Jason Klein v. Verizon Online LLC , 674 F. App'x 304 ( 2017 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1660
JASON KLEIN, individually and on behalf of all others
similarly situated,
Plaintiff - Appellant,
v.
VERIZON COMMUNICATIONS, INC.; VERIZON ONLINE LLC; VERIZON
ONLINE-MARYLAND LLC,
Defendants – Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:12-cv-00757-GBL-IDD)
Argued: September 21, 2016 Decided: January 5, 2017
Before KING, SHEDD, and THACKER, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Raymond Charles Fay, FAY LAW GROUP PLLC, Washington,
D.C., for Appellant. Fred Anthony Rowley, Jr., MUNGER, TOLLES &
OLSON LLP, Los Angeles, California, for Appellees. ON BRIEF:
Zlatomira Simeonova, FAY LAW GROUP PLLC, Washington, D.C., for
Appellant. Sean F. Murphy, Tysons Corner, Virginia, Joshua D.
Davey, MCGUIREWOODS LLP, Charlotte, North Carolina; Hojoon
Hwang, Laura K. Lin, MUNGER, TOLLES & OLSON LLP, San Francisco,
California, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
In 2010, Jason Klein (“Appellant”) contracted to
receive internet and telephone services from Verizon
Communications, Inc., Verizon Online LLC, and Verizon Maryland
(collectively, “Appellees”). To activate Appellees’ services,
Appellant agreed to an initial terms of service agreement (“2010
Agreement”), which contained a choice of law provision dictating
that Virginia law governed any contractual disputes. Appellant
and Appellees subsequently entered into a second terms of
service agreement in 2011 (“2011 Agreement”), which contained
the same choice of law provision. Prior to entering into the
2011 Agreement, Appellant terminated the 2010 Agreement. Based
on that termination, Appellees charged Appellant a $135.00 early
termination fee. In 2012, Appellees sent Appellant an email
notifying him of changes to the prior agreements, which, for the
first time, included a provision that required the parties to
arbitrate disputes (“2012 Notification”).
Appellant filed a class action complaint on July 11,
2012, alleging Appellees violated Virginia law by charging the
early termination fee when the 2010 Agreement was terminated.
Appellees moved to compel arbitration pursuant to the 2012
Notification, or alternatively, to dismiss the action. The
district court granted Appellees’ motion to compel arbitration.
In doing so, the district court concluded that the terms of the
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2012 Notification control this dispute. In other words, the
parties effected a valid modification to the 2010 Agreement via
the 2012 Notification.
However, we take issue with the path the district
court took to reach this conclusion. Specifically, it failed to
abide by the choice of law provision in the 2010 Agreement and
apply Virginia law to the question of whether the 2010 Agreement
was, in fact, modified by the 2012 Notification. Therefore, we
remand with instructions that the district court apply Virginia
law, pursuant to the 2010 Agreement, to determine whether that
agreement was effectively modified. If the district court
determines under Virginia law that the parties assented to the
2012 Notification, then its terms -- including the arbitration
and choice of law provisions -- will apply to this dispute.
I.
On October 8, 2010, Appellant ordered internet and
telephone services from Appellees. To activate the account, the
parties entered into the 2010 Agreement. The 2010 Agreement
contained the following relevant terms: (1) Appellant and
Appellees consented to the “exclusive personal jurisdiction of
and venue in” a court in Fairfax County, Virginia; (2) the
substantive laws of the Commonwealth of Virginia governed the
agreement; and (3) Appellees could only make revisions to the
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agreement through notices on its website or by email. J.A. 30,
33. 1 Specifically, the 2010 Agreement provided:
From time to time we will make revisions to
this Agreement and the policies relating to
the Service. We will provide notice of such
revisions by posting revisions to the
Website Announcements page or sending an
email to your primary verizon.net email
address, or both. You agree to visit the
Announcements page periodically to review
any such revisions . . . . [R]evisions to
any other terms and conditions [other than
increases in monthly price] shall be
effective on the date noted in the posting
and/or email we send you.
Id. at 30. The 2010 Agreement further provided that after any
revisions became effective, continued use of Appellees’ services
equated to “accept[ing] and agree[ing] to abide” by such
revisions. Id.
When Appellees installed the services for Appellant in
2010, they erroneously added a second order which resulted in
Appellant being double billed from December 2010 to March 2011.
To fix the problem, Appellees deactivated Appellant’s account.
Appellees then charged Appellant an early termination fee of
$135.00 and sent him an email confirming the cancellation on
March 10, 2011.
