October 26, 2010
Last week, news broke in the poker world about a lawsuit filed in Illinois federal district court by a Florida man, Scott Crespo, against a group of six young, fairly well-known online poker players from Illinois. The defendants are connected to the website ThePokerhaus.com where they maintain blogs and participate in poker discussion forums. At least a few of the men also lived together in a residence referred to as "The Pokerhaus". The gist of the lawsuit is a claim under an Illinois anti-gambling forfeiture statute that the defendants profited from illegal gambling in Illinois by participating in a number of online poker tournaments. Under Illinois law, the losers in an illegal gambling act can sue to recover their actual losses; if the loser does not make the claim, any third-party can sue to recover treble damages.
My initial inclination was not to post about the lawsuit, as it seemed rather straightforward from a legal perspective, and was mostly of interest to online poker players. However, the lawsuit was discussed fairly extensively on the most recent Poker Beat podcast (beginning around the 20:53 mark for the impatient among you). As a quick aside, the Poker Beat is a great podcast put out by PokerRoad, with host Scott Huff and a panel usually including notable poker media stars B.J. Nemeth (freelance poker photographer and reporter), Dan Michalski (of Pokerati.com fame), and Jessica Welman (Bluff Magazine reporter and columnist). I personally am not a fan of most podcasts regardless of topic, but for those interested in keeping up on poker news with a lot of intelligent commentary, the Poker Beat is a must-listen.
In any event, the Poker Beat discussion of the Pokerhaus lawsuit basically concluded that the lawsuit was not only outrageous, but legally implausible to the point the case would likely be dismissed in short order. Intrigued, I checked out the discussion threads on 2+2 and PocketFives, where a similar sentiment seemed to prevail. Regrettably, as often seems to be the case, the poker community seems ill-informed about legal issues and greatly underestimates the risks of losing in poker-related litigation. Although the Pokerhaus lawsuit is not a certain loser for the defendants, there is a legitimate legal claim being made, and there is a very real risk that the defendants, and other poker players like them, may wind up losing significant amounts of money in this and similar cases.
EXECUTIVE SUMMARY: After reading dozens of statutes and regulations and scores of cases (so you don't have to!), here's the down and dirty summary of what's in play with this lawsuit:
- The state has the power to seize the proceeds of illegal gambling. The state also may delegate its authority to pursue claims to private citizens, and to permit them to keep a share of the proceeds. In the present case, the statute authorizing a third-party lawsuit to recoup gambling losses from the winners is valid, longstanding (a version of the statute has been in force since at least 1823), and frankly, not particularly unusual.
- The purpose of the statute is twofold. First, it permits gamblers or those close to them (typically spouses, parents, or children) to recover money lost in illegal gambling. Second, it punishes those who engage in illegal gambling, and helps suppress illegal gambling (why gamble if you may have to pay back your winnings plus a penalty of treble damages?).
- Poker is clearly illegal under Illinois law. The "skill vs. chance" argument will not be in play, as the relevant statute bans all games of "skill or chance" played for money. Also, numerous cases have held that draw poker, stud poker, hold-em, and poker tournaments are all illegal gambling.
- The tricky question, and likely the major fighting issue, is whether online poker is illegal. My reading of the law is that online poker is most likely illegal so long as any of the prohibited conduct took place in Illinois. So, playing online in Illinois is most likely illegal in and of itself. An even stronger case can be made that online poker is illegal if one of the losing players was also playing in Illinois.
- The fact that the poker winnings in question came from tournaments as opposed to cash games is irrelevant. Also, the fact that one player's losses might not be tied directly to another player's winnings is unimportant; the court merely looks at net wins and losses for any particular session of play.
- The lawsuit's claims of cheating and collusion are not necessary to recover illegal gambling profits. The allegations may have been thrown into the lawsuit to make it easier to recover money from all members of the group (if a civil conspiracy is proven, every member of the group is individually liable for all other members' actions). Or, the allegations may have been included to permit discovery that might later set up possible other claims, such as RICO violations or violations of terms of services agreements between the players and the online poker sites.
- Although the lawsuit is basically a legal shakedown, the defendants and the online poker sites have a lot to fear if discovery is conducted. A quick and quiet settlement might actually be a smart play for the defendants.
