## Facts

- Craig Smallwood, a Hawai‘i resident, played NCSoft’s MMORPG *Lineage II* under a user agreement governing access and conduct.
- Smallwood alleged that from 2004–2009 he became psychologically dependent on the game, played more than 20,000 hours, and suffered serious emotional and functional impairment.
- He claimed NCSoft knew the game posed a risk of compulsive use akin to gambling but failed to warn users or implement safeguards.
- In 2009 NCSoft permanently banned Smallwood’s account after alleged violations (including bot use), which Smallwood denied or disputed.
- Smallwood alleged the ban caused or worsened severe distress and impairment, including hospitalization and ongoing therapy.
- Smallwood sued pro se, ultimately filing a Second Amended Complaint asserting fraud/misrepresentation, unfair and deceptive trade practices, defamation, negligence, gross negligence, IIED, NIED, and punitive damages.
- NCSoft moved to dismiss for lack of diversity jurisdiction and for failure to state a claim, also invoking waiver and limitation-of-liability terms in the user agreement.

## Issues

1. Whether diversity jurisdiction existed under 28 U.S.C. § 1332.
2. Whether the Second Amended Complaint plausibly stated claims for fraud/misrepresentation, unfair and deceptive trade practices, defamation, negligence, gross negligence, IIED, NIED, and punitive damages.
3. Whether the user agreement’s waiver and limitation-of-liability provisions barred the asserted tort claims, including negligence and gross negligence.

## Decision

- The court denied dismissal for lack of subject-matter jurisdiction, finding diversity and amount in controversy adequately alleged.
- The court dismissed with prejudice: fraud/misrepresentation, unfair and deceptive trade practices, IIED, and punitive damages as a standalone claim.
- The court denied dismissal (claims proceeded) as to: defamation, negligence, gross negligence, and NIED.
- The court held the user agreement did not, as a matter of law at the pleading stage, bar gross-negligence claims; contractual waivers could not pre-injury waive gross negligence under the governing contract law identified by the court.
- The court held fraud could not be waived by contract, but dismissed the fraud claim on pleading grounds.

## Legal Principles

- A plaintiff invoking diversity jurisdiction must plead citizenship and a plausible amount in controversy; jurisdictional defects may be cured by amendment.
- Fraud-based claims must satisfy Rule 9(b) by pleading the who, what, when, where, and how of the alleged misrepresentation or actionable omission; repeated failure after leave to amend can warrant dismissal with prejudice.
- Unfair and deceptive trade practices claims must plead qualifying deceptive or unfair conduct with sufficient factual specificity; conclusory repackaging of deficient fraud allegations is insufficient.
- Defamation requires plausible allegations of publication of a false statement, fault, and reputational harm; at the pleading stage, detailed proof is not required.
- Negligence and gross negligence require plausible allegations of duty, breach, causation, and damages; foreseeability and asserted severe psychological injury may support duty and causation allegations at the motion-to-dismiss stage.
- Pre-injury contractual waivers/limitations generally cannot eliminate liability for gross negligence under the governing law applied to the agreement; contract terms may still inform the scope of duties and damages.
- IIED requires conduct so extreme and outrageous that it exceeds all bounds of decency; alleged operation of an addictive product and account termination for suspected violations did not meet that standard as a matter of law.
- Punitive damages are a remedy, not an independent cause of action.

## Conclusion

The court sustained jurisdiction and narrowed the case: claims premised on fraud, unfair practices, IIED, and standalone punitive damages were dismissed with prejudice, while the complaint plausibly alleged defamation and negligence-based torts (including gross negligence and NIED), and the user agreement’s liability limitations did not bar gross-negligence liability at the pleading stage.


Smallwood v. NCSoft Corp., 730 F. Supp. 2d 1213 (D. Haw. 2010)