Designer Skin LLC v. S & L Vitamins, Inc., et al.
Gambling - Internet Library of Law and Court Decisions - Updated October 1, 2007
This section of the Internet Law Library contains court decisions that address the legality of operating online casinos, lotteries, bookmaking or other gambling operations that accept bets or wagers online or via telephone from individuals located in the United States.
45 F. Supp. 2d 995 (D. Idaho, December 17, 1998), reversed and remanded, 283 F. 3d 1156 (9th Cir., 2002)
(Court determined that under 18 U.S.C. ?1084(d), AT&T had no obligation to provide the Coeur D'Alene Tribe (the "Tribe") with an 800 telephone number which would permit individuals in 33 states to purchase from their homes chances in the Tribe's lottery. This was true because AT&T had been advised by a number of State Attorney Generals that such activity would violate various State laws. The court rejected the Tribe's argument that the Lottery was not subject to State regulation because Congress had preempted the field by enacting the Indian Gaming Regulatory Act, 25 U.S.C. ??2701 et seq. ("IGRA"). The court determined that IGRA only preempts regulation of gaming activities occurring on "Indian lands." However, a customer outside of Idaho (where the Tribe's reservation was located) who orders a lottery in a telephone call placed to the Tribe was conducting an activity off Indian lands subject to state regulation. This ruling could potentially have significant impact for those seeking to use the Internet for gambling operations.)
Case No. 06-2768 (DMC) (D.N.J., June 20, 2007)
Court dismisses claims brought by plaintiff under the qui tam laws of a number of states, including New Jersey, to recover as gambling losses the entry fees paid to defendants by participants in online sport “fantasy” leagues. Qui tam statutes permit the recovery of gambling losses sustained by gamblers in various gaming activities. The online sport fantasy leagues run by defendants permit participants, for a fee, to manage a fantasy team of professional athletes and compete against others for fixed prizes designated before the league commences. The winner is determined based on the relative performance of the selected athletes.
The Court dismissed the suit, holding that fantasy league participants do not sustain gambling losses within the meaning of the statutes at issue. Rather, they pay an entry fee for which they bargain for and receive a number of services. These services include statistical tracking and analysis of the performance of both their team and those of their competitors, and access to analytical information concerning athletes, which participants may use in managing their teams. The Court further held that the activities in question do not constitute gambling within the meaning of the statute, because “(1) the entry fees are paid unconditionally, (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded and (3) defendants do not compete for the prizes.” The Court further held that plaintiffs are neither gambling “losers” nor defendants gambling “winners” within the meaning of the statute, another ground for dismissal. Finally, the Court dismissed the suit as a result of plaintiff’s failure to name a single participant in his complaint who had actually sustained a loss, or the amount of loss he purportedly sustained.
In re MasterCard International Inc., Internet Gambling Litigation and Visa International Service Association, Internet Gambling Litigation
Civ. Act. MDL Nos. 1321 and 1322 (E.D. La., February 23, 2001)
Court dismisses without leave to amend RICO actions brought by putative class plaintiffs seeking to represent a class of individuals who utilized credit obtained from credit cards issued by the defendants to gamble online at Internet casinos. The court, among other things, held that plaintiffs failed to allege that defendants committed the pattern of racketeering activity required to establish a RICO violation, given that they had alleged neither a violation of a state statute punishable by imprisonment of more than one year, or a violation of one of the federal statutes that can serve as the basis of a RICO claim. In reaching this conclusion, the Court held that plaintiffs had not alleged a violation of the Wire Act, 18 U.S.C. Section 1084, because such statute only prohibits wagers on sporting events or contests, and not gambling in an Internet Casino. The court also held that plaintiffs had failed to allege a violation of the Federal Mail or Wire Fraud acts because the debt they sought to collect was not illegal. The court further held that plaintiffs had failed to state a viable RICO claim because they had failed to allege the existence of an appropriate RICO enterprise with the requisite ongoing organization and hierarchical or consensual decision making. Nor did the plaintiffs establish that defendants conducted or participated in the conduct of a RICO enterprise's affairs through a pattern of racketeering activity required to state a claim under 18 U.S.C. section 1962(c), because they had alleged no more than the existence of a business relationship between the defendants and the Internet casinos pursuant to which the defendants supplied services to those entities. Lastly, the court held that plaintiffs' claims failed because they did not have the requisite standing to assert a RICO violation under 18 U.S.C. section 1964(e). Plaintiffs lacked such standing because their injury was not proximately caused by defendants making credit available for use in gambling activities, but rather by plaintiffs' own decision to engage in gambling activities.
Case No. 99-C-256-S, 1999 U.S. Dist. Lexis 15227 (W.D. Wis., September 17, 1999)
In this action, defendants and their financial brethren dodged a significant bullet with the dismissal of plaintiff's action which sought, inter alia, a declaration that credit card debts arising out of online gambling losses are unforceable.