- Several other states have similar statutes authorizing third-parties to make these types of claims to recover illegal gambling profits. Also, most states have civil forfeiture laws permitting the government to seize illegal gambling profits. Poker players in those states should be smart and not make it easy to be publicly identified so that online poker nicknames can be tied to a real name and address. Also, poker players should avoid publicizing their online poker winnings, so that they do not unwittingly put targets on their own backs.
I. WTF? How can some random dude sue to recover money he never lost?
This is likely the leading area of confusion, expressed eloquently by B.J. Nemeth on the Poker Beat podcast. Indeed, at first blush, there is something that feels wrong about having some random person off the street being able to bring this type of claim. But, the law in fact does allow this type of third-party claim in a variety of contexts.
As a first principle, it must be kept in mind that the purpose of the statute in question is not to reward third-parties, but instead is intended to punish and suppress illegal gambling:
The purpose of the Legislature in the enactment of this statute was to lessen, and, if possible, to prevent, gambling. The evils resulting therefrom are among the most pernicious that afflict modern society. The practice destroys in its devotees all desire to engage in legitimate employment or business. The loser becomes intent on recovering his losses at the gaming table, and is frequently driven to embezzlement and theft. The winner acquires a contempt for the small gains of honest pursuits. He spends the profits of unlawful hours in idleness and debauchery, among dissolute companions. Thrift is destroyed. Wholesome pleasures soon pall upon the taste. The ties of home and domestic life are disregarded, and eventually annihilated, by the craze for gaming, and by the feverish excitement with which it fires its followers. Being itself unlawful, it creates and encourages contempt for all law, and weakens every legal restraint and every honest impulse. Financial ruin and moral degradation alike inevitably overtake every man who cannot resist its allurements, no matter with what degree of skill he engages in the nefarious business.
—Zellers v. White, 208 Ill. 518, 526-28, 70 N.E. 669, 672 (1904).
With the purpose of punishing illegal gambling firmly fixed as the state's goal, let's start our analysis of the statute with the concept of civil forfeiture. Civil forfeiture actions permit the government (state or federal) to seize and confiscate property used in the commission of a crime, or that represent the proceeds of illegal activity. These types of actions usually arise in the vice crimes—prostitution, drugs, gambling—but can be predicated on a wide variety of criminal offenses. The action is actually brought against the property itself (an in rem action), so you wind up with some weird case names like United States v. $100,000 Cash & a 2009 Cadillac Escalade, or People v. Two Roulette Wheels. But the insidious legal hook for these actions is that the government need not ever actually prosecute or prove the underlying crime. Instead, they merely need to prove a link between the property and a criminal act or conspiracy by a preponderance of the evidence (far easier than convicting the alleged criminal by a reasonable doubt standard of proof). Needless to say, civil forfeiture actions are ripe for abuse by police departments and prosecutors, who typically get to keep a portion of the proceeds of forfeited property.
Under Illinois law, illegal gambling proceeds are subject to civil forfeiture proceedings:
Every gambling device shall be seized and forfeited to the county wherein such seizure occurs. Any money or other thing of value integrally related to acts of gambling shall be seized and forfeited to the county wherein such seizure occurs.
—720 ILCS 5/28-5
Next, let's look at the concept of a private attorney general. Certain statutes allow a private citizen to bring a lawsuit in the public interest, and if they prevail, they can recover attorney fees. The private citizen is said to be acting as a private attorney general because they are acting on behalf of the public in enforcing the law in question. Civil rights, environmental, and anti-trust issues are areas of law that tend to see private attorney general lawsuits, but there are literally scores of state and federal statutes which permit this type of claim.
Our next legal concept is a civil remedy for criminal conduct. The paradigm for this type of statute is the federal Racketeer Influenced and Corrupt Organizations Act ("RICO Act" or "RICO"). This statute is famed for its role in curtailing mafia operations and putting mafia leaders in prison, but RICO has also been used to combat a wide variety of other types of criminal activity, including securities fraud, drug trafficking, gambling, and money laundering. More to the point, RICO also permits a civil cause of action with treble damages for victims of a criminal enterprise.
Our final jurisprudential concept is qui tam actions. A qui tam action is a claim brought by a private citizen on behalf of the government, with the citizen keeping a portion of any money recovered in the action. Although qui tam actions have a history dating back to early English common law, today qui tam actions are most common pursuant to the federal False Claims Act, which permits a private citizen to file a lawsuit to recover fraudulent or improper government payments (such cases are easily recognized by the caption, with the plaintiff identified as a "relator" acting for the government, e.g., United States, ex. rel. Smith v. ACME Corp.). An important point is that the citizen is not required to have suffered any personal injury or damages; rather, the citizen is merely enforcing the government's rights to recover improper payments.
