C.W. v. Epic Games, Inc.

Background

C.W., a minor represented by his guardian, Rebecca White, sued Epic Games over Fortnite in-app purchases. The claims involved C.W.’s alleged right under state law to cancel contracts made as a minor, Epic’s refundability terms, and alleged misleading conduct involving virtual currency and in-app content.

The court had previously allowed the declaratory-judgment claim and a claim under the “unlawful” prong of California’s Unfair Competition Law (UCL), to the extent it was based on an alleged violation of C.W.’s right to cancel contracts. The court had dismissed, with permission to amend, the claims for violation of the California Consumers Legal Remedies Act (CLRA), breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, the remaining UCL theories, and unjust enrichment. Epic then moved to dismiss the first amended complaint.

Declaratory Judgment and UCL Unlawful Prong

The court denied Epic’s motion to dismiss these claims. Epic argued that C.W. could not invoke cancellation rights for purchases made through Apple and Sony gift cards or with his mother’s credit card. The court held that the amended complaint adequately alleged Epic’s connection to the transactions and that, at the pleading stage, the court could not adopt Epic’s inference that C.W.’s mother had knowingly entered her card information, monitored the purchases, and approved them by paying the bills.

The court also rejected Epic’s arguments concerning purchases made with gifted gift cards and other previously decided issues involving the minor’s right to cancel. Taking the allegations as true, the court found that plaintiffs adequately stated claims based on that right.

Breach of Good Faith and Fair Dealing

The court dismissed this claim with prejudice. Plaintiffs alleged that Epic breached the implied contractual duty of good faith and fair dealing by releasing new content frequently, making older content stale, displaying or promoting non-refundability terms inconspicuously, failing to provide receipts or purchase histories, and inducing minors to make purchases.

The court found that these allegations did not show a breach of a duty arising from the parties’ contract. It also rejected plaintiffs’ separate theory of “tortious bad faith” because the complaint did not allege the special relationship or fiduciary characteristics generally required for that type of claim. Because plaintiffs had already had an opportunity to amend and had not cured the defects, the claim was dismissed with prejudice.

Negligent Misrepresentation

The court granted the motion as to the theories based on frequent new content, the lack of receipts or purchase history, and marketing items as non-refundable without expressly stating that minors could cancel contracts under state law.

The court denied the motion as to a separate theory concerning alleged misrepresentations or omissions about the refundability of certain content, including Battle Pass. The amended complaint alleged that C.W. was unaware of certain refundability limits, that Epic presented the information confusingly or inconspicuously, and that C.W. relied on the alleged misrepresentations regarding Battle Pass and purchases older than 30 days. Taking those allegations as true, the court found that they stated a claim that Epic made material misrepresentations or omissions on which C.W. justifiably relied to his detriment.

CLRA

The court granted the motion with prejudice as to the CLRA claim. Plaintiffs amended the complaint to characterize the virtual currency and content purchases as licenses for entertainment use, which they argued qualified as “services” under the statute. The court found it plausible, without a full record, that Fortnite might be a product combining software and entertainment services, so it did not dismiss the claim solely because of the nature of Fortnite.

However, the court found that the amended complaint did not allege an actionable misrepresentation or omission under the CLRA. The complaint did not identify an affirmative representation that contradicted an omission, and it did not show that refundability terms concerned Fortnite’s central function or were facts Epic had a duty to disclose. The CLRA claim was therefore granted dismissal with prejudice.

UCL Unfair and Fraudulent Prongs

The court denied the motion to dismiss these UCL claims. Regarding the “unfair” prong, the court found that plaintiffs plausibly alleged conduct that was immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, based in part on allegations that Epic lured minors to spend significant amounts on in-app purchases without parental consent.

Regarding the “fraudulent” prong, the court found that plaintiffs plausibly alleged that Epic’s statements or omissions about refundability were likely to deceive the public and that C.W. actually relied on them.

Unjust Enrichment

The court granted the motion with prejudice as to unjust enrichment. The court treated unjust enrichment as a claim based on an implied or quasi-contract and concluded that plaintiffs had not adequately pleaded a contract-based claim related to Epic’s refundability policy.

Disposition

Judge Rogers ruled that Epic’s motion to dismiss was granted with prejudice as to the claims for breach of good faith and fair dealing, violation of the CLRA, and unjust enrichment. The motion was denied as to all other claims, including declaratory judgment, the UCL unlawful prong based on C.W.’s right to cancel, the UCL unfair and fraudulent prongs, and the negligent-misrepresentation theory concerning refundability. Epic was ordered to respond to the amended complaint within 21 days.