The State of Washington is suing Kickstarter campaign creator Altius Management and its president, Edward Polchlopek over unfulfilled rewards. Game lawyer Zachary Strebeck looks at the facts of the case and provides some analysis.
What kind of trouble can you get into if you don’t deliver on promised Kickstarter rewards?
I’ve written previously for Ind13 about how Kickstarter’s Terms of Use and basic contract principles make a project creator liable to the backers for providing the promised rewards. Now, legal action has been filed by the state of Washington against a creator who has failed to live up to his end of the Kickstarter bargain.
In what I think is the first government lawsuit against a Kickstarter creator, the State of Washington has filed a complaint in King County Superior Court against Altius Management and its president, Edward Polchlopek, under the state Consumer Protection Act. Altius was the creator of the Asylum Playing Cards crowdfunding campaign.
Altius is a Tennessee Limited Liability Company, and Polchlopek is in charge of the company. The Asylum Playing Cards Kickstarter successfully funded in Nov. 2012 with a pledge amount of over $25,000, which exceeded their original $15,000 goal. Of the 810 backers, 31 are located in Washington. The promised rewards, including decks of cards, dealer buttons and even straight jackets, have not yet shipped. The last update on the project was in July of 2013.
The State is alleging two causes of action in the lawsuit. First, that the defendants misrepresented that they would provide the rewards and failed to do so. Second, that the defendants failed to refund the backers’ pledge money, both when it was requested and when it was not requested.
According to the complaint, both of these acts constitute infringement under Washington’s Consumer Protection Statute. Specifically, they allege that the two violations fall under the Unfair Competition section, 19.86.020. This statute makes any deceptive business practices illegal.
The state is seeking civil penalties of up to $2,000 per backer as restitution. Additionally, they are seeking to stop the defendants from continuing the practice.
While I have written before about the limited liability that comes with a business entity, that limitation is not infinite. There are certain circumstances where the “corporate veil” can be pierced. One of these ways is when a member of the LLC engages in fraudulent conduct.
In their complaint, the state notes that Polchlopek was in charge of the company’s policies and actions, including those that are alleged to be deceptive business practices. This means that they can attempt to go after Polchlopek personally. Ultimately, it is in the hands of the court to decide whether he is personally responsible.
Interestingly, the LLC has been dissolved since August 2013. Therefore, Polchlopek may be the only party that CAN be sued for the money.
If you are beginning a Kickstarter campaign or starting game development, it may be helpful to consult with a game lawyer. A free consultation can help you to understand the various legal issues that you may face throughout the development process and help to avoid situations like this.
In other news, I've just made my new FREE eBook on game developer legal issues available to the public! All you need to do is click here and sign up for my mailing list. You also get my trademark checklist and other goodies when they're ready! If you like the book, please share/tweet/email/whatever the link to others in the game development field!
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