N.A. v. Nintendo of America Inc. ( 2023 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 N.A., Case No. 23-cv-02424-DMR 8 Plaintiff, ORDER ON MOTION TO COMPEL 9 v. ARBITRATION OR TRANSFER 10 NINTENDO OF AMERICA INC., Re: Dkt. No. 24 11 Defendant. 12 Plaintiff N.A., by and through his Guardian, Bruce Alls, filed this putative class action 13 against Defendant Nintendo of America, Inc. (“Nintendo”) for claims arising out of N.A.’s in- 14 game purchases made while playing Nintendo’s video game Mario Kart Tour. Nintendo now 15 moves to compel arbitration, or in the alternative, to transfer the case to the United States District 16 Court for the Western District of Washington. [Docket No. 24.] This matter is suitable for 17 determination without oral argument. Civ. L.R. 7-1(b). For the following reasons, the motion to 18 compel arbitration is granted. 19 I. BACKGROUND 20 A. N.A.’s Complaint 21 N.A. is a minor. He alleges that one of Nintendo’s most popular games is Mario Kart 22 Tour, a series of racing games that can be downloaded for free on mobile or tablet devices. 23 [Docket No. 1-2 (Compl.) ¶¶ 2, 10, 16.] Nintendo marketed and sold “virtual ‘Lootboxes’” called 24 “Spotlight Pipes” for “real-world currency” to Mario Kart Tour players. Id. at ¶ 3. A Lootbox is a 25 “video game microtransaction in which the consumer purchases a reward containing one or more 26 virtual items of differing value or rarity that is assigned at random.” Id. at ¶ 13. Players of Mario 27 Kart Tour could purchase in-game currency called “rubies” in packs costing up to $70 and could 1 prizes. Id. at ¶¶ 24-26. N.A. alleges that he and other players were not told in advance what was 2 inside any particular Spotlight Pipe in Mario Kart Tour or the odds of winning something that may 3 be contained in a Spotlight Pipe “and thereby were functionally gambling on the chance of 4 winning some valuable prize.” Id. at ¶ 3. He alleges that Nintendo engaged in unfair, deceptive, 5 or unlawful acts or practices by allowing players, including minors, to pay money to gamble on 6 winning in-game items. He further alleges that Nintendo “deceived, misled, and harmed 7 consumers,” including minors, by steering players towards making such purchases, making it 8 difficult to advance in the game without making such purchases, and refusing to provide refunds 9 to minors who made such purchases. Id. at ¶ 5. 10 N.A. alleges that he played Mario Kart Tour from 2021 to 2022 and spent over $170 11 making in-game purchases of rubies to fire Spotlight Pipes that were labeled non-refundable. Id. 12 at ¶¶ 43, 50. He alleges that he made the purchases using his father’s credit card that was linked to 13 his Nintendo account and that he made many purchases without his father’s permission. Id. at ¶ 14 44. N.A. alleges that he “would not have made the amount of in-game purchases that he did had 15 he known the true odds of his being able to obtain any reward from the Spotlight Pipe, or that he 16 would not be allotted a refund.” Id. at ¶ 47. 17 N.A. filed the complaint on March 17, 2023 in state court. [Docket No. 1 (Notice of 18 Removal).] He brings claims for 1) declaratory judgment; 2) violation of Washington’s Consumer 19 Protection Act, Wash. Rev. Code §§ 19.86.010 et seq.; 3) violation of California Business and 20 Professions Code section 17200 et seq.; and 4) unjust enrichment. N.A. brings this putative class 21 action on behalf of all minors in the United States (the nationwide class) and California (the 22 subclass) who “made a purchase to fire the Spotlight Pipe in the Mario Kart Tour game using real- 23 world currency.” Compl. ¶ 55. Nintendo removed the case on May 17, 2023. 24 B. The Nintendo Account User Agreement 25 Nintendo submits evidence that to play Mario Kart Tour users must have a Nintendo 26 Account, agree to the Nintendo Account User Agreement (“User Agreement”), and link their 27 Nintendo Account to the Mario Kart Tour app. [Docket No. 24-2 (Kiel Decl. July 21, 2023) ¶ 4.] 1 required.”). According to Nintendo, users must affirmatively check a box confirming, “I agree to 2 the Nintendo Account User Agreement and I acknowledge that I have read the Nintendo Privacy 3 Policy” before they can finish creating an account. Kiel Decl. ¶¶ 6-11, Exs. A (User Agreement), 4 B. 5 At the top of the first page, the User Agreement states, “THIS IS AN IMPORTANT 6 AGREEMENT THAT APPLIES TO YOUR USE OF THE NINTENDO ACCOUNT 7 SERVICES!” User Agreement 1. It also instructs, “[i]f you are under the age of 18 (or the age of 8 majority where you live), STOP! You must get your parent or legal guardian to read and accept 9 this Agreement on your behalf.” Id. 10 The User Agreement contains an arbitration provision: 11 16. Dispute Resolution; Binding Arbitration; Class Action Waiver 12 PLEASE READ THIS CAREFULLY. IT AFFECTS YOUR 13 RIGHTS. 