Grand Theft Class Action: Game Over

COMMENTARY Conservatism

Grand Theft Class Action: Game Over

Dec 22nd, 2008 16 min read

Former Visiting Fellow

Andrew served as a Visiting Fellow.

A July 30 decision likely spelled the end of a class-action suit against the makers of the popular Grand Theft Auto videogame series for a sexually explicit "minigame" hidden in one of its episodes. Within that decision may be an insight into how judges think about a certain class of cases that capture public attention.

For a case rife with sex and violence (in virtual form), it ended with a whimper. Judge Shirley Wohl Kram, who had set in motion settlement negotiations, pulled the plug by decertifying the class.[1] The case, she determined, is "plagued by individualized issues" of fact and law, particularly the requirement that a plaintiff prove reliance upon a misrepresentation under many states' consumer-protection laws. These issues, she ruled, defeat the predominance of common questions required in class actions brought under Federal Rule of Civil Procedure 23(b)(3).

This was an unexpected end for a case that commenced with grand ambitions.

Grand Theft Auto: San Andreas, the fifth game in the series, was released for the PlayStation II in October 2004 and sold more than 12 million copies in its first six months on the market. Versions for the Xbox and personal computers followed in June 2005. The player takes on the role of Carl "C.J." Johnson, who has recently returned to his home of Los Santos and now faces the task of reviving his moribund street gang.

To advance in the game, the player undertakes scripted missions: assassinations, drive-by shootings, casino heists, sexual bondage and torture, and in one instance, murder of a philandering preacher, his companion prostitute, and their bodyguard and driver. The three-dimensional world of San Andreas permits the player wide latitude to explore and wreak mayhem, exploding buildings with Molotov cocktails and murdering all those who cross his path--even pedestrians. Wearied by his havoc, C.J. recharges his batteries by purchasing lap dances and sex from roving prostitutes, who may be killed to regain the money spent for their services.

In re Grand Theft Auto Video Game Consumer Litigation does not concern any of this content, which earned the game an "M" rating ("suitable for persons ages 17 and older"[2]) on release from the Entertainment Software Rating Board (ESRB).

At issue is a segment that the game's publisher had never intended for release. Following a successful date mission in the game, a girlfriend may invite C.J. into her home for "coffee," which is revealed as a euphemism by the muffled noises that follow, though the player's view remains outside the girlfriend's home. Soon after the PC version of the game hit the market in 2005, an enterprising hacker discovered how to restore a portion of the game that had been edited out of the final release. Applying this "Hot Coffee mod" (which can be downloaded from the Internet and requires special hardware to use on the PlayStation or Xbox), a player can control C.J. as he engages in several blurry and pixilated sex acts with his girlfriends.[3] Based on this content, the ESRB investigated and re-rated the game "AU," or "Adults Only," meaning it "should only be played by persons 18 years and older."

When news of the mod broke, politicians were quick to condemn the game--the House passed a resolution demanding a Federal Trade Commission inquiry and "the toughest of penalties"[4] and Senator Hillary Clinton called its violence "a silent epidemic" among children that "encourages them to have sex with prostitutes and then murder them"--and a flurry of lawsuits followed. In February 2006, the Multidistrict Litigation Panel transferred five cases to the Southern District of New York for consolidated proceedings and two more subsequently. The consolidated complaint alleges three causes of action: unfair and deceptive trade practices under state law, breach of implied warranty, and unjust enrichment.[5] The plaintiffs' theory was that the game's publisher had caused it to be misrated and marketed it with a false rating, leading parents and others to purchase the game because they lacked knowledge of its pornographic content. They sought compensatory and restitution damages of potentially as much as $500 million, as well as punitive damages.

The case moved quickly into discovery (aided considerably by the ongoing government investigations) and settlement talks, as attorneys for Take Two Interactive, the game's publisher, sought to cut a deal with the eight law firms[6] representing the plaintiffs. That took a year and a half, and a settlement agreement was filed with the court in November 2007. Under the terms of the deal, Take Two agreed to exchange copies of the game containing the "Hot Coffee" footage and to pay purchasers of the original version of the game who had been offended (from $35 for those with "a detailed receipt" down to $5 for those merely attesting purchase and offense), up to a total cost of $2.75 million. In the event that few claims were filed, Take Two would be on the hook for a minimum of $1,025,000, with the unclaimed balance to go to a charity as a "cy pres" remedy.

