The lawsuits against Valve Corporation are continuing their tortured procedural paths from various federal courts to state court and back again. After filing a complaint against Valve and several co-defendants in federal court, the case was ultimately dismissed. Not dissuaded, the plaintiffs refiled against Valve in state court, in King County, Washington. Yet, as of December 2016, the case is back in federal court. After months of procedural wrangling, do these plaintiffs stand a chance?
Initially, plaintiffs filed a class action lawsuit in Connecticut. See McLeod v. Valve Corp., Case No. 16-cv-01018 (D.Conn. June 28, 2016). The plaintiffs made claims of racketeering, illegal gambling, and unjust enrichment. Before reaching any of the merits, Valve persuaded plaintiffs and the court that the proper forum for the suit was its home state of Washington. Accordingly, the case was dismissed and refiled in Washington federal court. McLeod et al. v. Valve Corp., Case No. 16-cv-1227-JCC (W.D.Wash., Aug. 4, 2016). The claims and substance of the complaint remained the same.
Once in Washington, Valve moved to compel arbitration. However, Valve’s co-defendants, Trevor Martin and CSGOLotto, moved to dismiss the case, arguing that the plaintiffs had failed to adequately plead the amount in controversy, and thus the court lacked subject matter jurisdiction. The court agreed with Martin and CSGOLotto, extended the holding to all defendants, and dismissed the case.
The plaintiffs refiled the matter in state court in November 2016, where the amount in controversy standard did not apply. Without this different pleading standard, plaintiffs apparently concluded their complaint was otherwise satisfactory: the complaint filed in state court was nearly identical to the one just dismissed in federal court. However, this time, the only defendant in Washington state court is Valve; plaintiffs filed separate state court proceedings in Florida against CSGOLotto and Martin.
Despite just being dismissed from federal court for lack of jurisdiction, Valve removed the case back to federal court, asserting diversity jurisdiction in G.G. v. Valve Corp., Case No. 16-cv-01941-RSL (W.D.Wash. Dec. 20, 2016). The practical result of this removal is that now the complaint pending before the federal court is the same as the complaint that was already dismissed by this court for lack of jurisdiction.
At this point, no new facts have emerged to differentiate this case from its predecessor – but now Valve bears the burden of establishing that federal court jurisdiction is appropriate. This case will likely be tied up on procedural matters for some time. As the parties have found themselves in a unique situation with the filings, dismissals, refiling, and removal.
Even if the parties can get past these thorny jurisdictional issues, the substance of the claims is still at issue. Since the complaint is the same as the prior case, it is still unlikely it would survive a motion to dismiss for failure to state a claim. The plaintiffs must demonstrate that they suffered real world harm for “gambling” virtual goods and that Valve should be held responsible for this loss. They protest that Valve has supported a third-party marketplace that allowed players to cash out their virtual goods for real money.
In similar cases, other courts have been skeptical of such arguments. For example, in Mason v. Machine Zone, 140 F. Supp. 3d 457 (D. Md. Oct. 20, 2015), a court dismissed a class action case based on very similar arguments. In Machine Zone, the plaintiffs played a mobile app game, in which they could make real money purchases for the ability to play more turns or otherwise enhance their gameplay. Through this, the plaintiffs would win virtual prizes. Plaintiffs argued that this amounted to illegal gambling and they should be refunded their money. However, the court noted that there was no mechanism in the game in which the players could “cash out” and receive real money prizes. That is, once the money was spent, it was gone.
Further, the court even noted that the existence of an illicit third-party website to sell player accounts or virtual prizes was not evidence of “real world” value. The plaintiffs contended that the ability to sell their virtual prizes and accounts established that there was real money to be won and lost. The court disagreed and even explicitly stated that the plaintiffs should not be rewarded for violating the game’s terms of service and selling their accounts or virtual prizes on third-party sites. The case was dismissed, but is now on appeal and awaiting oral arguments before the Fourth Circuit.
As in Machine Zone, the complaint against Valve fails to address how selling the virtual items was not a violation of Valve’s terms of service in the first place. The plaintiffs need to show why their selling of skins on a third-party site in violation of Valve’s terms of service entitles to them to a recovery from Valve. They have made an initial attempt to overcome this by arguing Valve endorsed or supported the third-party sites. This argument is likely familiar, as much has been made about Valve’s involvement with skin betting in the gaming press. However, establishing such a link in a court of law is different and difficult.