Let's sum up the relevant legal principles:
- Public policy of preventing someone from profiting from illegal or fraudulent conduct—civil forfeiture, RICO, and qui tam actions.
- Private citizen can pursue claim on behalf of the public/government—private attorney general suits and qui tam actions.
- Private citizen has right to collect treble damages for criminal or fraudulent conduct—RICO actions.
- Private citizen has right to collect portion of damages recovered, even if the citizen did not suffer personal injury or damages—Qui tam actions.
Gambling Losses Recoverable.
(a) Any person who by gambling shall lose to any other person, any sum of money or thing of value, amounting to the sum of $50 or more and shall pay or deliver the same or any part thereof, may sue for and recover the money or other thing of value, so lost and paid or delivered, in a civil action against the winner thereof, with costs, in the circuit court. ...
(b) If within 6 months, such person who under the terms of Subsection 28-8(a) is entitled to initiate action to recover his losses does not in fact pursue his remedy, any person may initiate a civil action against the winner. The court or the jury, as the case may be, shall determine the amount of the loss. After such determination, the court shall enter a judgment of triple the amount so determined.
—720 ILCS 5/28-8
Essentially, then, section (a) permits the loser of an illegal wager the first right to pursue a lawsuit to recover those losses, plus court costs (but not treble damages; presumably to prevent a windfall to a losing gambler who participated in the predicate illegal wager). If the loser does not sue to recover his losses, then any person may initiate a lawsuit under subsection (b) to recover those losses, plus treble damages. In form, the statute is strikingly similar to a qui tam action with RICO-style treble damages, except that the statute permits a third-party plaintiff to keep the entire treble damage recovery. Interestingly, the prior version of the statute as cited in pre-1900 cases reflects that the treble damages were split evenly between the person filing the lawsuit and the county government where the claim was made. It's not clear when the statute was amended to permit a full recovery by the third-party plaintiff (most likely in 1961), but nonetheless, this statute is essentially a classic qui tam action with a very generous recovery for successful third-party plaintiffs.
In other words, yes, this type of third-party claim is recognized and permitted by law, and a third-party like Crespo is authorized to bring this type of claim.
II. Why would the law allow a third-party to bring a claim for gambling losses when he personally did not lose money and may have never even gambled?
There are actually two policy reasons why third-parties are able to file these kinds of claims. First, losing gamblers themselves might understandably be reluctant to sue on their own behalf; doing so might be dangerous, keep them from being able to continue gambling, offend their sense of honor, and/or be a shameful admission of a gambling problem. However, losing gamblers may have a spouse or child who is an innocent victim of their losses, and the spouse or child may sue to recover the losses. In fact, there are several reported older appellate cases involving claims by wives for their husband's gambling losses, and one more recent reported appellate case involving a mother suing to recover her underage son's gambling losses. [FN1].
The innocent victim rationale doesn't explain why complete strangers are also allowed to bring this type of claim. To understand the third-party plaintiff provision, one has to think back to the civil forfeiture concept—the state wants to punish illegal gambling. Clearly the state could punish illegal gambling by imprisonment or a fine, which are provided for by statute. However, civil forfeiture is an easier process, and treble damages serve as an effective deterrent. By authorizing third-parties to bring these types of claims, the state advances the public interest by creating an incentive for punishing and deterring gambling activities that might otherwise go unnoticed or be ignored by state authorities.
Subjecting the gambler to the loss of that which he wins, is obviously, in its effect, adverse to the practice of gambling, in tending to make it unprofitable, and, perhaps, might be regarded to be as effective toward the accomplishment of the object of the act as is the fine, under section 126, of not less than $10 nor more than $100. It may be said to come within the strict definition of punishment, “to afflict with pain, loss or calamity, for a crime or fault.” (Webster's Dict.) One mode of punishment is forfeiture, and what is there, in substance, here but that,--the forfeiture of what one has got by gambling? Now, in the bearing upon the question, here, of making a different subject, which must be expressed in the title of the act, we may see the unimportance of the distinction insisted on, of criminal and civil proceeding, and of the giving of a civil remedy to the person injured, in an act relating to crimes and their punishment. Upon this question, as we have seen, it is the effect of the means provided which tells. It is not the technical designation. The effect of the provision in this section we are considering is to mulct the winner in the loss of his gains, and thereby it aids in effecting the general object of the act,--the suppression of gambling. In this respect of operative effect it matters not where the recovery of that which has been won goes,--whether into the State treasury, county treasury, school fund, into the hands of a common informer, or to the person losing; nor by what mode the recovery is had,--whether by a criminal or civil procedure; nor what the name given to the adopted means,--whether fine, penalty, forfeiture, or damages.
