forum selection clauses not to be treated

in a manner consistent with the deference shown to arbitration agreements. Such

deference to forum selection clauses achieves greater international commercial

certainty, shows respect for the agreements that the parties have signed, and is

consistent with the principle of international comity. (Emphasis added.)

Huddart J.A. further [*5] states at 21 that "a court is not bound to give

effect to an exclusive jurisdiction clause" but that the choice of the parties

should be respected unless "there is strong cause to override the agreement."

The burden for a showing of a "strong cause" rests with the plaintiff and the

threshold to be surpassed is beyond the mere "balance of convenience". The

approach taken by Huddart J.A. is consistent with that adopted by courts in

Ontario. (See Holo-Deck Adventures Ltd. v. Orbotron Inc. (1996), 8 C.P.C. (4th)

376 (Gen.Div.); Mithras Management Ltd. v. New Visions Entertainment Corp.

(1992), 90 D.L.R. (4th) 726 (Ont.Gen.Div.)).

The plaintiffs contend, first, that regardless of the deference to be shown

to forum selection clauses, no effect should be given to the particular clause

at issue in this case because it does not represent the true agreement of the

parties. It is the plaintiffs submission that the form in which the Member

Agreement is provided to potential members of MSN is such that it obscures the

forum selection clause. Therefore, the plaintiffs argue, the clause should be

treated as if it were the fine print in a contract which must be brought

specifically to the [*6] attention of the party accepting the terms. Since

there was no specific notice given, in the plaintiffs' view, the forum selection

clause should be severed from the Agreement which they otherwise seek to

enforce.

The argument advanced by the plaintiffs relies heavily on the alleged

deficiencies in the technological aspects of electronic formats for presenting

the terms of agreements. In other words, the plaintiffs contend that because

only a portion of the Agreement was presented on the screen at one time, the

terms of the Agreement which were not on the screen are essentially "fine

print".

I disagree. The Member Agreement is provided to potential members of MSN in a

computer readable form through either individual computer disks or via the

Internet at the MSN website. In this case, the plaintiff Rudder, whose affidavit

was filed on the motion, received a computer disk as part of a promotion by MSN.

The disk contained the operating software for MSN and included a multi-media

the sign-up routine, potential members of MSN were required to acknowledge their

acceptance of the terms of the Member Agreement [*7] by clicking on an "I

Agree" button presented on the computer screen at the same time as the terms of

the Member Agreement were displayed.

Rudder admitted in cross-examination on his affidavit that the entire

agreement was readily viewable by using the scrolling function on the portion of

the computer screen where the Membership Agreement was presented. Moreover,

Rudder acknowledged that he "scanned" through part of the Agreement looking for

"costs" that would be charged by MSN. He further admitted that once he had found

the provisions relating to costs, he did not read the rest of the Agreement. An

excerpt from the transcript of Rudder's cross-examination is illustrative:

Q. 314. I will now take you down to another section. I am now looking at heading

15, which is entitled "General", and immediately underneath that is subsection

15.1 Now, do I take it, when you were scanning, you would have actually scanned

past this, and you would have at least seen there was a heading that said

"General"? Is that fair? Or did you not even scan all the way through?

A. I did not go all the way down, I can honestly say. Once I found out what it

would cost me, that is where I would stop. [*8]

Q. 315. So, I take it that you did not read 15.1?

A. No, I definitely did not read this, no.

Q. 316. I now have 15.4 on the screen, and presumably you did not read that

either?

A. No, I did not.

Q. 317. I take it, during the whole signup process that you did, you did the

whole thing online on the computer...

A. Yes.

Q. 318. ... using the disk? And we will come to the connection. You did not have

any voice communication with MSN?

A. No.

Q. 319. Or with Microsoft Corporation?

A. No.

Q. 320. You did not have any written correspondence with them at the time of

signup?

A. No.

Q. 321. All right. Now, I take it that, after doing the review of this that you

did do, you clicked, "I agree"? Is that what you did?

A. After I was satisfied with what it was going to cost me, I agreed. (Emphasis

added.)

I have viewed the Member Agreement as it was presented to Rudder during the

format. Although, there are certain terms of the Agreement displayed entirely in

upper-case letters, there are no physical differences which make a particular

term of [*9] the agreement more difficult to read than any other term. In other

words, there is no fine print as that term would be defined in a written

document. The terms are set out in plain language, absent words that are

commonly referred to as "legalese". Admittedly, the entire Agreement cannot be

displayed at once on the computer screen, but this is not materially different

from a multi-page written document which requires a party to turn the pages.

Furthermore, the structure of the sign-up procedure is such that the potential

member is presented with the terms of membership twice during the process and

must signify acceptance each time. Each time the potential member is provided

with the option of disagreeing which terminates the process. The second time the

terms are displayed occurs during the online portion of the process and at that

time, the potential member is advised via a clear notice on the computer screen

of the following:

... The membership agreement includes terms that govern how information about

you and your membership may be used. To become a MSN Premier member, you must

select "I Agree" to acknowledge your consent to the terms of the membership

agreement. If you [*10] click "I Agree" without reading the membership

agreement, you are still agreeing to be bound by all of the terms of the

membership agreement, without limitation...."

On cross-examination, Rudder admitted to having seen the screen containing

the notice. In order to replicate the conditions, portions of the

cross-examination were conducted while Rudder was being led through an actual

sign-up process including the online connection portion. While online, and after

having been shown the notice posted above, Rudder responded to questioning as

follows:

Q. 372. All right. You see immediately below the printing that we have just

read, a rectangular box that says, "MSN Premier Membership Rules"?

