Pandolfi v. AviaGames, Inc.

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2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 ANDREW PANDOLFI, et al., Case No. 23-cv-05971-EMC

8 Plaintiffs,

ORDER GRANTING DEFENDANTS’

9 v. MOTION TO STAY; AND GRANTING

IN PART AND DEFERRING IN PART

10 AVIAGAMES, INC., et al., INVESTOR DEFENDANTS’ MOTIONS

TO DISMISS

11 Defendants.

12 Docket Nos. 107, 109, 140

13

14 Plaintiffs Andrew Pandolfi and Mandi Shawcroft have filed a class action against (1)

15 AviaGames, Inc. (“Avia”), (2) its co-founders (Vickie Yanjuan Chen and Ping Wang), and (3) two

16 of its investors (ACME, LLC and Galaxy Digital Capital Management, L.P.). All persons and

17 entities sued shall hereinafter be collectively be referred to as “Defendants.” Avia and its co-

18 founders (also current employees) shall be referred to collectively as the “Avia Defendants.”

19 ACME and Galaxy shall be referred to collectively as the “Investor Defendants.” Currently

20 pending before the Court are (1) a motion to stay filed by all Defendants and (2) motions to

21 dismiss by the Investor Defendants.1 Having considered the parties’ briefs as well as the oral

22 argument of counsel, the Court hereby GRANTS the motion to stay and largely DEFERS ruling

23 on each Investor Defendant’s motion to dismiss.

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1 The Avia Defendants have also filed a motion to dismiss, see Docket No. 110 (motion), but

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Plaintiffs and the Avia Defendants essentially stipulated to a stay of that motion pending the Avia

1 I. FACTUAL & PROCEDURAL BACKGROUND

2 A. Operative Complaint

3 In the operative first amended complaint (“FAC”), Plaintiffs allege as follows.

4 Avia is a gaming company that launched in 2017. See FAC ¶ 30. Ms. Chen and Ms.

5 Wang are Avia’s co-founders. They are also currently employees: Ms. Chen is the CEO, and Ms.

6 Wang a VP of Strategy & Business Development. See FAC ¶¶ 14-15.

7 Avia’s games – which include Bingo Clash, Solitaire, Pool Clash, Match n Flip, 21 Gold,

8 and Tile Blitz – can be accessed through mobile browsers or through downloaded standalone

9 applications. See FAC ¶¶ 30-31. The games can be played for cash or for tickets redeemable for

10 prizes. See FAC ¶¶ 35, 43, 67. Avia claims that it does not have any financial interest in the

11 outcome of cash games or any stake in who wins or loses. See FAC ¶¶ 37, 69.

12 ACME and Galaxy are both venture capital investment firms that invested in Avia.2 In

13 addition, ACME has a partner (Hany Nada) who is an Avia Board member and another partner

14 (Alex Fayette) who is an Avia Board observer. See FAC ¶¶ 16-17. Like ACME, Galaxy also has

15 a partner (Ryan You) who is an Avia Board observer. See FAC ¶ 78,

16 Avia represents to players and prospective players that its games give players the ability to

17 compete against other players (i.e., human opponents and not bots) – in particular, other players of

18 equal skill levels. See FAC ¶¶ 34, 42. Avia also represents that “players ‘[c]ompete in real time

19 against other players’ and that they ‘[c]ompete using only [their] strategy and skill.’” FAC ¶ 35.

20 In other words, Avia’s games are ones of skill and not ones of chance. See FAC ¶¶ 39, 66

21 (alleging that games of chance mean that a player’s skill does not impact the game’s outcome).

22 Such representations and/or similar representations “are visible to each user who downloads

23 Avia’s games” (for instance, from Apple’s App Store) and/or on Avia’s website (e.g., in the FAQ

24 section). FAC ¶¶ 34-38, 44, 48. In addition, Avia’s games are designed to suggest that players are

25 playing against other live human opponents in real time – e.g., “[a]t the beginning of each

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2 In its motion, ACME claims that it “has never held any equity stake in Avia.” Mot. at 4. ACME

1 standalone game, players are asked to wait until the app finds them purported ‘opponents’ for the

2 game.” FAC ¶ 45.

3 According to Plaintiffs, Avia’s representations are, in fact, false:

4 • Players do not compete against live human opponents but rather against bots –

5 specifically, historical playthroughs which can include a video recording of a match

6 played previously by another player. See FAC ¶ 53. (“Using bots helps Avia

7 maintain player liquidity. Avia needs players for the real players to play against. If

8 there are not enough real players and the players need to wait to get the results of

9 their match, they are less likely to keep playing.” FAC ¶ 63.)

10 • Avia can manipulate matches by matching a player against a bot of a similar skill

11 level or a bot that has a higher skill rating or score. See FAC ¶¶ 54, 71.

12 • Avia does in fact have a financial interest in its games because, if a historical

13 playthrough wins a match, Avia does not pay a cash prize to anyone and keeps the

14 entry fee paid by the live player. See FAC ¶ 53.

