BREAKING NEWS: A Federal Class Action Lawsuit Against WATA Games Is Allegedly in the Works
A Reddit post purportedly from a California lawyer is sure to set the gaming world on fire—as it alleges a federal suit against America's most infamous collectibles grading company is being prepared.
{Note: Nothing below is intended as legal advice to any party. If you need legal representation for any reason, including but not limited to any of the matters discussed in this article, seek an attorney in your area. The author of this article is a bar-admitted attorney in inactive/retired status who occasionally writes about the law as a journalist, not a currently practicing lawyer.}
Introduction
As some of you may recall, in the summer of 2021 RETRO published a series of articles about WATA Games, by far the highest-profile video game grading outfit in the fast-growing graded-game collecting arena (see also here and here). On the high-traffic Twitter feed associated with RETRO, I wrote that in 2022 Americans would hear a lot more about WATA Games, which certain readers of the feed perhaps understandably scoffed at, as how much could anyone really care about the fastest-growing collectibles market in the world, let alone one connected to what is now the largest, most lucrative entertainment industry on Earth? If you sense some sarcasm here, it’s only because it can be hard for folks—me included—to accept that stories about developing markets invariably become stories about cultures and populations and thereby transformative.
In any case, all that notwithstanding, the thing to know now is that if this Reddit post isn’t a spoof or a troll, someone apparently cares enough about graded video games to be preparing a federal class action lawsuit against WATA Games.
Is this prospective lawsuit real? And if it is, does it have a chance of returning results for those who decide to become members of its class (assuming a lawsuit is filed and a class of plaintiffs is actually certified)? Let’s take a closer look at this breaking news.
The Reddit Post
First, let’s consider the source of this breaking news, a Reddit post just published in the last 24 hours (the author, Bengoshijane, has long held himself out as an attorney on Reddit):
Hello all!
I am an attorney, a game collector and a long time community member. My law firm is presently preparing a class action case to be filed against Collector’s Universe and Wata Games, Inc. in USDC (federal court) in California.
If anyone would like to join the class as a Named Plaintiff, please send me a message and we can go from there. In order to be a Named Plaintiff you would have had to have sent a game in for grading with Wata Games, Inc. within the last two years and not received it back in the window estimated by Wata Games. You do not have to reside in California to participate as the case will be filed in federal court and we will be attempting to certify a nationwide class.
While the Complaint is not yet finalized, I can offer an overview of the issues. The claims intended include Unfair Business Practices, RICO violations and [F]raud claims.
Specifically, the Complaint addresses the statements on the company’s website involving false “estimated” turnaround times, the fact that paying increased fees does not actually result in different service level, and the market manipulation allegations that were more fully addressed in the Karl Jobst YouTube video and the Seth Abramson [RETRO] articles.
This post is intended as a public comment. It is not a solicitation.
Disclaimer
Yes, I am aware that my name appears in this “public comment.” I have nothing at all to do with this Reddit post, or the alleged prospective lawsuit behind it. I am learning about all this along with all of you—and am giving my thoughts on the situation here and only here, for RETRO subscribers. The only other communication I have had on this issue is a single brief email to the journalist who first directed me to this breaking news story.
I do not plan to join this lawsuit or have anything to do with it, for many reasons, most notably these three:
(1) I don’t qualify as a member of any prospective class of civil litigants. I’ve bought WATA-graded games at auction, but I have never graded a game with WATA. I sent in one game, Marble Madness (NES), to be cleaned and recased—a situation that I wrote about at some length publicly—and that cleaning and recasing, which WATA Games advocates assured me would take only a matter of weeks, in fact took about half a year. But I did get the game back; it was adequately cleaned; and its grade was appropriately amended prior to its return.
(2) I have aimed to cover WATA as a journalist, even as I’ve been transparent about also being a small-time retro video game collector. Like any working journalist, I’m not interested in inserting myself into a story as a participant rather than a journalist.
(3) I am not certain that a civil lawsuit against WATA would be successful. I outline some of the reasons for this below—though again, I wouldn’t join this lawsuit even if I were confident of its success.
Is This Prospective Lawsuit for Real?
