Washington State Files First-Ever Lawsuit Over Failed Kickstarter

 Pages 1 2 NEXT
 

Washington State Files First-Ever Lawsuit Over Failed Kickstarter

Asylum Playing Cards

The state of Washington has filed the first-ever lawsuit against a Kickstarter campaign that was successfully funded but failed to deliver the promised goods to backers.

Back in October 2012, a Kickstarter campaign for Asylum Playing Cards wrapped up very successfully, bringing in more than $25,000 on a $15,000 goal. Things appeared to be going swimmingly, until July 2013, when the company behind the Kickstarter, Altius Management, fell off the face of the Earth. Updates stopped, and more importantly, nobody received their cards; by all appearances, Altius founder Edward J. Polchlepek, AKA Ed Nash, took the money and ran.

This isn't the first time a Kickstarter has gone south after surpassing its goal - Code Hero, anyone? - but it is the first time that the failure to deliver has resulted in legal consequences: The Attorney General of Washington State announced yesterday that he has filed a consumer protection lawsuit against Atlius Management and Polchlepek, the first of its kind in the country.

"Consumers need to be aware that crowdfunding is not without risk," Washington State Attorney General Bob Ferguson said. "This lawsuit sends a clear message to people seeking the public's money: Washington state will not tolerate crowdfunding theft. The Attorney General's Office will hold those accountable who don't play by the rules."

The lawsuit seeks restitution for backers, fines of up to $2000 per violation of the Consumer Protection act (which if we assume one violation for each backer could total more than $1.6 million) and all of the costs and attorney's fees associated with bringing the suit.

There appears to be no question that Polchlepek has put the screws to his supporters - if he'd been laid low by some misadventure they'd have surely heard about it by now - and in principle, I suppose most people would support the idea of Kickstarter creators being obligated to deliver on their promises. But that's already a requirement; the Kickstarter terms of service state that creators of successful projects "are required to fulfill all rewards or refund any backer whose reward you do not or cannot fulfill. A failure to do so could result in damage to your reputation or even legal action by your backers."

At the same time, those terms of service may also provide an element of defense, as they note that estimated delivery dates are "not a promise to fulfill by that date" and further requiring only that people who launch Kickstarters "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date." It's one thing if Polchlepek just made off with the money but if he can claim, and demonstrate, that he did in fact make a legitimate effort to create and distribute the cards, he may have a valid defense.

It's also valid to wonder if this lawsuit could have a chilling effect on crowdfunding in the long term, especially if it succeeds. Crowdfunding is often necessary precisely because projects are viewed by conventional sources of funding as too risky or too niche to succeed, and if creators are faced with the possibility of legal action over failed efforts, some of them may opt not to pursue interesting but challenging ideas. That's not necessarily a bad thing, and it's arguable that legal action will only be brought against the most egregious of offenders, but relying on discretion in the hands of authority can be a dicey proposition.

A copy of the full complaint against Polchlepek and Altius Management is available from the Washington State Attorney General website.

Permalink

I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

Well this seems pretty open and close. Guy said he would provide a product in return for money, he received the money but did not provide the product. Probably a good precedent to set.

Oh no. People who have no intention of being held accountable for the promises they make to their backers might no longer be inclined to so casually create obviously fraudulent or implausible kickstarters so they can scam money from the gullible.

What will become of democracy when thieves, frauds and incompetents can no longer peddle their wares with complete impunity? Truly this is a dark day in internet history.

... no but seriously there's no amount of cool concepts that can make up for the reputation damage the presence of dishonest or inept crowdfunding efforts cause by their prevalence. This is a good precedent and people who genuinely care about the future of crowdfunding should support this step forward.

How do you fuck up playing cards? get an artists to do some designs, find a indie printing company, print cards, profit.

The medieval era managed playing cards, how can someone not with a full printer?

If there was ever a kickstarter lawsuit, i would have expected something more substantial than simple playing cards.

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters

Good. If someone tells you they can deliver you a product, takes money for said product and makes no effort to actually deliver that product do you. Then that is stealing, fair and simple. They took your money and ran, and they deserve every legal problem you can throw at them and this should be completely enforced.

Good. Having some form of accountability behind kickstarters is a good thing.
Sure, at first it may decrease the number of kickstarters but in the long run it will prevent people losing faith in the kickstarter system, which would ultimately be much more destructive.