15 According to Plaintiffs, the Investor Defendants have “expertise in the gaming industry”

16 and “fuel[ed] Avia’s fraudulent gaming scheme” by echoing Avia’s false representations that it

17 offered skill-based games. FAC ¶¶ 77-78. See, e.g., FAC ¶ 40 (quoting from ACME’s website

18 describing its portfolio; characterizing Avia as a “‘real-money mobile skill gaming app’”); FAC ¶

19 41 (quoting from Galaxy’s website; describing Avia as a platform that “‘guarantees players a fair,

20 high-quality gaming experience’ and that ‘uses a complex algorithm to assess and match each

21 player’s ability in order to create a fair gaming environment’”). The Investor Defendants were

22 “interested in attracting more players to Avia’s games because a larger player base boosts the

23 value of their equity. More players means more deposits and better player liquidity.” FAC ¶ 77;

24 see also FAC ¶ 119 (“A higher deposit pool and a broader player base translated into higher sales

25 and profits for Avia and the RICO Defendants.”).

26 It was not until December 2023, after the instant case was filed, that Avia disclosed to

27 players (via updated Terms of Service) that it uses historical playthroughs and that it keeps the

1 Based on, inter alia, the above allegations, Plaintiffs seek to represent a Rule 23(b)(3) class

2 consisting of the following: “All persons who have lost money playing any Avia game from at

3 least 2017 until Defendants’ unlawful conduct and its harmful effects stop.” FAC ¶ 90. Plaintiffs

4 have asserted the following claims on behalf of the class:

5 (1) Violation of California Business & Professions Code § 17200 (against Avia only).

6 (2) Violation of the Consumer Legal Remedies Act (“CLRA”) (against Avia only).

7 See Cal. Civ. Code § 1750 et seq.

8 (3) Violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”).

9 See 18 U.S.C. § 1962(c) and (d) (against all Defendants except Avia).

10 The Court notes that Plaintiffs’ allegations in the FAC are based, in part, on information

11 uncovered in an unrelated patent infringement suit, Skillz Platform Inc. v. Aviagames, Inc., No. C-

12 21-2436 BLF (N.D. Cal.). That case went to trial and resulted in a jury verdict in favor of the

13 plaintiff, but subsequently the parties settled and the case was closed back in April 2024.

14 According to Plaintiffs, the use of bots was exposed during the Skillz proceedings.3 See Opp’n at

15 1 (“ A recent patent trial made public, for the first time, internal Avia documents and

16 correspondence that exposed the fraud perpetuated on Avia’s users.”); Opp’n at 10 (“Avia’s bot

17 use was first disclosed in a patent action brought against Avia by another mobile gaming

18 company, Skillz. . . . The exhibits admitted during the lawsuit have proven that Avia uses bots,

19 conceals them from its users, and keeps the money when a player loses to a bot.”).

20 B. Procedural History

21 After Plaintiffs filed suit, the Avia Defendants moved to compel arbitration. See Docket

22 No. 78 (motion). In addition, all Defendants filed motions to dismiss Plaintiffs’ FAC pursuant to

23 Federal Rule of Civil Procedure 12(b)(6). Galaxy also moved to dismiss pursuant to Rule 12(b)(2)

24 (i.e., lack of personal jurisdiction). See Docket Nos. 107, 109-10 (motions). The Court deferred a

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3 Two of the parties – ACME and Plaintiffs – have filed requests for judicial notice (“RJNs”), see

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Docket No. 108 (ACME); Docket No. 112 (Plaintiffs), in which some of the documents at issue

are those from the Skillz lawsuit. ACME and Plaintiffs – as well as Avia – have some

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disagreements as to what is properly subject to judicial notice from Skillz. As a practical matter,

1 hearing on the motions to dismiss so that it could address the motion to compel arbitration first.

2 See Docket No. 113 (Order at 18). Following several rounds of briefing, the Court denied the

3 arbitration motion and thus set the motions to dismiss for hearing. See Docket No. 137 (Order at

4 23).

5 The Avia Defendants then initiated an interlocutory appeal of the Court’s order denying

6 their arbitration motion. See 9 U.S.C. § 16(a); Docket No. 139 (notice). On the same day, all

7 Defendants moved for a stay of proceedings before this Court pending the appeal. See Docket No.

8 140 (motion). Defendants argued that a stay was required based on a Supreme Court decision,

9 Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023). Alternatively, they argued that the Court should

10 impose a discretionary stay.

11 Subsequently, Plaintiffs agreed that proceedings against the Avia Defendants should be

12 stayed under Coinbase, and thus the hearing on the Avia Defendants’ motion to dismiss was

13 vacated. See Docket No. 152 (order). Plaintiffs, however, maintained that there was no reason to

14 halt proceedings entirely against the Investor Defendants, and thus the Court now has pending

15 before it (1) a motion to stay proceedings against the Investor Defendants – a motion supported by

16 all Defendants – and (2) a motion to dismiss filed by each Investor Defendant.

17 II. MOTION TO STAY

18 As noted above, Defendants contend that proceedings against the Investor Defendants

19 should be stayed pursuant to Coinbase. Alternatively, they argue that there should be a

20 discretionary stay.

