G.G. et al v. Valve Corporation

Filing 30

ORDER granting defendant's 10 Motion to compel arbitration and staying action pending arbitration by U.S. District Judge John C Coughenour.(RS)

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THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 7 8 9 G.G., A.L., and B.S., individually and on behalf of all others similarly situated, 10 Plaintiffs, 11 v. CASE NO. C16-1941-JCC ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION 12 VALVE CORPORATION, 13 Defendant. 14 15 This matter comes before the Court on Defendant Valve Corporation’s motion to compel 16 17 18 19 20 21 22 23 24 25 26 arbitration (Dkt. No. 10). Having thoroughly considered the parties’ briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS the motion for the reasons explained herein. I. BACKGROUND Plaintiffs allege that Defendant, through its Steam Marketplace platform and video games such as Counter Strike: Global Offensive (CSGO), supported “illegal gambling” by “allowing millions of Americans, including Plaintiffs, to link their individual Steam accounts to third-party websites” and by “allowing third-party sites to operate their gambling transactions within [Defendant’s] Steam marketplace.” (Dkt. No. 1-3 at ¶ 3.) Plaintiffs allege that Defendant “created this gambling system by creating a virtual currency called ‘Skins,’ which [Defendant] ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 1 1 sells for a fee” through the Steam marketplace. (Id. at ¶ 4.) Plaintiffs allege that third-party 2 gambling websites created automation software (bots) accounts to modify or automate the Steam 3 marketplace for trading and gambling Skins with Plaintiffs and other Steam subscribers. (Id. at 4 ¶¶ 7, 43, 96.) 5 To use Steam, a user must first create a Steam account, which requires accepting the 6 Steam Subscriber Agreement (SSA) at issue in this case and motion. (Dkt. No. 11 at ¶ 6.) A 7 Steam account cannot be created unless the subscriber accepts the SSA. (Id. at ¶ 8.) After setting 8 up a Steam account, a user may purchase subscriptions to CSGO or other video games after 9 again agreeing to the same SSA. (Id. at ¶ 11.) Users also agree to the same SSA when they 10 11 purchase Skins while playing CSGO. (Id. at ¶ 13.) The SSA grants users a license to use Steam and the content and services available on 12 Steam, such as CSGO and Skins. (See Dkt. No. 11-7.) The SSA has a binding and conspicuous 13 arbitration agreement in Section 11, which states that subscribers and Defendant agree to resolve all disputes and claims between [them] in individual binding arbitration. That includes, but is not limited to, any claims arising out of or relating to: (i) any aspect of the relationship between [them]; (ii) this agreement; or (iii) [a subscriber’s] use of Steam, [a subscriber’s] account or the content and services. It applies regardless of whether such claims are based in contract, tort, statute, fraud, unfair competition, misrepresentation, or any other legal theory. 14 15 16 17 18 19 20 21 22 23 24 25 (Id. at 11.) The arbitration agreement states that the arbitration “will be governed by the Commercial Arbitration Rules of the American Arbitration Association” (AAA). (Id.) However, the arbitration agreement excludes “claims of infringement or other misuse of intellectual property rights . . . and claims related to or arising from any alleged unauthorized use, piracy, or theft.” (Id.) Unauthorized use is not explicitly defined in the SSA, but Section 4 states, “[Subscribers] may not use cheats, automation software (bots), mods, hacks, or any other unauthorized third-party software, to modify or automate any Subscription Marketplace process.” (Id. at 7.) Plaintiffs, minor children who signed the SSA and their parents who did not sign the 26 ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 2 1 SSA, brought this case, alleging violation of the Washington Consumer Protection Act, violation 2 of the Washington Gambling Act of 1973, unjust enrichment, negligence, and declaratory relief. 3 (Dkt. No. 1-3 at 31–39.) Defendant filed a motion to compel arbitration pursuant to the SSA. 4 (Dkt. No. 10.) Plaintiffs opposed the motion, arguing (1) the SSA is unenforceable based on 5 contract defenses; (2) Defendant cannot enforce the SSA against minor Plaintiffs; (3) Defendant 6 cannot enforce the SSA against the non-signatory parent Plaintiffs; and (4) Plaintiffs’ claims deal 7 with the unauthorized use exception and are not subject to the SSA. (Dkt. No. 27.) 