And here we have an example of the dark side of crowdsourcing. Much as I like the concept of Kickstarter and its ilk, I freely admit that there's always a risk involved of unscrupulous people reneging on their promises and scamming people out of their money. That's why I've only backed one project thus far because I knew the people behind it could be trusted to deliver on their claims. Hopefully this litigation will set a proper precedent and make con artists think twice about such an endeavor.

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

In that case, I'm inclined to say "good." Less time wasted.

People who make a legit effort and can't reach their goal is one thing. People who take the money and run and such need to be punished.

Zachary Amaranth:

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

In that case, I'm inclined to say "good." Less time wasted.

People who make a legit effort and can't reach their goal is one thing. People who take the money and run and such need to be punished.

When I heard about this my immediate response was, "good, we need something to deter scams", but then I thought that there will be that one time where a lawsuit is filed against a legitimate failure which was transparent on goals, progress and the troubles that ultimately sank them despite having a successful kickstarter and by the work done was a cear failure due to unforeseen troubles along the way not a scam or unreasonable claims.

Prime_Hunter_H01:
When I heard about this my immediate response was, "good, we need something to deter scams", but then I thought that there will be that one time where a lawsuit is filed against a legitimate failure which was transparent on goals, progress and the troubles that ultimately sank them despite having a successful kickstarter and by the work done was a cear failure due to unforeseen troubles along the way not a scam or unreasonable claims.

That's equally true of any type of lawsuit though. Or any type of checks and balances system in general. You don't disband the entire criminal court system just because there's a non-zero chance of someone somewhere being arrested for a crime they maybe didn't commit. That's what courts are for. Being indicted, or arrested, or even just sued is the raising of questions, not the answering of them.

Brennan:

Prime_Hunter_H01:
When I heard about this my immediate response was, "good, we need something to deter scams", but then I thought that there will be that one time where a lawsuit is filed against a legitimate failure which was transparent on goals, progress and the troubles that ultimately sank them despite having a successful kickstarter and by the work done was a cear failure due to unforeseen troubles along the way not a scam or unreasonable claims.

That's equally true of any type of lawsuit though. Or any type of checks and balances system in general. You don't disband the entire criminal court system just because there's a non-zero chance of someone somewhere being arrested for a crime they maybe didn't commit. That's what courts are for. Being indicted, or arrested, or even just sued is the raising of questions, not the answering of them.

Wasn't saying anything against it but I did want to bring that up a midst the deserved excitement that the scam kick starters are going to be fought

Prime_Hunter_H01:

When I heard about this my immediate response was, "good, we need something to deter scams", but then I thought that there will be that one time where a lawsuit is filed against a legitimate failure which was transparent on goals, progress and the troubles that ultimately sank them despite having a successful kickstarter and by the work done was a cear failure due to unforeseen troubles along the way not a scam or unreasonable claims.

Which should be easy to dismiss in court, I must say.

Andy Chalk:

At the same time, those terms of service may also provide an element of defense, as they note that estimated delivery dates are "not a promise to fulfill by that date" and further requiring only that people who launch Kickstarters "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date." It's one thing if Polchlepek just made off with the money but if he can claim, and demonstrate, that he did in fact make a legitimate effort to create and distribute the cards, he may have a valid defense.

Contract law doesn't work that way. If you sign an agreement according to which you "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date", AND in another point of the same agreement, you agree to be "required to fulfill all rewards or refund any backer whose reward you do not or cannot fulfill.", then the stronger claim trumps the weaker.

If in a contract you agree to build a tower "at least 200m tall" and in another part of the agreement it has to be "no less than 300 meters tall", then you owe someone a 300 meter tall tover.

erttheking:
Well this seems pretty open and close. Guy said he would provide a product in return for money, he received the money but did not provide the product. Probably a good precedent to set.

Kickstarter is not a retail sale. The project commits to spend the money pledged on developing the product, however there is risk that, even with the money, the project could fail. The money already spent by the project is unrecoverable. The project is run by a limited liability company, only assets and holdings of the company are liable to pay the refund. The lawsuit is not on the grounds of non delivery but on the grounds of dishonest and unfair practice. In others words its a scam, at which point the personal assets of the owner are liable to the recovery of money. I have no idea if fraud or deception has taken place on this occasion but the case is not about non delivery of goods. Not all business work and you can lose your money without anything illegal happening. In short if you put your money into a kickstarter you accept the risk of failure that is not due to fraud or deception.

