In May 2019, the esports industry was rocked when Turner Tenney – the famed Fortnite player and streaming star known as “Tfue” – sued the well-known esports and media company FaZe Clan in California state court. The suit sparked a media frenzy and shined a spotlight on labor and employment law issues in the rapidly growing esports and video gaming industry, as we reported here. In his lawsuit, Tfue sought to undo his allegedly oppressive three-year contract with FaZe Clan and asserted that the company had deprived him of business opportunities and failed to pay him his share of sponsorship revenues.
Tfue also brought the California state court case as an appellate placeholder for an administrative proceeding he had filed only a week earlier with the California Labor Commissioner. In the administrative filing, Tfue alleged that FaZe Clan had acted as his unlicensed talent agency in violation of California’s Talent Agency Act (TAA). An appeal from any decision by the Commissioner in that proceeding would be taken to the California Superior Court, where Tfue’s lawsuit would already be pending.
Tfue’s action in each of these California forums seemed to have legitimate jurisdictional tethers, as much of Tfue’s activity under the FaZe Clan contract apparently took place in California. However, these actions also looked like blatantly preemptive moves by Tfue to avoid the contract’s choice-of-law and forum selection provisions in which the parties had selected (i) New York law to govern any dispute, and (ii) a federal or state court in New York City as the exclusive forum in which to resolve any such dispute.
Consequently, in August 2019, relying on the contract’s forum selection clause, FaZe Clan opened a third front in the battle by filing an action against Tfue in federal district court in New York City. FaZe Clan accused Tfue of misappropriating FaZe Clan trade secrets and breaching the contract by, among other things, disparaging FaZe Clan, disclosing its confidential information, encouraging other gamers to leave the company, and threatening to work for other gaming companies in violation of his exclusive services agreement with FaZe Clan.
In the span of a few months, the dispute had morphed into a complex, multijurisdictional litigation worthy of a law school exam question covering Civil Procedure, the Federal Courts, and Administrative Law. The parties and courts began working toward answers: FaZe Clan moved to dismiss or stay the California state court action based on the New York forum selection clause. Tfue moved to dismiss or stay the New York action under the “Colorado River abstention doctrine,” which would permit the federal court to decline jurisdiction over the FaZe Clan action in favor of Tfue’s parallel state proceedings in California.
The New York federal court answered first in November 2019 and denied Tfue’s motion, noting that the California action was an “obvious attempt by [Tfue] to avoid a binding and enforceable forum selection clause.” The court concluded that the Colorado River abstention factors overwhelmingly favored retention of the case in New York, even though there was some risk of piecemeal litigation, especially if the California Labor Commissioner’s jurisdiction over the TAA claim was ultimately deemed exclusive, as Tfue was contending, and which was yet to be determined.
The California court answered next in early December 2019 and granted FaZe Clan’s motion, concluding that the New York forum selection clause in Tfue’s contract “is unquestionably mandatory.” However, the court also concluded that Tfue could not waive his rights under the TAA through the enforcement of the New York forum selection clause, granted FaZe Clan’s motion, and stayed the action in favor of the New York case solely on the condition that FaZe Clan stipulate (and it did) that even in the New York court, Tfue’s rights under the TAA, if any, would be determined under California law.
As we enter 2020, the path forward in these tangled proceedings is a bit clearer, but the full answer to this not-so-hypothetical exam question has yet to be revealed. Tfue answered and counterclaimed in the New York case, which is scheduled to move forward on a fairly fast track with a March 2020 trial date. Trial is to be preceded by dispositive motions, which will likely address whether Tfue’s TAA claim can be decided in the New York court (notwithstanding the California Labor Commissioner’s supposed exclusive jurisdiction over the claim). Meanwhile, the TAA proceeding before the Labor Commissioner presumably is advancing to an evidentiary hearing, while the California state court action is stayed pending the next status conference, which is scheduled for July 2020.
While we wait for further resolution, the Tfue-FaZe Clan dispute has provided a couple of notable initial takeaways. First, never overlook the importance and potential limitations of contractual choice-of-law and forum selection clauses. By having one in its contract with Tfue, FaZe Clan was able to shift the dispute away from the California court. Even if it could only do so by agreeing to the application of California law to Tfue’s TAA claim, FaZe Clan would likely prefer having that claim resolved by a court in New York rather than in California. Second, this ongoing dispute continues to serve as a serious wake-up call for esports and video gaming companies. While no gamer or streamer agreement could ever be immune from dispute and litigation, careful legal preparation and review of such agreements may help to avoid the sort of protracted and costly litigation that is now consuming FaZe Clan and Tfue.