What will become of this case? Unfortunately, it is unlikely we will know anytime soon. Valve has, like they did in McLeod, filed a motion to compel arbitration. It seems that Valve wants to hold the plaintiffs to its terms of service, which require arbitration, and settle this matter outside of court. Plaintiffs, perhaps sensing an unfriendly federal court, have asked that the case be remanded to state court.
The Machine Zone case gives hope to would-be defendants tied up in the various skin betting scandals. At this point, it is a positive precedent in the industry. Now, we’ll see if the case will be applied as the lawsuit against Valve moves forward. Unfortunately, given the procedural predicament, we will have to wait a bit longer to see the full impact.
On September 26, 2016, the Philadelphia 76ers announced that they had acquired two leading eSports teams, Team Dignitas and Team Apex. Not to be outdone, the next day Team Liquid announced they had sold a controlling share to Golden State Warriors co-owner Peter Guber and entrepreneur Ted Leonsis, who is the majority owner of the private company that owns the Washington Wizards. The Sixers, Guber, and Leonsis were not the first outsiders to show an interest in esports, but these have been some of the most high-profile investments in eSports to date.
The advantage for the eSports team is clear. Teams are gaining access to the structures, organization, space, tools, and – most critically – funds, of established sports organizations. Teams Dignitas (Dignitas and Apex will be merged under the Dignitas banner) and Liquid will have access to the NBA’s know-how in sponsorship development, sales, branding, and marketing. In addition, the teams will have new infrastructure for training and development. The NBA teams are able to provide top of the line facilities dedicated to talent development and training, even including resources for player health and nutrition. While esports teams have run professional operations without such investment, having access to the resources of the NBA will be invaluable.
But what’s in it for the Sixers and other investors? These investors are getting in on the ground floor of what promises to be a massive industry.
Esports tournaments are already selling out arenas worldwide. Just this week, League of Legends (LoL) is holding the Worlds semifinal tournament at Madison Square Garden in New York City. Ticket prices range from $57 to $75 for each of the two days of competition. While the event has not yet sold out, even the ability to hold such an event at Madison Square Garden would have been unimaginable just a few years ago. LoL players and fans will head to the Staples Center in Los Angeles for finals on October 29, 2016.
Events of this magnitude give investors unprecedented access to one of the most coveted consumer demographics: 18 to 35 year old men. This group of consumers has been notoriously more difficult to reach through traditional mediums of television and print in recent years because their attention is online. But now investors can reach them through esports online streams and live events.
Beyond the revenue coming directly from tournaments, there are additional opportunities for merchandising and broadcasting. Esports fans might not wear Sixers jerseys, but they are likely interested in Team Dignitas jerseys. Further, while the primary broadcasting action is online streaming, esports are making a jump to television with tournaments being broadcast on cable channels in the U.S. and abroad. As esports take off in mainstream mediums, the fan base will continue to grow.
While other high-profile investors have jumped on board over the past few years, the NBA is uniquely suited to apply its knowledge of team management, merchandising, and broadcasting to capitalize on the rapid growth of esports. The NBA and similar investors will be able to launch esports into commercial success. As an industry that is projected to bring in just shy of $500 million in revenue by the end of 2016 and continue growing from there, esports are looking like a smart investment.
The Federal Acquisition Regulation final rule implementing the “Fair Play and Safe Workplaces” Executive Order 13673 was issued on August 25, 2016, and the rule goes into effect on October 25, 2016. This new regulation presents a significant change – and potential challenge – for major government contractors.
President Obama signed Executive Order 13673, often referred to as the “Blacklisting” order, on July 31, 2014. The stated goal of the order is to “increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by ensuring that they understand and comply with labor laws.” On their face, the Order and regulations provide new instructions for Federal contracting officers to consider a contractor’s compliance with certain Federal and State labor laws as a part of the determination of contractor “responsibility” that contracting officers must undertake before awarding a Federal contract. But what do the Blacklisting Order and the final rule really do?
Mandatory Reporting of Labor Law Violations
The new rule imposes significant reporting obligations on federal contractors during the procurement process. Ultimately, contractors and subcontractors will need to report three years of labor law violations once the rule is fully in effect. Labor law violations encompass violations of the Fair Labor Standards Act, the Occupational Safety and Health Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and ten other federal laws and orders. According to the final rule, there are three types of actions that constitute reportable violations: “administrative merits determinations,” arbitral awards or decisions, and civil judgments. Contractors must supply basic information about the violation, including the nature of the violation and identifying information, and also have the option of submitting evidence of mitigating factors and remedial measures. This information will be stored on a publicly available, searchable website.
