Rules FAQ
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Roose Bolton kills your own participating loyal characters as well, but triggering his ability is entirely optional.
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If Roose comes out of shadows after the winner of the challenge is determined (for instance, with Starfall Spy), killing each defending character will not retroactively make the challenge unopposed, and killing each attacking character will not retroactively prevent the attacking player from winning the challenge. But killing all participating characters could still be relevant for abilities like Chivalry of the South.
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In a Melee game, you can trigger Roose during a challenge in which you are neither the attacking nor the defending player.