July 09, 2010
Online Sports Ticketing Exchange Wins Dismissal Under Website User Agreement -- Duffy v. The Ticketreserve, Inc.
[Post by Venkat]
Duffy v. The Ticketreserve Inc. (FirstDIBZ.com), Case No. 09 C 1746 (N.D. Ill. July 6, 2010)
FirstDIBZ.com operates an online market place where end users can "buy, sell, and trade options to purchase tickets to sporting events." Plaintiffs who attempted to purchase tickets to the 2009 Super Bowl brought claims alleging fraud and breach of contract. FirstDIBZ scores a win. While plaintiffs get another chance, it's unlikely that they're going to be able to make out a complaint that survives a second motion to dismiss. The case overflows with interesting issues.
Background: FirstDIBZ essentially "operates as a futures market for tickets [for sporting events]." [This probably explains why I've never heard of it.] A "DIBZ" is an instrument which (i) gives the holder the right to purchase a ticket for an event, or a possible event and (ii) obligates the holder to purchase the ticket if the event occurs. As an example, the court notes that if you bought a DIBZ for Game 1 of the World Series at Wrigley Field,
in the event . . . the Cubs overcome their decades-long World Series Drought, the happy fan would then be guaranteed the right to purchase the ticket for Game 1 at face value. Should the Cubs disappoint, the DIBZ-holder would receive nothing and would lose the money she paid for the DIBZ.
[footnote referencing "DA CURSE OF THE BILLY GOAT: THE CHICAGO CUBS, PENANT RACES, AND CURSES" omitted]
FirstDIBZ operates two types of marketplaces. In the "FirstDIBZ-supplied" marketplace, FirstDIBZ guarantees the authenticity of the listings. In the "consumer-supplied" marketplace, FirstDIBZ only "acts as an exchange."
Plaintiffs brought tickets to Super Bowl 2009 in the consumer-supplied marketplace and their DIBZ turned out to be bogus - i.e., the sellers did not actually have the ability to procure Super Bowl 2009 tickets.
Plaintiffs agreed to a website user agreement that contained a description of the consumer-supplied marketplace which said that sellers "assume responsibility for . . . their listings." The agreement also contained a broad release pursuant to which users released FirstDIBZ and its affiliates "from claims, demands and damages . . . of every kind and nature . . . arising out of or in any way connected with [any disputes with Sellers]." The agreement also contained standard "as-is" and disclaimer language and contained a limitation of liability.
The release language: The court looks to the release and concludes that it applies to any breach of contract claims against FirstDIBZ. Plaintiffs tried to argue that their claims were not related to a dispute between plaintiffs and sellers, but rather were based on the acts or omissions of FirstDIBZ. The court rejects this argument, finding that plaintiffs' claims are "undoubtedly connected" to the underlying dispute between plaintiffs and sellers. The court notes that the claims relating to FirstDIBZ's failure to release certain funds from plaintiffs' online wallet accounts may not fall under the release, but cautions that if this is all that there is left, this probably presents a jurisdictional problem for plaintiffs (who alleged federal jurisdiction under the Class Action Fairness Act).
Warranty disclaimers and limitation of liability: The court finds the warranty disclaimers and the limitation of liability enforceable because they met the test under Illinois law that they could be reasonably construed with the remainder of the agreement and were "sufficiently conspicuous." The court did some fancy footwork around terms in the FirstDIBZ user guide which stated that "One DIBZ guarantees one face-value ticket," and that users could "sell [their] DIBZ to other fans . . . at any point during the season." The court finds that this only applies to holders of genuine DIBZ and does not amount to a warranty that any DIBZ would, in fact, be genuine.
Fraud and Illinois Consumer Fraud Act: Plaintiffs argued that they were misled regarding the authenticity of the DIBZ in statements made by FirstDIBZ in its marketing materials and in the media (which were posted on FirstDIBZ's website). The court finds that these arguments are precluded by the broad release. The court also dismisses the claims under the Illinois Consumer Fraud Act, finding that these claims are just dressed up versions of plaintiffs' contract claims.
Unjust enrichment: Finally, the court dismisses the claims for unjust enrichment, finding that this claim is quasi-contractual in nature and a party cannot circumvent a losing contract claim by bringing a claim for unjust enrichment.
