A Choice-of-Law Sleight of Hand
Many corporations have been slipping choice-of-law clauses into their contracts, denying justice to consumers by choosing states that favor class action bans. A growing number of courts are on to the ploy.
Again and again, corporations have written fine-print clauses into their contracts intended to immunize them from legal liability. Sometimes the provisions blatantly strip individuals of the right to sue for punitive damages or similar legal rights. Those that ban class actions in court or arbitration fall into this category.
Corporations use choice-of-law clauses in consumer and employment contracts in two ways. Some choose the laws of a state with weak consumer protection laws, particularly with respect to class action bans, to govern their contracts (as well as any causes of action against them). For example, Dell's consumer contracts specify that the laws of Texas apply. The reason is clear: Texas courts have been favorable to contractual terms that ban class actions, and the state's deceptive trade practices act has an explicit reliance requirement that makes class actions virtually impossible to pursue.
Some corporations have taken choice-of-law clauses one step further, using "generic" choice-of-law clauses that provide that the laws of each customer's state will apply. When customers try to bring nationwide class actions against these companies, they argue that any claims must be brought not only on an individual basis but also on a state-by-state basis. The companies know, of course, that many states have laws that permit them to ban class actions.
To read this article in its' entirety see the January 2010 issue of TRIAL Journal of the American Association for Justice, pages 40-45 written by Leslie Bailey and Paul Bland, Jr..
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