According to the court, defendants entered into a contract with the online Casino 21 to process for a fee charges incurred by Casino 21's online gamblers. Plaintiff, using his Mastercard to fund gambling at Casino 21, incurred a loss of $20 (and a $4.95 processing fee). Plaintiff thereafter brought suit, alleging that defendants' actions constituted, or aided and abetted, a violation of 18 U.S.C. §1962(c), known as the "RICO" statute. Plaintiff also sought a declaratory judgment that his $24.95 debt to defendants, which arose out of his online gambling loss, was not enforceable.
On defendants' motion, the court dismissed plaintiff's claims. However, the court did not reach the merits of plaintiff's main contention -- the unenforceability of his debt to defendants. While dismissing plaintiff's RICO claims on the merits, the court dismissed plaintiff's claim for declaratory relief on procedural grounds. Left for another day is the enforceability of credit card debts, such as plaintiff's, which arise from online http://www.delerium.co.uk/archive/us6070s/us60stop.htmlgambling activities.
568 N.W. 2d 715, Court File No. c6-95-7227 (State of Minn. Dist. Crt., Ramsey County, Dec. 11, 1996) aff'd 576 N.W. 2d 747, No. C6-97-89 (Minn. Ct. App., Sept. 5, 1997)
Placing an advertisement on a web site accessible to Minnesota citizens was sufficient contact with Minnesota to subject a non-resident web master to jurisdiction in Minnesota
QDS:22310325, 1999 N.Y. Misc. Lexis 425 (Sup. Ct. N.Y.Co., July 24, 1999)
Court holds that permitting New Yorkers, from their home computers, to access and use Antiguan-based computers to engage in gambling activities, violates New York State's prohibitions on gambling within New York, as well as the Federal Wire Act (18 U.S.C. section 1084(a)), the Travel Act (18 U.S.C. section 1952) and Interstate Transportation of Wagering Paraphernalia Act.
Respondent Golden Chips Casino Inc. ("GCC") is an Antiguan corporation licensed to operate a land-based casino in Antigua. GCC is also a wholly-owned subsidiary of respondent World Interactive Gaming Corporation ("WIGC"). GCC promotes a service which permits individuals, via their home computers, to access and use computers located in Antigua to gamble. Before a user can begin gambling, he must first wire funds to GCC in Antigua (which funds are credited to an account in his name) and download software from respondent GCC's website. He is then asked to supply GCC with his "permanent address." Provided the user provides respondent with an address from a state in which land-based gambling is legal, he is permitted to start gambling. It does not matter whether this is in fact the user's true address or not, as respondent takes no steps to verify the accuracy of the information supplied by the user. Once approved, the user can engage in gambling activities from his home.
GCC promoted the availability of this gaming service at its web site, on the Internet, and in a "national gambling magazine."
GCC was aided in these activities by its corporate parent, WIGC, which , according to the court, is GCC's "alter ego." WIGC is a Delaware corporation with its corporate headquarters in New York, from which location it "operated its entire business." Many of these New York activities aided the parties' gambling enterprise, including editing versions of the gambling software at issue, contacting a third party for the purpose of obtaining graphics for that software, and purchasing both the servers and software used to run respondent's activities. According to the court, "the evidence also indicates that the individuals who gave the [Antigua] computer commands operated from WIGC's New York Office." To make matters worse, respondent WIGC engaged in the unlicensed solicitation, primarily via "cold call", of investors for its activities from its New York headquarters.
Based on these activities, the court determined that respondents were "doing business in New York for purposes of acquiring personal jurisdiction" and that "even without physical presence in New York, WIGC's activities are sufficient to meet the minimum contact requirement of International Shoe Co.".
Finding respondents subject to the court's jurisdiction, the court went on to hold that their activities ran afoul of various New York State statutes designed to prohibit gambling in New York. In so doing, the court rejected respondents' argument that the gambling at issue took place in Antigua, where it was legal.
This determination was consistent with New York Penal Law 225.00(2) which provides that "if the person engaged in gambling is located in New York, then New York is the location where the gambling occurred."
The court held that respondents' acts violated the prohibitions on gambling contained in New York Penal Law 225.05. The court further held that "by hosting this casino and exchanging betting information with the user, an illegal communication in violation of the Wire Act [18 U.S.C. section 1084(a)] and the Travel Act [18 U.S.C. section 1952] has occurred. ... Gambling conducted via the Internet from New York to Antigua is indistinguishable from any other form of gambling since both the Wire Act and the Travel Act apply to the transmission of information into a foreign country." Thus, the court held that "the Wire Act bars citizens from engaging 'in the business of betting or wagering knowingly using a wire communication for the transmission of interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers.'" The court determined that as a result of the violations of these and other laws, the State was entitled to injunctive relief, as well as restitution, penalties and costs.