Section 230: When I first read the case, I thought: what about Section 230? Courts have granted entities like eBay robust immunity against claims from purchasers who bought items that turned out to be not as advertised. (See, e.g., Gentry v. eBay (sale of fake sports memorabilia); Stoner v. eBay (sale of bootleg recordings).) However, this case in some ways reminded me of Mazur v. eBay, where eBay lost a section 230 defense in a case that revolved around live-bidding on eBay, which eBay supposedly screened. Here is Professor Goldman's post on the case: "eBay Denied 230 Defense for Its Marketing Representations--Mazur v. eBay." (Mazur was settled after the court denied class certification.) As his post notes, Mazur seemed to open up a website to a claim that would otherwise be covered by Section 230, by a plaintiff's allegation that "a website made a marketing representation somewhere that says or implies the tort wouldn't occur." (See also Barnes v. Yahoo, discussed in this post: "Ninth Circuit Helpfully Amends Barnes v. Yahoo Opinion".)
User Agreement/Release: Ultimately, the court bypasses the Section 230 discussion and looks to the user agreement, finding that the broad release precludes plaintiffs' claims. FirstDIBZ dodged a bullet for sure, and a big takeaway (which is nothing new) is that websites should keep close watch on their marketing representations, whether those representations are contained in a press release, sales materials, or off-the-cuff statements made by people at the company. I could see a court going the other way on this and finding that the FirstDIBZ marketing materials contained affirmative representations which modified and limited the effectiveness of the online terms and the release. The court's decision to rely on the release (which appeared to be cut and pasted from the eBay user agreement) instead of 230 is reminiscent of the Grace v. eBay appellate court decision, which the CA Sup Ct ultimately depublished. (The Citizen Media page provides background: "Grace v. Neeley.")
[Eric's comment: I've always been a big fan of contractual releases as a belt-and-suspenders risk management backstop to a 230 immunity. This case, combined with the lessons from the Grace v. eBay detritus, is a good reminder of the value of savvy contract risk management provisions as a complement/backstop to the statutory immunity. If you're drafting user agreements, you should consider the possible role of contractual releases from the user as part of the package. All too often, I see contracts where the drafters hope the warranty disclaimer and limits of liability achieve that result indirectly instead of just including an explicit release.]
The Scalping Problem: The court notes that neither party addresses whether FirstDIBZ's exchange runs afoul of laws prohibiting scalping. FirstDIBZ's exchange brings to mind the the hotly contested "Hollywood Futures" market, which is currently the subject of a few legislative skirmishes. (LA Times: "Watching a big bet on box-office futures go sour.") The FirstDIBZ market is a way that people can bet on teams. This raises an unclean hands problem. Except that everyone's hands are a bit dirty, so I'm not sure which way unclean hands would cut, and I suspect the parties weren't either, so they wisely left that issue to the side. (The plaintiffs could have attacked the legality of the whole scheme since FirstDIBZ didn't pay out due to capitalization issues, but the plaintiffs did not focus on this.) The scalping issue also has the potential to affect the Section 230 analysis. In a dispute between the New England Patriots and StubHub (where the Patriots were trying to prevent ticket resales through StubHub) the court recently ruled at summary judgment that a finding that StubHub contributed to a violation of anti-scalping laws by its users could result in a loss of Section 230 immunity. ("Two 47 USC 230 Defense Losses--StubHub and Alvi Armani Medical".)
Were Plaintiff's Acting Reasonably?: I go back and forth on whether the plaintiffs deserve sympathy here. I would think the whole point of an options exchange is to facilitate transactions where people actually have the right to sell what they are purporting to sell. I'm not familiar with options marketplaces, and I don't advocate looking to what a "reasonable online consumer" would perceive, but I would think customers would look at an options marketplace and think that the marketplace had some mechanism in place to verify what was at the selling end of the transaction. You would think the contingency would be in the sports team making it to the Super Bowl, not whether the seller turned out to actually have tickets. In a sophisticated financial marketplace, maybe things vary, but in the context of Super Bowl 2009 tickets, I can see where customers are coming from complaining that their DIBZ turned out to be bogus. That said, the terms clearly spelled out the differences between the two marketplaces and if the plaintiffs are using FirstDIBZ as a way to skirt the rules, I'm not sure how much sympathy they deserve.
Either way, an interesting case.