—Larned v. Tiernan, 110 Ill. 173, 177-78 (1884) (emphasis added).
Given that the state has the power to punish illegal gambling and can do so by civil forfeiture of gambling proceeds, and given that the state has the power to delegate to private citizens its right to bring claims related to illegal or fraudulent conduct and to keep a portion of the proceeds recovered, it is hardly a stretch to conclude the state has the power to authorize the kind of lawsuit found in the Pokerhaus litigation.
III. But how can this lawsuit recover "profits from illegal gambling"? After all, isn't online poker completely legal?
There were numerous comments on the 2+2 and PocketFives comments making this point, and the Poker Beat crew also batted around whether this lawsuit will turn on the legality of poker, particularly under the "poker is a game of skill" arguments. This is one of those legal situations where the poker community is ill-served by the PPA's overblown "online poker is legal" rhetoric. Regrettably, the poker community seems to have bought that claim hook, line, and sinker without any critical thinking about the counterarguments made by essentially every state government.
First off, the "poker is a game of skill" argument will not be in play in this case. Under Illinois law, illegal gambling is defined as:
§ 28-1. Gambling.
(a) A person commits gambling when he:
(1) Plays a game of chance or skill for money or other thing of value, unless excepted in subsection (b) of this Section; ...
—720 ILCS 5/28-1
Note that the statute includes all games of chance or skill. The key point is not the nature of the game, but whether it is being played "for money or other thing of value". This interpretation is further buttressed by the state's statute regulating the games which can be played in charity gaming fundraisers:
“Charitable games” means the 14 games of chance involving cards, dice, wheels, random selection of numbers, and gambling tickets which may be conducted at charitable games events listed as follows: roulette, blackjack, poker, pull tabs, craps, bang, beat the dealer, big six, gin rummy, five card stud poker, chuck-a-luck, keno, hold-em poker, and merchandise wheel.
—230 ILCS 30/2
The statute not only includes "poker", but also "five card stud poker" and "hold-em poker". My best guess is that the generic term "poker" refers to draw poker, as several very old cases mention draw poker as being illegal gambling, while later cases refer to stud poker and hold-em poker as being illegal gaming. [FN2]. One fun example where the court discussed stud poker is this decision:
On the way out on a Sunday, while the train was speeding through the State of Montana, plaintiff accepted an invitation of three fellow passengers (whom plaintiff thereafter had reason to suspect were card sharpers) to play for modest stakes a game of chance with cards, known to the gambling fraternity as “stud poker.” It is the usual story--plaintiff lost his money.
—Porter v. First Nat. Bank, 212 Ill. App. 250, 251 (Ill. App. Ct. 1918).
But what about poker tournaments? Several of the 2+2 and PocketFives posters argued that the forfeiture statute could not be applied in a tournament situation. Well, the Illinois appellate courts have also decided that Texas Hold 'Em poker tournaments are illegal gambling:
In our opinion, the poker game played under the circumstances of the instant case is precisely the type of “game of chance or skill” which falls squarely within the plain meaning of the activity proscribed under subsection (a)(1). Although there was some testimony tending to indicate that the poker games involved some degree of skill, we do not find the jury's implicit conclusion that they were not “bona fide contests for the determination of skill” so improbable as to warrant a reversal. Both direct and circumstantial evidence was introduced to support the conclusion that the games, in fact, required a combination of skill and chance, and that they were definitely not the type of “bona fide contests” excepted from subsection (a)(1). See Diesel, 128 Ill.App.2d at 394-95, 262 N.E.2d at 18-19.
Defendants next contend, again without citation to any authority whatever, that their convictions may not stand because the evidence showed that both defendants “through lack of skill” failed to reach the point where they qualified to win any money. The argument is specious, at best.
