The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.
This Document Relates to: All Actions
On December 4, 2007, the Court conditionally certified a settlement class and preliminarily approved a settlement resolving the multidistrict, consumer-fraud litigation filed against the defendants, Take-Two Interactive Software, Inc. ("Take-Two") and Rockstar Games, Inc. ("Rockstar"). The litigation involves claims brought under the consumer-protection laws of the fifty states and the District of Columbia, in connection with the defendants' inclusion of an interactive, sexual minigame (the "Sex Minigame") in their premier product, Grand Theft Auto: San Andreas ("GTA:SA"). In light of the Second Circuit's recent decision in McLaughlin v. American Tobacco Company, 522 F.3d 215 (2d Cir. 2008), the Court now decertifies the settlement class.
Beginning in the summer of 2005, four actions were brought in the Southern District of New York against Take-Two and its wholly-owned subsidiary, Rockstar, alleging violations of state consumer-protection laws. See 05 Cv. 6734 (SWK) (MHD); 05 Cv. 6767 (SWK) (MHD); 05 Cv. 6907 (SWK) (MHD); 05 Cv. 10013 (SWK) (MHD).*fn1 On February 15, 2006, the United States Panel on Multidistrict Litigation (the "MDL Panel") transferred these four actions, as well as an additional action pending in the Southern District of Illinois, to Judge Barbara Jones for consolidated pretrial proceedings. 06 Md. 1739 (SWK) (MHD), Dkt. No. 1. On April 17, 2006, Chief Judge Mukasey reassigned these five cases to this Court. 06 Md. 1739 (SWK) (MHD), Dkt. No. 8. The MDL Panel subsequently transferred two additional, related actions, originating in the Central District of California and the Eastern District of Pennsylvania, respectively, to this Court for consolidated treatment with those cases already pending here. 06 Md. 1739 (SWK) (MHD), Dkt. Nos. 17, 74. Together, these seven actions comprise the instant multidistrict litigation.
Before any of these actions were transferred to this Court, Judge Jones referred the matter to Magistrate Judge Dolinger for the resolution of general pretrial issues. See O5 Cv. 6734 (SWK) (MHD), Dkt. Nos. 8, 10. In an order filed on May 1, 2006, Magistrate Judge Dolinger appointed Seth R. Lesser, Esq. of Locks Law Firm, PLLC, as Lead Counsel for the putative class. See 06 Md. 1739 (SWK) (MHD), Dkt. No. 15. On June 8, 2006, Lead Counsel filed a consolidated amended complaint (the "AC"), which sets forth the most recent allegations underlying this litigation. See 06 Md. 1739 (SWK) (MHD), Dkt. No. 18.
The AC alleges that the defendants marketed and sold GTA:SA under an improper content rating, which the defendants obtained only by withholding pertinent information from the entity charged with assigning content ratings to video games, the Entertainment Software Ratings Board (the "ESRB"). (AC ¶ 1.) In particular, the AC charges that the defendants failed to disclose to the ESRB that GTA:SA's underlying code contained the Sex Minigame (AC ¶ 49), a game-within-the-game that allowed players to control the protagonist's movements as he engaged in various sexual acts (AC ¶ 38). The Sex Minigame could be accessed through the use of a modification ("mod") (AC ¶ 37), which came to be known as the "Hot Coffee Mod" (AC ¶ 36). Though the use of mods ("modding") may violate GTA:SA's End User License Agreement (AC ¶¶ 37, 46), the AC alleges that the development of the Hot Coffee Mod was foreseeable, both because the defendants actively encourage modding (AC ¶ 37), and because the gaming community regularly engages in modding (AC ¶ 42). After its development, the Hot Coffee Mod circulated widely throughout the gaming community and spawned a substantial public outcry (AC ¶ 44), which ultimately prompted the ESRB to change GTA:SA's content rating from "Mature" ("M") to "Adults Only" ("AO") (AC ¶ 52). On the basis of the foregoing factual allegations, the AC asserts that the defendants misrepresented GTA:SA's content in violation of the consumer-fraud, implied-warranty, and unjust-enrichment laws of the fifty states and the District of Columbia. (AC ¶¶ 62-81.)
