Brown v. VGW Holdings US Inc.

Background

The plaintiffs brought a proposed class action against VGW Holdings US Inc., VGW US, Inc., VGW LuckyLand Inc., Laurence Escalante, several other VGW entities, and partner defendants Jumio Corporation, Yodlee, Inc., Trustly, Inc., and Brian Christopher Misfud. The plaintiffs allege that the defendants coordinated to operate illegal online gambling applications, including Chumba Casino, LuckyLand Slots, and Global Poker. They seek to recover monetary losses under various state statutes and California’s Unfair Competition Law.

According to the complaint, the applications use a two-coin system. Gold Coins can be used for gameplay but cannot be exchanged for cash, while Sweepstakes Coins can be redeemed for money. The plaintiffs allege that the games are based mainly on chance and that the defendants advertised, promoted, and supported the applications through marketing, age verification, payment processing, and other services.

The defendants moved to compel arbitration. In the alternative, they moved to dismiss for lack of subject-matter jurisdiction and lack of personal jurisdiction.

Motion to Compel Arbitration

The plaintiffs did not sign the arbitration agreements at issue; their spouses allegedly signed them. The defendants argued that equitable estoppel required the plaintiffs to arbitrate. Equitable estoppel is a doctrine that can prevent someone from accepting a contract’s benefits while avoiding its burdens.

The court applied federal law because the parties did not dispute that the international arbitration treaty known as the New York Convention applied. It used the standard from a prior federal appellate decision, which asks whether a nonsignatory knowingly exploited an agreement containing an arbitration clause.

The court concluded that the plaintiffs had not knowingly exploited the agreements. The plaintiffs brought claims under state gambling statutes and California’s Unfair Competition Law, rather than claims based on the agreements themselves. The court also rejected the defendants’ arguments that the plaintiffs were standing in the place of their spouses, benefited from their spouses’ winnings as shared marital property, or relied on the agreements to show that the virtual coins were things of value. The court distinguished cases in which nonsignatories directly used or controlled the benefits provided by an agreement.

The court therefore denied the defendants’ motion to compel arbitration.

Subject-Matter Jurisdiction

The defendants argued that the plaintiffs could not bring claims under the laws of California, Georgia, Massachusetts, Mississippi, New Jersey, New Mexico, Ohio, South Carolina, the District of Columbia, and Wisconsin because no plaintiff resided in those jurisdictions.

The court rejected the argument. It relied on its prior decisions holding that whether a plaintiff may assert claims on behalf of proposed class members in states where the plaintiff does not reside is generally a question of class certification, including typicality, adequacy, and predominance, rather than a question of constitutional standing or subject-matter jurisdiction.

The court therefore denied the motion to dismiss for lack of subject-matter jurisdiction.

Personal Jurisdiction

Personal jurisdiction concerns a court’s authority over a particular defendant. The VGW U.S. entities and VGW foreign entities moved to dismiss for lack of personal jurisdiction. The court considered both general and specific personal jurisdiction.

For general personal jurisdiction, the court concluded that the plaintiffs had not shown that the VGW U.S. entities were essentially at home in California. The allegations and evidence showed that some executives worked remotely from California, one entity may have had a San Francisco office when the complaint was filed, and the applications were designed in California. But the court found those contacts insufficient under the governing standard. It also declined to adopt the plaintiffs’ argument that the court could look several years before the complaint was filed to evaluate general jurisdiction.

For specific personal jurisdiction, the court found that the plaintiffs had made the required initial showing. The complaint alleged ongoing contracts between all VGW entities and the California-based partner defendants, which provided age-verification, payment-processing, and related operational services. The court found that the plaintiffs’ alleged losses were connected to those California-related activities because users could not access the applications or transfer money without those services.

The defendants argued that jurisdiction was unreasonable because the plaintiffs and their spouses were not alleged to have played the games or suffered losses in California, California had a limited interest in the dispute, and arbitration provided an alternative forum. The court rejected those arguments. It concluded that the alleged California-based services created a suit-related connection and that the defendants had not shown that litigating in California would be unfairly difficult or inconvenient.

The court therefore denied the motion to dismiss for lack of personal jurisdiction.

Disposition

Judge Araceli Martinez-Olguin entered the following rulings: the motion to compel arbitration was denied; the alternative motion to dismiss for lack of subject-matter jurisdiction was denied; and the motion to dismiss for lack of personal jurisdiction was denied.