The fact that poker chips were used in lieu of cash at the table and that the rules allowed for only two cash winners does not diminish the fact that each participant played “for money or other thing of value.” Plainly, “things of value” (poker chips representing various dollar amounts by their colors) were what was being bet and money as all that could be won. (There was no evidence tending to establish that the defendants merely donated $500 each to the pot for the entertainment of their friends with no hope of possibly winning money back.) Were we to adopt the defendants' reasoning, we would effectively repeal the gambling statute, a legislative function which the judiciary is not empowered to perform.
—People v. Mitchell, 111 Ill. App. 3d 1026, 1028-29, 444 N.E.2d 1153, 1155-56 (Ill. App. Ct. 1983).
The tournament considered by the court had a fixed buy-in of $500 per player, a freezeout format, and a top heavy payout structure with only the top two out of nine players getting paid. That's right, traditional poker tournaments have been considered illegal gambling by the Illinois courts for more than a quarter century!
Well then, doesn't the fact that the tournaments in question were played online make a difference? Probably not. Now, I do disagree with the Pokerhaus complaint which cites to subsection 12 of this code section to contend that online poker is illegal:
§ 28-1. Gambling.
(a) A person commits gambling when he:
(11) Knowingly transmits information as to wagers, betting odds, or changes in betting odds by telephone, telegraph, radio, semaphore or similar means; or knowingly installs or maintains equipment for the transmission or receipt of such information; except that nothing in this subdivision (11) prohibits transmission or receipt of such information for use in news reporting of sporting events or contests; or
(12) Knowingly establishes, maintains, or operates an Internet site that permits a person to play a game of chance or skill for money or other thing of value by means of the Internet or to make a wager upon the result of any game, contest, political nomination, appointment, or election by means of the Internet. This item (12) does not apply to activities referenced in items (6) and (6.1) of subsection (b) of this Section.
—720 ILCS 5/28-1
The Plaintiff cites subsection 12 as defining "gambling" as "... mak[ing] a wager upon the result of any game ... by means of the Internet." (Complaint, para. 6). However, my reading of subsection 12 is that the only conduct made illegal is online bookmaking; what is illegal conduct is when a person "Knowingly establishes, maintains, or operates an Internet site that permits a person" to engage in illegal gambling, either by playing a prohibited game, or by making a prohibited wager. Also, I included subsection 11 in the blockquote above to support my interpretation of subsection 12; since subsection 11 does not include reference to transmission of gambling information via the Internet, presumably such transmission is permissible (otherwise the legislature would have added "Internet" to subsection 11).
However, just because a fair reading of subsection 12 does not prohibit online gambling, such gambling is nonetheless most likely illegal because subsection 1 of the anti-gambling statute makes no distinction between games played with physical cards and games played online; the focus is solely on whether a game was played for money or other thing of value. Further, subsection 5 of the statute could conceivably apply:
§ 28-1. Gambling.
(a) A person commits gambling when he:
5) Knowingly owns or possesses any book, instrument or apparatus by means of which bets or wagers have been, or are, recorded or registered, or knowingly possesses any money which he has received in the course of a bet or wager; ...
—720 ILCS 5/28-1
This section arguably applies to computers used to play online poker, and also arguably applies to money received from cashing out of online poker play. Now there will be some obvious jurisdictional issues in applying Illinois law to online poker, but there shouldn't be any real disagreement that Illinois law as written prohibits online poker.
IV. Wait a minute! What jurisdictional issues? Does Illinois law apply to online poker or not?
This is really the key unresolved legal issue—whether and to what extent the states can regulate or ban online poker. Now as we saw in the recent Rousso decision, at least one state supreme court has determined that a state may completely ban internet gambling within its borders without violating the Commerce Clause of the U.S. Constitution. Although the Rousso decision is not binding on other state or federal courts, I think most courts will rule the same way as the Washington supreme court did in Rousso.
The more difficult jurisdictional issues arise from attempts to apply Illinois law to gambling transactions that occur, at least arguably, outside the state of Illinois. Let's do a quick thought experiment:
- Assume 100 Illinois residents gather to play a poker tournament in person in Chicago, using traditional cards and chips. Clearly this is covered by the Illinois anti-gambling statute.
- Assume all 100 players are present in person in the same room, but play via computer on a local network. Again, likely covered by Illinois law.
- Assume all 100 players are playing in person in the same room, but via an internet connection with a server outside of Illinois. Covered?
- Assume all 100 players are playing at home in Illinois, via an internet connection with a server inside Illinois. Covered?
