Facts
- Players of Counter-Strike: Global Offensive obtained virtual in-game items called “skins,” which could be bought, sold, and traded through Valve’s Steam platform and used on third-party “skins gambling” websites.
- Plaintiffs (purchasers of skins and parents/guardians of minors) alleged they lost skins by wagering them on third-party gambling sites, including CSGO Lotto, where users’ skins were pooled and a winner was chosen to receive the pool.
- Plaintiffs alleged skins had real-world monetary value because they could be sold and converted to cash through third-party markets, and that Valve profited from Steam transactions through fees.
- Plaintiffs alleged CSGO Lotto’s co-owner Trevor Martin promoted the site through online videos depicting large gambling “wins” while failing to disclose his ownership interest, and plaintiffs characterized the gambling as “rigged.”
- Plaintiffs brought a putative nationwide class action asserting a federal civil RICO claim and various state-law gambling and fraud-based claims.
- CSGO Lotto and Martin moved to dismiss under Rule 12(b)(6), challenging RICO statutory standing and arguing that without RICO there was no basis for federal jurisdiction over the state-law claims.
Issues
- Whether plaintiffs’ alleged loss of skins in online gambling constituted an “injury to business or property” sufficient for civil RICO standing under 18 U.S.C. § 1964(c).
- If the RICO claim failed, whether the court could retain the state-law claims through supplemental jurisdiction under 28 U.S.C. § 1367.
- Whether plaintiffs sufficiently established original jurisdiction under the Class Action Fairness Act (CAFA), including the $5 million amount-in-controversy requirement.
Decision
- The court granted the moving defendants’ motion to dismiss.
- The court dismissed the RICO claim because plaintiffs did not plausibly allege a cognizable injury to “business or property.”
- The court declined to retain the remaining state-law claims on supplemental-jurisdiction grounds after dismissal of the sole federal claim.
- The court held plaintiffs failed to adequately invoke CAFA jurisdiction because the complaint did not non-speculatively establish an amount in controversy exceeding $5 million.
- The first amended complaint was dismissed with prejudice in its entirety, and Valve’s motion to compel arbitration was denied as moot.
Legal Principles
- Civil RICO standing requires a concrete injury to “business or property”; voluntary gambling losses are generally not treated as a RICO-qualifying property injury.
- A plaintiff cannot transform a wager-based loss into a RICO injury merely by alleging the gambling operation was unlawful or unfair; the nature of the loss remains a voluntary gambling loss absent a qualifying deprivation of property.
- When all federal claims are dismissed early, a federal court generally should decline supplemental jurisdiction over remaining state-law claims under 28 U.S.C. § 1367(c).
- CAFA jurisdiction requires a non-speculative showing that the amount in controversy exceeds $5 million; a defendant’s overall revenues, without a direct connection to the class’s alleged losses, is insufficient.
Conclusion
The court held that losing virtual items through voluntary wagering on third-party gambling sites did not constitute a civil RICO injury to “business or property,” and, with the federal claim dismissed, the court declined supplemental jurisdiction and rejected CAFA as a substitute basis for federal jurisdiction, dismissing the action with prejudice.