Between a Rock (of Gibraltar) and a Hard Place

“Not my problem.”
—Mr. Chow in “The Hangover”

In poker, a “rock” is a tight player who plays few hands, and when his money goes in the pot, he almost certainly knows he is the winner. When it comes to law, online poker sites may as well be “rocks”, knowing they are unlikely to lose if they ever get drug into court.

Pokerati today reported on a recent Poker Player (2/1/10 edition) article in which I. Nelson Rose analyzed a recent Sixth Circuit Court of Appeals decision related to online poker disputes. The decision in Wong v. PartyGaming, Ltd., arose from a claim by two Ohio residents that Party Poker had failed to prevent collusion as promised in its advertising and terms of service. The plaintiffs sought damages for themselves, as well as class-action certification to pursue damages on behalf of other alleged victims of collusion (class action suits are commonly sought where individuals may have suffered small amounts of damages individually, but significant damages in the aggregate).

The court, however, affirmed the dismissal of the lawsuit without considering the merits of the plaintiffs’ collusion claims, or even permitting discovery to determine if the claims had any merit. Instead, the court held that the lawsuit could not be pursued in the United States, but instead could only be pursued in Gibraltar (an island at the entrance to the Mediterranean Sea that is an autonomous British territory). The basis for the court’s ruling was that the plaintiffs, like all Party Poker players, had assented to a terms of service agreement that contained a choice of forum provision, designating Gibraltar’s courts as the sole place to adjudicate claims against PartyGaming, Ltd. If you spend any significant time online, you have probably clicked on and “agreed” to any number of similar terms of service agreements, likely without even bothering to read them, nor caring much what they said even if you browsed the terms. They are what the law refers to as a “contract of adhesion”—a “take it or leave it” proposal where the user generally needs (or greatly desires) the service being offered, yet is powerless to negotiate different terms. The federal courts are generally willing to enforce these types of agreements, particularly with respect to choice of forum, choice of law, and mandatory binding arbitration clauses, all of which generally favor the company providing the service in question.

The court’s decision to enforce the choice of forum clause is not particularly surprising. What was rather unexpected was the concurring opinion by Judge Merritt, whose primary purpose for writing separately was to point out that the underlying contractual relationship between the parties was for wagering in violation of Ohio law:

[T]he gambling contract entered into between the parties here is likely illegal in Ohio but completely legal in Gibraltar. If we read Ohio law as controlling the contract in question, the parties probably are guilty of a crime under Ohio law, the contract is void, and both parties could be extradited and prosecuted together in an Ohio criminal court.

Surely the parties assumed that if the plaintiff won at gambling, the plaintiff would get some money and if the plaintiff lost, the winner and the house would split the winnings. So when the plaintiff comes into court and says he wants money in an Ohio court under what he regards as an Ohio contract, but does not want the Ohio court to say that under the governing Ohio law the gambling contract is illegal, the plaintiff is a bit inconsistent in his logic, to say the least.

—Wong v. PartyGaming, Ltd., (Merritt, J., concurring).

The concurring opinion goes on to note that PartyGaming has withdrawn from the U.S. market because the passage of the UIGEA in 2006 outlawed internet gambling, thereby bringing federal criminal charges into play, including possible wire fraud and RICO racketeering violations. Thus, the concurring opinion reasoned that another policy basis for enforcing the choice of forum provision was to insulate the parties from criminal prosecution in the Unites States, and instead requiring the parties to litigate their claims in a forum where their online gambling activities were unquestionably legal.

So, what does this all mean for the average American online poker player? First and foremost, it reinforces the difficulty in obtaining legal remedies in the event of a dispute with an online poker site. If an American poker player feels that he has suffered from cheating (such as the Absolute Poker / UltimateBet “superuser” scandal), has a dispute with a poker site regarding a hand or his account, or even encounters difficulty in removing funds from a site, that player will likely be unable to pursue any claim against the online site in a United States court. This means the player would likely need to pursue the claim in a foreign country, often a country with a vested interest in protecting a valuable tax-paying corporation based in that country. Pursuing a claim in a foreign country also requires investment of time and expense beyond that which would be required to pursue legal proceedings in the United States. Even if a judgment can be obtained in such a foreign venue, enforcing that judgment will be difficult, as most online poker sites will have no assets in the United States. In other words, as a practical matter, unless the amount in question is significant, the typical American poker player will simply be better off eating the loss and not pursuing any legal action against the poker site.

As a further complication, American online poker players in states where poker is offered in casinos likely will have less standing to pursue claims against online poker sites than in states that do not license poker in casinos, and merely have a generic law against gambling on “games of chance”. Take, for example, my home state of Iowa. A recent Iowa supreme court decision (discussed in a prior post) held that only gambling wagers made pursuant to Iowa statute or regulation were enforceable; all other gambling contracts were illegal and void (or voidable). Because Iowa’s regulations specifically permit poker in casinos subject to meeting certain requirements, it is likely that any poker wagers occurring in Iowa but not in a licensed casino would be regarded as illegal wagers. Similar arguments likely apply in any other state that permits but regulates poker as a game of chance to be offered in a casino setting. By contrast, in a state that does not permit gambling on games of chance and is silent as to poker specifically, a colorable argument can be made that poker is a game of skill that falls outside the state ban on gambling. In such a case, an online poker player would stand a significantly better chance of prevailing on a state court claim against an online poker site, insofar as the illegality of the poker wagering would not be a foregone conclusion.

In short, if you are an online poker player, beware of the limitations on your ability to obtain legal relief in the event of a problem with your online poker site of choice. You can limit your risk by only playing on well-established and highly visible sites doing substantial business in the U.S. Even though those companies may be legally immune from lawsuits in the U.S., they will likely want to treat their players with a high degree of fairness so as to avoid negative publicity. Hopefully the legality of online poker can be clarified in the near future by amendments to UIGEA and/or further regulations by various states. But in the meantime, online poker players need to adhere to a live action poker maxim—protect your own hand.