Alterego-X:

Contract law doesn't work that way. If you sign an agreement according to which you "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date", AND in another point of the same agreement, you agree to be "required to fulfill all rewards or refund any backer whose reward you do not or cannot fulfill.", then the stronger claim trumps the weaker.

If in a contract you agree to build a tower "at least 200m tall" and in another part of the agreement it has to be "no less than 300 meters tall", then you owe someone a 300 meter tall tower.

In your case all liabilities would be limited to company and money legitimately spent by that company is not recoverable. In this case, the allegation is of false and unfair practices which brings in the personal assets of Polchlepek and not just the company. The case is alleging a scam and isn't about non delivery.

Andy Chalk:
The state of Washington has filed the first-ever lawsuit against a Kickstarter campaign that was successfully funded but failed to deliver the promised goods to backers.

They filed the first consumer protection lawsuit. Theres been at least one previous lawsuit that Im aware of over a failed KS - Neil Singh sued the creators of the HanFree KS campaign for breach of contract when they successfully funded and then failed to deliver any rewards.

Caffiene:

They filed the first consumer protection lawsuit. Theres been at least one previous lawsuit that Im aware of over a failed KS - Neil Singh sued the creators of the HanFree KS campaign for breach of contract when they successfully funded and then failed to deliver any rewards.

To be fair, in that case the defendant didn't form an LLC and left his own personal assets at risk. Normally suing a failed LLC is worthless because there is nothing left worth any money.

Not all successful Kickstarters that failed to deliver are fraudulent, but this one definitely appears to be so. From the comments on the Kickstarter itself it seemed the artist who was hired never got paid, then after a year without payment the contract expired and he had to move on to other work.

Ed P/Nash seems to have taken the money and ran.

albino boo:

In your case all liabilities would be limited to company and money legitimately spent by that company is not recoverable. In this case, the allegation is of false and unfair practices which brings in the personal assets of Polchlepek and not just the company. The case is alleging a scam and isn't about non delivery.

An LLC's corporate veil can be lifted not just for the false and unfair practices through the product's creation, but for the company's organization itself.

Even if he made an attempt to produce the cards, any court can acknowledge the reality that Polchlepek's private properties were used interchargivly with corporate property, that he was the only shareholder, and generally that there is no de facto difference between Polchlepek personally trying to make the cards, or calling himself an LLC, in which case the latter's protections can be nullified.

An LLC can only protect you if you actually go out of your way to formally organize it as a company, which a one-man project is very unlikely to properly do.

Alterego-X:

An LLC's corporate veil can be lifted not just for the false and unfair practices through the product's creation, but for the company's organization itself.

Even if he made an attempt to produce the cards, any court can acknowledge the reality that Polchlepek's private properties were used interchargivly with corporate property, that he was the only shareholder, and generally that there is no de facto difference between Polchlepek personally trying to make the cards, or calling himself an LLC, in which case the latter's protections can be nullified.

An LLC can only protect you if you actually go out of your way to formally organize it as a company, which a one-man project is very unlikely to properly do.

You still have to prove intent, bad accountancy practice is not sufficient on its own. A director is entitled to draw down company money at any time, you have to prove that those drawings were illegitimate and unreasonable. If Polchlopek didn't pay himself a salary, it's not unreasonable that he drew on company funds, as a dividend, to pay for his living costs. In fact there are distinct tax advantages to do so. The question for the court decide is what is reasonable drawings and what was the intent.

albino boo:
The question for the court decide is what is reasonable drawings and what was the intent.

Lifting the corporate veil is one of the most vague "I know it when I see it" aspects of contract law, in spite of having a bunch of theoretical examples, in practice it boils down to the judge subjectively deciding that the LLC looks a lot like a fašade, an alter ego that a person built specifically to avoid liability, rather than in good faith as a way to organize corporate dealings.

The fact that here in this thread the LLC itself only brought up as Polchlepek's shield, makes it very suspicious that it was the former case, and any judge would have the authority to declare so based on informal clues, just as we did (only more professionally and with more detail) rather than trying to fit it to certain requirements.

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

Theres a difference between failing and fraud.

If lightning strikes the office building and burns it to the ground including all the work you have done for the kickstarter no ones gonna sue you.

If you take the 25k $ and disapear from the face of earth you bet people are gonna ask what happened to their money.

