Advertising Law Blog

Online games company loses motion based on unconscionability

In Pandolfi v. Aviagames, Inc., decided in the Northern District of California earlier this month, a federal court refused to enforce an agreement to arbitrate that was contained in Aviagames’ terms of service even though the plaintiffs had agreed to the terms. According to the court, it would be unconscionable to enforce certain provisions of the arbitration agreement, so it denied Aviagames’ motion to compel arbitration. 

Aviagames offers online and mobile phone games titled Bingo Clash, Solitaire, Pool Clash, Match-n-Flip, 21 Gold and Tile Blitz, that can be accessed through mobile browsers or downloaded standalone applications. The games can be played for cash prizes.

According to the class-action lawsuit, Aviagames represents that players can compete against other players (human opponents as opposed to bots), and in particular, other players of equal skill levels. In other words, the games are supposed to be ones of skill and not of chance. But the plaintiffs say these are false representations because players do not actually compete against live human opponents but rather are matched against bots, and that Aviagames manipulates matches by pitting players against bots of similar or higher skill levels. Aviagames allegedly benefits from this misrepresentation because it avoids paying out cash prizes while at the same time. it keeps the entry fees paid by the live players.

Upon being sued, Aviagames filed a motion to compel arbitration based upon the existence of an arbitration agreement in its terms of service. The terms were required to be accepted prior to game play. However, the terms contained a relatively new clause, known as a “bellwether provision”:

The AAA Supplementary Rules for Multiple Case Filings and the AAA Multiple Consumer Case Filing Fee Schedule will apply if twenty-five (25) or more similar claims are asserted against Aviagames or against you by the same or coordinated counsel or are otherwise coordinated. In addition to the application of the AAA Supplementary Rules for Multiple Case Filings and the AAA Multiple Consumer Case Filing Fee Schedule, you and Aviagames understand and agree that when twenty-five (25) or more similar claims are asserted against Aviagames or you by the same or coordinated counsel or are otherwise coordinated resolution of your or Aviagames’ Claim might be delayed.

The arbitration agreement also contains a delegation clause – i.e., a clause that specifies that an arbitrator (and not a court) decides certain gateway issues related to arbitrability. Specifically, the delegation clause provides that all “disputes arising out of or relating to interpretation or application of this arbitration provision, including the enforceability, revocability, or validity of the arbitration provision or any portion of the arbitration provision” are to be decided by an arbitrator.

According to the plaintiffs, the bellwether provision makes delegation of arbitrability to the arbitrator unconscionable because “adjudication by an arbitrator of the issue of arbitrability can be unduly delayed as a result of the bellwether provision.”

The court accepted this argument, finding that the bellwether and delegation clauses act to unduly delay consumers from obtaining a resolution of the gateway issue of whether a claim is arbitrable in the first instance. The court wrote, that the “prospect of delay on the limited gateway issue alone likely has a chilling effect on players, deterring them from vindicating their rights. Each claimant will have to await determination of the forum in which it may prosecute their claim before proceeding with the claim. Accordingly, the Court finds that delegation of arbitrability issues to an arbitrator unconscionably delays adjudication of claims based on the facts of this case.”

With the motion to compel arbitration denied, the lawsuit will move forward towards discovery and potential class certification.

TAKEAWAY: Although arbitration clauses in online terms of service are generally enforceable, some courts remain hostile to attempts to limit consumers’ rights to sue in court. This case is an example of an overreaching arbitration requirement that a court determined to be unconscionable and therefore refused to enforce. If your business has similar online terms, you should consider legal review by an experienced attorney to protect against this type of result.