By Jeff Birren, Senior Writer
Introduction
Kevin Ramirez began playing Electronic Arts Inc. (“EA”) games in 2011. He started with EA’s FIFA game and added Madden NFL Game in 2013. After playing EA games for eight years, Ramirez decided that EA was violating California’s anti-gambling law. So, in October 2013 Ramirez filed a putative class action against EA. EA responded with a motion to compel arbitration. Ramirez opposed it, but the U.S. District Court in San Jose granted EA’s motion (Ramirez v. EA, Case No. 20-cv-05672-BLF (“Ramirez”) at 2 (3-6-21)).
Facts
EA creates “digital interactive entertainment” including “developing video games for consoles and computers.” Each game “is governed by EA’s standard User Agreement.” To access “the full features of EA’s games, including the ability to use Ultimate Team Packs, the user must agree to the terms of the User Agreement.” When the user first loads the game, a pop-up window appears. This “alerts the user that they must accept the User Agreement before continuing to the game. The user is able to scroll through the entire User Agreement” before consenting to it (Id.). It includes an arbitration provision that states, in relevant part:
“[A]ll disputes, claims or controversies arising out of or relating to this Agreement, any EA Services and its marketing, or the relationship between you and EA (“Disputes”) shall be determined exclusively by binding arbitration. This includes claims that accrued before you entered into this Agreement…” (Id.).
The arbitration “shall be administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules” and:
“YOU AND EA AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. The arbitrator shall not consolidate another person’s claims with your claims and shall not preside over any type of representative class proceeding. The arbitrator may award declaratory or injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s claim. If this specific subsection is found to be unenforceable, then the entirety of this agreement to arbitrate shall be null and void” (Id. at 3, emphasis in the original.)
Ramirez, or his lawyer, was undeterred.
On October 13, 2020 Ramirez filed his complaint. He alleged that “an online, in-game feature called Ultimate Team Packs, which is present in a number of EA’s games, qualifies as an illegal ‘slot machine or device’ under California Penal Code §330(d)” (Id.). Ramirez had three class claims. The first was a purported violation of California’s Unfair Competition law; the second was a purported violation of California Legal Remedies Act; and the third was for unjust enrichment. Ramirez requested that “’EA modify its games” to prevent “users from engaging in gambling, including through the use of Ultimate Team Packs or similar mechanisms” (Id.).
EA filed a motion to compel arbitration, asserting “that Ramirez, by installing and playing FIFA and Madden NFL, accepted and is bound to EA’s User Agreement, including the Arbitration Provision and the class action waiver.” Consequently, “Ramirez must arbitrate all of his claims against EA on an individual basis.” Ramirez countered that “the Arbitration Provision is unenforceable” under case law “because it bars his ability to seek public injunctive relief.” EA’s Reply argued that pursuant to AAA rules, “gateway issues of arbitrability—such as validity of the agreement—must be decided in arbitration rather than by the Court” (Id.).
“Legal Standard”
The Court noted that the “Federal Arbitration Act (“FAA”) favors arbitration and a liberal federal policy favoring arbitration agreement, notwithstanding any state substantive or procedural policies to the contrary.” A written arbitration agreement in a contract “shall be valid, irrevocable and enforceable, save upon such grounds that exist at law or in equity for the revocation of the contract” (Id.).
In “deciding whether to compel arbitration,” the Court “determines two gateway issues.” The first was whether “there is an agreement to arbitrate between the parties” and then “whether the agreement covers the dispute.” However, these “gateway issues can be expressly delegated to the arbitrator where the parties clearly and unmistakably provide otherwise” (Id.)
- “Formation of Arbitration Agreement”
The first issue was “whether the parties agreed to arbitrate” (Id. at 4). The Court found that EA had “provided sufficient evidence that Ramirez accepted the Arbitration Provision, and that he did so knowingly.” That provision “governs” users’ access to the product, and it covers all “disputes, claims or controversies arising out of or relating” to the User Agreement. In order to have used the product, “Ramirez must have affirmatively clicked a button indicating that he accepted the User Agreement” and this included the arbitration provision in capital letters in the software (Id.).
Courts “have consistently enforced” similar provisions when the user had actual notice of the provision or was required “to affirmatively acknowledge the agreement before proceeding with the use of the service” (Id.). Finally, Ramirez did not “dispute that he agreed to” the EA agreement, nor that the Arbitration Provision “covers” his claims against EA. This was “sufficient to show that an agreement to arbitrate was formed” (Id.).
- “Delegation of Arbitrability”
Ramirez argued that the entire arbitration agreement was unenforceable “because it bars his right to obtain injunctive relief.” EA responded that it “properly incorporates AAA rules” that provide that the validity of the arbitration agreement is “delegated to the arbitrator” but not the court. The Court agreed. Prior cases “established that incorporation of arbitration rules—to include the AAA rules– into a contract constitutes clear and unmistakable evidence that the contracting parties agreed to arbitrate arbitrability.” Here, the incorporation of the AAA rules constituted a “clear and unmistakable delegation of immediate issues of arbitrability to the arbitrator” (Id.).
Ramirez insisted at oral argument that the purported incorporation of AAA rules “without explicit reference to the provision of arbitrability is insufficient to establish delegation.” However, he failed to explain “how this situation is meaningfully different” than a prior decision. The Court thus found that the “incorporation of the AAA rules” into the EA User Agreement “is sufficient to demonstrate delegation of arbitrability to the arbitrator” (Id.).
- “Class Action Waiver”
Ramirez claimed that the arbitration provision was unenforceable, based on a 2017 California Supreme Court opinion “that held that contracts that waive a party’s right to seek public injunctive relief are unenforceable” (Id. at 5). EA’s contract limited the arbitrator to “award declaratory or injunctive relief only in favor of the individual seeking relief” and barred Ramirez from “seeking public injunctive relief.” It also stated that if “this specific subsection is found to be unenforceable, then the entirety of this agreement to arbitrate shall be null and void” and consequently, Ramirez asserted, the entire arbitration provision “is invalidated” (Id.). To the Court, “whether the Arbitration Provision is unenforceable because it improperly limits the right to seek public injunctive relief” was “clearly a matter regarding the validity” of the arbitration provision and that was “plainly delegated to the arbitrator” (Id.).
- “Dismissal of Plaintiff’s Claims”
EA also requested the Court to dismiss the claims “upon a finding that they arbitrable.” A Ninth Circuit opinion gave courts “the discretion to stay or dismiss claims subject to a valid arbitration agreement.” The arbitrator “must still determine” whether the arbitration provision was “enforceable against Ramirez’s claims.” The Court was “not certain” that the “claims will remain in arbitration” so “outright dismissal is not appropriate” (Id.).
The Court granted the motion to compel arbitration and stayed “this action pending completion of the arbitration.” It required the parties to provide the Court the status of the arbitration within 60 days and “thereafter within 10 days of the conclusion of the arbitration.” If the case returns to the Court, EA “may re-notice its Motion to Dismiss” (Id).
Conclusion
It is on to AAA arbitration for Ramirez and EA, and the critical question of whether the arbitration agreement is enforceable. EA may also want to re-think its User Agreement with its clause that could lead to the entire arbitration agreement becoming “null and void.”