I suspect it is—though as noted above, I have no inside information on this score. But the simple fact is that the class of video game collectors is largely made up of current and former upper-middle-class to upper-class professionals, so it’d surprise precisely no one if an attorney were to be a video game collector on the side and feel aggrieved by WATA’s actions (or, alternately, if a well-heeled collector were to have sought out a law firm and convinced them that there could be some real money in a lawsuit against WATA). I’d also say, as an academic who studies digital culture, that hoaxes involving lawsuits are less common than people think—leaving the Occam’s Razor explanation for the situation being that it’s exactly what it purports to be: an incipient civil lawsuit.
Second, we should note that the discussion of a possible civil lawsuit against WATA is not new. I have been reading about collectors wanting to file such a lawsuit on various sites online—not just Reddit, but Facebook and Video Game Sages—for quite a long time now.
Third, there’s certainly enough money at stake here to warrant lawyers sniffing about.
While, even before it was bought by Collectors Universe in July 2021, WATA Games was already a multi-million-dollar operation, after it was bought out it was suddenly under the aegis of one of the largest corporations in the collectibles space; Collectors Universe is a NASDAQ-traded company (CLCT) that announced nearly $70 million in annual revenue in 2018, a number that’s likely only gone up during the pandemic (a time when the collectibles industry has blown up across the board). So there is more than enough money in the collectibles industry to make potential litigants take note.
Fourth, while this post is certainly not highly technical from a legal standpoint, it is written plausibly enough that I do not see, as a attorney myself, any immediate red flags suggesting the author has no idea how to file a lawsuit or what a lawsuit even is.
Note, in particular, the disclaimer that closes the note—which is precisely the sort of coherent, professional-conduct CYA that you would expect from a practicing attorney.
The Grounds for a Lawsuit Against WATA Games
This Reddit post alleges several grounds for the filing of a civil lawsuit against WATA:
(1) Unfair business practices. Presumably, this refers to WATA’s infamous turnaround times, which habitually are a year or more—even though WATA’s website indicates that customers can expect items to be graded and returned in a matter of weeks or, with the slowest grading “tiers”, a few months. But of course the issue runs deeper than this: for years, WATA Games has had virtually no meaningful customer service, habitually sending form emails to those customers who’ve complained over having thousands (or even tens of thousands) of dollars’ worth of goods in WATA’s custody for 10x, 20x, or even 30x the time it was implied to them via WATA’s website they’d be waiting. Nor did WATA, to my knowledge, ever issue refunds or credits to customers who did not get the service they had been led to believe they would receive.
So certainly, many customers of WATA experienced not just distress but potentially measurable pecuniary loss from not receiving valuable items back from WATA in the general range (up to 3x, say) of the period they’d been led to expect; fluctuations in the collectibles market during the period of time a WATA customer was likely waiting to receive a graded item could mean that at the time a customer was supposed to get a game back from WATA, equivalent games were selling for (say) $5,000 on the open market, whereas by the time the item was actually received back a year later the going rate for the item was “merely” $2,000.
The self-described attorney who wrote this note also correctly points out that when it realized it could not fulfill orders in the manner it had indicated on its website, not only did WATA not amend its website language or shut down all incoming orders, at times it actually began filling orders inconsistently with respect to the turnaround “tiers” its customers had paid for—leading to there being no apparent correlation between the service you had paid for and the one you received. In any lawsuit filed against WATA, this will likely be cast, understandably, as an unfair business practice.
(2) Fraud. Arguably, many of the same facts could be alleged for a fraud allegation as those noted above. Even after WATA knew or should have known that its website was misleading customers—and pretty grossly, at that—it did nothing to change its site (as RETRO repeatedly advised it to do). This was almost certainly because doing so would have cost it much new business to its current primary competitor (VGA) or even to its forthcoming most-feared competitor, CGA; if WATA had told prospective customers that they could be waiting a year or more for their goods to be returned to them, some might have switched to VGA and others might have waited for CGA to begin grading games, as it is expected to do sometime later this calendar year (2022).
