Tyz Law Secures Ninth Circuit Win for Firm Client Supercell in “Loot Box” Class Action, With Panel Concluding Plaintiffs Lacked Standing Because They Suffered No Injury

We are pleased to announce that firm client Supercell successfully knocked back an appeal from the Northern District of California’s dismissal of a putative class action alleging that “loot boxes” contained in Supercell’s Brawl Stars and Clash Royale mobile games constitute illegal gambling under California’s Unfair Competition Law (UCL).  On May 9, 2024, the Ninth Circuit issued its opinion, holding that the plaintiffs lacked standing under both the UCL as well as Article III, on the basis that neither plaintiff had alleged any cognizable economic harm.  In so holding, the panel squarely rejected the notion that “potential psychological and social harms related to gambling” could constitute the kind of injury needed to satisfy statutory and constitutional standing requirements – particularly in the absence of any allegation that either plaintiff had suffered such “intangible” harms themselves. Tyz Law Group represented Supercell in both the district court proceedings and before the Ninth Circuit.  This case is the only one of the wave of loot box cases filed in the Northern District of California to be resolved on appeal. 

Background

In the summer of 2020, plaintiffs’ attorneys brought a series of putative class actions alleging that “loot box” game mechanics constitute illegal gambling under California law, filing separate actions against Supercell, Electronic Arts, Google and Apple in the Northern District of California.  The case against Electronic Arts was dismissed after a successful motion to compel arbitration.  The cases against Supercell, Google, and Apple were each dismissed on the pleadings following successful motions to dismiss.  In the case against Supercell, we argued and the district court (Judge Davila) found that plaintiffs lacked standing under the UCL because they received the benefit of the bargain, and thus did not suffer the economic harm required under the UCL (in addition to dismissing on other merits-based grounds, including that loot boxes do not constitute illegal slot machines under California law).  You can read about the initial dismissal in the case against Supercell here, and the subsequent dismissal with prejudice here.  Plaintiffs appealed all three cases to the Ninth Circuit, but dismissed their appeals in the cases against Apple and Google.  That left the case against Supercell as the only one to make it to determination on appeal.

In this appeal, plaintiffs sought to reverse the district court’s dismissal as well as certify the question of whether loot box game mechanics qualify as illegal gambling under California law to the California Supreme Court.  Tyz Law founder Ryan Tyz handled the oral argument, which was held on April 2, 2024 and can be viewed here.

Argument & Ruling

The Ninth Circuit has now resolved the appeal against Supercell.  At oral argument, the panel was hostile to plaintiff’s attempt to certify the question to the California Supreme Court, with panel members questioning why plaintiffs didn’t bring their claims in state court in the first place or at least ask the district court to certify the question. Given this, it came as little surprise that the Ninth Circuit declined to certify the question.  In resolving the meat of the appeal, the Ninth Circuit noted that Supercell had argued, and the district court agreed, that plaintiffs lacked statutory standing under the UCL—which requires showing an economic injury—because plaintiffs concededly got the benefit of the bargain by receiving exactly what they expected:  a chest or box with virtual items.  However, the Ninth Circuit went a step further and held that plaintiffs also lacked Article III standing for the same reasons—noting that a mere statutory violation is not an injury-in-fact absent some additional economic injury. 

Because the panel concluded there was no Article III standing, the Ninth Circuit vacated the district court’s order—which had addressed the merits of the claims—and remanded with instructions for the district court to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).  The opinion is viewable here. 

Takeaway

Although the Ninth Circuit vacated the district court’s dismissal with prejudice under Rule 12(b)(6) and remanded with instructions to dismiss without prejudice under Rule 12(b)(1), this opinion should spell the end of these “loot box” cases under California gambling law.  Given the nature of loot boxes—that users know they will be receiving at least one mystery virtual item every time—the Court’s opinion that alleging a violation of a statute without more is not sufficient for standing and does not amount to an economic injury may well prove to be an insurmountable challenge.  Even if plaintiffs could allege actual injury from a gambling addiction somehow connected to their purchase of loot boxes—which was not present in this case—the Ninth Circuit panel did not suggest even this would be enough, and appeared highly skeptical of the merits at oral argument, signaling that it did not believe it likely that California courts would agree that loot boxes violate California’s gambling law.  

Both we and our client are thrilled with this outcome.  As Supercell’s General Counsel, Markku Ignatius, puts it:

"We are gratified that the Court recognized what we have all known all along:  plaintiffs didn't suffer any injury because they received exactly what they were expecting.  Indeed, as the Court noted and as the plaintiffs admitted, everyone who purchased a box in Brawl Stars or who purchases a chest in Clash Royale gets one in-game item at minimum."