In March 2012 a mother filed a class action lawsuit in San Jose, California, against Facebook, alleging that the social networking site makes it too easy for minors, including her teenage son, to incur credit card charges without parental knowledge or permission, and she is seeking refunds to be made to minors who misrepresented their right to acquire the company’s online currency.

On April 17 the case was removed to the U.S. District Court for the Northern District of California, where a similar case, Meguerian et al. v. Apple Inc., is pending. That case was brought against Apple Inc. for allegedly selling in-app credits and goods to minors without parental knowledge or consent.

In addition to seeking an injunction against Facebook, the complaint requests attorneys’ fees and a declaratory judgment that the contract plaintiff’s son entered into is voidable. In addition, the lead plaintiff is requesting class action status and seeking around $5 million in damages on behalf of potentially thousands of similarly situated minors and parents/guardians who were allegedly victimized by Facebook’s claimed violations of California’s consumer protection laws.

The case stems from a transaction that occurred when plaintiff Glynnis Bohannon’s teenage son purchased $20 worth of Facebook “Credits” on his account. According to the complaint, “When users make purchases within Facebook apps and on the Facebook site, Facebook requires that all such payments flow through the Facebook credits system.” Account holders may purchase their Facebook Credits “by various methods including credit card, debit card, paypal, and mobile phone.” Credits may then be used “to purchase virtual goods within games hosted by the site.”

In October 2011 Bohannon says she authorized her son to use her credit card to purchase $20 in Credits. After the transaction, Facebook allegedly failed to disclose it had stored plaintiff’s credit card information on her son’s account for future purchases. Claiming he did not know this, Bohannon’s son incurred hundreds of dollars of debt by making virtual purchases with what he believed was merely “in-game currency.”

Plaintiff alleges that Facebook is responsible for the debt she incurred over the initial $20 she authorized because it never disclosed that the site stores a parent’s credit card number for further use, and failed to impose adequate safeguards to prevent minors from making unauthorized purchases. Specifically, plaintiff alleges that Facebook (1) violated California’s Consumer Legal Remedies Act by actively marketing and promoting its in-app purchases and virtual goods without disclosing certain material facts; (2) violated California’s Unfair Competition Law by actively advertising, marketing, and promoting in-app games and other content with the statement that “all sales are final” when Facebook knew that such purchases would be made by minors; and (3) was unjustly enriched by wrongfully collecting and retaining money for virtual goods and in-app purchases paid for by minor children.

Central to the case is whether Facebook can shield itself from liability when minors violate the site’s terms and conditions. To create an account on Facebook, users – which include minors 13 and over – must indicate that they agree to “Facebook’s Statements of Rights and Responsibilities,” which incorporates by reference Facebook’s “Payment Terms.” According to one provision under Payment Terms, “If you are under the age of 18, you may make payments only with the involvement of a parent or guardian. You should review these payment terms with a parent or guardian to make sure that you both understand them.” Plaintiff argues that requiring children under the age of 18 to obtain a parent’s permission before they buy the credits is insufficient to prevent the transaction – especially when the minor at issue was unaware that he was spending real money, via her mother’s credit card, to purchase Facebook Credits.

Plaintiff seeks a declaratory judgment that she and the other class members can void the contract created when her son purchased goods in an app with Facebook Credits. Plaintiff alleges that minors can void their contracts at their option under California and federal law, and therefore claims that her son’s contracts with Facebook can – and should – be voided by the courts. In response, Facebook spokesperson Andrew Noyes told PaidContent.com, “We believe this complaint is without merit and we will fight it vigorously.”

To read the complaint against Facebook, click here.

To read Facebook’s Notice of Removal, click here.

To read PaidContent’s article about this case, click here.

To read Facebook’s payment terms, click here.

To read the FTC’s “Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing,”click here.

Why it matters: This case is just one of many similar suits filed recently against companies like Facebook involving kids who spend their parents’ money allegedly without their knowledge or consent. Recently a court ruled that a similar lawsuit over “bait apps” may proceed against Apple. The Facebook case has now been removed to the same court where the Apple case is pending.

In a recent report the Federal Trade Commission renewed its commitment to investigate the policies of companies such as Apple and Google that market and deliver games and mobile apps to minors. In its “Mobile Apps for Kids: Current Privacy Disclosures are Disappointing,” the Commission stated that “parents need consistent, easily accessible, and recognizable disclosures regarding in-app purchase capabilities so that they can make informed decisions about whether to allow their children to use apps with such capabilities.”