1
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
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Appellant did not have internet access for a period of
time during March 2011. He ultimately created a new account
with Appellees in March 2011, and the parties entered into the
2011 Agreement. The 2011 Agreement contained provisions that
were essentially identical to the 2010 Agreement as to venue,
choice of law, and method of modification. Neither the 2010
Agreement nor the 2011 Agreement required arbitration to resolve
disputes.
On June 20, 2012, Appellees sent Appellant an email
containing the 2012 Notification, which attempted to make
changes to the 2011 Agreement. The email provided a link to the
new terms which, most notably, included arbitration of any
disputes. The 2012 Notification included the same modification
clause as the 2010 and 2011 Agreements, that is, periodic
revisions noticed by website postings and/or email, but changed
the choice of law, venue, and method of dispute resolution
provisions. The choice of law became “the Federal Arbitration
Act and the substantive laws of the state of the customer’s
billing address[.]” Id. at 102. And, instead of providing for
venue in a court in Fairfax County, Virginia, the 2012
Notification provided:
YOU AND [APPELLEES] CONSENT TO THE EXCLUSIVE
PERSONAL JURISDICTION OF AND VENUE IN AN
ARBITRATION OR SMALL CLAIMS COURT LOCATED IN
THE COUNTY OF THE CUSTOMER’S BILLING ADDRESS
FOR ANY SUITS OR CAUSES OF ACTION CONNECTED
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IN ANY WAY, DIRECTLY OR INDIRECTLY, TO THE
SUBJECT MATTER OF THIS AGREEMENT OR TO THE
SERVICE.
Id. at 102-03 (emphasis in original). The 2012 Notification
further provided, “[T]he terms now require that you and
[Appellees] resolve disputes only by arbitration or in small
claims court.” Id. at 84. The email also stated, “By
continuing to use the services after the date of this notice,
you accept and agree to abide by the revised terms.” Id.
Finally, the 2012 Notification included a merger clause stating,
“This Agreement . . . constitutes the entire agreement between
you and [Appellees] with respect to the subject matter hereto
and supersedes any and all prior or contemporaneous
agreements[.]” Id. at 103.
Appellant filed this class action on behalf of himself
and similarly situated persons in the United States District
Court for the Eastern District of Virginia. He alleged the
early termination fee violated Virginia law. Per the 2012
Notification, Appellees moved to compel arbitration, or
alternatively, to dismiss the action. Appellees argued
Appellant had agreed to the terms of the 2012 Notification, and
was therefore bound by them.
The district court granted Appellees’ motion to compel
arbitration. See Klein v. Verizon Commc’ns, Inc., 920 F. Supp.
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2d 670 (E.D. Va. 2013). Although it initially held Virginia law
applied, the district court ultimately concluded: (1) “Maryland
law [controlled] interpretations of the email contract
modification . . . because the last act necessary to create
[assent to the 2012 Notification] took place in Maryland”; (2)
under Maryland law, “[Appellant] sufficiently assented to the
[2012 Notification]”; and (3) “the arbitration clause [contained
in the 2012 Notification] retroactively applie[d] to the
parties’ disputes predating the clause because the broad
language of the clause demonstrates intent for contract
modifications to apply retroactively.” Id. at 680-81. 2 The
district court stayed the action pending the result of
arbitration.
The parties pursued arbitration in 2014. The
arbitrator agreed with the district court that Maryland law
governed the dispute. The arbitrator ultimately ruled in favor
of Appellees. Following arbitration, the district court entered
a final judgement in favor of Appellees on June 18, 2014.
Appellant timely appealed.
2
The district court considered the 2012 Notification in
relation to both the 2010 and 2011 Agreements even though
Appellant’s claim arose only from the cancellation of the 2010
Agreement.
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II.
We review de novo the district court’s choice of law
determination. See Salve Regina Coll. v. Russell, 499 U.S. 225,
231-34 (1991). We also review de novo issues of contract law.
See Perini/Tompkins Joint Venture v. Ace Am. Ins. Co., 738 F.3d
95, 101 (4th Cir. 2013) (citing Seabulk Offshore Ltd. v. Am.
Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004)).
III.
A.
In its decision, the district court pointed out that
the parties “do not dispute that they entered into” the 2010 and
2011 Agreements. Klein v. Verizon Commc’ns, Inc., 920 F. Supp.
2d 670, 679 (E.D. Va. 2013). The first step in any contractual
legal analysis is determining what law applies -- here, either
Virginia law per the choice of law provision in the 2010 and
2011 Agreements, or Maryland law per the choice of law provision
in the 2012 Notification. The district court instead looked at
“where the last act necessary to complete the contracts
occurred, and thus, where the contract between [the] parties was
formed.” Id. Looking at the 2012 Notification, the district
court concluded, “[Appellant’s] assent to [Appellees’ 2012
Notification] represented the last act necessary to complete the
contract . . . . [and] took place in Maryland.” Id. The
district court applied Maryland law, and thus determined that
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Appellant assented to the 2012 Notification by continued use of
Appellees’ services.