8 II. 9 10 DISCUSSION A. Standard of Review Section 2 of the Federal Arbitration Act (FAA) makes agreements to arbitrate “valid, 11 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 12 revocation of any contract.” 9 U.S.C. § 2. The FAA reflects a “liberal federal policy favoring 13 arbitration.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). However, Section 2 14 provides that arbitration agreements may be invalidated by generally applicable contract 15 defenses, including unconscionability. Id. 16 The FAA requires courts to compel arbitration if (1) a valid agreement to arbitrate exists, 17 and (2) the dispute falls within the scope of that agreement. Chiron Corp. v. Ortho Diagnostic 18 Systems, Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If both of these two requirements are 19 fulfilled, then the FAA “leaves no place for the exercise of discretion by a district court, but 20 instead mandates that district courts shall direct the parties to proceed to arbitration.” Id. As 21 such, “any doubts concerning the scope of arbitrable issues should be resolved in favor of 22 arbitration, whether the problem at hand is the construction of the contract language itself or an 23 allegation of waiver, delay, or a like defense to arbitrability.” Mitsubishi Motors Corp. v. Soler 24 Chrysler-Plymouth, 473 U.S. 614, 626 (1985) (internal quotes and citations omitted). If the Court 25 determines that the claims are subject to arbitration, the Court should “stay the trial of the action 26 until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3. ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 3 1 Pursuant to the SSA’s choice of law provision, Washington law governs the existence 2 and interpretation of the arbitration agreement at issue. (See Dkt. No. 11-7 at 10.) Washington 3 has a substantial relationship to the parties and no other state with contrary policy interests has a 4 materially greater interest in the outcome of this dispute than Washington. See Erwin v. Cotter 5 Health Ctrs., 167 P.3d 1112, 1121 (Wash. 2007) (adopting the Restatement (Second) of 6 Conflicts of Laws § 187(2) (1971)). 7 B. 8 Valid Agreement to Arbitrate 1. Unconscionability 9 Plaintiffs argue that the SSA arbitration clause is unconscionable and, therefore, not 10 valid. 1 (See Dkt. No. 27 at 25–26.) In Washington, either procedural or substantive 11 unconscionability is sufficient to void an arbitration agreement. Gandee v. LDL Freedom Enters., 12 Inc., 293 P.3d 1197, 1199 (Wash. 2013). Procedural unconscionability is “the lack of meaningful 13 choice, considering all the circumstances surrounding the transaction including ‘[t]he manner in 14 which the contract was entered,’ whether each party had ‘a reasonable opportunity to understand 15 the terms of the contract,’ and whether ‘the important terms [were] hidden in a maze of fine 16 print.’” Zuver v. Airtouch Commc’ns, Inc., 103 P.3d 753, 759 (Wash. 2004) (quoting Nelson v. 17 McGoldrick, 896 P.2d 1258, 1262 (Wash. 1995)). “A term is substantively unconscionable 18 where it is ‘one-sided or overly harsh,’ ‘[s]hocking to the conscience,’ ‘monstrously harsh,’ or 19 ‘exceedingly calloused.’” Gandee, 293 P.3d at 1199 (quoting Adler v. Fred Lind Manor, 103 20 P.3d 773, 781 (Wash. 2004)). 21 Plaintiffs claim the arbitration agreement is procedurally unconscionable because it is a 22 23 24 25 26 1 Plaintiffs also seem to raise enforceability challenges to the SSA as a whole. (Dkt. No. 27 at 24, 26–27) (illegal and illusory contract defenses). The Supreme Court has held where a party challenges the validity of the “precise agreement to arbitrate at issue,” the federal court considers the validity challenge, but where “a party’s challenge [is] to another provision of the contract, or to the contract as a whole,” the questions go to the arbitrator. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70–71 (2010). Incorporation of the AAA rules, as is the case here, “constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). Therefore, the Court will not consider Plaintiffs’ general SSA enforceability challenges. ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 4 1 contract of adhesion. (Dkt. No. 27 at 25.) However, “the fact that an agreement is an adhesion 2 contract does not necessarily render it procedurally unconscionable.” Zuver, 103 P.3d at 760. 