The FaZe Clan v. Tfue Case Continues

Jun 24, 2020

BIG PICTURE

Contractual forum selection clauses shouldn’t be overlooked in player contracts and the California Labor Commission has exclusive jurisdiction over whether the Talent Agency Act governs a relationship.

BACKGROUND

This is a continuation of a previous post. For a quick recap, Tfue (real name "Turner Tenney") sued FaZe Clan in California in an attempt to extricate himself from his contract with the esports organization (the “Gamer Agreement”). Tfue's primary complaint was that FaZe acted as an unregistered talent agency in violation of California's Talent Agency Act ("TAA"). FaZe essentially transferred the case to the Southern District of New York and in that case, FaZe and Tfue filed cross motions for summary judgment and the court ruled on those motions on June 17, 2020.

FAZE’S MOTIONS FOR SUMMARY JUDGMENT

Southern District of New York Jurisdiction

The first issue for the court was whether it had jurisdiction over Tfue. Tfue argued that the SDNY had no personal jurisdiction over him as a Florida resident who performed the majority of his services under the Gamer Agreement in California. The court disagreed with Tfue for a couple of reasons. First, the court noted that the Gamer Agreement contained a forum selection clause and that each of the parties consented to the jurisdiction of the New York federal and state courts. Tfue argued unpersuasively that he was not “specifically aware of the forum selection clause” and was not “focused on it at all." I'd be curious as to whether this argument is ever successful outside of impaired parties, and whether that success rate justifies the cost of losing credibility with the court - in this case the judge even points out that Tfue initialed each page including the one containing the forum selection clause - an argument like this can really hurt a litigant’s credibility in my opinion. Tfue also argued that the entire agreement between the parties was null and void because FaZe was acting as a talent agency without a license in violation of the TAA. The court stated that even if the entire contract was void under the TAA, the personal jurisdiction ruling would not prejudice Tfue and he could assert that as a defense at a later stage.

The Talent Agency Act

FaZe also moved to dismiss Tfue's defenses and counterclaims related to the TAA because all of FaZe's work for Tfue was performed outside of California. The court denied FaZe's motion. First, the court held that the California Labor Commission ("CLC") has exclusive jurisdiction over the question of whether the TAA applies. Tfue also argued that some of FaZe's California employees performed work on Tfue's behalf. The court found that there were disputed issues of material fact and denied FaZe's motion for summary judgment on that basis as well.

California Business and Professions Code

FaZe moved for summary judgment denying Tfue's defenses and counterclaims under the California Business and Professions Code Section 16600 voiding non compete clauses. Tfue raised Section 16600 defenses to FaZe's claims that he breached the Gamer Agreement that required him to:

grant FaZe an exclusive license to his name and likeness;
not to work for a gaming organization other than FaZe or endorse any product not approved by FaZe; and
grant FaZe a right to approve any third-party request for his services.

The court denied FaZe's motion, stating that Section 16600 governs those terms and that these types of in-term restrictions were void to independent contractors (the parties did not seem to dispute that Tfue was an independent contractor). Apparently Tfue did not cross move for summary judgment on those issues so at this stage it is just a denial of FaZe’s motion on those points, but those look like they will ultimately be losses for FaZe.

Tfue's Breach of Contract

FaZe moved for summary judgment on its claim that Tfue breached the Gamer Agreement by failing to share Fortnite skin revenue through a program called “Support-A-Creator.” Tfue introduced, in the words of the judge, “overwhelming evidence” that there was no intent between the parties for the skins to be included in the Gamer Agreement. First, the court points to the deposition testimony of Richard Bengtson (FaZe Banks), a FaZe part owner stating:

[W]e never had collected the [Creator] code [revenue], and up to this point in time, we had no intention

Next the court points to FaZe's own organization representative stating in a YouTube video on FaZe’s own YouTube account stating:

We’ve seen a little miscommunication in terms of community understanding about ‘in-game items’ and what that might mean and what that applied to. Let us be very on-the-record right now: that has nothing to do with Support-A-Creator codes.... Anybody who thinks that has anything to do with dipping into the pockets of Support-A-Creator codes is sorely wrong.

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This argument truly confused me. FaZe publicly and in deposition testimony stated that the Gamer Agreement was not intended to cover revenue that they then sued Tfue for not providing. FaZe then moved for summary judgment on the issue, which means that there cannot be a genuine dispute as to any material fact. Again, credibility matters and in my opinion moving for summary judgment on this issue with this record is credibility damaging. There are certainly things that happen in cases that outside observers aren’t privy to, but FaZe has sophisticated litigation counsel and this seems like a questionable tactic as well as one that could have potentially brand damaging implications. For example, just a few days after this ruling one of the more recent comments on the video stated “Lmao all lies, trying to take 50 percent of support a creator and denied in court.”

Needless to say, the court denied FaZe’s motion for summary judgment on this issue.

TFUE’S MOTIONS FOR SUMMARY JUDGMENT

Breach of Contract

Tfue moved for summary judgment in his favor on all of FaZe’s breach of contract claims. Tfue argued that FaZe failed to pay him on time, breaching the Agreement, and therefore all actions occurring after that date are irrelevant. However, the court found that there were genuine disputes of fact as to whether the Agreement was still in force.

Non-Contract Causes of Action

Tfue moved for dismissal of FaZe’s non-contract causes of action: Intentional Interference with Contract, Intentional Interference with a Prospective Business Advantage, and Unjust Enrichment. The court denied Tfue’s motion with respect to the first two causes of action due to genuine disputes of fact. As to Unjust Enrichment, Tfue moved for conditional summary judgment arguing that if the CLC determines that the Gamer Agreement was void, that FaZe could not recover for unjust enrichment. The court disagreed and held that recovery was still possible, even if the Gamer Agreement was void.

WRAP UP

Overall a pretty mixed bag for both parties, but I’d score this in favor of Tfue. There are a couple of issues that I believe Tfue could have won on summary judgment had Tfue moved on them, but for some reason chose not to. Ultimately, it seems that the CLC’s ruling on whether the Gamer Agreement is void under the TAA will have a huge impact on this case, so we’ll have to see what happens there.