Sanchez v. Nintendo of America Inc.

Background

This putative class action concerns an alleged defect in the Nintendo Switch console and its handheld controllers, called Joy-Cons. The plaintiffs alleged that the defect caused an on-screen character to move without direction from the player and worsened until the consoles became unusable.

The plaintiffs were two minor children, M.S. and A.D., proceeding through their guardians, Luz Sanchez and Dolly Vierra. Their first amended complaint asserted claims under California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, Song-Beverly Consumer Warranty Act, and for unjust enrichment. It also sought a declaration that the minor plaintiffs could reject the End User License Agreement on behalf of the proposed class.

Nintendo moved to dismiss and, alternatively, to compel arbitration based on the agreement’s arbitration and forum provisions. The court sent the issue of the arbitration provision’s effect to an arbitration panel. The panel determined that the parents were bound by the agreement and that the minors were not parties to it. The parents later abandoned their claims, while the minors continued litigating in court.

In a September 2022 order, the court dismissed the minors’ non-declaratory claims for lack of standing because they had not adequately alleged that they had received the consoles as gifts and therefore had not adequately alleged an injury. That dismissal was without prejudice, allowing the minors an opportunity to correct the pleading. The court also denied Nintendo’s motion to dismiss the minors’ declaratory-judgment claims as moot.

Motion to Amend

The minors sought leave under Federal Rule of Civil Procedure 15(a)(2) to file a second amended complaint asserting the same claims. Rule 15 generally favors allowing amendments when justice requires, but a court may deny leave when the proposed amendment would be futile.

The court held that the proposed amendment would not cure the standing problems.

Ownership and Collateral Estoppel

The minors argued that they had standing because their parents gave them the consoles, making them the owners, and because they had rejected the agreement. The court applied collateral estoppel, which prevents a party from relitigating an issue already decided in an earlier proceeding between the same parties.

The court found that the minors had presented the gifting, ownership, and disaffirmance arguments to the arbitration panel. The panel considered those arguments and concluded that the parents were bound by the agreement and that the minors had never been parties to it. The court stated that the necessary inferences from the panel’s decision established that the parents, rather than the minors, were the owners of the consoles. Because the issues were identical, actually litigated, and necessary to the arbitration decision, the court held that the minors could not relitigate them.

The court further stated that, because the minors were not parties to the agreement, their declaratory-judgment claim would be subject to dismissal.

Assignment of Claims

The minors alternatively argued that their parents had assigned their rights to sue. The court explained that some California claims involving property or contracts may be transferred, but that an assignment does not give an uninjured person standing to pursue claims under California’s Unfair Competition Law or False Advertising Law. The court also stated that rights under the Song-Beverly Act are not transferred through a private product sale and that assignment does not give the assignee standing to sue under that statute.

Because the parents—not the minors—purchased the consoles and allegedly suffered any resulting injury, the court held that the minors could not establish standing for the Unfair Competition Law, False Advertising Law, or Song-Beverly Act claims through assignment.

For the Consumers Legal Remedies Act and unjust-enrichment claims, the court held that the minors still had not adequately alleged ownership. It also held that the proposed complaint did not provide clear and positive evidence of a valid assignment because it merely included statements attributed to the parents inside the complaint.

Disposition

The court found that the proposed second amended complaint did not correct the deficiencies identified in the September 2022 order and that the amendment would therefore be futile. It denied the minors’ motion for leave to file a second amended complaint and stated that judgment would be entered accordingly.