3 Plaintiffs point to no other aspects of the arbitration agreement that are allegedly procedurally 4 unconscionable. The Court concludes that the arbitration agreement was conspicuous and each 5 party had an opportunity to understand the terms. Therefore, Plaintiffs’ procedural 6 unconscionability argument is unpersuasive. 7 Plaintiffs also argue the arbitration agreement is substantively unconscionable because 8 (1) it would require Plaintiffs “to front the costs of arbitration (despite [Defendant’s] promise to 9 reimburse claimants at the conclusion of proceedings)” and (2) Defendant “allowed the gambling 10 sites to target minor children.” (Dkt. No. 27 at 25–26.) First, the requirement that Plaintiffs pay 11 the upfront costs of arbitration, but then be reimbursed after, is not so one-sided or overly harsh 12 as to render the agreement substantively unconscionable. Moreover, under the AAA rules, 13 Plaintiffs’ maximum payment will be the $200 filing fee. See AAA Consumer Arbitration Rules, 14 R-4. Second, Plaintiffs’ assertions about Defendant’s allegedly illegal conduct deals with the 15 merits of case, not whether the terms of the arbitration agreement are substantively 16 unconscionable. The arbitrator would be able to decide culpability on this matter. Therefore, 17 Plaintiffs’ arguments that the arbitration agreement is substantively unconscionable are also 18 unpersuasive. The Court concludes that the SSA agreement to arbitrate is not unconscionable 19 under these facts. 20 2. Minor Plaintiffs 21 Plaintiffs contend that Defendant cannot enforce the arbitration clause against the 22 plaintiffs who are minor children. (Dkt. No. 27 at 19–23.) Under Washington law, contracts with 23 minors are valid unless the minor disaffirms the contract within a reasonable time after attaining 24 the age of majority. Wash. Rev. Code § 26.28.030. In order to disaffirm a contract, “the statute 25 requires the minor to restore to the other party all money and other property received by him by 26 virtue of the contract and remaining within his control.” Snodderly v. Brotherton, 21 P.2d 1036, ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 5 1 1037 (Wash. 1933). In short, in order for the contract to be invalid, the minor cannot continue to 2 benefit from the contract after disaffirming the contract. See id. 3 Plaintiffs argue that the minor Plaintiffs disaffirmed “any waivers of rights, limitations on 4 liability, dispute resolution, and the [SSA] as a whole to the extent Plaintiffs have not received 5 any benefit from” the SSA. (Dkt. No. 1-3 at ¶ 168.) However, it is undisputed that the minor 6 Plaintiffs continue to use Defendant’s content and services on Steam. (Dkt. No. 1-3 at ¶¶ 13–15, 7 171.) They argue that “Plaintiffs who continue to play games on [Defendant’s] servers do so 8 because they have paid cash consideration to [Defendant] for the right to own and use 9 [Defendant’s] software, and do not adopt, affirm or otherwise assent to [the SSA] by continuing 10 to use [Defendant’s] marketplace to make purchases unrelated” to CSGO or Skins. (Id. at ¶ 171.) 11 This alleged disaffirmance is unsupported by law and fact. Plaintiffs’ continued use is contingent 12 on accepting the SSA and its agreement to arbitrate. Therefore, Plaintiffs have only disaffirmed 13 the SSA in name, but not in practice, because they continue to receive benefits from the SSA by 14 their continued use of Defendant’s products. The arbitration agreement with the minor Plaintiffs 15 is valid. 16 3. Parent Plaintiffs 17 Plaintiffs also maintain that the arbitration agreement does not apply to the parent 18 Plaintiffs who did not sign the SAA. (Dkt. No. 27 at 23–24.) Generally, non-signatories are not 19 bound by arbitration clauses. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). 20 However, courts have recognized limited exceptions to this rule, including the principle of 21 equitable estoppel. See Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1046 (9th Cir. 2009). 22 For example, “a signatory may be required to arbitrate a claim brought by a nonsignatory 23 ‘because of the close relationship between the entities involved . . . and the fact that the claims 24 were intertwined with the underlying contractual obligations.’” Id. (quoting E.I. DuPont de 25 Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 199 (3d Cir. 26 2001)). ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 6 1 This Court recently compelled arbitration where the plaintiffs entered into an arbitration 2 agreement with T-Mobile and asserted claims against Subway, based on a text sent by T-Mobile. 3 See Rahmany v. T. Mobile USA, Inc., C16-1416-JCC, Dkt. No. 25. This Court compelled 4 arbitration with Subway, a non-signatory, because the claims could not be resolved without 5 analyzing T-Mobile’s conduct and the terms and conditions of the T-Mobile service agreement. 6 Id. at 4–5. The same logic applies here. Although the parent Plaintiffs did not sign the arbitration 7 agreement, they have a close relationship to the minor Plaintiffs as their parents. Moreover, the 8 parent Plaintiffs do not allege any facts to establish personal claims. Instead, their claims exist 9 solely through the SSA, which gave the minor Plaintiffs license to use Steam. (Dkt. No. 1-3 at 10 ¶ 98) (alleging that parent Plaintiffs “suffered financial harm” when their “[m]inor children . . . 11 used their parents’ money for Skins gambling transactions”). Therefore, the parent Plaintiffs are 12 bound by the SSA arbitration agreement based on equitable estoppel. 13 C. 14 The parties do not dispute that the general language of the SSA arbitration agreement Scope of the Arbitration Agreement 15 covers the potential claims. The Court agrees that the potential claims fit within the general 16 scope of the arbitration agreement. However, the parties dispute whether the claims fit into the 17 unauthorized use exception. Under this exception, the SSA does not apply to “claims related to 18 or arising from any alleged unauthorized use, piracy, or theft.” (Dkt. No. 11-7 at 11.) 19 Unauthorized use is not explicitly defined in the SSA, but Section 4 states, “[Subscribers] may 20 not use cheats, automation software (bots), mods, hacks, or any other unauthorized third-party 21 software, to modify or automate any Subscription Marketplace process.” (Id. at 7) (emphasis 22 added). Plaintiffs claim that third parties, not they themselves or Defendant, engaged in 23 unauthorized use when the third parties used bots on the Steam platform. (Dkt. No. 27 at 14.) 24 Defendant does not deny that third-party conduct of this nature is an unauthorized use that would 25 not be subject to the SSA arbitration agreement, but argues that Plaintiffs make no claims that 26 relate to their own unauthorized use. (Dkt. No. 10 at 20.) ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 7 1 In a case factually analogous to the case at hand, the plaintiffs tried to argue that their 2 claims were outside the scope of the arbitration agreement because the exclusion section of the 3 provision explicitly exempted “any dispute related to or arising from allegations associated with 4 unauthorized use or receipt of service.” Montoya v. Comcast Corp., 2016 WL 5340651, at *9 5 (E.D. Cal. Sept. 23, 2016). The plaintiffs argued that the dispute arose from the defendant’s 6 failure to prevent unauthorized uses of its service. Id. The Montoya court rejected these 7 arguments, however, because third-party unauthorized use was not excluded from the agreement. 8 See id. at *10. Here, the language in the exclusion provision and the alleged third-party behavior 9 is almost exactly the same. Plaintiffs wish to exclude their claims from arbitration because they 10 deal with Defendant’s alleged failure to prevent unauthorized use by bots. However, the Court 11 agrees with the Montoya court’s reasoning and Defendant that the arbitration exclusion applies to 12 unauthorized use by only subscribers, as the exclusion and de facto definition of unauthorized 13 use explicitly state. (See Dkt. No. 11-7 at 7, 11.) Moreover, “[a]ny doubts concerning the scope 14 of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. 15 Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). Therefore, all of Plaintiffs’ claims fall within 16 the scope of the SSA arbitration agreement. 17 In sum, under this set of facts, there is a valid agreement to arbitrate and Plaintiffs’ claims 18 are within the scope of the agreement. Defendant’s motion to compel is GRANTED. 19 III. 20 21 22 CONCLUSION For the foregoing reasons, Defendant’s motion to compel arbitration (Dkt. No. 10) is GRANTED and this action is STAYED pending arbitration. DATED this 3rd day of April 2017. A 23 24 25 John C. Coughenour UNITED STATES DISTRICT JUDGE 26 ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION PAGE - 8

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