In a motion filed on July 31, 2006, the defendants moved to dismiss all claims advanced under the laws of states where the named plaintiffs did not purchase GTA:SA. See 06 Md. 1739 (SWK) (MHD), Dkt. Nos. 21-22. The Court denied the defendants' motion on October 25, 2006, ruling that class certification was logically antecedent to the standing issues raised therein. See In re Grand Theft Auto Video Game Consumer Litig., 06 Md. 1739 (SWK) (MHD), 2006 WL 3039993, at *3 (S.D.N.Y. Oct. 25, 2006). Thereafter, class-certification discovery commenced under the direction of Magistrate Judge Dolinger. (Mot. Final Settlement Approval, Declaration of Seth R. Lesser ("Lesser Decl.") ¶ 9k.) On January 24, 2007, the plaintiffs filed a motion for certification of a nationwide class composed of all purchasers of GTA:SA from its initial release until July 20, 2005. See 06 Md. 1739 (SWK) (MHD), Dkt. No. 60. The defendants filed an opposition to class certification on June 8, 2007, challenging the propriety of a nationwide class action that asserts claims under the disparate laws of the fifty states. See 06 Md. 1739 (SWK) (MHD), Dkt. No. 90.
The Court granted several extensions of time for the filing of the plaintiffs' reply brief in support of their motion for class certification in order to allow the parties an opportunity to engage in settlement negotiations under the aegis of Magistrate Judge Dolinger. See, e.g., 06 Md. 1739 (SWK) (MHD), Dkt. Nos. 96, 97, 98, 100. On November 19, 2007, after substantial settlement negotiations, the plaintiffs filed a settlement agreement (the "Settlement"), proposed notice, and proposed definition of a settlement class (the "Settlement Class"*fn2 ). See 06 Md. 1739 (SWK) (MHD), Dkt. No. 106, Exs. 1, 1-C. The Court held a preliminary fairness hearing on November 28, 2007. Following that hearing, the Court issued an order conditionally certifying the Settlement Class, appointing Lead Counsel as counsel for the Settlement Class, naming class representatives (the "Class Representatives"), and preliminarily approving the Settlement and proposed notice. 06 Md. 1739 (SWK) (MHD), Dkt. No. 109 (the "Hearing Order"). The Court also appointed Kostas Katsiris, Esq. to serve as special master for purposes of overseeing the administration of the Settlement and publication of notice, and reviewing Lead Counsel's request for attorney's fees. 06 Md. 1739 (SWK) (MHD), Dkt. No. 108.
The Settlement provides benefits to those purchasers of GTA:SA who swear under penalty of perjury that they: (1) bought GTA:SA prior to July 20, 2005; (2) were offended by consumers' ability to modify GTA:SA in order to access the Sex Minigame; (3) would not have purchased GTA:SA had they known that consumers could so modify the game's content; and (4) would have returned GTA:SA to its place of purchase upon learning that the game could be modified, if they thought they could obtain a refund (collectively, the "Eligibility Averments"). See Settlement II.I. There are two kinds of benefits available under the Settlement: First, under the "Exchange Program," Settlement Class members may return their GTA:SA disc for a disc that does not include the Sex Minigame. See Settlement III.B. Second, under the "Benefit Program," Settlement Class members may be eligible for cash payments in an amount ranging between $5 and $35, depending on the quality of proof of purchase they are able to provide. See Settlement III.C. The Settlement places a ceiling of $2.75 million upon the defendants' total out-of- pocket expenses,*fn3 see Settlement III.E, and a floor of $1.025 million,*fn4 see Settlement III.H.
Although the Settlement does not fix an amount for attorney's fees, the proposed notice, which was filed in conjunction with the Settlement, indicated that the plaintiffs' attorneys would request a fee of $1 million. See 06 Md. 1739 (SWK) (MHD), Dkt. No. 106, Ex. 1-C.
The procedure the Court approved for noticing Settlement Class members consisted of several prongs, including, (1) e-mailing the full settlement notice to those individuals on Rockstar's e-mail mailing list; (2) posting a link to the full settlement notice on Take-Two's official website and on the Settlement Website set up for this litigation; (3) publishing the summary settlement notice in several periodicals and on various websites; and (4) posting a link to the full and summary settlement notices on websites maintain by the plaintiffs' attorneys. See Hearing Order 5-6. The defendants retained Rust Consulting, Inc. ("Rust") to carry out the approved notice, under the supervision of Special Master Katsiris, see Hearing Order 3. See also 06 Md. 1739 (SWK) (MHD), Dkt. No. 111 (detailing defendants' compliance with approved notice).
During the pendency of the claims period, Special Master Katsiris regularly updated the Court on the implementation of the approved notice and on Settlement Class members' response to the Settlement. On June 25, 2008, the Special Master testified that the Settlement Website had received over 100,000 hits, and that some 2700 individuals had filed claims under the Settlement, for a total estimated recovery of $20,000. (Tr. 6, June 25, 2008.) The vast majority of claimants had discarded their copy of GTA:SA and submitted no proof of purchase, making them eligible for at most five dollars. Because the total value of filed claims failed to reach the $1.025-million Settlement floor, Lead Counsel proposed that the National Parent Teachers' Association and the ESRB receive the charitable contributions provided for by the Settlement. (Mot. Final Settlement Approval 2.)