The court conditionally certified the class that month and preliminarily approved the settlement. Take Two advertised the settlement widely, per the agreement, and sent notice e-mails, at a total cost of $830,000. In all, 2,676 individuals filed claims under the settlement, out of about 10 million potentially eligible purchasers of the game. Of these, 210 sought replacement discs (Take Two had already made a fix for the PC version available gratis, prior even to the lawsuits[7]) and 2,619 sought cash payments totaling approximately $17,000. Over 2,000 of the claimants, with claims worth an aggregate $10,250, had filed online, without providing any proof that they had actually purchased the game or been aggrieved.[8] The plaintiffs proposed that the remainder go, in equal shares, to the National PTA and the ESRB.

For their part in securing this award, the plaintiffs' attorneys sought a flat $1 million in fees and expenses. This sum was arrived at by the process of calculating a lodestar (hours expended multiplied by an attorney's normal hourly rate) for the litigation: $1,317,433.25 for 3,280.3 hours of work, at just a hair over $400 per hour. The thick brief in support of the request takes pains to note that "the time spent in connection with this fee request" is not included in this figure and that the requested fee, being less than the lodestar, actually represents a negative lodestar multiplier--cheap!--providing no excess compensation for the risks and complexity of the case.[9]

It would have been smooth sailing to final approval of the settlement but for two unexpected turns. The first, which is the focus of the court's decertification decision, was the Second Circuit's decision McLaughlin v. American Tobacco Corp, 522 F.3d 215 (2nd Cir. 2008), handed down in April. In that case, a class of smokers sought civil-RICO liability for fraudulent marketing of "light" cigarettes as healthier than regular cigarettes, but the court held that, because smokers could have purchased light cigarettes for any number of reasons, reliance was "too individualized to admit of common proof." Thus, questions in common to the class did not "predominate" over those affecting only individual members of the class, as required to bring a class action under FRCP 23(b)(3).

In Judge Shirley Wohl Kram's Grand Theft Auto opinion, McLaughlin controls. The opinion works through the conflict-of-law approaches of the five states in which the Grand Theft Auto litigation arose, finding that the case requires application of the law of the state in which each class member purchased the game. Many of these states require the plaintiff to prove reliance on a misrepresentation--the same "individualized" determination. In addition, others require proof of an ascertainable monetary loss, scienter, or contractual privity. The court questioned the wisdom and practicability of "grouping individuals with distinctly different substantive claims in a single nationwide class." On these grounds, the court concluded that the plaintiffs had failed to show that the class was sufficiently cohesive and decertified it.

But can that really be it? The court's application of McLaughlin is, as others have noted, sensible but also rather aggressive. The McLaughlin court explicitly rejected the Fifth Circuit's blanket rule that a reliance element precludes class certification, and Judge Kram fails to consider seriously plaintiff's argument that reliance on a rating badge is not necessarily so individualized as to preclude common proof--after all, isn't that the point of an "NC-17" (formerly "X")[10] or "AO" rating, especially when the ultimate consumer is a child? And while the applicable state laws do differ, and thoughtful judges regularly end their inquiry with that finding,[11] other courts have found their way around that inconvenient fact to certify a class.[12] One way, in particular, is to paint the issue as one of manageability rather than predominance per se.[13] Another is to claim that conflict-of-law issues count less, or not at all, in the settlement context.[14] Anyway, what is to stop one or more of the named plaintiffs from appropriate non-lex loci delictistates from refashioning their claims and then proceeding?[15] Surely New York's choice-of-law approach could be made to yield a result that recognizes this inevitability.[16]

There may be something else going on--a subtle second factor, partly of the Zeitgeist, partly in the courtroom. In the air is a wariness toward bold and aggressive litigation over profoundly unserious matters. Consider, for example, the mocking tone of The New York Times' take on the case, published on the front page of its Business section just a month before Judge Kram decertified the class:

"Game's Hidden Sex Scenes Draw Ho-Hum, Except From Lawyers"

Lawyers who sued the makers of the video game Grand Theft Auto: San Andreas profess to be shocked, simply shocked, that few people who bought the game were offended by sex scenes buried in its software.

Any buyer upset about hidden sex in the violent game could file a claim under a settlement the lawyers struck with the game's makers, Rockstar Games and its corporate parent, Take-Two Interactive. Of the millions of people who bought the San Andreas version after its release in 2004, exactly 2,676 filed claims.