A normal kickstarter project has nothing to fear under the current laws, all they have to do is keep their backers up to date. Its the frauds that now have to fear that they are gonna be dragged to court.

And if they make impossible promises its not exactly the backers fault now is it? The backer doesnt know whats "impossible" and what is not. If you cant fulfill a contract do not offer said contract. The only ones to blame here are kickstarter projects that put to much on their plate.

Also if i read correctly this is about backers not receiving anything, the guy had several ways out of this situation including giving the money back, showing that he indeed had made an effort or you know.. simply delivering what he promised the backers.

To place the risk of a kickstarter project solely in the hands of the backers makes it way to easy to abuse the system just like this guy aparantly did. Kickstarter should place the risk both at the project owner and the backers.. and this is exactly what happens here.

It looks like their initial graphic should have looked more like this.

image

I really don't understand this crowd funding stuff... I mean usually you just buy a product, so what happens here, where's the profit? Isn't this just stuff like this waiting to happen?

I know I can't be the first one to say something like that but still. I guess it's like paying for a product that doesn't really exist yet in advance and hoping you aren't being scammed. Sounds very screwy to me, I can think of far better ways to spend money anyway. Anything that doesn't involve such an anonymous risk and everything, I mean this is the internet and just about anyone can create a project right, so where's the guarantee there's any real person involved in any enterprise and not like, you know, skynet or something...? Like say this story perhaps.

... You get the idea anyway. I'm sure there are ways to make it work but surely the whole idea of using a method like this to fund a product is to avoid having to answer to backers like a company has to answer to shareholders.

Zachary Amaranth:

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

In that case, I'm inclined to say "good." Less time wasted.

People who make a legit effort and can't reach their goal is one thing. People who take the money and run and such need to be punished.

agreed. this is basic business law here, acting in good faith here is something this asshole didn't do, this lawsuit will hopefully get people what they were promised and/or their money back.

Alterego-X:

Andy Chalk:

At the same time, those terms of service may also provide an element of defense, as they note that estimated delivery dates are "not a promise to fulfill by that date" and further requiring only that people who launch Kickstarters "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date." It's one thing if Polchlepek just made off with the money but if he can claim, and demonstrate, that he did in fact make a legitimate effort to create and distribute the cards, he may have a valid defense.

Contract law doesn't work that way. If you sign an agreement according to which you "agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date", AND in another point of the same agreement, you agree to be "required to fulfill all rewards or refund any backer whose reward you do not or cannot fulfill.", then the stronger claim trumps the weaker.

If in a contract you agree to build a tower "at least 200m tall" and in another part of the agreement it has to be "no less than 300 meters tall", then you owe someone a 300 meter tall tover.

ah it looks like someone put it in much better words than I can, kudos to explaining it in this way.

rasta111:
I really don't understand this crowd funding stuff... I mean usually you just buy a product, so what happens here, where's the profit? Isn't this just stuff like this waiting to happen?

Crowdfunding works like this: A guy wants to make something, but either has no funds or limited funds and he cannot accomplish what he wants. So he decides to ask people on the Internet if they would like to help him fund the Project, so that it can be made available to the Public. On KS and other Crowdfunding Sites, they also give you rewards for Funding the Project (Though these rewards Very) if it's successfully funded. When it is successfully funded, then the person is suppose to make the product he intended to make. Nothing else, just the Product.

OT: I support this Lawsuit, it'll help get rid of Fraudulent Crowdfunding projects. Of course, if this Card Company actually has a legitimate reason as to why they couldn't finish the project or tell people about it, then I hope the Court goes easy on them.

Mr.Mattress:

Crowdfunding works like this: A guy wants to make something, but either has no funds or limited funds and he cannot accomplish what he wants. So he decides to ask people on the Internet if they would like to help him fund the Project, so that it can be made available to the Public. On KS and other Crowdfunding Sites, they also give you rewards for Funding the Project (Though these rewards Very) if it's successfully funded. When it is successfully funded, then the person is suppose to make the product he intended to make. Nothing else, just the Product.

So what you're telling me is they go on this site that let's them fund their scheme and make a profit on it while offering what I'm guessing is petty rewards, perhaps coupled with a feeling of satisfaction if the product is successfully funded and then successfully produced... Yeah it still sounds pretty screwy to me but thanks for explaining it to me so nicely.

I approve of this lawsuit (for once), and I hope the precedent is set for other Kickstarters and crowdfunding in general.