21 A. Coinbase Stay

22 The Court rejects Defendants’ position that a stay of the claims against the Investor

23 Defendants – who are not subject to an arbitration clause – is required by Coinbase. In Coinbase,

24 the plaintiff filed a class action against Coinbase, asserting that the company failed to replace

25 funds fraudulently taken from its users’ accounts. See Coinbase, 599 U.S. at 739. Coinbase had a

26 user agreement that contained an arbitration provision. Coinbase moved to compel arbitration

27 based on that provision, but the district court denied the motion. Coinbase then filed an

1 interlocutory appeal of the denial, which was its right under 9 U.S.C. § 16(a).4 See id. (noting that

2 § 16(a) “authorizes an interlocutory appeal from the denial of a motion to compel arbitration”).

3 The issue for the Supreme Court was whether Coinbase was also entitled to a stay of the district

4 court proceedings pending its interlocutory appeal. The Court held that Coinbase was so entitled.

5 Section 16(a) does not say whether the district court proceedings

must be stayed. But Congress enacted §16(a) against a clear

6 background principle prescribed by this Court’s precedents

[including Griggs]: An appeal, including an interlocutory appeal,

7 “divests the district court of its control over those aspects of the

case involved in the appeal.”

8

The Griggs principle resolves this case. Because the question on

9 appeal is whether the case belongs in arbitration or instead in the

district court, the entire case is essentially “involved in the appeal.”

10 As Judge Easterbrook cogently explained, when a party appeals the

denial of a motion to compel arbitration, whether “the litigation may

11 go forward in the district court is precisely what the court of appeals

must decide.” Stated otherwise, the question of whether “the case

12 should be litigated in the district court . . . is the mirror image of the

question presented on appeal.” Here, as elsewhere, it “makes no

13 sense for trial to go forward while the court of appeals cogitates on

whether there should be one.”

14

15 Id. at 740-41 (emphasis added).

16 The Court added that it was a matter of “common sense” to stay proceedings:

17 Absent an automatic stay of district court proceedings, Congress’s

decision in §16(a) to afford a right to an interlocutory appeal would

18 be largely nullified. If the district court could move forward with

pre-trial and trial proceedings while the appeal on arbitrability was

19 ongoing, then many of the asserted benefits of arbitration

20

4 Section 16(a) provides in relevant part that

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[a]n appeal may be taken from –

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(1) an order –

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(A) refusing a stay of any action under section 3 of this

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title,

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(B) denying a petition under section 4 of this title to order

arbitration to proceed,

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(C) denying an application under section 206 of this title

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to compel arbitration . . . .

(efficiency, less expense, less intrusive discovery, and the like)

1 would be irretrievably lost – even if the court of appeals later

concluded that the case actually had belonged in arbitration all

2 along. Absent a stay, parties also could be forced to settle to avoid

the district court proceedings (including discovery and trial) that

3 they contracted to avoid through arbitration. That potential for

coercion is especially pronounced in class actions, where the

4 possibility of colossal liability can lead to what Judge Friendly

called “blackmail settlements.”

5

. . . .

6

From the Judiciary’s institutional perspective, moreover, allowing a

7 case to proceed simultaneously in the district court and the court of

appeals creates the possibility that the district court will waste scarce

8 judicial resources – which could be devoted to other pressing

criminal or civil matters – on a dispute that will ultimately head to

9 arbitration in any event.

10 Id. at 743.

11 In the instant case, Defendants are essentially asking for an extension of Coinbase.

12 Coinbase did not address the specific situation where there is (as here) more than one defendant in

13 the case and only some (not all) have possible arbitration rights.

14 Defendants’ position that the Investor Defendants should get a stay under Coinbase, even

15 though the Investor Defendants do not have any arbitration rights, is not persuasive. Coinbase

16 mainly turned on two points: (1) an appeal divests the district court of anything covered by the

17 appeal and (2) in the context of an appeal of an order denying a motion to compel arbitration, it

18 makes particular sense to stay because allowing district court proceedings to continue pending

19 appeal would effectively deprive the appealing party of the benefits of arbitration. In the instant

20 case, with respect to (1), the Court is not automatically deprived of jurisdiction with respect to the

21 claims against the Investor Defendants by virtue of the appeal of the arbitration ruling by the Avia

22 Defendants. The appeal covers the RICO claim against the individual defendants, not the RICO

23 claim against the Investor Defendants. It is true that the RICO claim is a single claim based on the

24 same underlying facts. But that does not mean that the entire RICO claim, including that asserted

25 against the non-arbitrating Investor Defendants, is the subject of an appeal. See In re Chrysler

26 Pacifica Fire Recall Prods. Liab. Litig., MDL No. 3040, 2024 U.S. Dist. LEXIS 35288, at *7

27 (E.D. Mich. Feb. 28, 2024) (in MDL, where defendant appealed order denying motion to compel

1 good grounds to delay the progress of the litigation on the claims of the 51 distinct parties whose

2 claims are not implicated in any way by either the motion to compel arbitration or the defendant's

3 pending appeal of the ruling denying that motion”)5; cf. May v. Sheahan, 226 F.3d 876, 880 n.2

4 (7th Cir. 2000) (stating that a “district court has authority to proceed forward with portions of the

5 case not related to the claims on appeal such as claims against other defendants or claims against

