N.Y. Lawyer Who Beat AOL's Forum-Selection Clause Gets $5,000 Judgment

A New York attorney who defeated America Online's forum-selection clause and kept his case in a state small-claims court has won a $5,000 judgment against the Internet service provider.

The real significance of the case is that the small-claims judge kept it in New York, rather than dismissing it, and a state appeals court upheld that ruling last December, said attorney Russell Scarcella, the plaintiff in the case.

AOL's subscriber agreement, which customers are required to accept in order to use the service, states that all disputes must be resolved in courts in Virginia, where AOL has its headquarters.

"My interpretation is that the appellate decision opens the door to question any online forum-selection clause and creates a legitimate basis to set those clauses aside when sought to be imposed in small-claims actions," Scarcella said in an e-mail message.

"The implications potentially extend to any and all providers of online services ... as well as any company that does business through online contracting," he said.

Scarcella had alleged AOL failed to provide him with adequate customer service or technical support. Among other things, according to Scarcella, AOL forced him to waste hours waiting to speak with a customer service representative, routed his calls to India where he was unable to communicate with the customer service representatives due to language barriers and provided faulty technical support advice, causing him to lose valuable data.

The company routinely moves to dismiss cases filed outside Virginia on the basis of the forum-selection clause, and courts generally rule in AOL's favor.

This time, however, Judge Debra Rose Samuels of the New York County Civil Court's small-claims division said enforcing the forum-selection clause would violate the state's public policy of providing a low-cost, accessible way for its citizens to resolve disputes.

"Defendant has made no showing that Virginia would offer claimant the same benefits as this court's small-claims procedures," the judge said in a September 2004 opinion. "The general policy of giving effect to forum-selection clauses must yield to the scheme enacted by the Legislature specifically to ensure that civil justice is meaningfully accessible to those seeking the adjudication of small claims."

At the time of the judge's ruling, published reports said it was the first time a judge anywhere in the country had invalidated AOL's forum-selection clause.

The New York Supreme Court Appellate Term affirmed Judge Samuels' ruling in December, saying that enforcing the forum-selection clause here would amount to denying Scarcella his day in court.

The $5,000 judgment is the maximum allowed in New York small-claims court and it is not appealable, Scarcella said. He said he will use half the money to set up a fund to help New York residents pay the filing fees if they want to sue AOL in small-claims court.

"I decided to create the fund specifically because of my personal experience in dealing with AOL and its counsel," Scarcella said. He said he did not think AOL took his case seriously.

A call to AOL's press office was not returned by press time.