A. Yes.

Q. 373. And, below that, a larger white box that says, "Please click MSN

Membership Rules and read the membership agreement"?

A. Yes.

Q. 374. Did you read the phrase that I just stated in the big white box?

A. No. What I probably did... I can't say for sure... is I probably just went to

"I Agree", and then "Next".

Q. 375. Did you understand, when you clicked "I Agree" on this occasion, that

you were agreeing to was something that was going to govern [*11] your legal

relationship surrounding your use of MSN?

A. If you are asking me if I made a mental note, or if I had knowledge of that,

no, I did not really pay attention to that. That is a common practice when I

It is plain and obvious that there is no factual foundation for the

plaintiffs' assertion that any term of the Membership Agreement was analogous to

"fine print" in a written contract. What is equally clear is that the plaintiffs

seek to avoid the consequences of specific terms of their agreement while at the

same time seeking to have others enforced. Neither the form of this contract nor

its manner of presentation to potential members are so aberrant as to lead to

such an anomalous result. To give effect to the plaintiffs' argument would,

rather than advancing the goal of "commercial certainty", to adopt the words of

Huddart J.A. in Sarabia, move this type of electronic transaction into the realm

of commercial absurdity. It would lead to chaos in the marketplace, render

ineffectual electronic commerce and undermine the integrity of any agreement

entered into through this medium.

On the present [*12] facts, the Membership Agreement must be afforded the

sanctity that must be given to any agreement in writing. The position of

selectivity advanced by the plaintiffs runs contrary to this stated approach,

both in principle and on the evidence, and must be rejected. Moreover, given

that both of the representative plaintiffs are graduates of law schools and have

a professed familiarity with Internet services, their position is particularly

indefensible.

Having found that the terms of the Member Agreement, including the forum

selection clause, bind the plaintiffs, I turn to a consideration of whether it

is appropriate to exercise my discretion to override the forum clause agreed to

by the parties. In my view, the submissions made by the defendant are

compelling. On the facts of this case, it would not be appropriate for this

court to permit the plaintiff to continue this action in Ontario contrary to the

forum selection clause.

Simply put, I find that the plaintiffs have not met the burden of showing a

"strong cause" as to why the forum selection clause should not be determinative.

In Sarabia, Huddart J.A. referred to the English case, "Eleftheria" (The) (Cargo

Owners) v. "Eleftheria" [*13] (The), [1969] 2 All E.R. 641, as the decision

most often followed in Canada in setting out the factors that a court will

consider in determining whether it should exercise its discretion and refuse to

enforce a forum selection clause in an agreement.

The factors to consider may be paraphrased as follows:

(1) in which jurisdiction is the evidence on issues of fact situated, and the

effect of that on the convenience and expense of trial in either jurisdiction;

(2) whether the law of the foreign country applies and its differences from the

domestic law in any respect;

(3) the strength of the jurisdictional connections of the parties;

(4) whether the defendants desire to enforce the forum selection clause is

genuine or merely an attempt to obtain a procedural advantage;

(5) whether the plaintiffs will suffer prejudice by bringing their claim in a

foreign court because they will be

(a) deprived of security for the claim; or

(b) be unable to enforce any judgment obtained; or

(d) unlikely to receive a fair trial.

When these factors are applied within the factual [*14] matrix of this case,

it is apparent that the plaintiffs cannot meet the threshold of a "strong

cause". Most of the activities associated with the provision of services

pursuant to the Member Agreements that are the subject of the allegations in the

Statement of Claim are carried out in King County, Washington. This includes the

business management of accounts of MSN members, member authentication,

policy-making regarding member accounts, billing and customer service. All of

the computers in which MSN content and information are contained are located in

King County. The sheer size of the intended class means that there is a

potential that voluminous amounts of billing statements and related information,

which is most likely to be located in Washington, will be required as evidence.

Furthermore, the MSN witnesses are located at the company's center of operations

in King County.

Since I have found that the forum selection clause applies in this case, by

operation of that clause the choice of law agreed to by the parties is the law

of the State of Washington. Regardless of whether this action where tried in

Ontario or elsewhere, the law to be applied would remain the same.

Microsoft [*15] has demonstrated substantial connection to the State of

Washington, and in particular to King County. The plaintiffs, on the other hand,

propose to represent a Canada-wide class whose connections to Ontario are not

readily apparent on the evidence before the court. Class proceedings may be

conducted under both the federal and state court systems in the State of

Washington and while the test for certification may be somewhat more

advantageous to the plaintiffs in Ontario, it is not sufficiently so as to

permit me to ignore the other factors which clearly favour the defendant in this

case. Moreover, in the interests of international comity, and in the absence of

any evidence to the contrary, there is nothing to suggest that the plaintiffs

would not receive a fair trial in the State of Washington. Indeed, considering

that the defendant is resident there, it would be more advantageous to the

plaintiffs, in respect of enforcement, if a judgment were obtained from a court

in that jurisdiction.

I note in passing that this forum selection clause has been upheld on appeal

in an intended class proceeding in the State of New Jersey. (Caspi v. The

Microsoft Network, L.L.C., 732 A.2d 528 (N. [*16] J.App. 1999).

In view of my disposition on the first point, it is unnecessary to deal with

the forum non conveniens and service ex juris arguments.

The defendant shall have the relief requested. The action brought by the

plaintiffs in Ontario is permanently stayed. The defendant shall have its costs

of this motion, which, by agreement of the parties will be fixed by the court

and payable forthwith. Counsel may make brief written submissions with respect

to costs within two weeks of the date of release of these reasons.