14 BY ENTERING INTO THIS AGREEMENT, YOU AND NINTENDO EXPRESSLY WAIVE THE RIGHT TO TRIAL BY 15 JURY OR TO PARTICIPATE IN A CLASS ACTION. 16 a. . . . [a]ny matter we are unable to resolve and all disputes or claims arising out of or relating to the Nintendo Account Services or this 17 Agreement, including its formation, enforceability, performance, or breach (each, a ‘Claim’) . . . shall be finally settled by binding 18 arbitration administered by the American Arbitration Association (the ‘AAA’) . . . [t]he arbitrator, and not any federal, state, or local court 19 or agency, shall have exclusive authority to resolve all Claims. . . . Any such arbitration shall be conducted by the parties in their 20 individual capacities only and not as a class action or other representative action, and the parties waive their right to file a class 21 action or seek relief on a class basis. . . . 22 User Agreement § 16. Users may accept the User Agreement and opt out of the arbitration 23 provision by sending written notice to Nintendo within 30 days from the date of creation of the 24 Nintendo account. Id. at § 16(d); Kiel Decl. ¶ 15. According to Nintendo, no one with the initials 25 N.A. or the last name “Alls” provided such notice. Kiel Decl. ¶ 16. 26 The User Agreement also contains a provision regarding the governing law and venue for 27 disputes: 1 The laws of the State of Washington, U.S.A., without regard to its conflict of laws provisions, will govern this Agreement and any 2 dispute of any sort pertaining to this Agreement or the Nintendo Account Services that might arise between you and Nintendo. 3 The parties consent to the exclusive jurisdiction of the courts located 4 in King County, Washington, U.S.A. with respect to the resolution of either of the following: (a) an allegation by either party that Section 5 16 is invalid or unenforceable or (b) any Claims, following (i) any opt out from the provisions of Section 16 exercised in accordance with 6 the procedure set forth in Section 16(d) or (ii) a final determination that Section 16 is invalid or unenforceable. 7 8 User Agreement § 18. 9 N.A. alleges that he “does not recollect seeing, reading, or agreeing to [Nintendo’s] Terms 10 of Use prior to playing Mario Kart Tour prior to playing . . . and his Guardian also did not see, 11 read, or agree to the terms.” Compl. ¶ 54. He further alleges that “he does not consent to arbitrate 12 any of the claims in this action and disaffirms the entirety of any end-user-license agreement, 13 contract or agreement between him and [Nintendo].” Id. 14 Nintendo now moves to compel arbitration. In the alternative, it moves to transfer this 15 action to the Western District of Washington pursuant to the venue provision in the User 16 Agreement. 17 N.A. opposes the motion. He submitted a declaration with his opposition in which he 18 again “disaffirm[s] the entirety of any [End User License Agreement, “EULA”], contract or 19 agreement that was accepted through [his] Nintendo account.” He also states that he has not 20 played Mario Kart Tour or any other Nintendo game since filing this lawsuit. [Docket No. 30-2 21 (N.A. Decl. Aug. 21, 2023) ¶¶ 5, 6.] 22 II. LEGAL STANDARD 23 The Federal Arbitration Act (“FAA”) governs written arbitration agreements affecting 24 interstate commerce. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111-12 (2001). 25 Enacted for the purpose of enforcing written arbitration agreements according to their own terms, 26 the FAA embodies “the basic precept that arbitration ‘is a matter of consent, not coercion.’” Stolt– 27 Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010) (quoting Volt Info. Sciences, 1 the FAA ensures that “‘private agreements to arbitrate are enforced according to their terms,’” 2 Stolt–Nielsen, 559 U.S. at 682 (quoting Volt, 489 U.S. at 479), by expressly authorizing a party to 3 an arbitration agreement to petition a United States district court for an order directing that 4 “arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. 5 The FAA provides that an arbitration agreement “shall be valid, irrevocable, and 6 enforceable, save upon such grounds as exist at law or in equity for the revocation of any 7 contract.” 9 U.S.C. § 2. “The final clause of § 2, generally referred to as the savings clause, 8 permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as 9 fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive 10 their meaning from the fact that an agreement to arbitrate is at issue.” Poublon v. C.H. Robinson 11 Co., 846 F.3d 1251, 1259 (9th Cir. 2017) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 12 333, 339 (2011) (internal quotation marks omitted)). “By its terms, the [FAA] leaves no place for 13 the exercise of discretion by a district court, but instead mandates that district courts shall direct 14 the parties to proceed to arbitration on issues as to which an arbitration agreement has been 15 signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis in original) 16 (citing 9 U.S.C. §§ 3, 4). 