6 the public official that cannot be (or simply are not) appealed”; but adding that “a district court

7 might find it best to stay an entire case pending the resolution of [an interlocutory qualified

8 immunity] appeal”); Mitchell v. Perkins, 2020 U.S. Dist. LEXIS 26583, at *4 (M.D. Fla. Feb. 14,

9 2020) (noting that “‘a complete stay of discovery pending an interlocutory appeal in qualified

10 immunity cases is not automatic’[;] [i]n some cases, ‘a more limited stay’ may be appropriate,

11 such as in a multi-party action where there are other defendants and/or claims that are unrelated to

12 the issues presented in the interlocutory appeal”). As for (2), allowing court proceedings to

13 continue against the Investor Defendants does not deny them of any benefits of arbitration because

14 they have no arbitration rights.

15 To the extent the claims against the two sets of defendants may be related – for instance,

16 the Avia Defendants contend they may be deprived of the opportunity to participate in Court

17 proceedings if those proceedings continue, and the Investor Defendants argue they will be

18 prejudiced by not being able to take discovery (at the very least, “party” discovery) from the Avia

19 Defendants in the Court proceedings – that is a matter that informs a discretionary stay, not a stay

20 under Coinbase. See May, 226 F.3d at 880 n.2.

21 B. Discretionary Stay

22 Defendants argue that, even if a stay is not required under Coinbase, the Court should still

23 exercise its discretion to stay.

24 As an initial matter, the Court notes that the parties do not agree on the exact legal standard

25

5 In their reply brief, Defendants argue that Chrysler is distinguishable because, here, the core of

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the case (the claims against the Avia Defendants) is on appeal and may be compelled to arbitration

whereas, in Chrysler, the appeal involved only a minority of the plaintiffs. Although Defendants’

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point is not without some merit, it also ignores that, in Chrysler, the minority of the plaintiffs

1 that should be applied in evaluating the issue of whether to stay.

2 • Because Defendants are – for the time being – simply asking for a stay pending the

3 appeal of the arbitration order, should the Court apply the standard applicable to

4 stays pending appeal, which is governed by Nken v. Holder, 556 U.S. 418 (2009)?

5 See id. at 434 (identifying the following factors: “‘(1) whether the stay applicant

6 has made a strong showing that he is likely to succeed on the merits; (2) whether

7 the applicant will be irreparably injured absent a stay; (3) whether issuance of the

8 stay will substantially injure the other parties interested in the proceeding; and (4)

9 where the public interest lies’”).

10 • Or because, ultimately, Defendants are contemplating a stay pending arbitration

11 (i.e., if the Ninth Circuit rules that the Avia Defendants’ motion to compel

12 arbitration should have been granted), should the Court apply the standard which

13 has its roots in Landis v. North American Co., 299 U.S. 248 (1936)?6 See Lockyer

14 v. Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (providing that, where a stay

15 is sought based on independent proceedings, a court must weigh “the competing

16 interests which will be affected by the granting or refusal to grant a stay,” including

17 (1) "the possible damage which may result from the granting of a stay," (2) "the

18 hardship or inequity which a party may suffer in being required to go forward," and

19 (3) "the orderly course of justice measured in terms of the simplifying or

20 complicating of issues, proof, and questions of law which could be expected to

21 result from a stay").

22 The two standards, of course, have some overlap – i.e., the equities. However, the Nken

23 standard focuses in part on the likelihood of success whereas the Landis standard considers to a

24 large degree judicial efficiencies.

25

6 See, e.g., Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 & n.23 (1983)

26

(noting that, under the FAA, “an arbitration agreement must be enforced notwithstanding the

presence of other persons who are parties to the underlying dispute but not to the arbitration

27

agreement”; but, “[i]n some cases, . . . it may be advisable to stay litigation among the

1 Although technically, Defendants are asking for a stay pending appeal only, it makes more

2 sense to apply the Landis standard. Clearly, Defendants’ ultimate goal is for the Avia Defendants

3 to prevail on appeal and obtain a stay of all proceedings before this Court (including against the

4 Investor Defendants) pending the arbitration of the claims against the Avia Defendants.7

5 Applying Landis, the Court exercises its discretion to stay proceedings against the Investor

6 Defendants. Plaintiffs have failed to articulate any real harm if a stay were to be imposed. There

7 would, of course, be a delay of proceedings against the Investor Defendants, but, as the case is

8 already stayed against the alleged primary wrongdoers – i.e., the Avia Defendants – that delay is

9 not that significant.

10 Furthermore, there would be harm to both the Avia Defendants and the Investor

11 Defendants if the Court were to continue with the litigation against the Investor Defendants only.

12 As to the Avia Defendants, if the case were to continue against the Investor Defendants (i.e., while

13 the Avia Defendants are on appeal), there may be issues that are decided by this Court – whether

14 legal or factual – that, while not necessarily binding, could affect the Avia Defendants and without

15 their opportunity to be heard in a timely fashion. For instance, the same basic factual predicate

16 underlies all claims pled by Plaintiffs against both the Avia Defendants and the Investor

17 Defendants – i.e., that Avia uses bots. Also, the RICO claim is asserted against two of the Avia

18 Defendants (the individual defendants) and the Investor Defendants. Notably, in their 12(b)(6)

19 motions, the Investor Defendants make arguments challenging the RICO claim that are similar to

20 those made by the Avia Defendants in their own 12(b)(6) motion (which has been stayed because

21 of the appeal).