Acknowledging this reporting is a significant burden, there is a phase-in period to allow companies to get up to speed. When the rule becomes effective on October 25, 2016, the reporting requirements will only be effective for procurements of $50 million or more and only for prime contractors. But after six months, on April 25, 2017, contractors bidding on prime contracts of $500,000 or more will need to make the relevant disclosures. On October 25, 2017, subcontractors become subject to the rule as well. Additionally, while the reporting time frame is ultimately the three preceding years, for the first year the rule is in effect, reporting will only reach back for one year. The reporting window will be expanded by a year each year thereafter, until the three-year reporting period is completely phased in on October 25, 2018.
New Paycheck Transparency Requirements
The Blacklisting Order and final rule also institutes requirements for contractors in how they communicate wage information to workers. As of January 1, 2017, contractors and subcontractors must provide a detailed wage statement, including hours worked, overtime hours, rate of pay, and any additions made or deductions taken, to every worker performing under a federal contract. Additionally, prior to beginning work, the contractor must indicate to the worker whether they will be considered an employee or an independent contractor, and if an employee, whether they are exempt or non-exempt. These notifications must be provided to workers in English and any other language used by a “significant portion” of the workforce.
Restrictions on Pre-dispute Arbitration
On the same date the reporting requirements begin the phase-in process – October 25, 2016, the requirements surrounding arbitration agreements will go into full effect. Companies with federal contracts or subcontracts of $1 million or more may not require workers to enter into pre-dispute arbitration agreements for disputes based on Title VII claims or torts related to sexual assault or harassment. The only exception will be for employees covered by a collective bargaining agreement that has negotiated the contract with an agreement to arbitrate prior to the contractor bidding on the covered contract.
The Government’s Obligations Under the New Rule
Under the new rules, the Government has obligations as well. Each agency must designate an Agency Labor Compliance Advisor (“ALCA”) to implement the reporting program. The ALCA will be the central point of contact for the agency and all matters related to Blacklisting reporting. This includes helping contractors achieve compliance with the rules and recommending labor compliance agreements. On the date the rule goes into effect, the Department of Labor will release a list of the ALCAs and their contact information.
Not the First Attempt at Blacklisting
President Bill Clinton has tried this once before. On December 20, 2000, just weeks before the end of his final term, he issued similar blacklisting rules. These rules would have required federal contractors to certify whether they violated any federal, state, or foreign labor, employment, tax, environmental, antitrust, or consumer protection law in the prior three years. A violation was defined as any incident running afoul of the various laws supported by “pervasive evidence.” That is, no formal ruling or determination of liability had to have been made to create a reportable violation. Further, contracting officers would have had complete authority to determine if the violations disqualified the contractor from reporting and were not obligated to allow bidding contractors an opportunity to respond to potentially disqualifying violations.
While the temporal element is the same as the current rule, the list of reportable violations far exceeded the list of labor law violations as contemplated now. Contractors and various industry groups aggressively opposed the 2000 proposed rule, and several lawsuits were filed in an attempt to block implementation. Nonetheless, the rule went into effect on January 19, 2001 – the day before President Clinton left office. However, in March 2001, President George W. Bush ordered suspension of the rule and began the process for overturning it. By the end of 2001, the Bush Administration had successfully revoked this rule.
Next Steps for Contractors
Contractors shouldn’t expect the 2016 rule to meet the same fate as the 2000 version. While both rules bear some similarities, the current rule is much narrower and better defines what constitutes a reportable violation. Some industry groups have publicly contemplated lawsuits against the 2016 rule, none have been filed yet. With the looming deadline, contractors should start making plans to establish a compliance regime.
While compliance with labor laws is a worthy goal, the new regulation also will have significant costs. It reduces an employers’ ability to require arbitration, which likely will result in increased, costly litigation and possibly class action litigation if future labor disputes arise. Similarly, for existing disputes decided in arbitration, it eliminates the benefit of confidentiality by requiring public disclosure concerning any adverse award.
The new regulation does provide some additional compliance options for contractors in advance of official implementation. Companies may undergo a voluntary preassessment by the Department of Labor. Beyond helping companies become acquainted with the rules, participation in this program will be considered a mitigating factor in future acquisitions. The preassessment, however, the DOL may require companies to enter into labor compliance agreements.
Federal contractors should start taking internal steps to ensure compliance in advance of the effective dates. Companies should work with their internal teams, including legal, human resources, and IT support, to ensure that the necessary records are being kept and to design a reporting and monitoring program for the future. Companies should also review their new hire policies, to ensure that proper notifications are made to all workers in the required languages.
