Court Opinion

ID: 4113528
Source: CourtListenerOpinion
Date Created: 2017-01-05 20:00:59.918633+00
Date Added: 2024-06-11T07:46:13.295411
License: Public Domain

UNPUBLISHED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Reversed and remanded by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.

                                2
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

                                        3
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

                                           4
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.

                                          5
              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

                                               6
             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.

                                              7
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.

                                            8
                                     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

                                      9
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.,

                                             10
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

                                            11
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,

                                          12
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.

                                        13
          For the reasons discussed above, the judgment of the

district court is

                                         REVERSED AND REMANDED.

                              14