17 “In deciding whether to compel arbitration under the FAA, a court’s inquiry is limited to 18 two ‘gateway’ issues: ‘(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether 19 the agreement encompasses the dispute at issue.’” Lim v. TForce Logistics, LLC, 8 F.4th 992, 999 20 (9th Cir. 2021) (quoting Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 21 Cir. 2000)). “If both conditions are met, ‘the [FAA] requires the court to enforce the arbitration 22 agreement in accordance with its terms.’” Id. (quoting Chiron, 207 F.3d at 1130). Parties may 23 delegate gateway issues of arbitrability to the arbitrator if they “clearly and unmistakably” agree to 24 do so. Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981, 985 (9th Cir. 2017). 25 III. DISCUSSION 26 Nintendo argues that N.A. agreed to the User Agreement and did not opt out of the 27 arbitration provision. Accordingly, it moves to compel arbitration pursuant to the arbitration 1 does not remember doing so. Compl. ¶ 54. He does not claim that he opted out of the arbitration 2 provision. He also does not argue that his claims in this action do not fall under the scope of the 3 arbitration provision. Instead, N.A. contends that he disaffirmed the User Agreement in its 4 entirety under California law and thus rendered the agreement “null in its entirety,” including the 5 arbitration provision. Opp’n 7-8 (quotation marks and citation omitted). 6 California Family Code section 6700 provides that “a minor may make a contract in the 7 same manner as an adult, subject to the power of disaffirmance” provided by section 6710, with 8 certain exceptions to a minor’s ability to contract that do not apply here. Under section 6710, a 9 minor may disaffirm a contract “before majority or within a reasonable time” after reaching 10 majority. Cal. Fam. Code § 6710 (“Except as otherwise provided by statute, a contract of a minor 11 may be disaffirmed by the minor before majority or within a reasonable time afterwards or, in case 12 of the minor’s death within that period, by the minor’s heirs or personal representative.”). “A 13 contract (or conveyance) of a minor may be avoided by any act or declaration disclosing an 14 unequivocal intent to repudiate its binding force and effect.” Spencer v. Collins, 156 Cal. 298, 303 15 (1909). “No specific language is required to communicate an intent to disaffirm.” Berg v. 16 Traylor, 148 Cal. App. 4th 809, 820 (2007). “Disaffirmation by a minor rescinds the entire 17 contract, rendering it a nullity.” I.B. ex rel. Fife v. Facebook, Inc., 905 F. Supp. 2d 989, 1000 18 (N.D. Cal. 2012) (citing Scollan v. Gov’t Employees Ins. Co., 222 Cal. App. 2d 181, 183-84 19 (1963)). 20 N.A. argues that he disaffirmed the User Agreement by filing this action and specifically 21 pleading disaffirmation in the complaint. Opp’n 8 (citing Compl. ¶ 54). Nintendo disputes the 22 effectiveness of the purported disaffirmation. See Mot. 19; Reply 4. The court need not resolve 23 this dispute because the issue of disaffirmation does not relate to contract formation; rather, it goes 24 to whether the User Agreement is enforceable, an issue that the parties delegated to an arbitrator. 25 See User Agreement § 16(a) (“all disputes or claims arising out of or relating to the Nintendo 26 Account Services or this Agreement, including its formation, enforceability, performance, or 27 breach . . . shall be finally settled by binding arbitration”). In Three Valleys Municipal Water 1 that “a party who contests the making of a contract containing an arbitration provision cannot be 2 compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate.” (emphasis 3 in original). However, “[i]f the dispute is within the scope of an arbitration agreement, an 4 arbitrator may properly decide whether a contract is ‘voidable’ because the parties have agreed to 5 arbitrate the dispute.” Id. at 1140. Examples of “voidable” contracts are “those ‘where one party 6 was an infant, or where the contract was induced by fraud, mistake, or duress, or where breach of a 7 warranty or other promise justifies the aggrieved party in putting an end to the contract.’” Id. 8 (emphasis added) (quoting Restatement (Second) Contracts § 7 comment b (1981)); see, e.g., A.C. 9 by & through Carbajal v. Nintendo of Am. Inc., No. C20-1694 TSZ, 2021 WL 1840835, at *2 10 (W.D. Wash. Apr. 29, 2021) (declining to reach issue of minor’s purported disaffirmation of 11 agreement containing arbitration provision because it did not relate to contract formation, citing 12 Three Valleys). 