Pandolfi v. AviaGames, Inc.

Background

Plaintiffs Andrew Pandolfi and Mandi Shawcroft filed a putative class action against AviaGames, Inc.; its co-founders and current employees, Vickie Yanjuan Chen and Ping Wang; and investors ACME, LLC and Galaxy Digital Capital Management, L.P. The operative first amended complaint alleged that AviaGames represented that its games involved real-time competition against human opponents of similar skill, but actually used bots, including recordings of earlier games. Plaintiffs also alleged that AviaGames could match players against bots and keep an entry fee when a bot won.

The complaint asserted claims under California Business and Professions Code section 17200 and the Consumer Legal Remedies Act against AviaGames, and claims under the federal Racketeer Influenced and Corrupt Organizations Act against all defendants except AviaGames. Plaintiffs alleged that the Investor Defendants helped promote AviaGames’ representations and had an interest in attracting more players.

The Avia Defendants moved to compel arbitration. The court denied that motion, and the Avia Defendants filed an interlocutory appeal. All defendants then moved to stay proceedings while the appeal was pending. The Investor Defendants separately moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which concerns whether a complaint adequately states a claim. Galaxy also moved under Rule 12(b)(2), which concerns personal jurisdiction—the court’s power to exercise authority over a defendant.

Motion to Stay

The court rejected the argument that the Supreme Court’s decision in Coinbase, Inc. v. Bielski automatically required a stay of the claims against the Investor Defendants. The court explained that the appeal concerned the arbitrability of claims against the Avia Defendants, while the Investor Defendants had no arbitration rights. The appeal therefore did not automatically remove the claims against the Investor Defendants from the district court’s control.

The court nevertheless applied the discretionary-stay standard associated with Landis v. North American Co. It found that continuing against the Investor Defendants could prejudice both sets of defendants. The Avia Defendants might be unable to participate in discovery or respond to factual and legal developments while their appeal was pending. The Investor Defendants might be unable to obtain ordinary party discovery from the Avia Defendants. The court also found that discovery might have to be repeated and that merits issues might have to be relitigated if the appeal resulted in the Avia Defendants returning to the district court.

The court therefore granted defendants’ motion for a discretionary stay. The stay applies to proceedings against the Investor Defendants while the Avia Defendants’ appeal is pending. The court stated that, after the Ninth Circuit decides the appeal, the parties must meet and confer and file a joint status report.

Investor Defendants’ Motions to Dismiss

Because the court granted the stay, it did not rule on the Investor Defendants’ Rule 12(b)(6) motions seeking dismissal of the RICO claims. The court also deferred ruling on whether RICO could provide a basis for personal jurisdiction over Galaxy, because that issue would require examining the validity of the RICO claim and would overlap with issues concerning the Avia Defendants.

The court did, however, decide the traditional specific-jurisdiction issue as to Galaxy. Applying the Ninth Circuit’s test, the court held that plaintiffs had not made the required initial showing that Galaxy purposefully directed conduct at California. The court found that Galaxy’s investment in AviaGames, the presence of a Galaxy partner as an Avia board observer, and alleged knowledge that AviaGames had California users were insufficient. The court also found the allegations about statements on Galaxy’s portfolio website too conclusory to plausibly show that Galaxy itself intentionally misled AviaGames players.

The court granted Galaxy’s motion to dismiss for lack of traditional specific personal jurisdiction on that basis. It denied plaintiffs’ request for jurisdictional discovery because the request rested on speculation that discovery might reveal relevant facts and because the proposed discovery would overlap with the merits and could prejudice the stayed defendants. The court stated that it was not permanently foreclosing a later request for reconsideration if plaintiffs obtained information showing that Galaxy knew about and participated in conduct purposefully directed at California.

Disposition

The court rejected the request for an automatic stay under Coinbase, granted defendants’ motion for a discretionary stay, and granted in part and deferred in part the Investor Defendants’ motions to dismiss. It denied plaintiffs’ request for jurisdictional discovery concerning Galaxy’s purposeful direction of conduct toward California. The order disposed of Docket No. 140; Docket Nos. 107 and 109 remained pending.