Social Casino App Operator Loses Biiig in High Stakes Class Action
The roulette wheel came to a stop on Double Zero for social casino app operator Huuuge, Inc. ("Huuuge"), which, after a two-year-long string of courtroom action over claims that its apps constituted illegal gambling under Washington law, finally agreed to part with $6.5 million of its bankroll to settle a class action brought by the plaintiff, Sean Wilson ("Wilson" or "Plaintiff"). (Wilson v Huuuge, Inc., No. 18-05276 (W.D. Wash. Unopposed Motion for Preliminary Approval Aug. 23, 2020)).
Huuuge operates a smartphone social casino game app that has enjoyed widespread success with games such as "Huuuge Casino," "Billionaire Casino," and "Stars Casino" (collectively, the "Apps"). The free social gaming apps, available for download at the major app stores, offer users the chance to play virtual slot machines and other classic casino games in a casual atmosphere, open up their own virtual gaming clubs, connect with other users and otherwise try to win a bucket of virtual chips and other prizes. Huuuge initially gives users a chance to play at no cost by offering a limited number of free "virtual chips," which players can then use on Vegas-style slot machines and games of chance. Once the free chips are exhausted, however, in order to extend gameplay, users then must purchase more chips using real money, in increments ranging anywhere from $2 to $50 each. This may seem like a familiar concept to some users familiar with the "freemium" app model, which might require users to make a number of "in-app purchases" to keep playing or explore an app's more interesting features, but according to the plaintiff's allegations, there was just one problem with the apps: the social casino business model, which entices users to purchase additional virtual chips with real money violated Washington law because "all internet gambling is illegal in Washington."
That's the exact argument that plaintiff Sean Wilson brought to the table when, in April 2018, he filed a class action complaint alleging Huuuge violated Washington gambling and consumer protection laws by charging users for virtual chips for a chance to play games of chance in its app. Plaintiff himself claimed that he wagered and lost $9.99 at Huuuge's games of chance and brought the action to recover losses for all Washington users who purchased and lost chips in the apps. "Gambling," as defined under applicable Washington law, "means staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence…." More specifically, Wilson
alleged that the purchasable virtual chips were "things of value" under Washington law and used to obtain access to games of chance on the app. Plaintiff sought relief under Washington's "Recovery of Money Lost at Gambling Act," (RCW § 4.24.070), where users are entitled to recover certain illegal gambling losses from the proprietor.
Huuuge decided to double down on its strategy to enforce the arbitration clause in its terms, but was handed another loss in December 2019, this time in the VIP room at the Ninth Circuit. In a rather witty opinion that's much too good not to quote from directly, the court, in affirming the lower court's ruling to deny Huuuge's motion to compel, agreed that plaintiff did not have constructive notice of the terms (and arbitration clause) because he was not given adequate notice of them because "the Terms are not just submerged—they are buried twenty thousand leagues under the sea" and a user "would need Sherlock Holmes's instincts to discover the Terms." (Wilson v. Huuuge, Inc., 944 F.3d 1212 (9th Cir. 2019)). The appeals court went on: "Instead of requiring a user to affirmatively assent, Huuuge chose to gamble on whether its users would have notice of its Terms. The odds are not in its favor. Wilson did not have constructive notice of the Terms, and thus is not bound by Huuuge's arbitration clause in the Terms."
The dispute even extended outside of the courthouse when a gaming industry association, the International Social Gaming Association ("ISGA"), purportedly lobbied the Washington state legislature to amend Washington's gambling laws in a way that could foreclose Wilson's potentially winning hand. According to the motion papers supporting the proposed settlement, Wilson allegedly called Huuuge's bluff, and in a grassroots effort of his own, met with lawmakers and offered testimony before the House Civil Rights & Judiciary Committee and coordinated a letter-writing campaign to the legislators from social casino players. In the end, the bills that would have amended the gambling laws were stalled until the 2021 legislative session.
Seeing no other option but to fold, Huuuge agreed to hold settlement talks in May 2020, which culminated in a final demand which Huuuge accepted.
As part of the settlement, Huge agreed to establish a non-reversionary $6.5 million settlement fund from which the settlement class members would be entitled to recover cash payments – but not one cent of the Settlement Fund will revert to the Defendant. Huuuge also agreed to establish a voluntary self-exclusion policy which will allow players to exclude themselves from further gameplay. This policy will be prominently placed within the app, and customer service representatives will provide the link to players who request it. Additionally, Huuuge agreed to change game mechanics such that when players run out of virtual chips, they won't need to purchase additional ones to continue playing at least one more game. Recovery under the agreement will vary according to the Settlement Class Member's Lifetime Spending Amount (those with higher Lifetime Spending Amounts are eligible to recover a greater percentage back) and the overall Settlement Class Member participation levels. Thus, under the proposed agreement, Settlement Class Members in the highest category of Lifetime Spending Amounts are projected to recover gross payments in excess of 50% of their Lifetime Spending Amounts, while Members in the smallest category will likely recover gross payments in excess of 10%.
Following the plaintiff's filing of an unopposed motion to obtain preliminary court approval of the settlement, the court granted such approval on August 31, 2020. In a subsequent hearing, the court scheduled a final approval hearing for February 2021. While Huuuge didn't oppose the motion, the settlement must still be signed off by the presiding judge next year. For Wilson and the other Settlement Members who previously lost big on the casino apps and now stand to receive a payout, the sound of rain is just a few months away.