22 Moreover, the Avia Defendants would not have the opportunity to participate in discovery

23 before this Court. And if the Ninth Circuit were to rule against the Avia Defendants on the appeal

24 and deny arbitration, then at least some discovery would have to be redone – e.g., depositions

25 would have to be retaken so that the Avia Defendants could participate. Cf. Ashcroft v. Iqbal, 556

26 U.S. 662, 685-86 (2009) (noting that qualified immunity is intended to free officials from the

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1 concerns of litigation, including the avoidance of disruptive discovery, and “[i]t is no answer to

2 these concerns to say that discovery for petitioners can be deferred while pretrial proceedings

3 continue for other defendants” because it is “likely that, when discovery as to the other parties

4 proceeds, it would prove necessary for petitioners and their counsel to participate in the process to

5 ensure the case does not develop in a misleading or slanted way that causes prejudice to their

6 position”).

7 Like the Avia Defendants, the Investor Defendants would also be harmed without a stay,

8 although the nature of the harm is different. For the Investor Defendants, the harm stems from the

9 fact that they would have to litigate without the guarantees that it could get any discovery from the

10 Avia Defendants. Even if the Investor Defendants could obtain discovery from the Avia

11 Defendants despite this case being stayed as to the Avia Defendants, such discovery would be

12 limited to third-party discovery since the Avia Defendants would not be treated as a participating

13 party before this Court. The Investor Defendants could not employ, e.g., interrogatories and

14 requests for admission.

15 Finally, judicial efficiency weighs in favor of a stay. As noted above, if the Court were to

16 proceed with the litigation against the Investor Defendants, then, if the Avia Defendants were to

17 lose on their appeal, it would have to direct discovery to be re-done. And the merits issues

18 decided without the participation of the Avia Defendants might have to be relitigated.

19 The Court acknowledges that, in California Crane School, Inc. v. Google LLC, 621 F.

20 Supp. 3d 1024 (N.D. Cal. 2022), the district court declined to issue a discretionary stay in a case

21 that bears some similarities to the instant case. California Crane was an antitrust suit. The

22 plaintiff alleged that Google and Apple had entered into an anticompetitive agreement not to

23 compete in the internet search business. See id. at 1027. The plaintiff asserted the same claims

24 against both companies, and the claims arose out of the same underlying facts. See id. at 1028.

25 The district court granted Google’s motion to compel arbitration (based on an arbitration provision

26 in Google’s terms of service), and then turned to the issue of whether the claims against Apple

27 should be stayed pending the arbitration against Google. The court declined to stay the

1 inconsistent rulings if it were to proceed with the litigation against Apple while Google pursued its

2 appeal. See id. at 1033-34 (stating that, “in a case like this, . . . redundancy seems inevitable”).

3 California Crane, however, is distinguishable because, there, neither party argued the equities.

4 See id. (noting that “[n]either party has identified concrete prejudice (beyond simple delay) that

5 would result from either staying or declining to stay this case, so the Court’s decision is premised

6 on concerns of efficiency and judicial economy”). More important, in California Crane, the

7 district court recognized that a stay is generally appropriate where the arbitrable claims

8 predominate; this is essentially the situation here given that the main alleged wrongdoers are the

9 Avia Defendants. Thus, California Crane is not persuasive to the instant case.

10 III. RULE 12 MOTIONS TO DISMISS

11 Because the Court is granting the motion to stay, it does not rule on the Investor

12 Defendants’ 12(b)(6) motions. Nor does it rule definitively on Galaxy’s 12(b)(2) motion because

13 Plaintiffs have argued that, even if traditional specific jurisdiction is lacking over the company,

14 there is still RICO personal jurisdiction. For the Court to address RICO personal jurisdiction, it

15 would have to delve into the validity of the RICO claim as pled. See Monterey Bay Military

16 Hous., LLC v. Ambac Assur. Corp., No. 17-cv-04992-BLF, 2018 U.S. Dist. LEXIS 119331, at *14

17 (N.D. Cal. July 17, 2018) (“Unless and until a viable RICO claim is stated, [18 U.S.C.] §

18 1965(b)[8] cannot provide a basis for this Court's exercise of personal jurisdiction over

19 Defendants.”). The Court does not address the viability of the RICO claim against Galaxy since

20 that implicates issues also raised by the Avia Defendants (for whom there is a stay pending appeal

21 of the arbitration order). The Court, however, does hold that there is not traditional specific

22 jurisdiction over Galaxy. That issue is discussed below.

23

8 RICO provides that,

24

[i]n any action under section 1964 of this chapter in any district

25

court of the United States in which it is shown that the ends of

justice require that other parties residing in any other district be

26

brought before the court, the court may cause such parties to be

summoned, and process for that purpose may be served in any

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judicial district of the United States by the marshal thereof.