"Am I disappointed? Sure," said Seth R. Lesser, lead lawyer for the plaintiffs. "We can't guess as to why now, several years later, people care or don't care. The merits of the case were clear."[17]

That article's appearance was not exactly a coincidence, as the driving force behind it, as well as its subject beyond the lead, is Theodore Frank, by day director of the American Enterprise Institute's Legal Center for the Public Interest and by night (apparently) an avid gamer. Frank, who also co-edits the lawsuit abuse chronicle, was the sole (coherent) dissenter to the Grand Theft Auto settlement, and the Times' piece reflects his withering criticisms of the agreement, as expressed in a crisp and accessible 19-page brief to the court.

In his challenge, Frank leads with the theme that there is something fishy with this case. How could the plaintiffs seriously contend that an average payout of less than a quarter of a cent per class member be an "excellent result"?[18] And how could attorneys' fees 50 times the payout to class members be "reasonable in light of the benefits obtained by the litigation and on behalf of the Class"[19]?

Indeed, the particulars of the class attorneys' fee request raise doubts about the case itself. For example, included in the "total recovered benefit to the Class"--calculated only for the purposes of comparison with the requested fee--are replacement discs at $15 apiece, notification expenses (amounting to some 40 times the payout to class members) borne directly by Take Two, and the cy pres awards. But due to the game's age--four years is an eternity in the videogame market--discs issued after Take Two recalled the original version of the game from stores' shelves can be had for $2 or less on eBay. As for notification, expensive advertisements in Parade and USA Weekend, two of the nation's highest circulation magazines, as well as other, more targeted placements, still attracted less than 0.003 percent of possible class members, providing little "benefit" to the class. And it is difficult to conceive how donations to the PRA and the ESRB--which is, in any case, a subsidiary of the video game publishers' trade association, of which Take Two is a member--exactly benefit class members.[20] These items do bulk up the appearance of the class award, but a closer look reveals just how little the class has recouped.

So what's going on here? Frank suggests two possibilities: "The Putative Class Attorneys have brought either (1) a meritorious case that is being settled for an infinitesimal fraction of the case's real value in a 'sellout' of the attorneys' and class representatives' fiduciary duties to the class, or (2) a meritless lawsuit where the class device had been used to obtain leverage for one person's benefit"--that is, the representative's.[21]

One is tempted to suggest a third possibility, perhaps a variation on the second: reflexive filing and incompetence. A flurry of filings is the inevitable response to any newsworthy controversy, while the smarter section of the plaintiffs' bar moves more slowly, with greater consideration, building up major areas of litigation over years and decades. The rest duke it out over the remaining crumbs and hang on for settlements, even when time reveals that few or no members of an aggregated class believe themselves to have suffered a cognizable injury. Here, the median class members (20-something males, going by the game's demographics) may have actually benefited from the "Hot Coffee" segments. They purchased a game for its vile violence and explicit content and received an extra dollop. Even today, the original disc, with the "Hot Coffee" bits, commands a slight premium in the resale market. But this is not part of the calculation for the attorneys behind the suit. They just did what one would expect in a litigious society where parties suffer no repercussions for bringing and continuing cases that lack merit.

Having disposed of the case on more neutral grounds, Judge Kram notes, in a footnote, that "important questions" regarding the settlement's fairness and the adequacy of the class representation remain--which is enough to signal displeasure without inviting controversy. Frank, after arguing before the judge, guessed that she was sympathetic to his arguments, based on her subsequent questions to the settling attorneys on the merits of the case and fairness of the settlement.[22] It may just be that Frank succeeded in awakening the judge's fear that here, in her courtroom, was one of those cases that become known to non-lawyers and accrete their own mythologies in the telling--an infamous case. Could this be what derailed the settlement?

If so, that fact suggests several courses of action for those defending high-profile cases concerning de minimus injuries. Courting public opinion is one--not the Times but "News of the Weird." Thousands of less reputable sources, online and in print, commented on the case before the Times story ran. Establishing the taint of tabloid tawdriness--and that it goes to the very merits of the matter--may tempt the judge who wishes no notoriety herself.

A second point is that elite opinion matters, too; it is easy, after all, to name judicial grandees whose salons shape their opinions by no more than obvious correctness and instant consensus.

Finally, recognize that that opinion will not, in the end, decide the case. The judge, too, needs an out, a plausible theory to reach the right result; arguing the stink will only spread the taint to your side, as well--fine for a D.C. think-tanker who is used to brawling, but not for a white-shoe litigator.

In a more rational system, the takeaway would be that, without sanction for bringing meritless aggregation actions, some attorneys will bring them and continue to litigate them long after it would have been apparent to a disinterested observer that no member of the class suffered any compensable injury. Even if for the wrong reasons (or at least not principled reasons), courts are right to be wary of these cases when the system incentivizes their commencement and continuation.