The Court received four objections to the Settlement (Lesser Decl. ¶ 25), only three of which even incidentally addressed its fairness to members of the Settlement Class.*fn5 On June 25, 2008, the Court held a final fairness hearing, during which it allowed interested parties to address the fairness of the Settlement and the propriety of counsel's fee request. Theodore H. Frank ("Frank"), one of the four objectors, was the only member of the Settlement Class to appear at the hearing. After affording Frank an opportunity to explain the reasons for his objection, the Court addressed several questions to the parties and permitted them to make closing statements on the Settlement's fairness. (Tr. 8-28, June 25, 2008.) The Court reserved judgment on the final certification of the Settlement Class and on the fairness of the Settlement.
In order to obtain final certification of the Settlement Class, the plaintiffs must show that the Class meets the four criteria of Federal Rule of Civil Procedure 23(a), i.e., (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation, and that the action is maintainable under one of the subsections of Rule 23(b). See McLaughlin, 522 F.3d at 222. Here, because the plaintiffs seek certification under Rule 23(b)(3), they must show that "questions of law or fact common to [Settlement Class] members predominate over any questions affecting only individual members," and that the class action "is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). The existence of the Settlement is relevant to the Court's inquiry. In particular, the Court need not consider whether the Settlement Class would present intractable, trial manageability problems under Rule 23(b)(3)(D), "for the proposal is that there be no trial." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). Trial-manageability issues aside, however, the "requirements [of Rule 23(a) and (b)] should not be watered down by virtue of the fact that the settlement is fair or equitable." Denney v. Deutsche Bank AG, 443 F.3d 253, 270 (2d Cir. 2006) (citation omitted).
The ensuing analysis demonstrates that the plaintiffs have failed to satisfy the predominance requirement of Rule 23(b)(3). As a preliminary matter, the Court holds in Part II.A, infra, that each Settlement Class member's consumer-protection claims are governed by the law of the state where he purchased GTA:SA. Therefore, Settlement Class members' claims arise under the consumer-protection laws of all fifty states and the District of Columbia. Moreover, under the law of at least some of these states, reliance is an element of consumer fraud. Because reliance is an element of many Settlement Class members' fraud claims, this case is on all fours with the Second Circuit's recent decision decertifying a nationwide class of "Light"-cigarette smokers because their civil-RICO claims required a showing of individualized reliance, McLaughlin, 522 F.3d at 222-25. Moreover, for reasons stated fully in Part II.B.2, the Settlement Class is rife with substantial individualized issues other than the reliance issues that required decertification in McLaughlin. Accordingly, the Court decertifies the Settlement Class on the grounds that common issues do not predominate over individualized issues.
Before addressing whether the plaintiffs have met the predominance requirement, the Court must determine which states' laws properly apply to the plaintiffs' various claims for relief. In analyzing putative, nationwide, consumer-protection class actions, several courts have determined that the law of the state where each plaintiff resides and purchased the relevant product should apply. See, e.g., In re Gen. Motors Corp. Dex-Cool Prods. Liability Litig., 241 F.R.D. 305, 316-19 (S.D. Ill. 2007) (determining that law of state where each plaintiff resides should apply to claims for breach of warranty); Chin v. Chrysler Corp., 182 F.R.D. 448, 457 (D.N.J. 1998) (deciding that law of each plaintiff's home state should apply to claims for fraud and breach of warranty); In re Ford Motor Co. Ignition Switch Prods. Liability Litig., 174 F.R.D. 332, 347-48 (D.N.J. 1997) (holding that law of each plaintiff's home state should apply to claims for fraud, breach of warranty, and other consumer-protection violations).*fn6 The plaintiffs argued in their brief in support of the certification of a nationwide litigation class that the Court should apply (1) New York General Business Law § 349 to their claims for consumer fraud (Pls.' Mot. Class Cert. 31-33); (2) Section 2-314(1) of the Uniform Commercial Code ("UCC") to their claims for breach of implied warranty (Pls.' Mot. Class Cert. 34-37); and (3) New York common law to their claims for unjust enrichment (Pls.' Mot. Class Cert. 26-29). For the reasons that follow, however, the Court holds that it must apply the law of the state wherein each Settlement Class member purchased his copy of GTA:SA.
