Colvin v. Roblox Corporation

Background

The plaintiffs alleged that Roblox’s virtual currency, Robux, was used by online casinos to take wagers from minors. According to the complaint, casino representatives used transactions on the Roblox platform to obtain minors’ Robux, Roblox processed those transactions and took a share, and the casinos later exchanged the Robux with Roblox for cash. The plaintiffs alleged that Roblox knew about this activity and failed to warn minors and their parents.

The motion to dismiss challenged claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), the California Consumer Legal Remedies Act (CLRA), California’s Unfair Competition Law (UCL), New York’s General Business Law (GBL), and negligence theories.

RICO claims

The court held that the complaint did not adequately plead the existence of a RICO enterprise. Although the plaintiffs alleged that Roblox’s ordinary processes were being used to facilitate illegal gambling and that Roblox knew about it, the court found that the complaint alleged only Roblox’s own ordinary business activities. It did not allege a common purpose or organized conduct separate from Roblox’s normal affairs. The court therefore dismissed the RICO claims.

The plaintiffs referred at the hearing to communications between Roblox and gambling websites and pointed to the gambling websites’ alleged use of a Roblox security cookie. The court found those allegations insufficient. It also noted that the security cookie was available to all users and that users could instead provide their login credentials. The court did not consider a RICO conspiracy theory raised in the plaintiffs’ opposition brief because that theory was not adequately pleaded in the complaint.

Economic injury and statutory standing

Roblox argued that the plaintiffs lacked the economic injury required to sue under the UCL, CLRA, and New York’s GBL. It argued that any loss occurred when users bought nonredeemable Robux and that the plaintiffs received the entertainment they purchased when they used Robux for gambling.

The court rejected that reasoning at the motion-to-dismiss stage. It held that Robux could have economic value even though users could not exchange it for cash because Robux could be exchanged for in-game experiences that users valued. The court also found it significant that the plaintiffs were minors who allegedly could not meaningfully consent to gambling losses, that the online casinos operated outside the Roblox platform, and that the parents allegedly did not know Robux could be used for off-platform gambling. The court further held that the alleged loss could support claims against Roblox because the plaintiffs alleged that Roblox knowingly and improperly facilitated and profited from the casino activity.

California Unfair Competition Law claims

The court denied dismissal of the UCL claims. For the unlawful-practices theory, the court found that Robux could qualify as something of value under the gambling laws discussed in the complaint. It also found sufficient allegations that the minor plaintiffs played games of chance and wagered Robux. While the complaint was unclear about which laws applied to Roblox’s conduct, the court identified laws that could apply to an entity that knowingly accepted payments or received compensation connected to unlawful gambling.

The court also found that the complaint adequately alleged an unfair-practices theory. The court explained that this theory did not depend entirely on proving a violation of another law.

Negligence and negligence per se

The court denied dismissal of the negligence claims. Under California law, the court described a general duty to use reasonable care in conducting activities to avoid reasonably foreseeable harm. The plaintiffs alleged that Roblox breached that duty by engaging in the currency exchanges with online casinos and failing to warn parents. Roblox challenged only whether it owed a duty and did not argue that it had actually used reasonable care. Because Roblox did not show that an exception to the general duty rule was appropriate, the negligence claims could proceed.

The court also found that the complaint adequately alleged negligence per se based on violations of laws concerning payments connected to unlawful gambling. The court explained that California treats negligence per se as an evidentiary doctrine that creates a rebuttable presumption of negligence, while New York law recognizes negligence per se in circumstances involving an unexcused violation of a statutory duty protecting a particular class.

The court did not decide whether a heightened duty of care applied because the parties had not adequately presented that issue. It also declined at that stage to apply the economic-loss rule, noting that Roblox raised the argument only briefly, cited no New York law, relied on an inapplicable California case, and abandoned the argument in its reply brief.

CLRA and New York GBL claims

The plaintiffs asserted consumer-protection claims based on allegations that Roblox misrepresented its platform as free from gambling. The court held that fraud-based claims had to be pleaded with particularity. The complaint identified a statement in Roblox’s terms of service saying that experiences involving simulated gambling were not allowed, but the court found that the complaint did not directly contradict that statement. The plaintiffs also did not allege that they saw or relied on the statement when making their purchases.

The plaintiffs shifted in their opposition brief to an omission theory, but the court found that theory was not the focus of the complaint and was not developed enough to satisfy the heightened pleading requirement. The court therefore dismissed the CLRA and New York GBL claims.

Section 230

The court rejected Roblox’s argument that Section 230 of the Communications Decency Act barred the plaintiffs’ claims. Section 230 can protect online platforms from liability based on content posted by users, but the court found that the plaintiffs were not seeking to hold Roblox liable as a publisher or speaker. Their theories instead concerned Roblox’s alleged facilitation of transactions between minors and online casinos and its alleged failure to warn about those casinos.

Disposition

The court granted in part and denied in part the motion to dismiss. It dismissed the RICO, CLRA, and New York GBL claims and denied dismissal of the UCL and negligence claims. All dismissals were with leave to amend. The plaintiffs had 14 days to file an amended complaint attempting to cure the dismissed claims. Discovery could proceed immediately on the surviving claims, and the plaintiffs could later seek permission to reassert dismissed claims if discovery provided a good-faith basis to do so.