In Zanin v. Ooma, Inc., 2025 FC 51, the Federal Court stayed a consumer class action that was subject to standard form arbitration, forum selection, and class action waiver clauses. In doing so, the Court clarified the requirements for inequality of bargaining power, improvident bargain, and public policy concerns which may oust these clauses in a standard form consumer contract. This guidance will be useful for defendants seeking to rely on similar terms for certainty of forum when dealing with Federal consumer claims.
Background
Ooma, Inc. and Ooma Canada Inc. (together "Ooma") offer a service allowing audio communications through an internet connection rather than a traditional phone line.
The plaintiff commenced this proposed class action on behalf of all subscribers to Ooma's services between May 8, 2015 and the date of certification. His claims related to Ooma's advertisements which allegedly represented its services as "FREE" or costing "$0" when additional fees and taxes were charged such that the total monthly cost was around $5. The plaintiff alleged this contravened certain provisions of the Trademarks Act, R.S.C. 1985, c. T-13 and Competition Act, R.S.C. 1985, c. C-34.
The Federal Court heard Mr. Zanin's motion to certify this proposed class action together with Ooma's motion to stay the proceeding in favour arbitration.
On the certification motion, the Court found there was no reasonable cause of action for any of Mr. Zanin's claims. In short, as the Court observed "the Service is never advertised, promoted, presented, labelled or invoiced by Ooma as 'Free or $0', without more" namely, "a specific mention of or reference to 'applicable taxes and fees'" which are then detailed in each invoice (paras. 456, 478). It was "ironic" that Mr. Zanin raised various statutory causes of action relating to misleading representations against Ooma when the statement of claim amounted to "a misleading, cherry-picking exercise of what Ooma's representations of its Service actually are" (para. 56).
However, the Court's decision focuses on the jurisdiction motion. Ooma's arbitration, forum selection, and class action waiver clauses contained in its standard form terms and conditions were sufficient to stay the action in favour of arbitration.
The Jurisdiction Motion
Mr. Zanin, like all of Ooma's subscribers, was required to accept Ooma's terms and conditions to create an account and use its services. Ooma's terms and conditions contained:
- an arbitration clause that requires any dispute between the subscriber and Ooma to be resolved by binding arbitration by the Judicial Mediation and Arbitration Services ("JAMS") in California.
- a class action waiver clause that specifies that all claims must be brought in the parties' individual capacity, and not as a plaintiff or member of a class action or class arbitration, unless Ooma agrees otherwise; and
- a forum selection clause specifying that if court proceedings are required to enforce an arbitral award or because the arbitration clause is unenforceable, any action will be brought in a court of competent jurisdiction in California and the parties submit to the exclusive jurisdiction of California's courts.
The plaintiff tried to get around those provisions by arguing that (i) provincial consumer protection legislation along with statutory grants of jurisdiction within the Federal Courts Act, R.S.C. 1985, c. F-7, Competition Act, and Trademarks Act preclude Ooma from contracting out of the Federal Court's jurisdiction; (ii) weaker parties, such as a consumer, should be protected from contracting out of a court's jurisdiction through standard form contracts of adhesion; and (iii) the class action waiver clause denied justice given the low monetary amount of each subscriber's individual claim.
The Court rejected each argument and found that the arbitration clause, forum selection clause, and class action waiver clause were each individually sufficient reason to stay the plaintiff's claims.
On consumer protection legislation, the Court held that the statutory grant of jurisdiction in the Competition Act is permissive and does not preclude arbitration. The existence of provincial consumer protection legislation does not apply an arbitration clause for a Competition Act claim before the Federal Court. By extension, as the Federal Court is not a mandatory place of jurisdiction for Competition Act claims, its statutory grant of jurisdiction also cannot oust a forum selection clause. The same applies to the statutory grant of jurisdiction under the Trademarks Act and s. 25 of the Federal Courts Act, neither of which expressly prohibit contracting out of a class action.
The Court similarly dismissed Mr. Zanin's arguments that the arbitration clause should not be enforced because of alleged unconscionability and the forum selection clause should not be enforced for public policy reasons because of the alleged inequality of bargaining power that arises when a consumer enters a standard form contract of adhesion. The Court distinguished between relationships of necessity (such as employment, financial services, and certain consumer relationships) and the vast majority of consumer-corporation relationships which "is not one of necessity, but rather of convenience" (para. 206). In the latter case, there is no gross inequality of bargaining power that justifies ousting an arbitration clause or forum selection clause (paras. 206, 261). Here, the plaintiff's relationship with Ooma was clearly one of convenience as there are multiple "real alternatives for residential home phone service, both for fixed lines and mobile option" (paras. 204, 261) and the plaintiff could simply have used another company if he disagreed with Ooma's standard form terms and conditions.
On the unconscionability analysis, the Court also commented on the aspects of Ooma's clause which saved it from being an improvident bargain. The Court observed that given the competence-competence principle supporting an arbitrator's ability to determine its own jurisdiction, "only the costs of the threshold unconscionability challenge matter" for determining if the arbitration clause is improvident. Thus, the "costs of the entire arbitration are irrelevant" for a stay motion before the court (para. 218). In this case, the arbitral filing fees were a modest $250 and the arbitration could be held remotely. The fact that Ooma's clause did not provide access to small claims courts, did not prescribe the cost for retaining an arbitrator, and did not protect the consumer from an adverse costs award were "more peripheral than other key conditions to arbitration agreements" and did not make the clause an improvident bargain.
Finally, the Court addressed Mr. Zanin's argument that applying the class action waiver clause would deny justice in light of the low monetary value of each individual consumer's claim. The Court held that "Parliament would be perfectly within its rights to make a policy choice in the context of the Competition Act and bar class action waivers, insofar as they prevent consumers from initiating class actions... it has yet to do so" (para. 278). The same was true for the Trademarks Act. Accordingly, like the arbitration and forum selection clauses, the class action waiver clause was also valid and enforceable.
Key Takeaways
Zanin provides practical guidance on the applicability of arbitration, forum selection, and class action waiver clauses contained in standard form contracts. Defendants to proposed class proceedings who want to rely on such clauses should take note of the following:
- A standard form contract imposed on a consumer does not itself represent a gross-inequality of bargaining power. Arbitration, forum selection, and class action waiver clauses can still be enforceable (subject to a statutory bar or other ground of invalidity). The existence of real alternatives weighs against a finding of gross-inequality..
- The "key features" that may render an arbitration clause improvident include the price of commencing an arbitration and the flexibility of the place of arbitration. Access to small claims courts, a prescribed cost for retaining an arbitrator, and protection from adverse costs awards do not necessarily make an arbitration clause improvident.
- Express language is required to statutorily preclude arbitration, forum selection, or class action waiver clauses. For defendants to proposed Federal Court class proceedings, this language is missing from claims under s. 36 of the Competition Act and s. 53.2 of the Trademarks Act.
The Federal Court's decision is currently under appeal in Court File No. A-24-25.
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