There's been too many scams on these sites, or even just totally unrealistic projects that could never each their goal, it's about time some of them are brought to book.

rasta111:

Mr.Mattress:

Crowdfunding works like this: A guy wants to make something, but either has no funds or limited funds and he cannot accomplish what he wants. So he decides to ask people on the Internet if they would like to help him fund the Project, so that it can be made available to the Public. On KS and other Crowdfunding Sites, they also give you rewards for Funding the Project (Though these rewards Very) if it's successfully funded. When it is successfully funded, then the person is suppose to make the product he intended to make. Nothing else, just the Product.

So what you're telling me is they go on this site that let's them fund their scheme and make a profit on it while offering what I'm guessing is petty rewards, perhaps coupled with a feeling of satisfaction if the product is successfully funded and then successfully produced... Yeah it still sounds pretty screwy to me but thanks for explaining it to me so nicely.

Actually, it's how the Oculus Rift got funded and got to where it is today. Without the crowd-funding, the product would just be a feeble dream of someone. So in quite a few cases they're great for making crazy garage projects all the more real; however there are quite a few times -as the article provided- when it's nothing more than a scam.

Deathfish15:

Actually, it's how the Oculus Rift got funded and got to where it is today. Without the crowd-funding, the product would just be a feeble dream of someone. So in quite a few cases they're great for making crazy garage projects all the more real; however there are quite a few times -as the article provided- when it's nothing more than a scam.

Funny you should mention that as I've just been dealing with these issues people seem to have with fantasy vs reality and recognising where said line is but I sense we're veering wildly off-topic now so... Allow me to finish with one word on said subject, 'facebook'.

Ultratwinkie:
If there was ever a kickstarter lawsuit, i would have expected something more substantial than simple playing cards.

Not necessarily. The very ease of producing playing cards should in theory make the lawsuit as much of a slam dunk as any lawsuit of this sort can be. They could maybe go after something more ambitious, but it would probably be harder to show a lack of good faith.

Andy Chalk:
It's also valid to wonder if this lawsuit could have a chilling effect on crowdfunding in the long term, especially if it succeeds. Crowdfunding is often necessary precisely because projects are viewed by conventional sources of funding as too risky or too niche to succeed, and if creators are faced with the possibility of legal action over failed efforts, some of them may opt not to pursue interesting but challenging ideas.

I wouldn't agree with you on that. The rules are clear - deliver on your goods or give the money back to the backers. You succeeded in your goal but still couldn't fulfill your part of the deal? No worries, go on and give the money back to the backers and there's no cause for a lawsuit.

Not being able to take people's money and not give anything back in return (when that was a part of the deal, crowdfunding is not charity) is not a bad thing or something that would discourage anyone who wants to do anything but rip people off. At best, you're arguing for supporting a business practice of high risk and absolute zero penalty (to the point of possibly even making money off a flawed/unrealistic idea that never sees the light of day) and that's not a good thing.

edit:
This is not a "possibility of legal action over failed efforts". This is "possibility of legal action over failed efforts where you took people's money for nothing". Crowdfunding isn't there to eliminate risk of failure of a business venture, it's there to provide an alternate source of funding where the consumers decide whether your product is worth making.

Considering lawyers and legal systems are corrupt to the core, I can see how this could scare off potential future of crowdfunding, so much so that it could become a dead system. No one wants to sued.

Zontar:
I have a feeling that if this becomes standard practice for failed kickstarters, the number of ones people make are going to drop like a rock since just going on the site you can see that most are clearly scams or impossible to deliver promises.

This isn't a failed Kickstarter, it met its funding goals. This is an old song though of legal protections of consumers vs distributers or creators or whatever you want to call them. I'm surprised it took this long for a case like this to go to court. I think pesonally that legal protection is good. It gives the projects creators a legal reason to make sure they can deliver on their project and not just say "eh let's just ball park the costs and see where we are a few months from now" also it gives backers more incentive to support projects since they know that they'd have some method of recourse beyond public shaming. I'll wait for the case of a backer intentionally sabotaging a project so he can sue a creator.

 Pages 1 2 NEXT

Reply to Thread

Log in or Register to Comment
Have an account? Login below:
With Facebook:Login With Facebook
or
Username:  
Password:  
  
Not registered? To sign up for an account with The Escapist:
Register With Facebook
Register With Facebook
or
Register for a free account here