164 F.3d 1102 (8th Cir., Jan. 6, 1999), cert. denied, 119 S.Ct. 2400 (1999)
Eighth Circuit Court of Appeals reversed the district court's decision that the Coeur D'Alene Tribe was exempt from Missouri state laws regulating gambling, because those laws were preempted by the federal Indian Gaming Regulatory Act ("IGRA"). The Eighth Circuit held that the preemption issue turned on the location of the gaming activities at issue. If these activities were conducted on "Indian lands," they were exempt from Missouri regulation. If, however, the activities were conducted off Indian lands, they could be regulated by Missouri. The challenged activities included the use of the Internet by Missouri residents to purchase lottery tickets defendant Tribe offered for sale from its Idaho reservation.
CV97-7808 (Cir. Court, Jackson Co. Missouri, May 22, 1997)
Pennsylvania-based company which, via web site, advertised Internet gaming activities of wholly-owned subsidiary found to be its alter ego and received on behalf of this subsidiary "account applications" and funds from Missouri residents to participate in gaming activities run by its subsidiary, held to be conducting illegal gambling activities in Missouri
03 CV 4790 (E.D.N.Y., June 5, 2006)
Court holds it can exercise personal jurisdiction over defendant Boss Media AB ("Boss Media"), a Swedish corporation, based on the New York activities of a wholly-owned subsidiary found to be acting as its agent. This subsidiary - Web Dollar - processed online financial transactions for individuals engaged in web-based gambling at websites utilizing defendant Boss Media's software, including the website at issue, and distributed funds it collected to Boss Media, its subsidiaries and licensees. As a result of this determination, the Court permitted plaintiff to proceed with claims against Boss Media, and its licensee Cyber Croupier, seeking the recovery of in excess of $900,000 due plaintiff as result of having won an online contest.
Docket No. 00-1574, 260 F.3d 68 (2d Cir., July 31, 2001)
The Second Circuit affirmed the conviction of defendant Jay Cohen of conspiracy to, and substantive violations of, 18 U.S.C. §1084, which, inter alia, prohibits the use of wire communication facilities to transmit wagers in interstate or foreign commerce. The Second Circuit held that defendant violated this statute by using both the Internet and telephones to transmit calls from bettors in New York, where gambling is illegal, to World Sports Exchange in Antigua, where gambling is legal, during which transmissions bets were placed. Defendant was sentenced to a term of 21 months in prison.
(3rd Cir., April 15, 2002)
The Third Circuit, affirming the decision of the district court, upholds the forfeiture to the United States of funds seized from bank accounts, which funds were used in connection with an overseas gambling operation. The gambling operation was run out of England, where such gambling was legal. The court held, however, that a New Jersey corporation, which had placed the funds in the bank accounts, and transmitted them to foreign entities that in turn handled the gambling activities, had violated 18 U.S.C. Section 1955(a), which makes it a crime to "conduct, finance, manage, supervise, direct, or own all or part of an illegal gambling business ". The statute defines "illegal gambling business" as a gambling business which "is a violation of the law of a state or political subdivision in which it is conducted." The New Jersey concern in question was operating an illegal gambling business because it was violating applicable New Jersey law, which makes it a crime to "promote gambling" which includes "engag[ing] in conduct which materially aids any form of gambling activity." N.J.S.A. 2C:37-2. Because it had transmitted funds it received from bettors to establish betting accounts to the foreign concerns, the New Jersey corporation had "promoted gambling" within the meaning of the statute. As such, the funds in question were subject to forfeit, even though in bank accounts in the name and/or for the benefit of third parties, under 18 U.S.C. Section 1955(d), which provides that "any property, including money, used in violation of the provisions of [section 1955] may be seized and forfeited to the United States."
The Caribbean nation of Antigua & Barbuda has had a long-running dispute over US restrictions on Internet gambling. This dispute is being litigated before the World Trade Organization, which has rendered a series of rulings. In brief, the WTO has found that US restrictions on its citizen's ability to gamble at offshore casinos violates the WTO's rules and US obligations under the Gen. Agreement on Trade in Services, in which the US agreed not to restrict the cross-border supply of certain "recreational services" which, it was argued, included forms of gambling. When the US failed to take remedial action, the WTO authorized Antiqua & Barbuda to engage in receiprocal trade retaliation by violating intellectual property obligations it owes to the US under the WTO, up to $21 million per year, to recompense it for the injury sustained by the US's improperly restrictive gambling laws. Both the rulings of the WTO, as well as a summary of the dispute and the WTO's decisions, can be found on this page of the WTO's website.
Various New York Times articles also report on the decisions of the WTO.