13 Although Nintendo cited Three Valleys in its motion, see Mot. 13, N.A. does not address 14 the case. Instead, he argues that by disaffirming the User Agreement in its entirety, he is not 15 bound by its arbitration provision, citing three cases. Opp’n 8-10. None are persuasive. 16 First, in R.A. v. Epic Games, Inc., No. CV 19-1488-GW-Ex, 2019 WL 6792801, at *1 17 (C.D. Cal. July 30, 2019), the minor plaintiff filed a putative class action against a videogame 18 maker challenging the sale of lootboxes in the game Fortnite. The plaintiff was required to accept 19 an end user license agreement (“EULA”) before playing. He accepted two versions of the 20 defendant’s EULA, the second of which contained an arbitration provision. Id. at *2-3. The 21 defendant moved to compel arbitration and the plaintiff disaffirmed both EULAs in a declaration. 22 Id. at *3. The court held that the plaintiff validly disaffirmed the second EULA via his declaration 23 and denied the motion to compel arbitration. Id. at *7. However, R.A. is distinguishable because 24 nothing in the opinion suggests that the defendant argued that the issue of disaffirmation had been 25 delegated to an arbitrator and the court did not address it. 26 Next, N.A. cites a November 2, 2022 tentative ruling in J.R. v. Electronic Arts, Inc., No. 27 CVRI2200642 (Cal. Sup. Ct.). Opp’n Ex. A. In J.R., the Riverside County Superior Court denied 1 because the contract between the parties was revocable under Family Code section 6710. Ex. A at 2 5. The court’s analysis was brief and does not reference Ninth Circuit or Supreme Court 3 authority. The court does not find J.R. persuasive and declines to follow it. 4 The third case is Y.H. v. Blizzard Ent., Inc., No. 8:22-CV-00998-SSS-ADSX, 2022 WL 5 17491821, at *3 (C.D. Cal. Nov. 29, 2022), in which the court concluded that the minor 6 disaffirmed an end user license agreement containing an arbitration provision and a class action 7 waiver and accordingly denied a motion to compel arbitration, holding the defendant’s “arbitration 8 provision does not apply in this action.” After the briefing on this motion was completed, the 9 Ninth Circuit vacated the denial of the motion to compel arbitration and remanded the case for the 10 district court to determine whether the minor plaintiff has Article III standing, without prejudice to 11 the defendant renewing its motion to compel arbitration. Y.H. by & through Harris v. Blizzard 12 Ent., Inc., No. 22-56145, 2023 WL 7015280, at *2 (9th Cir. Oct. 25, 2023). Therefore, Y.H. is no 13 longer good law. 14 In sum, N.A. does not argue that the contract to arbitrate was not formed. He asserts that it 15 is voidable because N.A. was a minor when he entered into it. Through that contract, N.A. and 16 Nintendo agreed to arbitrate issues of enforceability, which includes N.A.’s disaffirmation 17 defense. Therefore, the question of disaffirmation must be decided in arbitration. None of the 18 cases cited by N.A. support a different outcome. Since “a valid agreement to arbitrate exists” and 19 encompasses the parties’ dispute, there is nothing further for this court to decide. 20 Where a dispute is subject to arbitration under the terms of a written agreement, the district 21 court shall “stay the trial of the action until such arbitration has been had in accordance with the 22 terms of the agreement,” 9 U.S.C. § 3, although courts have discretion under Section 3 to dismiss 23 claims that are subject to an arbitration agreement. Sparling v. Hoffman Const. Co., Inc., 864 F.2d 24 635, 638 (9th Cir. 1988). Nonetheless, the Ninth Circuit has expressed its “preference for staying 25 an action pending arbitration rather than dismissing it.” MediVas, LLC v. Marubeni Corp., 741 26 F.3d 4, 9 (9th Cir. 2014). The court finds it appropriate to stay this action pending the outcome of 27 arbitration proceedings. For case management reasons, the court will accomplish this by 1 report within two weeks of the completion of any arbitration. 2 || IV. CONCLUSION 3 For the foregoing reasons, Nintendo’s motion to compel arbitration is granted. The court 4 stays this action in its entirety pending the final resolution of the arbitration. The clerk shall 5 administratively close the case. The parties may reopen the case by filing a joint status report 6 || within two weeks of the completion of any arbitration. ry 7 Ay ON 8 IT IS SO ORDERED. R) □□ > go OR 9 || Dated: December 11, 2023 2INir i ~ LOD EF DISTRICS 15 16 = 17 Z 18 19 20 21 22 23 24 25 26 27 28