- Assume all 100 players are playing at home in Illinois, via an internet connection with a server outside Illinois. Covered?
- Assume roughly half of the100 players are playing at home in Illinois, and half are playing from locations outside of Illinois, via an internet connection with a server outside Illinois. Covered?
- Assume only 1 out of 100 players is playing at home in Illinois, with the remaining 99 players playing from locations outside of Illinois, via an internet connection with a server outside Illinois. Covered?
7 Section 1-5 of the Criminal Code of 1961 (Ill.Rev.Stat.1991, ch. 38, par. 1-5 (now 720 ILCS 5/1-5 (West 1994))) limits Illinois' jurisdiction to cases in which an element of the crime occurs within its borders. If an offense is defined solely in terms of conduct without regard to any result, there is no jurisdiction based on where the conduct causes harm. All of the Illinois gambling offenses are defined by conduct, not results. Because of section 1-5, therefore, Article 28 of the Criminal Code simply does not apply to gambling committed wholly outside of Illinois and defendant's conduct in Nevada was not “in violation of” the Gambling Act. Accordingly, section 28-7(a) does not operate to void loans therefor.
—Cie v. Comdata Network, Inc., 275 Ill. App. 3d 759, 767-68, 656 N.E.2d 123, 129 (Ill. App. Ct. 1995) (citations omitted).
In the present case, where Illinois residents have been accused of profiting from illegal gambling while residing and playing in Illinois, I expect the courts to lean toward applying Illinois law and allowing the case to proceed, because essential elements of the crime would have occurred within Illinois territory. I expect the courts to be even more ready to apply Illinois law if Illinois residents are found to have lost money to the defendants; regulating gambling between Illinois residents (or people within the state) is clearly the intended purpose of the anti-gambling statute, and permitting residents to use the internet with out of state servers to place wagers while avoiding the gambling ban is an unlikely result. At this point, however, it is impossible to know whether the defendants played all or most of the tournaments at issue while in Illinois, nor do we know whether any Illinois residents were losers in these tournaments. The less of a connection between a particular tournament and the state, the less likely a court will be to apply Illinois law.
V. But how can the plaintiff prove any of the defendants profited from a particular player in a particular amount, since all payments were tournament entry fees made to an online poker site?
One of the weaker arguments raised in many comments on the 2+2 and PocketFives forums was that the statute requires a payment by one player directly to another player; i.e., there must be a wager where one player loses to another player and pays him for that wager. Although creative, this argument is merely linguistic legerdemain. First, as discussed above, the Illinois courts already recognize poker tournaments as being illegal gambling (People v. Mitchell). Further, the Illinois appellate courts long ago recognized the difficulties in applying the anti-gambling laws to poker, and hit upon a common sense solution:
Section 132, [the gambling losses recovery statute], is calculated to make its [gambling's] gains unavailing to the winner, and to remove, to some extent, at least, the incentive to play. If the loser, after a long night at draw poker, must sue the man who won from him on each hand for the amount lost on that hand, and cannot have this remedy unless the sum so lost on that hand equal or exceed $10, the statute, for all practical purposes, would not be applicable to draw poker. This form of gambling became so common recently that it was denominated the ‘national game’ of the American people. Its peculiar terms and phrases have found their way into common use in our language, where their aptness for the purposes for which they have been borrowed attracts the attention of many to this game, and no doubt leads them to a closer acquaintance with it, when, but for a familiarity with its expressions thus obtained, they would not have sought its beguilements. The interpretation placed upon this statute by appellant, so far as this seductive game is concerned, would enable the winner to substantially escape the salutary and chastening effect of this law, and deprive him of the refined pleasure which results from making restitution for wrongdoing. The Legislature certainly did not intend that this game, which is a very common vice, should escape the ban of this section of the Criminal Code.
Keeping in view the wrong at which the statute is aimed, and giving consideration to the use of the word ‘sitting,’ in this section, we think the proper construction is that all that transpires in playing the game of draw poker from the time certain players begin playing together on any one occasion until they cease playing together on that occasion, no matter how many hands are played, may be regarded as one transaction or ‘sitting,’ and that all those who have won more than they have lost during the sitting are ‘winners,’ and all those who have lost more than they have won during the sitting are persons ‘losing,’ within the meaning of the statute; that all money or other valuable thing staked upon the game at any time during the sitting is to be regarded as in play so long as the sitting continues; and that the liability of the winner to the person or persons losing is measured by the net amount of his own winnings. Resort may be had to equity, where necessary, for the purpose of making proper adjustments between the various winners and the various losers.
