Debonneville v. Pierce
United States District Court for C.D. Cal.
Case No. 2:07-CV-03776-R-MAN), Settled May 5, 2008
This wasn’t an IP lawsuit, but it was a bitter dispute between the owners of Internet Gaming Entertainment. IGE is a virtual property company that engages in buying and selling virtual currency and items in MMO games for real money. Even though these games prohibit real money trading, the virtual goods industry is booming – according to the amended complaint, Goldman-Sachs once valued IGE at $220 million.
Alan Debonneville, a Swiss citizen living in Hong Kong and co-founder of IGE, initially filed a complaint in June of 2007 against co-founder Brock Pierce. The original complaint was sealed three months later, but Virtually Blind, who saw the complaint before it was sealed, said it was full of scandalous accusations. For example, Kotaku said “the Complaint ... includes third-hand allegations of cash from an earlier venture being spent on illegal drugs, a claim that Pierce's dog was shot by the "Spanish FBI," and allegations of minors being transported across state lines for sex. The complaint even takes a swipe at former-child-actor Pierce's filmography (Pierce played a young Emilio Estevez in The Mighty Ducks and The Mighty Ducks 2, and the lead in First Kid). In short, this is not your average business spat.”
According to the amended complaint, filed in September 2007, Debonneville met Pierce while playing Everquest online. Debonneville was selling virtual goods in Everquest in 2000 and discussed his business plan with Pierce, who was living in Spain. Pierce requested that Debonneville come to Spain to negotiate a business arrangement. “Impressed with the promises of riches that Pierce made, in November of 2001, Debonneville traveled to Spain from Switzerland to meet with Pierce.” Following those talks, IGE was formed, allegedly with certain promises of profits and stock for Debonneville.
The amended complaint claimed, inter alia, breach of fiduciary duty, breach of contract and fraud. Virtually Blind said that allegedly “Pierce deprived Debonneville of millions of dollars Debonneville was owed under his agreements with IGE. Debonneville names an even dozen claims ranging from breach of fiduciary duty to fraud. Along the way he accuses Pierce of failing to pay taxes owed to the Spanish government, using corporate funds for personal expenses, falsely telling Debonneville that one of the other executives in IGE was blackmailing Pierce, and partnering with a third party, Jonathan Yantis, to exploit bugs in game software to make unauthorized duplicates of in-game items and currency to offer for sale via IGE.”
Pierce threw the accusations back at Debonneville in his answer and counterclaim by alleging, as Virtually Blind put it, that Debonneville, “while overseeing IGE’s trading arm, overpaid certain people for virtual goods bought on behalf of IGE — including one of the lawyers who now represents Debonneville on this case — in order to secure favor and personal benefits, in breach of Debonneville’s fiduciary duty to IGE.”
Minutes from March 2008 stated that the parties had reached a settlement on all essential terms and that the parties needed to file a stipulation of dismissal by April 14. But the hostilities continued and the settlement failed – no stipulation was filed by the deadline.
The judge ordered a status conference to see why the settlement hadn’t been finalized and the result of that conference was a temporary restraining order against Pierce. The TRO prevented Pierce from “failing to comply with the terms of the settlement” and specifically kept Pierce from “contacting any bank for Debonneville or his attorneys for purposes of reversing any payment Pierce made to Debonneville under the terms of the parties’ settlement agreement in this lawsuit [...], attempting to reverse any payment made to Debonneville or his attorneys [...], taking any action to sell, assign, [or] transfer [...] any asset owned directly or indirectly by Pierce, unless such action is performed solely to raise funds to be paid to Debonneville, [or] filing any suit relating to the settlement, Debonneville or his attorneys, other than a personal bankruptcy suit.” The court granted the TRO because those acts would cause “irreparable injury” as they “would be part of a wrongful scheme by Pierce, already commenced, to attempt to illegally recover settlement payments already paid to Debonneville or to avoid paying Pierce’s settlement obligations.”
Another hearing was set for May 5 to determine whether the restraining order should be made permanent. The minutes from that hearing revealed that Pierce paid Debonneville the undisclosed settlement amount. After that hearing, a motion for sanctions against Pierce for his failure to attend a scheduled deposition remained (although it may have since been dropped because Pierce paid the settlement). But the emails contained in the exhibits to the motion and response show the hostility that existed between the lawyers and in this case overall.
Virtually Blind wasn’t surprised at the settlement given that the litigation would’ve likely become incredibly expensive and the parties probably wanted to avoid negative publicity. It’s still unfortunate because the issue of virtual property didn’t go in front of a judge. It would’ve been interesting to see how the judge would've acknowledged and responded to virtual property in a case concerning a business based on real money trading which violates the Terms of Service MMOs.
Check out Virtually Blind's website for more extensive analysis of the case as it progressed.