But the fraud question also opens the door to broader issues at WATA, for instance these four: (1) Were WATA executives, board members, or investors getting their games graded at WATA contrary to the policies published by the company, and if so, were these individuals getting preferential grading treatment in a way that protected them from the sort of market losses discussed above or allowed them to enjoy unfair pecuniary benefits? (2) Did WATA executives issue public statements about the value of certain games on the open market that constituted an impermissible conflict-of-interest under existing law (given WATA’s mission as a neutral arbiter of commercial goods’ value), which statements were intended to raise the value of goods held by individuals financially linked to WATA or mislead future customers into thinking that having their games graded was a better financial prospect than it really was? (3) Did any WATA executives or investors or advisers act on inside information in their financial dealings in or around the collectibles market, either before WATA began grading games or after? (4) Did WATA make misrepresentations to their customers and/or the public-at-large regarding the quality of their products; their ability to adjudicate (or their expertise in adjudicating) game condition; their intent to deliver on components of their product that remain dormant (e.g., a QR code that is part of the product’s packaging and its marketing campaign but has never been active despite WATA promising an app to read the code would come online back in spring of 2019); their quality control processes; their ability to authenticate video games (or recognize counterfeits); the reason for any delays in returning items (almost always attributed to supply-chain issues rather than the unwillingness of WATA to hire sufficient staff to do the work they’d promised customers they could do in a reasonable time); or their private financial entanglements or agreements with specific entities (such as Heritage Auctions) or persons (such as WATA investors, advisers, or directors)? This also gets into the question of whether WATA ever made misstatements of fact on SEC filings that hid any of these financial entanglements, agreements, and/or conflicts of interest.
(3) RICO. Obviously this is the most salacious of the listed allegations, as it suggests a conspiracy to engage in illicit conduct. Presumably, the allusion to RICO—whether or not a RICO case can be made out as part of the class-action suit proper—has to do with the allegations of market manipulation WATA has faced over the past few years, from WATA executives getting their games graded with WATA and then selling them at exorbitant prices online (a practice that did not stop or even slow after it was called out by RETRO and others), WATA executives appearing repeatedly on staged “reality” television programs to issue supposedly neutral commercial assessments of goods to which WATA itself had an undisclosed financial connection (and involving customers of WATA and well known to WATA who were not identified as such in these televised segments), and even unproven implications of shill bidding at WATA-linked auctions (a topic first broached in the Jobst Report). As this is the most serious allegation that WATA would face if this alleged civil lawsuit goes forward, you can also expect that it would be the hardest to prove and the most controversial—also, the most newsworthy.
Can a Lawsuit Like This Succeed?
Needless to say, we’re a long way from even asking this question. We don’t know if this lawsuit is really intended or will be filed; we don’t know if enough people will step forward to become members of any prospective certified class (and we must be mindful of the fact that most WATA customers, especially high-volume resellers of graded video games, will be loath to publicly be at odds with WATA in any way); we don’t know if a suit of this sort can survive summary judgment given the deliberate lack of any regulation of the collectibles industry that the United States Congress has now permitted for decades (to the massive financial detriment of individual investors); and finally, we don’t know that any such lawsuit, if it successfully certifies a class and survives a motion for summary judgment filed by Collectors Universe, won’t quickly be settled prior to any in-court litigation with an undisclosed out-of-court settlement.
Given that the amount any individual video game collector would be likely to receive from any such payout would be small—as it will be hard to establish compensatory damages beyond refunding some customers the monies they paid to WATA (which admittedly, for some WATA customers, will be in the many thousands of dollars)—the real question here is really whether this lawsuit is being filed so attorneys can get a fat chunk of any punitive damages awarded by a civil jury or established by an out-of-court settlement. Indeed, one imagines that the real angle for any law firm involved in this is seeking punitive damages more so than trying to calculate how much any single customer is “out” because of missed market opportunities (which is fuzzy math at best).
We also have to consider that the real prize here, in the short term—assuming a class is formed and summary judgment survived—is getting to the discovery process, i.e. a chance for lawyers to look inside WATA’s books and get some of its top executives deposed. A smart lawyer considers the odds of an out-of-court settlement directly proportionate to the extent to which a civil defendant does not want its executives deposed, and in this case WATA has kept aboard some seemingly bad actors it should have fired (as RETRO often suggested publicly) with the result that not only could plaintiffs’ attorneys depose these folks, but could do so under circumstances in which they’re still employed by Collectors Universe (making the argument that Collectors Universe is legally liable for their actions stronger than it would’ve been had these men been fired or bought out, as they should have been when CLCT bought WATA).
