User Agreement Is Enforceable Against Deadbeat Gamers
The last post involved a case that refused to fully enforce a disclaimer. This one is the polar opposite: it enforces contractual provisions to prevent a class action.
In Leong v. Square Enix of Am. Holdings, Inc., 2010 WL 1641364 (C.D. Cal. Apr. 20, 2010), the defendant was the developer of the online role-playing game "Final Fantasy XI Online." To play the game, one must buy the software, create an online user's account, pay a monthly subscription fee, and buy one or more game characters that explore the game's virtual world on various "quests" and collect items.
As you might imagine of role-playing gamers, they become pretty attached to the characters and items they collect. As you also might imagine, a number of them have trouble paying their monthly subscription fees because they really ought to get a job instead of playing role playing games all day. The user's agreement that comes in the package with the software takes this into account, providing that the failure to pay the monthly subscription fee for three months will result in the deletion of the user's account and the characters and items they have collected. Deadbeat role-playing gamers don't like this, so they filed a putative consumer fraud class action alleging violations of California's False Advertising Law, the Consumer Legal Remedies Act, the Unfair Competition Law, section 1671 of the California Civil Code, and unjust enrichment.
The deadbeats argued that despite the fact that they must accept the terms of the user's agreement before establishing an online account, they should not be bound by the user's agreement because it was contained within the shrink-wrapped software package and its "onerous" terms were not disclosed prior to sale. Indeed, they argued that because retailers would not take a return of the gaming software once the package had been unwrapped, they had been the victims of fraudulent concealment.
The problem was, according to the court, none of the named plaintiffs had actually attempted to return the software, and each of them proceeded to open online accounts by accepting the terms and conditions of the user's agreement after they had opened the software and presumably read the user's agreement. Accordingly, the court held, they had no standing to sue on fraud-based claims like the FAL and the CLRA, because they could not establish their "individual reliance upon the nondislcosures in making their initial purchasing decision." Id. at *3.
As for the section 1671 claim, that provision generally prohibits liquidated damages for breach of contract. Plaintiffs argued that the forfeiture of their accounts and characters was the forfeiture of property without any relation to compensating Defendant for the breach of contract. The court rejected this approach because the user's agreement clearly states that users do not own the game data, like their accounts, characters, and accumulated items. Thus, plaintiffs did not forfeit any of their property, and there was no illegal penalty. Id. at *6.
The court also dismissed the plaintiffs' UCL claims. Their claim under the UCL's illegality prong was premised on violation of section 1671, so it was easily dismissed. Their claim under the unfairness prong was that the forfeiture of game characters -- and the requirement of payment of a premium for reinstatement -- was "immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers." The court disagreed: "Defendants provide a for-profit service to users, and Plaintiffs fail to provide any facts that suggest they were in any way coerced or forced to spend any money at all by Defendants." Id. at *7. The fraud prong of their UCL claim was barred for lack of standing, the court concluded, citing In re Tobacco II Cases.
Plaintiffs also asserted a claim of unconscionability under the CLRA, arguing that the user agreement is "'hidden in small print at the end of a 144-page manual'" and that the forfeiture clause "'shock[s] the conscience.'" Once again, the court disagreed:
However, the Court does not find the revocation of accounts of non-paying users sufficiently shocking. Indeed, as argued Defendants, "[i]f such a clause were unconscionable, Square Enix and all of its competitors would be forced to make their games available in perpetuity, or face class action suits for loss of data."
Id. at *10.
The decision in Leong is a strong example of how clearly-worded contractual provisions can form the basis of a motion to dismiss on the pleadings.
