November 26th, 2007 by Benjamin Duranske
Last month, Hernandez v. IGE defendant IGE filed a motion (.pdf, via Justia) to stay the case in favor of arbitration, or dismiss it in favor of jurisdiction in California. Hernandez recently responded, arguing the Florida court should keep the case (.pdf, via Justia).
Here, the argument is over whether the clause requiring arbitration should apply to this kind of third-party beneficiary action. Because this case involves a relatively unconventional use of the third party beneficiary doctrine, there is no case law directly on point. As a result, the parties are arguing somewhat differently than they would in a typical argument over an arbitration clause.
IGE argues that in traditional third party beneficiary proceedings, all the terms of the contract apply, and that should be true here too. Hernandez argues that the impact of the application of this clause in this situation would be to deny any possibility of a class-based claim against another player, because class-based arbitrations are prohibited by the clause. He also argues his claims aren’t the sort covered by the agreement, and that at least one claim — where he is seeking an injunction stopping IGE’s gold farming — is expressly exempted from the arbitration clause.
It would be a significant setback for the lawsuit if the court stays proceedings.
As always when reviewing excerpts from court filings on VB, keep in mind that a brief is an advocacy document, and thus intentionally slanted in favor of the party that files it (here, Hernandez). Here are a few key excerpts:
Notwithstanding the irony and inequity of IGE US’ position that Plaintiffs are bound by the EULA and TOA but it is not, IGE US’ Motion should be denied for the following reasons:
(1) The claims included within Plaintiffs’ Amended Class Action Complaint are expressly excluded from the arbitration clause contained in the EULA and TOU;
(2) IGE US has not conceded or properly established the validity of the arbitration clause included within the EULA and TOU;
(3) Plaintiffs’ Statutory Consumer and computer fraud claims must be decided by this Court to afford Plaintiffs the meaningful relief these statutes provide;
(4) Plaintiffs’ class claims are not arbitrable because Plaintiffs’ agreement with Blizzard Entertainment cannot be construed as a waiver of Plaintiffs’ right to prosecute class action claims against an entity, like IGE US, who violates the terms of the EULA or TOU;
(5) Plaintiffs’ forum selection clause with Blizzard does not apply to Plaintiffs’ dispute with IGE US.
Each of Plaintiff’s nine claims arises from an allegation of IGE US’ unauthorized use of World of Warcraft®. Thus, regardless of whether IGE US has standing to otherwise assert a right to invoke the arbitration clauses contained in Blizzard’s TOU and EULA, those contracts, on their face, do not allow for arbitration of Plaintiffs’ claims. “An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement.” Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 156 (Del. 2002) (Regardless of any policy favoring arbitration, arbitration is “a mechanism of dispute resolution created by contract,” and “does not trump basic principles of contract interpretation.”); see also SBC Interactive, Inc. v. Corp. Media Partners, 714 A.2d 758, 761 (Del. 1998) (“A court will not compel a party to arbitrate… absent a clear expression of such an intent”).
Defendants’ Motion must also be denied because Plaintiffs seek injunctive relief as their primary remedy for the ongoing, irreparable harm they continue to suffer as a result of IGE US’ unauthorized use of World of Warcraft®. The informal negotiation and binding arbitration clauses in the EULA and TOU expressly exclude such claims. See EULA ¶ 14d [at Exhibit “A” to Amended Complaint].
Defendants seek to bolster their argument by falsely characterizing Plaintiffs’ prayer for injunctive relief as “ancillary.” IGE US Brief at 16.6 In fact, because Plaintiffs believe IGE US is still actively engaged in real money trade of World of Warcraft® gold, and because most members of the Class continue to subscribe to World of Warcraft®, effective injunctive relief – in the form of an order preventing IGE US from continuing to interfere with and diminish Plaintiffs’ use and enjoyment of World of Warcraft® – looms large as the most important and central issue in this action.
The Court of Appeals for the Eleventh Circuit has held that when the validity of a consumer agreement is in question, such as in the instant Hernandez case as it pertains to IGE US, the district court is required to determine the validity of the contract prior to submitting the case to arbitration.
As with the Plaintiffs’ claims for injunctive relief (which claims are expressly excluded from the arbitration provisions of the EULA and TOU agreements IGE US seeks to enforce), Plaintiffs’ claims for classwide relief under Rules 23(b)(2) (for declaratory and injunctive relief) and Rule 23(b)(3) (for damages) are not governed by any arbitration agreement with IGE US. That the Plaintiffs agreed to have their remedies against Blizzard restricted does not enure to the benefit of IGE US. Plaintiffs have never agreed to surrender rights proceed on a classwide basis against World of Warcraft® Subscribers who blatantly violate the EULA and TOU.
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