Andrew M. Grossman is Senior Legal Policy Analyst in the Center for Legal and Judicial Studies at The Heritage Foundation.


[1] In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. July 30, 2008).

[2] Entertainment Software Rating Board, Game Ratings & Descriptor Guide, (last visited Oct. 2, 2008).

[3] Video excerpts of these scenes can be found online. Spike, Hot Coffee (last visited Oct. 2, 2008).

[4] H. Res. 376, 109th Cong. (2005).

[5] Amended Complaint, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. June 7, 2006).

[6] See Settlement Agreement at 7, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. Nov. 7, 2007).

[7] No More Hot Coffee, visited Oct. 2, 2008).

[8] Plaintiff's Memorandum in Support of Final Approval of Class Action Settlement at 2-3 In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. May 23, 2008).

[9] Plaintiff's Memorandum in Support of Class Counsel's Application for an Award of Attorney's Fees and Reimbursement of Litigation Expenses and of Class Representatives' Enhancements, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. May 23, 2008).

[10] Motion Picture Association of America, Ratings Guide, visited Oct. 2, 2008).

[11]In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1015 (7th Cir. 2002) ("No class action is proper unless all litigants are governed by the same legal rules. Otherwise the class cannot satisfy the commonality and superiority requirements of Fed.R.Civ.P. 23(a), (b)(3).").

[12] See, e.g., Steinberg v. Nationwide Mut. Ins. Co., 224 F.R.D. 67, 76 (E.D.N.Y. 2004) ("Significantly, here, the plaintiff's claim is for the simple breach of a standard form contract and involves only the standard rules of contract interpretation."); Muehlbauer v. Gen. Motors Corp., 431 F. Supp. 2d 847, 872 (N.D. Ill. 2006) ("We of course anticipate variations in the laws that ostensibly hew to the same standards of liability. But whether these differences destroy commonality is an issue for another day.").

[13] See, e.g., In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 529 (3d Cir. 2004) ("However, when dealing with variations in state laws, the same concerns with regards to case manageability that arise with litigation classes are not present with settlement classes, and thus those variations are irrelevant to certification of a settlement class."). But doesn't this subsume the distinct predominance requirement to one of the factors "pertinent" to its determination? See FRCP 23(b)(3).

[14] See, e.g., id.

[15] Answer: Nothing. See, e.g.,Kelley v. Microsoft Corp., 251 F.R.D. 544, 551 (W.D. Wash. 2008) ("Because Plaintiffs seek certification of a nation-wide class, the Court considers the law of all concerned states, i.e., all fifty states. However, the Court need not examine the law of all jurisdictions so long as actual conflict exists between Washington law and the law of one other concerned state."). Westlaw queries indicate that New Jersey is also a popular jurisdiction in this respect.

[16] In re Allstate Ins. Co. (Stolarz), 613 N.E.2d 936, 938 (N.Y. 1993) (extolling "modern, more flexible approaches to choice of law").

[17] Jonathan Glater, Hidden Sex Scene Draws Ho-Hum, Except from Lawyers, N.Y. Times, June 25, 2008, at C1.

[18] Plaintiffs' Memorandum in Support of Motion for Preliminary Approval of Class Action Settlement, Certification of Conditional Settlement, Certification of Condition Settlement Class, and Approval of Settlement Notice at 1, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. Nov. 19, 2007). In later filings, after the paucity of claim filings became clear, it was "fair and adequate." Plaintiff's Memorandum in Support of Class Counsel's Application for an Award of Attorney's Fees and Reimbursement of Litigation Expenses and of Class Representatives' Enhancements at 1, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. May 23, 2008).

[19] Plaintiffs' Memorandum in Support of Motion for Preliminary Approval of Class Action Settlement, Certification of Conditional Settlement, Certification of Condition Settlement Class, and Approval of Settlement Notice at 1, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. Nov. 19, 2007).

[20] See (conveniently enough) Theodore H. Frank, Cy Pres Settlements, Class Action Watch, March 2008.

[21] Brief of Objector Theodore H. Frank in Opposition to Plaintiffs' Memoranda in Support of Proposed Settlement and Award of Attorneys' Fees and Expenses at 3, In re Grand Theft Auto Video Game Consumer Litigation, No. 06-MD-1739 (S.D.N.Y. June 6, 2008).

[22] Overlawyered, Grant Theft Auto: Class Action--The Argument,
(last visited Oct. 2, 2008).

First appeared in the Federalist Society's Class Action Watch

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