1 A. Legal Standard

2 Under Rule 12(b)(2), a court must dismiss an action where it does not have personal

3 jurisdiction over a defendant. See Fed. R. Civ. P. 12(b)(2). “[T]he plaintiff bears the burden of

4 establishing that jurisdiction is proper.” Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218,

5 1223 (9th Cir. 2011). However, “[w]here, as here, the defendant’s motion is based on written

6 materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of

7 jurisdictional facts to withstand the motion to dismiss.” Id. In addition, “[u]ncontroverted

8 allegations in the complaint must be taken as true, and factual disputes are construed in the

9 plaintiff’s favor.” Freestream Aircraft (Berm.) Ltd. v. Aero Law Grp., 905 F.3d 597, 602 (9th Cir.

10 2018).

11 In the case at bar, Plaintiffs do not contend that there is general jurisdiction over Galaxy.

12 Thus, the only issue is whether Plaintiffs have established a prima facie case of specific

13 jurisdiction.

14 B. Test for Specific Jurisdiction

15 “The inquiry whether a forum State may assert specific jurisdiction over a nonresident

16 defendant focuses on the relationship among the defendant, the forum, and the litigation.” Walden

17 v. Fiore, 571 U.S. 277, 283-84 (2014).

18 The Ninth Circuit

19 use[s] a three-prong test for analyzing claims of specific jurisdiction.

First, "[t]he non-resident defendant must purposefully direct his

20 activities or consummate some transaction with the forum or

resident thereof; or perform some act by which he purposefully

21 avails himself of the privilege of conducting activities in the forum,

thereby invoking the benefits and protections of its laws." Second,

22 the claim must arise out of or relate to the defendant's forum-related

activities. Finally, the exercise of jurisdiction must be reasonable.

23 The plaintiff must satisfy the first two prongs of this test. "If the

plaintiff succeeds in satisfying both of the first two prongs, the

24 burden then shifts to the defendant to 'present a compelling case' that

the exercise of jurisdiction would not be reasonable."

25

Global Commodities Trading Grp., Inc. v. Beneficio de Arroz Choloma, S.A., 972 F.3d 1101, 1107

26

(9th Cir. 2020).

27

1 C. Purposeful Direction

2 In the instant case, Galaxy largely focuses on the first prong of the specific jurisdiction

3 test. The first prong “encompasses two separate concepts: ‘purposeful availment’ and ‘purposeful

4 direction.’” Herbal Brands, Inc. v. Photoplaza, Inc., 72 F.4th 1085, 1090 (9th Cir. 2023). The

5 concepts are distinct but, “[a]t bottom, both . . . ask whether defendants have voluntarily derived

6 some benefit from their interstate activities such that they will not be haled into a jurisdiction

7 solely as a result of random, fortuitous, or attenuated contacts.” Id. (internal quotation marks

8 omitted).

9 Under Ninth Circuit law, this Court considers “the type of claim at issue to determine the

10 applicable analytical approach. [Courts] generally use the purposeful availment analysis in suits

11 sounding in contract and for unintentional tort claims.” Id. The purposeful direction analysis is

12 employed in suits involving intentional torts. See id. at 1090-91.

13 Here, the only claim that Plaintiffs assert against Galaxy is the RICO claim. That is clearly

14 a claim for an intentional tort. Therefore, the Court applies a purposeful direction analysis. See

15 Marani v. Cramer, No. 19-cv-05538-YGR (DMR), 2024 U.S. Dist. LEXIS 66317, at *12 (N.D.

16 Cal. Feb. 2, 2024) (applying a purposeful direction analysis where plaintiff asserted, inter alia,

17 claims for RICO and RICO conspiracy based on wire fraud).

18 In determining whether there has been purposeful direction by a defendant, a court uses the

19 three-part effects test traceable to the Supreme Court decision Calder v. Jones, 465 U.S. 783

20 (1984). See Herbal Brands, 72 F.4th at 1091.

21 That test "focuses on the forum in which the defendant's actions

were felt, whether or not the actions themselves occurred within the

22 forum." The Calder effects test asks "whether the defendant: '(1)

committed an intentional act, (2) expressly aimed at the forum state,

23 (3) causing harm that the defendant knows is likely to be suffered in

the forum state.'"

24

25 Id.

26 In the instant case, the critical issue is whether Galaxy expressly aimed its conduct at

27 California. In their opposition, Plaintiffs argue there was express aiming at California because (1)

1 Galaxy’s partners, Ryan You, was an observer on Avia’s Board and he is based in California; and

2 (3) Galaxy implicitly knew that “Avia had many users based in California” (i.e., based on “Avia’s

3 business and user base”). Opp’n at 66; see also FAC ¶ 27. According to Plaintiffs, they “do not

4 base their jurisdictional allegations simply on Galaxy’s ownership or proprietary interest [in Avia]

5 but identify instances of how Galaxy and its representatives participated in Avia’s activities.”