On appeal, Appellant contends Virginia law applies
based on the choice of law provision in the 2010 and 2011
Agreements. Appellees, however, contend the district court
properly applied Maryland law. The issue, according to
Appellees, is “whether or not the parties validly entered into
[a] 2012 contract modification that contains the arbitration
provision at issue.” Appellees’ Br. 25. Appellees believe this
dispute is governed by the law “where the last acts necessary to
enter the modifications occurred,” which they argue is in
Maryland. Id. at 26-27 (citation omitted). Appellees,
therefore, contend the district court properly determined
Maryland law applies, and correctly applied that law to the
issues before it.
Appellant is correct. The district court erred by
failing to apply the 2010 Agreement’s choice of law provision,
and alternatively, by not applying Virginia law in determining
whether the 2012 Notification was the “last act necessary.”
B.
As an initial matter, “A federal court exercising
diversity jurisdiction is obliged to apply the substantive law
of the state in which it sits, including the state’s choice-of-
law rules.” Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co.,
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386 F.3d 581, 599-600 (4th Cir. 2004) (citing Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 79 (1938); Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496 (1941)). Diversity jurisdiction
exists here, and this case was originally filed in the Eastern
District of Virginia. Accordingly, Virginia’s choice of law
rules guide the analysis.
Virginia’s choice of law rules generally provide,
“[T]he nature, validity and interpretation of contracts are
governed by the law of the place [where the contract was] made.”
Black v. Powers, 628 S.E.2d 546, 554 (Va. Ct. App. 2006)
(citations and internal quotation marks omitted) (second
alteration in original); see Dreher v. Budget Rent-A-Car Sys.,
Inc., 634 S.E.2d 324, 327 (Va. 2006). This is the analysis the
district court applied. However, choice of law contractual
provisions are an exception to that general rule. The Supreme
Court of Virginia has stated, “Where, however, the parties to
the contract have themselves expressly declared that their
contract shall be held and construed as made with reference to a
certain jurisdiction, that shows by what law they intended the
transaction to be governed.” Union Cent. Life Ins. v. Pollard,
26 S.E. 421, 422 (Va. 1896); see Settlement Funding, LLC v. Von
Neumann-Lillie, 645 S.E.2d 436, 438 (Va. 2007) (citations
omitted). Phrased in a more general way, “[T]he true test for
the determination of the proper law of a contract is the intent
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of the parties and that this intent . . . will always be given
effect except under exceptional circumstances[.]” Tate v. Hain,
25 S.E.2d 321, 324 (Va. 1943) (citation and internal quotation
marks omitted).
The exception to the general rule applies in this case
because the 2010 Agreement did include a choice of law
provision. And, the parties chose Virginia law.
C.
The district court initially concluded Virginia law,
particularly its “[t]raditional contract principles,” was
applicable. Klein 920 F. Supp. 2d at 680. However, when it
came time to determine the key issue between the parties, that
is, whether the 2012 Notification was effective such that the
parties were required to arbitrate their dispute, the district
court went awry. Instead of applying Virginia law, the district
court applied Maryland law to conclude that the 2012
Notification was effective, and thus, the arbitration term
applied.
In doing so, the district court essentially relied on
lex loci contractus -- in other words, the law of the place of
the contract. And because Appellant assented to the 2012
Notification in Maryland, the district court applied Maryland
law. The problem with the approach taken by the district court,
though, is that until the 2012 Notification became binding,
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which the parties dispute was ever the case, the parties
operated pursuant to the prior choice of law provision.
Although, as noted, it is true that, pursuant to
Virginia’s choice of law rules, lex loci contractus serves as
the default rule, here the parties specifically contracted a
valid and undisputed choice of law provision in the 2010
Agreement. Virginia law clearly acknowledges that such
provisions are exceptions to the default rule, and more
importantly, gives them effect. The parties disputed whether
the 2012 Notification was an already effective modification, or
merely a proposed modification to which Appellant had not yet
assented.
Therefore, the analysis as to choice of law should
have, at this stage, focused on the 2010 Agreement, from which
Appellant’s cause of action arose.
IV.
The district court erred by failing to fully apply
Virginia law as per the parties’ clear intent reflected in the
contractual choice of law provision in the 2010 Agreement.
Accordingly, we reverse and remand for further proceedings
consistent with this opinion. On remand, we leave it to the
district court to consider in the first instance the application
of Virginia law to the merits of this case.
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For the reasons discussed above, the judgment of the
district court is
REVERSED AND REMANDED.
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