Wake Forest Law Review

By Kelsey Mellan

On March 17, 2017, the Fourth Circuit issued a published opinion in Mason v. Machine Zone, Inc. a civil appeal of the district court’s dismissal of a Loss Recovery Statute claim. Plaintiff Mia Mason filed a class action complaint against Machine Zone, Inc. (“Machine Zone”), the developer of a mobile game entitled “Game of War: Fire Age” (“Game of War”). Mason alleged that she lost money participating in an unlawful “game device” – a virtual wheel that makes up a substantial part of Game of War. The district court dismissed Mason’s class action under FRCP 12(b)(6) for failure to state a claim. The Fourth Circuit subsequently affirmed the district court’s decision.

Facts & Procedural History

Machine Zone developed and operates Game of War, a popular video game that can be downloaded for free on mobile devices. Game of War is a strategy game in which players build virtual towns and armies, and “battle” each other in a virtual world. While it is free to play the game, players can purchase virtual “gold” at prices ranging from $4.99 to $99.99. Players can use this gold to “improve their virtual towns” and to obtain virtual “chips” for use during the Game of War “casino.”  This virtual casino is a game of chance in which players can use their virtual chips for an opportunity to obtain prices for use within the game by “spinning” a virtual wheel – a completely randomized feature of the game. The first time a player enters Game of War, he or she is entitled to one free spin of the wheel. However, after the player uses this free spin, must use chips to pay for each additional spin. If a player doesn’t have enough chips to spin, the player must use virtual gold to obtain more chips.

Players who spin the wheel have no control over the outcome of the spin and, thus, no skill on the part of the player influence what the outcome will be. Players obtain prizes from spinning the wheel. If a player wins enough prizes he or she may want to sell his or her account on “secondary markets” for real money. However, this sale on secondary markets, such as Amazon, would violate Machine Zone’s terms of service.

Mason started playing Game of War on her cell phone in early 2014. After using her complimentary spin of the virtual wheel, Mason began purchasing virtual gold in order to obtain more chips to continue spinning the wheel to earn prizes. Between early 2014 and January 2015, Mason spent over $100 to participate in the casino.

Mason filed a class action in the District of Maryland under Maryland’s Loss Recovery Statute. She alleged that she lost money playing an unlawful “game device” and sought “full disgorgement and restitution of any money [Machine Zone] has won” from Mason and similarly situated Maryland residents. The district court determined that Mason failed to state a claim under the Loss Recovery Statute because “she did not lose money” in the virtual casino – and thus, the court dismissed Mason’s complaint.

Plaintiff-Appellant’s Claim Under Maryland’s Loss Recovery Statute

Mason argues that the district court erred in dismissing her class action under FRCP Rule 12(b)(6) because she lost money while playing in the virtual casino – which she claims is an unlawful “game device” under the Loss Recovery Statute. The Fourth Circuit reviewed the district court’s dismissal de novo, accepting Mason’s well-plead allegation as true and drawing all reasonable inferences in her favor.

Maryland’s Loss Recovery Statute states “a person who loses money at a [prohibited] gaming device…may recover the money as if it were a common debt.” The statute defines gaming device as “a game or device which money or any other thing or consideration of value is bet, wagered, or gambled,” and includes a “wheel of fortune.” Pursuant to the Maryland state case, F.A.C.E. Trading, Inc. v. Todd, the Fourth Circuit was required to interpret Maryland’s gambling statutes in a manner that “gives validity not only to the word, but to the spirit of the law. For the purposes of this appeal, the Fourth Circuit assumed that the virtual casino was a prohibited “gaming device” and agreed with the district court that Mason did not lose any money when spinning the wheel in the virtual casino. Therefore, she failed to satisfy a required element for stating a claim under the Loss Recovery Statute.

In deciding whether the loss of virtual money fell under the Loss Recovery Statute, the Fourth Circuit looked to Cates v. State, a Maryland case which noted that the predecessor to the Loss Recovery Statute encompassed a public policy “not to help one who loses at gambling, but to discourage illegal gambling by putting the winner on notice that the courts will force him to disgorge his winnings.” In the case of Game of War, Machine Zone did not “win” any money. Rather, Mason participated in the virtual casino by “spinning” the virtual wheel where no money was at stake – only virtual prizes and chips. Thus, Mason could not have lost or won money as a result of her participation in the virtual activity. Moreover, the Fourth Circuit determined that the fact that Mason could sell her account on “secondary markets” was irrelevant – as the entire account would be sold, not just the virtual prizes or chips.  Thus, the Fourth Circuit rejected Mason’s contention that the existence of a secondary market showed that she lost money as a result of her participation in Game of War’s virtual casino.

 Disposition

 Accordingly, the Fourth Circuit affirmed the district court’s conclusion that Mason did not “lose money” within the meaning of the Loss Recovery Statute as a result of her participation in the Game of War casino.

