Hoffman v. Supplements Togo Management, L.L.C., A-5022-09T3; Appellate Division; opinion by Sabatino, J.A.D.; decided and approved for publication May 13, 2011. Before Judges Reisner, Sabatino and Alvarez. On appeal from the Law Division, Bergen County, L-2428-10. [Sat below: Judge Russello.] DDS No. 09-2-2128 [25 pp.]

Plaintiff Harold M. Hoffman is an attorney who at various times has filed lawsuits against companies that sell and advertise products in an allegedly deceptive manner, in violation of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -184, and other laws.

Defendants Supplements Togo Management, L.L.C., and World Class Nutrition, L.L.C., advertise and sell products on the Internet on commercial websites.

Plaintiff purchased one of those products, a dietary supplement known as “Erection MD,” and then filed this action alleging that defendants violated the CFA and the common law by making false and exaggerated representations about the product’s efficacy.

Defendants contended plaintiff could not sue them in New Jersey because of the forum-selection clause on its website, which designates Nevada as the proper forum. They also claimed that the complaint failed to state a claim on which relief may be granted.

The trial court granted defendants’ pre-answer motion to dismiss, finding that (1) plaintiff is precluded from suing defendants in New Jersey because of the forum-selection clause, and (2) the complaint fails to state a claim on which relief can be granted because it does not sufficiently allege that plaintiff sustained an “ascertainable loss of moneys or property” under the CFA or the elements of common-law fraud.

Held: The forum-selection clause is presumptively unenforceable because defendants’ website was structured unfairly so that the clause would not appear on a purchaser’s computer screen unless he scrolled down to display the “submerged” clause before adding the product to his electronic “shopping cart.”

To determine whether the forum-selection clause on defendants’ website binds Internet purchasers of defendants’ merchandise, the panel looks to basic principles of contract law. It notes that New Jersey courts have generally enforced forum-selection clauses where (1) they are not the product of fraud or undue bargaining power, (2) they would not violate public policy, and (3) their enforcement would not seriously inconvenience the parties at trial.

The panel says a critical consideration is whether the plaintiff was provided with fair notice of the forum-selection clause. It looks first to Caspi v. Microsoft Network, L.L.C. , 323 N.J. Super. 118, 122 (App. Div.), certif. denied, 162 N.J. 199 (1999). It applied a “fair and forthright” standard of notice to a forum-selection clause in a membership agreement that appeared on the subscriber’s computer screen in a scrollable window next to blocks providing the choices “I Agree” and “I Don’t Agree.” The prospective member’s registration could proceed only after he had assented to the membership agreement, including the forum-selection clause.

Caspi concluded that given the way in which the forum-selection clause was displayed and in which consent to the contract terms was requested and obtained, the clause was valid and enforceable because plaintiffs had reasonable notice of it.

The court then reviews Specht v. Netscape Commc’ns Corp. , 306 F.3d 17 (2d Cir. N.Y. 2002), which considered a mandatory arbitration clause in the parties’ online licensing agreement. Significantly, the arbitration clause was in a “submerged” part of their webpage, well below an icon inviting subscribers to download the free program by clicking the icon. If, instead of clicking the download icon, the subscribers had scrolled down the webpage, they would have seen language asking them to review and agree to the terms of the licensing agreement. Those terms, including the arbitration clause, appear on a separate webpage once the subscriber clicks the hyperlink, and therefore were not readily visible to the subscribers. Once the plaintiffs activated the download, the terms of the license were not displayed again.

The panel notes that numerous cases after Caspi and Specht have similarly applied the principles of reasonable notice when assessing the validity of forum-selection clauses or other boilerplate contractual language in Internet websites. Doing likewise, it concludes that defendants structured their website in a manner that failed to give potential purchasers reasonable notice of the forum-selection clause.

Not resolved is whether the presumptive unenforceability of the clause can be overcome if defendants establish that Hoffman had actually read it before purchasing the product. The legal implications of such actual notice, if proved, in the absence of a clickwrap or an “I agree” feature, are left for the trial court to evaluate.

The panel also reverses the dismissal of plaintiff’s complaint for failure to state a cause of action since, when viewed under the generous construction that must be given to pleadings under Rule 4:6-2(e), plaintiff sufficiently alleges the CFA element of “ascertainable loss” and the elements of common-law fraud. [At the court's direction, the portion of the opinion relating to issues other than the enforceability of the forum-selection clause is deleted from the published version of the opinion.]

– By Judith Nallin

Appellant Harold M. Hoffman appeared pro se. For respondent — Scott A. Shaffer (The Lustigman Firm).