There is no dispute that the plaintiffs' various claims for relief arise under state law. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) ("Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state."). Under such circumstances, a federal court generally must apply the choice-of-law principles of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) ("The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware's state courts."). Nevertheless, "[w]hen an action is transferred as part of an MDL, the transferee court applies the choice of law rules of the state in which the action first was filed." In re Rezulin Prods. Liab. Litig., 390 F. Supp. 2d 319, 329 (S.D.N.Y. 2005) (citations omitted). Here, because the various cases comprising this multidistrict litigation were brought in New York, Pennsylvania, California, Illinois, and Minnesota, the Court must apply the conflicts rules of each of these states to the cases arising therefrom.*fn7 As the following discussion demonstrates, New York's conflicts rules mandate the application of the law of the state where each Settlement Class member purchased GTA:SA, and the conflicts jurisprudence of Pennsylvania, California, Illinois, and Minnesota demands the same result.
1. New York Conflicts Analysis
In New York, "[t]he first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved." In re Allstate Ins. Co., 613 N.E.2d 936, 937 (N.Y. 1993). An actual conflict is present "[w]here the applicable law from each jurisdiction provides different substantive rules." Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). Here, the Court finds that there are actual conflicts among at least some of the states' various consumer-protection laws, and that these conflicts are potentially relevant to the case at hand.
Most of the courts that have addressed the issue have determined that the consumer-fraud and breach-of-warranty laws in the fifty states differ in relevant respects. See, e.g., Thompson v. Jiffy Lube Int'l, Inc., 05 Cv. 1203 (WEB), ---F.R.D. ----, 2008 WL 2762187, at *17 (D. Kan. July 16, 2008) (consumer-fraud laws); Dex-Cool, 241 F.R.D. at 319-21 (warranty laws); Chin, 182 F.R.D. at 457-61 (consumer-fraud and warranty laws); Ford Ignition Switch, 174 F.R.D. at 349-51 (consumer-fraud and warranty laws). As the Court's discussion infra, Part II.B.2.b, demonstrates, there are many relevant differences in the states' consumer-fraud and warranty laws.*fn8 Because these differences are all relevant--indeed, some of them are outcome determinative, see infra note 18--there are actual conflicts among the states' consumer-fraud and warranty laws.
Likewise, several courts have determined that the states' unjust-enrichment laws vary in relevant respects. See, e.g., Thompson, 2008 WL 2762187, at *18 (enumerating differences in states' unjust-enrichment laws); In re Sears, Roebuck & Co. Tools Mktg. & Sales Practices Litig., 05 Cv. 4742, 05 Cv. 2623, 2006 WL 3754823, at *1 n.3 (N.D. Ill. Dec. 18, 2006) (same); Clay v. Am. Tobacco Co., 188 F.R.D. 483, 501 (S.D. Ill. 1999) (same). Without adopting all of the reasoning in these cases,*fn9 the Court is nonetheless persuaded that there are relevant conflicts in the states' unjust-enrichment laws. First, the states' laws differ with respect to whether a complainant must prove an actual loss or impoverishment in order to state a claim for unjust enrichment. Compare Cmty. Guardian Bank v. Hamlin, 898 P.2d 1005, 1008 (Ariz. Ct. App. 1995) (listing "impoverishment" as element of unjust enrichment) with Bouchard v. Price, 694 A.2d 670, 673 (R.I. 1997) (stating elements of unjust enrichment, but excluding impoverishment requirement). Here, as the Court discusses more fully, infra, Part II.B.2.a, Settlement Class members face substantial obstacles to proving that they actually suffered an ascertainable loss as a result of their purchase of GTA:SA, not least because many of them may not even be aware of the Sex Minigame's existence. Accordingly, insofar as the states' unjust-enrichment laws differ with respect to the impoverishment requirement, the laws differ in respects potentially relevant to the outcome of this case.
Second, the states' formulations of the doctrine of unclean hands, which may be a defense to unjust enrichment, differ significantly. See, e.g., Las Vegas Fetish & Fantasy Halloween Ball, Inc. v. Ahern Rentals, Inc., 182 P.3d 764, 767 (Nev. 2008) (indicating that unclean-hands doctrine requires two-part inquiry into egregiousness of misconduct and seriousness of harm caused); Retail Developers of Alabama, LLC v. East Gadsen Golf Club, Inc., --- So. 2d ----, 2007 WL 3409293, at *6 (Ala. Nov. 16, 2007) (indicating that only "morally reprehensible, willful misconduct" gives rise to unclean-hands defense); Thompson v. Orcutt, 777 A.2d 670, 676 (Conn. 2001) ("Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply.") (internal quotation marks and citation omitted); Rose v. Cain, 544 S.E.2d 453, 457 (Ga. Ct. App. 2000) ("The unclean-hands maxim which bars a complainant in equity from obtaining relief has reference to an iniquity which infects the cause of action so that to entertain it would be violative of ...