Minors’ Suit Over Facebook Credits Continues – I.B. v. Facebook

This is a lawsuit over minors’ purchase of Facebook credits. The court only partially granted Facebook’s motion to dismiss on the first go-around, and on the second go-around does the same. (Previous post: Minors’ Suit Over Facebook Credits Survives in Part – I.B. v. Facebook.)

Standing: Facebook reiterated its argument that plaintiffs lack Article III standing but the court rejects the argument again for largely the same reasons. facebook creditsA claimed violation of the minors’ statutory right to disaffirm agreements they entered into is sufficient to confer standing. Facebook cited to Edwards v. First American for the proposition only certain types of statutory violations support standing, but the court says this reads Edwards too narrowly.

Disaffirmance: On the merits, Facebook argued that the minors could not disaffirm the contracts to purchase credits because they continued to use Facebook and thus continued to avail themselves of the benefits of the agreement.  Facebook also pointed to provisions in its current terms of service that shifted responsibility for any purchases to the minors and their parents. The court rejects this argument for several reasons. First, it’s unclear from the face of the complaint that the minors continue to use Facebook. Second, the terms cited by Facebook were not in effect at the time the minors were said to have made the purchases. The terms were revised after 2011, the date the purchases were made, and the court says there’s a reasonable dispute about whether the plaintiffs even viewed the revised terms. Finally, the court says that the minors are seeking to disaffirm a discrete transaction, so their continued use of the site is not dispositive.

EFTA-based causes of action: One of the named plaintiffs brought claims under the Electronic Funds Transfer Act. The first provision mandated certain types of disclosures, and the second set forth limits on a consumer’s liability for certain unauthorized transfers. The court says neither of these claims work because they both rely on provisions that apply to “financial institutions,” and Facebook does not fit the definition.

Unfair competition (UCL) claims: The court previously allowed part of the claims under California’s unfair competition statute to proceed. However, this time, Facebook raises a standing argument and the court agrees. The minor plaintiffs did not use their own money to purchase the credits, and their request to disaffirm the agreement does not allege any economic harm to them. The minor plaintiffs thus do not have standing under the UCL. The adult plaintiffs also do not have standing under the UCL:

The losses they suffered derive, at bottom, from the unauthorized use of their credit cards by the minor Plaintiffs.

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The court whittles down the lawsuit significantly, but the core part of the lawsuit—the claims based on uncertainty around treatment of agreements entered into by minors—survives. The ruling does not break any new ground, save for the EFTA ruling, which adds some clarity to the obligations of entities who traffic in virtual currency, such as Facebook. In any event, the case continues to be a thorn in Facebook’s side. This summer Apple settled claims based on minors’ in-app purchases. It’s unclear whether this ruling changes things and will spur a similar settlement.
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Eric’s Comments: In addition to the legally vexing issue of kids making Internet purchases, there are a couple of oddities about this opinion. First, the court says Facebook isn’t a “financial institution.” That may be correct under the EFTA’s statutory definition of the term, but in the lay sense of the term, there’s no doubt Facebook credits are a form of digital currency. It might be a good example of the definitional difficulties distinguishing the borders of a “financial institution.”

Second, the court’s UCL discussion seems to set up a Catch-22. The kids made the purchase with their parent’s money. This means the kids made the purchase but didn’t lose money because it was their parents’ money, and the parents lost money but didn’t make the purchase–so no one has standing under the UCL? It almost seems like an only-an-argument-a-lawyer-could-make that’s too clever by half, but it worked here.

Case citation:  I.B. ex rel. Fife v. Facebook, 2013 WL 6734239 (N.D. Cal. Dec. 20, 2013).

Related posts:

Minors’ Suit Over Facebook Credits Survives in Part – I.B. v. Facebook

Facebook’s “Browsewrap” Enforced Against Kids–EKD v. Facebook.

Parents’ Lawsuit Against Apple for In-App Purchases by Minor Children Moves Forward — In re Apple In-App Purchase Litigation.

Clickthrough Agreement Binding Against Minors–A.V. v. iParadigms

Court Declines to Dismiss or Transfer Lawsuit Over @OMGFacts Twitter Account — Deck v. Spartz, Inc.

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