6 Opp’n at 66-67.

7 Plaintiffs’ position is problematic. On (1), Plaintiffs have essentially conceded (as

8 indicated above) that mere investment by Galaxy in Avia is not enough to establish express

9 aiming. See Low v. SDI Vendome, No. CV 02-5983 AHM (CWx), 2003 U.S. Dist. LEXIS 27603,

10 *31-32 (C.D. Cal. Jan. 7, 2003) (in a fraud case, agreeing with the individual defendant that “this

11 Court does not have jurisdiction over him because mere investment in a company doing business

12 in California does not confer jurisdiction upon an investor”; but noting that the plaintiff alleged

13 that the individual defendant caused a company to be created for the purpose of furthering a

14 conspiracy and further had contacts with plaintiff in California).9

15

9 Plaintiffs may not rely on the acts of the Avia Defendants in California to establish personal

16

jurisdiction over Galaxy, even if the two were allegedly conspirators. See Wescott v. Reisner, No.

17-cv-06271-EMC, 2018 U.S. Dist. LEXIS 92320, at *9-10 (N.D. Cal. June 1, 2018) (noting that

17

the Ninth Circuit has not squarely addressed the “conspiracy theory of personal jurisdiction” but

that the theory has been “‘criticized by commentators,’” that district courts in the circuit have

18

“refused to exercise personal jurisdiction over defendants based solely on the actions of their co-

conspirators,” and that “California courts applying both California and federal due process have

19

held that personal jurisdiction does not lie over an out-of-state defendant merely because of the

residence or acts of a co-conspirator[;] [r]ather, [w]here conspiracy is alleged, an exercise of

20

personal jurisdiction must be based on forum-related acts that were personally committed by each

nonresident defendant, and acts of an alleged co-conspirator cannot be imputed to establish

21

jurisdiction over the third party defendant”) (internal quotation marks omitted); Aldini AG v.

Silvaco, Inc., No. 21-cv-06423-JST, 2023 U.S. Dist. LEXIS 98686, at *16 (N.D. Cal. Mar. 27,

22

2023) (noting that, although some courts have held to the contrary, “neither the Ninth Circuit nor

California has recognized the validity of the conspiracy theory of jurisdiction” and, “[i]n the

23

absence of binding authority to the contrary, . . . reject[ing] the conspiracy theory of jurisdiction,

which appears to strain the boundaries imposed by the due process clause”). But see Charles

24

Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 86-87 (2d Cir. 2018) (setting forth “the

appropriate test for alleging a conspiracy theory of jurisdiction: the plaintiff must allege that (1) a

25

conspiracy existed; (2) the defendant participated in the conspiracy; and (3) a co-conspirator's

overt acts in furtherance of the conspiracy had sufficient contacts with a state to subject that co-

26

conspirator to jurisdiction in that state”); Unspam Techs., Inc. v. Chernuk, 716 F.3d 322, 329 (4th

Cir. 2013) (same); Melea, Ltd. v. Jawer SA, 511 F.3d 1060, 1069 (10th Cir. 2007) (stating that

27

“[t]he existence of a conspiracy and acts of a co-conspirator within the forum may, in some cases,

1 As for (3), even if Galaxy knew that Avia had many users in California, that does not

2 answer the question of whether Galaxy, as distinct from Avia, engaged in conduct that was

3 expressly aimed at California consumers. See note 9, supra.

4 Finally, for (2), that Mr. You was an Avia Board observer says little about whether he

5 engaged in conduct that was targeted at California. That fact alone does not establish that Mr.

6 You was aware of the alleged misrepresentations by Avia, supported the misconduct, and took

7 steps to further it. Absent more specific allegations, Plaintiffs’ assertions to the contrary are

8 speculative. Cf. Twombly, 550 U.S. at 556-57 (in antitrust conspiracy case, noting that there must

9 be “allegations plausibly suggesting (not merely consistent with) agreement”).

10 The allegations in the FAC are also deficient. Plaintiffs allege that “RICO Investors [i.e.,

11 both Galaxy and ACME] were involved in the operations of Avia, i.e., a California-based

12 company, through their board participation and/or observance and spread misinformation

13 regarding the nature of its business to, inter alia, California consumers.” FAC ¶ 27. But these

14 allegations are conclusory. As noted above, the fact that Mr. You was a Board observer, without

15 more, fails to establish Galaxy’s knowledge of, support of, and participation in Avia’s alleged

16 wrongful conduct. As for the allegation that Galaxy has spread misinformation to California

17 consumers, that seems to be based on other allegations that, on a portfolio section of its website,

18 Galaxy has “portray[ed] Avia as a platform that ‘guarantees players a fair, high-quality gaming

19 experience’ and that ‘uses a complex algorithm to assess and match each player’s ability in order

20 to create a fair gaming environment,’” FAC ¶ 41; see also FAC ¶¶ 120, 173; cf. FAC ¶ 134

21 (alleging that the Investor Defendants “transmit[ted] . . . marketing and other materials through the

22 internet media indicating that Avia’s games are games of skill where players compete in time

23 against real human players”). But that says little about what Galaxy knew. Moreover, Plaintiffs

24 fail to explain how Galaxy’s portfolio section on its website is directed to consumers at all,

25 including Avia consumers. In other words, why would a potential or actual player of Avia’s

26 games look at the comments made by one of Avia’s investors in describing its portfolio of

27

1 investments? There are insufficient allegations to plausibly establish Galaxy itself engaged in

2 conduct which intentionally misled players.