By Katie Baiocchi

On January 25, 2017, the Fourth Circuit published Marlon Hall v. DIRECTV, LLC, a civil case. Plaintiffs Marlon Hall, John Wood, Alix Pierre, Kashi Walker and John Albrecht (“Plaintiffs”) appealed the order granting defendants’ DIRECTV, LLC, DIRECTSAT USA, LLC and DIRECTV, INC. (“Defendants”) motion to dismiss under Federal Rules of Civil Procedure 12(b)(6). Plaintiffs alleged that defendants were joint employers and therefore are jointly and severally liable for any violations under the Fair Labor Standards Act (“FLSA”). The Fourth Circuit found the district court relied on out-of-circuit authority that has been rejected in the Fourth Circuit in analyzing the relationship between the parties. The district court also failed to construe plaintiffs’ allegations liberally as required by a motion to dismiss. Accordingly the Fourth Circuit reversed and remanded the case.

Facts and Procedural History

Defendant DIRECTV employs technicians through the DIRECTV “Provider Network.” Each plaintiff alleged that between 2007 to 2014 they worked as a technician for defendant, an intermediary provider, a subcontractor, or a combination of all three. Defendant DIRECTSAT enforced the hiring criteria of DIRECTV for technicians. DIRECTV also provided a centralized work-assignment system, and regulated and audited personnel files. Plaintiffs were required to wear DIRECTV uniforms, carry DIRECTV identification cards, and display the DIRECTV logo on their vehicles. Technicians who did not meet DIRECTV hiring criteria could not install or repair DIRECTV equipment. Plaintiffs claim that they each regularly worked in excess of forty hours per week without receiving overtime pay while working as technicians. Plaintiffs specifically allege that the defendants qualify as joint employers and their failure to provide overtime pay violated FLSA overtime and minimum wage requirements. Defendants each moved to dismiss plaintiffs’ complaint pursuant to F.R.C.P. 12(b)(6). The district court granted this motion in its entirety because they concluded that the Complaint did not allege facts sufficient to establish that defendant DIRECTV jointly employed plaintiffs.

The Fourth Circuit reviewed the district court’s dismissal de novo and accepted as true all the factual allegations contained in the complaint and drew all reasonable inference in favor of plaintiffs.

The District Court Applied an Improper Legal Test for Determining Joint Employment Under the FLSA

Under the FLSA, 29 C.F.R. § 791.2(a), “joint employment” exists when “employment by one employer is not completely disassociated from employment by the other employer(s).” Courts are split on the appropriate test for distinguishing separate employment from joint employment in relation to the FLSA. The district court’s analysis was flawed because it concluded that a worker must be an employee as to each putative joint employer when considered separately for the entities to constitute joint employment under the FLSA. Additionally, the district court relied on the test no longer employed by the Fourth Circuit in determining joint employment of the plaintiffs.

Under the Fourth Circuit two-step framework for determining whether a defendant may be liable for an alleged FLSA violation under the joint employment theory the court must first determine whether the defendant and one or more entities shared, agreed to allocate responsibility for, or otherwise co-determined the key terms and conditions of plaintiffs’ work. The second step relies heavily upon the answer to the first part of the analysis and asks whether a worker was an employee or independent contractor under FLSA. The district court erred in considering the second step before the first.

The Fourth Circuit determined that under the first part of the two-part framework that the allegations sufficiently demonstrate defendants were not completely disassociated. The district court erred by failing to follow the new standard employed by the Fourth Circuit to determine joint employment. The Fourth Circuit has held that the fundamental question is whether the entities are “not completely disassociated” with respect to the worker. The Fourth Circuit identified a non-exhaustive list of six factors to assist lower courts in determining if joint employment exists. The court emphasized that no single factor is determinative.

The Fourth Circuit also found that under the second part of the two-part framework the plaintiffs were employees rather than independent contractors. In focusing on the economic realities of the relationship between the defendants and plaintiffs the Fourth Circuit found that the plaintiffs were economically dependent on the defendants.

The District Court Misapplied the Plausibility Standard by Subjecting Plaintiffs to Evidentiary Burdens Inapplicable at the Pleading Stage

Plaintiffs’ factual allegations establish that defendants jointly determined the key terms of plaintiffs’ conditions of employment. Per the complaint defendant DIRECTV was the principal client of the other defendants. Defendant DIRECTV had the authority to direct, control and supervise the plaintiff’s day-to-day job duties. Defendant DIRECTV had specific installation procedures implemented and controlled the uniforms and identification of technicians. The complaint is also replete with allegations that DIRECTV had control over hiring, firing and compensation. The Fourth Circuit found that at this stage of litigation the allegations are sufficient to make a plausible claim that defendants were not completely disassociated.

Conclusion

The Fourth Circuit reversed and remanded the consolidated cases for further proceedings consistent with the opinion because the district court relied on out-of-circuit authority that had been rejected in the Fourth Circuit. Furthermore, the Fourth Circuit found the district court failed to construe plaintiffs’ allegations liberally as a motion to dismiss requires.