Center Files Amicus Brief Challenging Contract Terms That Strip Consumers Of Their Rights

April 4, 2024

Yesterday, the Center, along with our co-counsel – Consumers for Auto Reliability and Safety (CARS), California Association for Microenterprise Opportunity (CAMEO), East Bay Community Law Center, Impact Fund, Legal Aid At Work, Privacy Rights Clearinghouse, and Public Justice – filed an amicus brief urging the California Supreme Court to adopt a rule declining to enforce forum selection clauses in contracts when the designated non-California forum would not allow the plaintiff to exercise important rights, including explicitly nonwaivable rights, guaranteed to them in California. 

The outcome of the decision could have a significant impact on consumers, workers, and vulnerable communities in California. At issue are forum selection clauses, which are terms routinely buried in the fine print of contracts that require disputes to be litigated in certain, often far-flung, locations. Studies show that between forty to fifty percent of all contracts issued by publicly traded entities now contain forum selection clauses. For consumers, these clauses typically appear in boilerplate “adhesion contracts,” where the terms are offered on a take-it-or-leave-it basis and consumers hold no bargaining power to negotiate them. The same is often true in employment contracts, particularly for low-wage workers who are forced to either accept the terms or find a different job.  

California has some of the most protective consumer and labor laws in the country, many of which contain provisions that explicitly make certain rights nonwaivable. When a forum selection clause purports to require that litigation take place in an out-of-state forum with less protective laws, consumers in California risk losing the ability to exercise important rights that have been adopted by their Legislature. 

In this case, EpiRx, a minority shareholder in EpicentRx, a large biotech company incorporated in Delaware, filed a shareholder lawsuit in California state court alleging securities fraud. EpicentRx sought to move the case to the Delaware Court of Chancery, citing a forum selection clause in the company’s articles of incorporation that designated that court as the exclusive forum to litigate shareholder disputes. EpiRx objected, arguing that transfer to Delaware would cause it to waive its right to a civil jury trial––which under California law cannot be waived except in a few narrow circumstances––because the Delaware Court of Chancery does not permit jury trials. The Court of Appeal agreed with EpiRx and declined to enforce the clause, keeping the case in California. EpicentRx took the case to the California Supreme Court. 

The Center’s brief explains that while California courts generally enforce forum selection clauses, if such a clause would violate California public policy articulated by the Legislature then it cannot be enforced. The brief points to numerous examples of laws in California protecting consumers from deceptive corporate practices, workers from wage theft, and vulnerable communities from being taken advantage of––all of which the Legislature has deemed cannot be waived by contractual terms. Then, applying this standard, the brief explains that the forum selection clause at issue here, which would result in EpiRx’s waiver of its constitutional civil jury trial right, is unenforceable. 

In short, what appears at first blush to be a business-to-business dispute over a contract provision could result in a curtailment of the ability of consumers, workers, and disadvantaged people to enforce their rights in California. We await to see how the California Supreme Court will consider the matter.