3 Accordingly, the Court agree with Galaxy that Plaintiffs have not made a prima facie

4 showing of traditional specific jurisdiction based on the purposefully directed prong.

5 D. Jurisdictional Discovery

6 Plaintiffs have asked for the opportunity to take jurisdictional discovery to establish that

7 there is specific jurisdiction over Galaxy. In the Ninth Circuit,

8 [j]urisdictional discovery “should ordinarily be granted where

pertinent facts bearing on the question of jurisdiction are

9 controverted or where a more satisfactory showing of the facts is

necessary.” But a mere ‘hunch that [discovery] might yield

10 jurisdictionally relevant facts,’ or ‘bare allegations in the face of

specific denials’ are insufficient reasons for a court to grant

11 jurisdictional discovery.

12 LNS Enters. LLC v. Cont'l Motors, Inc., 22 F.4th 852, 864-65 (9th Cir. 2022).

13 Although this is not an overly onerous standard, Plaintiffs have not satisfied it. Plaintiffs

14 assert that there should be discovery because a Galaxy partner, Mr. You, sat on the Avia Board:

15 “Discovery of that board member’s Avia-related contacts and conduct in California is likely to

16 yield evidence of attendance at board (and other) meetings in California along with

17 communications and involvement with Avia employees in California.” Opp’n at 69-70. But

18 contrary to what Plaintiffs suggest here, Mr. You was not – as alleged in the FAC – a member of

19 the Avia Board. Rather, he was only a Board observer. See FAC ¶ 27. Galaxy’s circumstances

20 differ from ACME’s, as Plaintiffs have alleged that ACME had a partner who was actually a

21 Board member (along with another partner who was a Board observer). Cf. FAC ¶ 174 (“Acme’s

22 membership in the board of directors comes with voting power, hence the ability to influence [the]

23 board’s decisions.”). And even if, as a Board observer, Mr. You attended Board meetings in

24 California and communicated with Avia employees in California, that does not shed much light on

25 whether he knew about and engaged in any alleged misconduct targeting California. At best,

26 Plaintiffs have a hunch that there could be misconduct but that is insufficient under Ninth Circuit

27 law.

1 possibility it will bear fruit material to the establishment of personal jurisdiction, see LNS, 22

2 F.4th at 864-65; see also Good Job Games Bilism Yazilim Ve Pazarlama A.S. v. SayGames, LLC,

3 No. 20-16123, 2021 U.S. App. LEXIS 36507, at *2 (9th Cir. Dec. 10, 2021) (remanding so that

4 jurisdictional discovery could be taken; “[t]he question of jurisdiction in the Internet age is not

5 well-settled,” “the record is insufficiently developed to resolve personal jurisdiction,” and

6 “‘further discovery . . . might well demonstrate facts sufficient to constitute a basis for

7 jurisdiction’”), here, allowing such discovery must be viewed in the context of the pending appeal.

8 Jurisdictional discovery which would focus on the extent of Avia’s wrongful conduct, its scope,

9 and Galaxy’s possible role therein delves into the merits of the misrepresentation claim and thus

10 squarely implicates the concerns which animate Defendants’ request for a broader stay. As the

11 Avia Defendants note, they would be prejudiced if they could not participate or weigh in on merits

12 discovery. Likewise, the Investor Defendants would be prejudiced as they would not be able to

13 get “party” discovery from the Avia Defendants.

14 The Court notes, however, that, although it is granting Galaxy’s motion to dismiss for lack

15 of personal jurisdiction and further denying Plaintiffs’ request for jurisdictional discovery, it is not

16 altogether closing the door to Plaintiffs’ establishing the purposefully directed prong of specific

17 personal jurisdiction. If Plaintiffs later learn of information showing knowledge and involvement

18 by Galaxy, Plaintiffs may then move for reconsideration of this interlocutory order.

19 IV. CONCLUSION

20 For the foregoing reasons, the Court rejects Defendants’ contention that proceedings in this

21 case against the Investor Defendants should be stayed pending appeal based on Coinbase.

22 However, the Court grants Defendants’ motion for a discretionary stay. The Court does not rule

23 on the Investor Defendants’ 12(b)(6) motions seeking to dismiss the RICO claims in light of the

24 stay; nor does the Court rule on Galaxy’s 12(b)(2) motion which argues that RICO personal

25 jurisdiction is lacking. However, the Court does find that Plaintiffs have failed to make a prima

26 facie showing of traditional specific jurisdiction under the purposefully directed prong and denies

27 Plaintiffs’ request for jurisdictional discovery thereon. The Court defers ruling on whether the

1 Accordingly, Defendants’ motion to stay is granted, and the Court defers in large part

2 || ruling on the Investor Defendants’ motions to dismiss. After the Ninth Circuit decides the Avia

3 || Defendants’ appeal, the parties shall meet and confer and file a joint status report.

4 This order disposes of Docket No. 140 only. Docket Nos. 107 and 109 remain pending.

5

6 IT IS SO ORDERED.

7

8 Dated: December 3, 2024

9

10

EDWARD M. CHEN

11 United States District Judge

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