—Zellers v. White, 208 Ill. 518, 526-28, 70 N.E. 669, 672 (1904).
In other words, the fact that one player's losses might not be tied directly to another player's winnings (as might be the case in a sports wager) is unimportant; the court merely looks at net wins and losses for any particular session of play. Given the case law, it appears that where there is at least one player who lost $50 in a particular poker tournament, and where one of the defendants won any amount of money in the same tournament, the winner would be liable up to the amount of his winnings (and then trebled, if the claim were brought by a third-party). However, any winner being sued could make a claim upon other winners for a pro rata contribution to any amount he was found to owe. Nonetheless, the mere fact that the wagering occurred in the context of a poker tournament would not thwart a reimbursement claim in and of itself.
VI. So why does the lawsuit make allegations of collusion and cheating?
The Pokerhaus lawsuit makes various allegations of collusion and cheating by the defendants. Now, if merely winning an illegal wager is all that is needed for a recovery under the forfeiture statute, why bother with these extraneous allegations?
A couple of reasons come to mind. First, if the defendants in fact acted in concert in winning tournaments, the players could be held jointly and severally liable for all the winnings of any member of the group, under a theory of civil conspiracy. Essentially, this puts each individual defendant on the hook for all damages awarded by a judgment against any individual defendant. This makes recovering damages much easier when one or more defendants are broke or out of state. Further, this might be laying the groundwork for discovery related to additional claims based on violations of terms of services agreements between the players and the online poker sites. Finally, claims of collusion and cheating can give rise to claims for enhanced damages, whether under a RICO claim, or a claim for exemplary/punitive damages. As one Illinois court explained:
About 8 o'clock on Saturday evening, January 17, 1903, the plaintiff, who was a farmer living in the vicinity, in company with one Swisher, went to the saloon of defendant Harris, in the city of Sullivan. He had been drinking intoxicants and had on his person at the time about $355. Harris suggested to plaintiff that they go to a saloon kept by defendants Baker and Batman and play a game called “poker.” They then went to a small room adjoining the Baker and Batman saloon, where they met defendants Batman and Farney, and at about ten o'clock were joined by defendant Baker; after which Farney, Batman, Baker, Swisher, Randol and plaintiff began to play a game of poker which continued until about four o'clock of the following morning. Farney acted as “banker” for the game, issuing the chips and taking in the money. Baker, Batman and Swisher besides playing took turns in passing whisky to the other players. Harris did not participate in the game but was present and aided in serving the liquor. Plaintiff testifies that the whisky was passed “like water at a school house in the summer time,” and that he took eight or ten drinks. There is no evidence showing that any charge was made for the liquor, or that any one but plaintiff became intoxicated. At the close of the game plaintiff had lost all the money he had. The evidence further shows that plaintiff was the only one of the party who produced any money during the entire game. The witness Randol, who was called by plaintiff, testifies that when the game broke up along about four or five o'clock in the morning, Farney remarked: “We'll give the suckers $20 or $25;” that Baker then handed Harris, Swisher and witness $20 each, and told them to take plaintiff away so that they could “divide up;” that the understanding was that they would divide even; that either Farney, Baker or Batman told witness that if he was fined for gambling they would pay his fine; that Batman stated they had won $260 from plaintiff which he was going to divide.
As we have said, there were two counts in the declaration based upon the charge of conspiracy, and one in trover based upon the statute. In assessing the damages in the event of a recovery upon the former, what each defendant may have won or lost in the game was immaterial. Plaintiff was entitled to recover the full amount taken from him by the defendants through, by means of, or as the result of the conspiracy. The gist of the action upon which these counts are predicated is the formation and accomplishment of an unlawful conspiracy to deprive plaintiff of his money by unlawful means. The gist of the trover count is the violation of the statute making gaming unlawful and providing that any loser at gaming may recover from the winner the amount so lost. If a conspiracy existed and was consummated as claimed, which we think sufficiently appears, it was not necessary, as is contended by counsel, to show that each and every of the defendants actually won any money from plaintiff, nor was it necessary to establish the respective relations of the defendants
The acts charged in the conspiracy counts were essentially fraudulent and wilful. Exemplary damages were therefore proper to be assessed thereunder, not as compensation to the plaintiff, but by way of punishment to the wrong-doers.
