Bryce Blum; esportsLaw has reported on reddit that Valve have won their motion to dismiss in the Gambling Class action suit filed a few months ago. The skin betting scene had caused a huge scandal around June July 2016. It had led a few members of the community to file lawsuits against Valve Corporation. One such lawsuit was filed as a Class Action suit.
Excerpts from the Reddit Post;
Yesterday, defendants in the Valve class action won their Motion to Dismiss in the federal class action filed against it and other parties in Washington State. This is a pretty big deal, though not necessarily for the reasons you might expect. I’ve been pinged about this a ton via Twitter and email, so I’m going to try to explain what happened and its significance. My goal here is more to keep the community informed on what’s going on, not offer my own opinions about the case or its development. I’m happy to stick around and answer questions if people have any.
TL;DR This ruling was procedural, not substantive. The case was kicked out of federal court on jurisdictional grounds, which will impact the suit but not necessarily kill it. Likely plaintiffs will appeal.
Why was the motion to dismiss granted?
The case was dismissed on jurisdictional grounds. This was NOT a ruling on the substance of the plaintiffs’ allegations across the board.
In order to get into federal court, you have to have a basis for doing so (in the law, we refer to this as the jurisdiction of the court). In this case, there were several possible arguments for jurisdiction, two of which the court focused on as plaintiffs’ primary justifications. The first was that the case involved a question of federal law—whether defendants’ violated RICO. However, the court dismissed this cause of action because plaintiffs failed to assert a qualifying injury under the RICO statute. There is a lot of case law relied on by Valve that suggests purely losing money in a wagering transaction is not a sufficient injury to assert a case under RICO. Plaintiffs argued that the injury here went beyond simple gambling losses (fraud), but the court held that plaintiffs “allegations do not support claims of dishonest conduct.”
The other potential avenue for jurisdiction was under the Class Action Fairness Act (CAFA). In order to get federal jurisdiction through CAFA, the matter in controversy has to exceed $5,000,000. While plaintiffs provided facts about the economics of skin betting and Valve’s CSGO revenue, they did not assert an actual damages figure an instead relied on “common sense” arguments that the amount of damages exceeded $5,000,000. The court didn’t buy these arguments.
Why does this matter?
Losing RICO is potentially a major blow to the economics of plaintiffs’ suit. In the US, litigants usually pay their own fees, unlike many parts of the world where the loser pays for both sides of the case. That being said, there are various exceptions to this general rule and RICO is one of them—if the plaintiffs won on the RICO claim, that could be a basis on which to recover attorneys’ fees down the road. These fees are potentially massive for complex commercial class actions; we’re talking hundreds of thousands, if not millions of dollars.
There is also a tendency for plaintiff lawyers to prefer federal court for class actions. Federal courts have certain procedural advantages, and there is a prevalent perception that they’re also more sophisticated and pay more attention to the case because their dockets are less crowded. That being said, reasonable lawyers debate these issues all the time so I don’t see it as pivotal one way or the other (though the lawyers on the case might based on their experience, which is why I wanted to at least raise the issue).
What happens now?
This isn’t necessarily a crippling blow. First, plaintiffs can appeal the ruling. Even if they lose that appeal, the case can live on in state court if plaintiffs’ lawyers still think the economics of the suit make sense after losing RICO.
Class actions are incredibly complicated. Most cases like this are done on contingency. This means lawyers aren’t paid upfront; instead, they collect a percentage of any recovery. But cases like this can take years and whether lawyers decide to continue with a case depends on an on-going analysis of the likelihood of success and potential damage awards.
Hope this helps! As I said, I’ll stick around to answer questions and respond to top comments.
Quick background on me:
I practice at IME Law (www.imelaw.com), and was the first attorney to build a practice focused on esports law. I was also a commercial litigator and worked on class actions before I transitioned into full-time esports work. I’ve worked in every major esports title, with a wide array of teams, influencers, casters, organizers, and esports-focused businesses. Particularly relevant for any discussion surrounding gambling in esports, I’m In-House Counsel at Unikrn, which aims to build the most comprehensive esports sportsbook in the world and is doing so in the most responsible way possible (age verification, geotracking, competitive integrity certification, and much more).
Edit: Just wanted to add this quick note for clarity. This motion to dismiss was actually brought by TMartin & CSGO Lotto. The impact is as I described – the RICO cause of action was dismissed from the case against all defendants, not just the ones that brought the motion. But I shouldn’t have said it was Valve’s motion.
As you can read, the dismissal is based on technical grounds and not based on the substance of the matter. The plaintiffs can resubmit a plaint , however until they do that; Valve do not have a lawsuit against them.