February 13, 2010

Iowa Casinos Win a Jackpot

The Iowa supreme court handed down an interesting decision Friday related to the Meadows ATM. The court’s decision in Blackford v. Prairie Meadows Racetrack & Casino, Inc. considered the question of whether a person who had been “trespassed” (permanently banned) from a casino, but later plays at the casino and wins a jackpot, is entitled to be paid the jackpot.

The timeline of relevant facts makes this a rather complicated situation:
  • August 1996—Blackford punches his hand through the glass front of a slot machine. He is ejected and advised he is permanently banned from the casino. He also pleads guilty to criminal mischief and is fined.
  • March 1998—Blackford is found on the casino premises, and is escorted from the building. He pleads guilty to trespass and is fined.
  • 2000—Blackford writes to Prairie Meadows to request his ban be lifted. It is contested whether the ban was lifted. Prairie Meadows has no written record of lifting the ban, while Blackford contends the ban was lifted by a letter (which he was not able to produce at time of trial).
  • January 2006—Blackford applies for and is issued a Prairie Meadows slot club card. He uses the card on at least one occasion between January and May 2006.
  • May 2006—Blackford wins $9,387, primarily through slot machine play, including a jackpot. Upon cashing out, the size of the jackpot required issuance of a W-2, at which time the casino discovered Blackford was banned. Blackford was taken to a security office, his winnings were confiscated, he was required to sign a form donating his winnings to a local gambling addiction treatment program, and finally he was charged with trespassing and released.
Backford filed suit to recover his winnings under a theory of conversion (intentionally depriving someone of property). At trial, a jury found that Blackford’s ban had not been lifted, and the trial court ruled this meant Blackford had no right to his winnings as no legal wagering contract had been formed between Blackford and the casino. The trial court was reversed on appeal by the Iowa court of appeals, which held that no statute or gaming regulation explicitly permitted confiscation of gambling winnings when the winner was subject to a permanent ban.

On further review by the Iowa supreme court, the court first looked at the casino’s right to permanently ban individuals from gambling at the casino. The court determined that gaming regulations permit a casino to “eject or exclude” a person from its premises literally for any reason whatsoever, so long as it is not based on a constitutionally protected classification (e.g., race, gender, national origin, or disability).


The court next looked at the effect of a ban on the ability of the banned person to wager at a casino. The court first noted that all gambling and wagering contracts are void unless authorized by statute. Further, even legally permissible casino wagers are subject to traditional contractual requirements of offer, acceptance, and consideration, as well as any terms or conditions imposed by statute or regulation. The court then examined the nature of the wagering contract and determined that the casino was only making a wagering “offer” to those persons who were legally able to gamble and who had not been banned from the casino. In other words, Blackford, subject to a permanent ban, could not reasonably have believed himself to have been among the group of individuals to whom the casino had extended its wagering offer. Because the casino never intended to extend a wagering offer to Blackford, there was no contract, and thus Blackford had no right to recover the confiscated winnings.

At first blush, the court’s decision is really rather straight forward. From a policy point of view, it is easy to side with the casino—if you get banned from a casino, don’t expect to get paid if you go back and gamble. There are also enforcement considerations in play, as it is unrealistic to expect a casino to be able to track every person gambling on its floor at a given time. It is inevitable, even with stellar security, for some banned or ineligible players to make it into the casino. When those players are discovered gambling in violation of the law, it is easy to conclude that a forfeiture of their winnings (if any) is an appropriate sanction.

However, a few troubling implications arise from this decision. First, it seems highly likely that Blackford wagered and lost on at least some of his bets during this session, and perhaps prior sessions. Now, if the court is correct that no wagering contract could arise between Blackford and the casino, then Blackford’s losing wagers were likewise not legally binding contracts. So, if the casino has no legal obligation to pay Blackford on his winning wagers, how can the casino legally keep his losing wagers? The court had no reason to address this issue, however, because Blackford never made a claim for refund of his lost wagers. The court did note that some legal authority suggests equitable rescission is an appropriate remedy for voiding illegal wagering contracts (resulting in a refund of the wager), but the New Jersey federal court case cited in the decision arose from a legal gambler who felt he had been improperly denied a slot jackpot. In a situation involving an illegal gambler—like Blackford—courts are much less likely to be sympathetic to a claim for equitable rescission of a contract. Nonetheless, it seems rather inconsistent to permit a casino to keep money won from illegal wagers, while not refunding money lost on illegal wagers—what’s good for the goose should be good for the gander.

The second troubling implication of the court’s decision is that casinos seem to have little incentive to actively discourage banned patrons from returning to the casino and gambling again. If the banned player loses money, the casino keeps the money. If the player wins, the casino confiscates the winnings. It’s a win-win for the house. Now, it might be difficult to catch banned players at the entrance, but here, the player signed up for a slot players club card. In an industry that tracks gaming play to the nickel, it seems rather implausible that a casino would not cross-reference slot club applications against its banned players list. Even if the casino did not do so in this case, the capability to do so should place a responsibility on a casino to take reasonable steps to prevent banned players from placing wagers, if in fact the casino does not desire to accept their wagers. If the casino knows a banned player is making wagers and accepts those wagers, the casino should be required to pay off those wagers.*

The final troubling implication is the nature of the forfeiture of Blackford’s winnings. It is one thing to determine that a wager was illegal, and thus need not be paid by the casino. It is another thing altogether to require the banned player to “donate” his confiscated winnings to a charity designated by the casino (even a well-intentioned gambling addiction program). Now, nothing in the court decision commented on the method of disposal of the confiscated money, and it appears the issue was never raised by Blackford. As a practical matter, it probably makes little difference whether the casino requires the banned player to make the donation directly, or does so indirectly as a matter of casino policy for distributing confiscated wagers. But in an age where civil forfeiture laws are commonly used (and abused) to seize property, permitting seized winnings to be funneled to the casino’s charity of choice seems ripe for abuse. This is particularly true where, as here, the casino is closely tied to the county government, though it is not difficult to imagine private casinos funneling seized winnings to charities associated with influential lawmakers and regulators.

The moral of the story is not only clear, but entirely predictable—In the long run, the house always wins.

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* Rescission, promissory estoppel, estoppel by acquiescence, or unjust enrichment would be possible equitable theories of recovery in such cases. However, the highly regulated nature of casino wagering might preclude any equitable remedies altogether. If so, then the only possible legal remedy would be enacting a statute or regulation to cover those types of claims.

4 comments:

  1. I take it this is not the supreme court case you tweeted about having won?

    I also take it that your professional advice would be for me not to count on keeping the big jackpot when the Wheel of Fortune finally pays off for me at the Cannery?

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  2. @Rakewell: No, my case was the boring workers' compensation decision also issued yesterday. As for you winning Wheel of Fortune at the Cannery, it's rather moot as the WoF doesn't recognize the deuce-four.

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  3. Yeah, I don't like basing the decision on the "unenforceable contract" theory for exactly the reason you said. Seems to me that there were many wagering contracts between he and the Casino after the ban. Rather then looking at the casino as the offeror, what if you turn it around? B places a wager (offer) the casino accepts the wager and, when the wager proves to be a loser, keeps the money (acceptance). I guess they can fall back on the whole idea that the legality of the losing wagers wasn't before them, but it seems to me that they've established some precedent that could cause problems even outside the gaming context.

    So if I'm entertaining potential contracts, can I place a number of conditions on who I will accept contracts from, but then only choose to enforce those conditions on the contracts that don't work out the way I want?

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  4. The Meadows does cross reference their list of banned players when someone applies for a card. One of my friends was pulled aside when he got his players card because his name was the same as someone who was banned.

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