My point here, I guess, is that there are some WATA executives Collectors Universe should rightfully be terrified about seeing deposed. Nor can the new owners of WATA relish the prospect of WATA’s likely gnarly pre-CLCT books being studied by lawyers who don’t work for the company. So even if the law firm that now allegedly seeks to sue WATA doesn’t have all the facts they ideally would have now, they could see their suit survive long enough to get deep enough in the discovery process that they locate malfeasance beyond what any of us are aware of (but which many, not without reason, suspect is there to be found).
There can be little doubt that WATA’s business practices are legally unfair. Fraud is a harder case to make, and yet WATA appears to have been so sure it would never be held to account for its actions—to the point of not even editing its website, shutting down incoming orders, or prioritizing turnaround based on existing tiered payments—that at some point a jury is likely to believe that WATA’s actions were willful rather than merely negligent. I suspect a RICO case is not yet present, but is something that attorneys would seek to develop, especially through depositions with men like Mark Haspel and Deniz Kahn. To be clear, it’s entirely possible that these men did nothing legally wrong; at the same time, I don’t think they or their compatriots have acted in such a meticulous manner that they should look forward to a professional deposition.
As I recently wrote to the video game journalist who first alerted me to this Reddit post, the big question here is whether WATA’s vague website language constituted either a contract with its customers or—if not a promise—a guideline that was so clearly intended by WATA to be relied upon by customers (to the clear enrichment of WATA) that at a certain point its repeated, flagrant breach became a matter of legally cognizable malfeasance. But a second question is how one can establish damages for individual customers, most of whom never asked for refunds and did ultimately get their items back—meaning that the most they can do is claim that there was a grave opportunity cost to having to wait so long for their items to be returned to them, i.e. lost market value. But determining lost market value is a squirrely prospect, indeed.
So while the case for punitive damages against WATA might be quite strong, the case for compensatory damages is garbled by the fact that so many video game collectors made so much money selling WATA goods that—in cowardly fashion, if we’re honest—they never did anything to demand reasonable redress for any harms done to them.
Perhaps an even greater question is whether the fact that Collectors Universe didn’t own WATA for almost any of the period in question will come to be an issue in any future civil case. While obviously Collectors Universe is now legally liable for WATA’s illegal actions if any, there’s a question about (a) whether CLCT knew of these actions when they bought the company (which, if not, could lead to an attempt by CLCT to say they too were victims of WATA), (b) whether any punitive damages to be leveled against CLCT (should the lawsuit be successful, which is another matter) would be greatly reduced by the fact that CLCT itself was not in the picture when most of this malfeasance occurred (if indeed it did occur), and (c) whether CLCT can argue that, pre-acquisition, WATA was understaffed and so merely acting negligently, with any claim of intentional malfeasance only being actionable and punishable once WATA had the resources at its disposal it now has—with CLCT arguing, of course, that once it came on board it began redressing all the issues any litigant would now be alleging.
Conclusion
All of the above notwithstanding, RETRO can say a few things for certain right now.
First, this lawsuit will be opposed by the overwhelming majority of high-end graded video game collectors, as these individuals feel they only lose as or when WATA is discredited. A small cadre of a hundred or so high-end “collectors”—nearly all of whom are more properly seen as “speculators” or “resellers” rather than collectors—have been shamelessly running cover for WATA for years now, providing deranged and factually laughable justifications for WATA’s actions, gaslighting their fellow WATA customers, attempting to divert attention from WATA’s actions to those of its competitor VGA, and in some instances even threatening WATA critics (at a minimum seeking to silence them in the online communities they gather in). It will be hard to form a class for this lawsuit because so many of WATA’s customers are essentially complicit in the money spinner that is the graded video game ecosystem. These men—and they are almost to a one men, and (not that it matters) middle-class to upper-class white men—have nothing to gain by angering, discrediting, or fighting with WATA.