While this is a final rule and set to go into effect in the coming weeks, the matter is far from settled. Legal challenges to the rule once implemented may arise in the courts. And, as with any new rule, the devil is always in the details, so companies will likely not know the full impact of the rule until attempting compliance during the procurement process.
*photo obtained from http://gameora.tumblr.com/
In light of unprecedented controversy over the legality of “skin betting” and eSports gambling, Jeff Ifrah and two other attorneys took to Reddit to answer questions from players, fans, and professionals.
Together with Bryce Blum and Ryan Morrison, Ifrah participated in an AUA (“Ask Us Anything”) thread on July 5, 2016—just after the news about Trevor “TmarTn” Martin, Thomas “Syndicate” Cassell, and their relationship to CSGO Lotto.
Martin and Cassell were extremely popular YouTubers, with well over 12 million subscribers between the two of them. They posted videos of themselves playing Counter Strike: Global Offensive (CS:GO) and betting skins on the site CSGO Lotto. However, on July 3, it was reported that Martin and Cassell are actually the founders and owners of CSGO Lotto—a fact they had not disclosed to their fans.
Redditors wanted to know whether Martin and Cassell could face charges. Morrison gave it as certain that they would; Ifrah and Blum weren’t so sure. According to Ifrah, although the FTC has imposed civil liability for deceptive advertising like this in the past, it is hard to say if it is so interested in skin betting. Blum added that civil court action is possible, but a criminal prosecution is very unlikely. No government agencies have yet announced any civil or criminal investigations, although a class action lawsuit has been filed against CSGO Lotto, Martin, Cassell, and Valve Corporation (the maker of CS:GO) in the Southern District of Florida.
Redditors were curious about another class action lawsuit filed in the District Court of Connecticut: will it affect Valve’s operations and chill the skin betting industry? Ifrah doesn’t think so and downplayed the lawsuit’s chances. However, he would like to see Valve minimize the risk of future controversy by seizing this opportunity to show the public how eSports and skin betting work.
Seemingly in response to these two lawsuits, Valve announced on July 13, 2016 that they will only allow access to their skins software to websites that adhere to Valve’s terms of service. This move will disable the vast majority of skin betting sites currently active.
Some Redditors asked if skin betting is illegal online gambling. Ifrah, who specializes in online gambling law, cited several recent court decisions on social gaming that suggest a skin is unlikely to be considered a real world thing of value; therefore, notwithstanding legislative shakeups, betting skins is not likely to be found illegal. (Blum disagreed; he thinks skins are likely on the way to be considered things of value, and therefore in contravention of gambling statutes around the country.)
The thread swelled to over 600 posts, indicating a significant imbalance between the popularity of eSports betting and the degree to which it is legally understood. But the thread showed there is a strong inclination toward legal compliance in the eSports betting community, and a widespread desire to get it right. Ifrah Law is proud to have been able to advise the cause and looks forward to every opportunity to do so again.
For more information about contemporary online gambling, please see our gaming blog.
The Consumer Financial Protection Bureau (CFPB) has proposed a new rule to regulate payday lending and auto-title loan companies. Right now, it is merely a proposal, meant to undergo the notice and comment period until September 14, 2016. But if the rule goes into effect, it would be a significant imposition on the lending business.
The CFPB has been studying the effects of payday lending on consumers for years and found that many consumers struggle. They cannot repay their loans, so they take out new ones and incur significant penalties and fees. Or, they default on repayment altogether. The new rule tries to reduce this by regulating the people who issue those loans.
In theory, the rule would affect two types of loans: those with a term of 45 days or less, and those with a term of more than 45 days but with certain specifications, like an all-in annual percentage rate above 36% and a consumer’s bank account or vehicle for collateral. Before issuing either loan, a lender would have to determine if the borrower can repay it without re-borrowing in the following 30 days. To determine this, a lender would assess the borrower’s income, debt obligations, and housing costs; project them over the life of the loan; and forecast non-housing living costs.
The rule would also restrict how lenders can collect repayment. Today, lenders are allowed unlimited tries to withdraw from an indebted borrower’s bank account, but the new rule would stop them after the second attempt that fails due to insufficient funds.
Because the rule has not been approved yet, affected borrowers and lenders can speak out against or in favor of it. Richard Cordray, the director of the CFPB, has promised that the Bureau “will continue to listen and learn” as comments come in. Sourcing from the industry is the best way to create a rule that protects consumers and helps lenders continue to provide so vital a lifeline.