What they do have is a lot to lose: specifically, an enormous amount of money. It’s for this reason that graded video game resellers must be ignored—to a man—as we have this conversation about WATA’s conduct. Their motives are clear, and their opinions were long ago compromised. Most of these men now spend their days selling WATA-graded games at wildly inflated prices to suckers, a livelihood they might lose if the publicity from a suit against WATA spirals the value of WATA-graded games down to a fraction of what they’re worth now.
Second, whether or not this lawsuit is filed, there is no question—absolutely none—that WATA is a bad actor. More than this, WATA knows it’s a bad actor. It just knows, too, that most of its customers benefit from its bad behavior; Congress has no interest in regulating its bad behavior; and so few people thus far care about this still relatively new hobby (not collecting video games, but collecting sealed and graded video games) that it is naturally hard to find a large number of aggrieved persons who want to get involved in litigation over all this. Indeed, most of those who want to sue WATA have never used its services, which means they are ineligible to participate in the lawsuit now being imagined via Reddit post. (In case you’re wondering, no, there would be no realistic chance of a non-graded video game collector being able to sue for artificially inflated prices for ungraded “loose” and “CIB” games, even if WATA did most likely engage in conduct that caused the entire video game collectibles market to explode.)
So it is important to say that whether or not they can be sued successfully, WATA has run its business unethically—and has at every turn refused to make even the slightest change to its operation to start running it ethically.
Third, it should be noted that this Reddit post appeared during the period of time WATA customers have come to understand—via an Instagram post and an email from the company apologizing (for the umpeenth time) for corporate conduct that it has no clear plan to amend and has never previously amended, despite explicit promises to the contrary that no doubt would be cited in any lawsuit against it—that the promise WATA made last year to release in Q1 or Q2 2022 dynamic population reports for all gaming consoles whose games it grades is going to be not just broken but spectacularly.
WATA habitually lies to its customers, and its promise to release population reports for all the systems it accepts games from is just another lie atop a veritable heap of them. The current claim from WATA is that an “engineering” snafu has left it without even a timeline for something that was supposed to have occurred months ago now. In fact, the hard data its customers seek could readily be released on a rolling basis using coding techniques so simple they couldn’t possibly run afoul of any such engineering issue(s). In short, WATA goes into the period of time in which it may face a federal lawsuit in California having just been caught in perhaps the most significant lie it has ever told to its customers—a lie it told shamelessly, apparently with foreknowledge that it was lying, and that it now continues to tell shamelessly and in writing. I know of no video game collector who any longer expects WATA population reports in 2022, and it’s hard to see how this could be changed in any way by a civil lawsuit against WATA. If anything, a lawsuit would give WATA a legitimate excuse—unlike the one it’s currently serving up—for falling down on certain past promises, as a suit against the company would undoubtedly take up a lot of its time and energy.
In view of the foregoing, one wonders if Collectors Universe shouldn’t just close up shop at WATA and start a new business from the ground up: new executives, a new product, a new website, a new mission statement. Given that CGC won’t be launching its own grading service for many months, and given that Collectors Universe could model any new grading business on the few things that really worked at WATA, and given that any plaintiffs would probably be significantly appeased if WATA ceased to exist (even if its parent company eventually replaced it with a new operation under new management), it seems that dealing a corporate “killing blow” to WATA wouldn’t be the worst thing for all concerned.
However.
The fourth reality here is that Congress is never going to regulate this industry, for the simple reason that Congress is no longer operative on any issue, let alone this one.
So more than anything, Collectors Universe will know that if it can simply find a way to avoid depositions and document production, it can go back to doing its business however it likes without being troubled by anything like federal regulators (let alone consumer advocate groups or business ethicists). Simply put, well-to-do white dudes who pay thousands of dollars for encased video games from their childhood are not the most sympathetic group in America’s voter base; no one really cares if they are being taken advantage of and, as noted throughout this article, many of them don’t even care about it so long as they’re making deranged amounts of cash on their hobby.
Which, for now, they are. And that, as much as anything else, should tell you how hard it’ll be for anyone, attorneys or otherwise, to upset this particular apple cart.