Batman v. Cook, 120 Ill. App. 203, 204-08 (Ill. App. Ct. 1905).
VII. This case is nothing more than extortion! Shouldn't the defendants fight this to the death?
Although the case is at least colorable under Illinois law, I agree wholeheartedly with those comments on 2+2 and PocketFives which view this case as a thinly disguised shakedown of these particular poker players. The plaintiff likely filed this suit to attempt to force a quick and lucrative settlement. The first inclination in a suit like this is to fight as hard as possible. But, this case will almost certainly proceed to discovery before any critical legal rulings are made, and the defendants have plenty to fear from engaging in discovery. The defendants will likely be forced to produce bank and financial records, allow inspection of their computers, and divulge online transaction records with any online poker sites (e.g., deposits, withdrawals, and tournament and cash game records and results). Awkward questions may arise about violations of terms of services agreements (e.g., collusion, multi-accounting, "ghosting", improper data-mining, etc.), sketchy financial transactions (e.g., post-UIGEA deposits, money transfers between players via online poker sites), and tax payments (or lack thereof).
The online poker sites may face subpoenas for the defendants' records, as well as the identities and records of players who played the tournaments in question. Online poker sites would be placed in the tough spot of deciding whether to consent to or fight the subpoenas, which raise all sorts of perilous legal issues for the poker sites, including the effect of cooperation or an adverse ruling on jurisdictional and related matters in other litigation or criminal investigations, the effect of cooperation or revealing records on its business relationship with its customers, the effect of cooperation or resistance on future licensing in the U.S., and the possibility the records would be used against the company itself in future litigation or criminal investigations.
Of course, if the case progresses to the dispositive motion phase, then the poker players and the online poker sites face creating negative case law that can be used to fuel additional similar suits against other players, as well as risking adverse rulings on the status of the legality of online poker in Illinois. Let's just say this case is not the ideal vehicle for arguing that online poker is not illegal under Illinois law.
In other words, nobody on the poker side of this litigation is particularly interested in seeing this case move forward. At least they shouldn't be.
VIII. Does this kind of law only apply to Illinois residents? How do I avoid being sued?
Illinois is not the only state with this kind of third-party forfeiture statute. According to Gambling Law (a great first stop for all gambling law issues), at least nine states and the District of Columbia have statutes that allow third-party lawsuits to recover gambling losses, and several others that allow first-party suits by the person that lost in an illegal gambling wager. Further, many (if not most) states have civil forfeiture statutes that can be invoked by the government if a prosecutor ever decides to rattle some cages to burnish his/her anti-gambling credentials. So, if you play online poker, or even just play in poker home games, in any of the states with forfeiture statutes, you have every reason to be worried.
So how can you avoid being sued under one of these forfeiture statutes? First and foremost, guard your privacy! In the Pokerhaus lawsuit, it appears the defendants were targeted because they were easily identified by real names and addresses to a particular set of online poker names, which in turn were easily linked to poker tournament results. If your real identity is unknown, it is much more difficult to be sued just because you have great tournament results. Also, online sites that publish tournament results by online player name (looking at you, PocketFives) are a dangerous source of information that might paint a target on the backs of its top ranked players in states with forfeiture statutes.
In sum, lawsuits like the Pokerhaus case are yet another legal nuisance for online poker players, and are yet another reason to push for federal legalization and regulation of online poker.
ADDENDUM (27 October 2010): At the wise suggestion of reader KenP, I have added an "executive summary" section above the fold. A lot of readers may just want the conclusions, and care little about all the detailed analysis of the statutes and case law. Also, a hat tip to Ken for being one of the first wave of folks who let me know about the decision; much appreciated!
[FN1] See, e.g., Larned v. Tiernan, 110 Ill. 173, 175 (1884) (wife sued to recover husband's gambling losses); Gaby v. Hankins, 86 Ill. App. 529, 531-32 (Ill. App. Ct. 1899) (wife sued to recover husband's gambling losses); Johnson v. McGregor, 55 Ill. App. 530, 531-32 (Ill. App. Ct. 1894) aff'd, 157 Ill. 350, 41 N.E. 558 (1895) (wife sued to recover husband's gambling losses); Vinson v. Casino Queen, Inc., 123 F.3d 655, 657-58 (7th Cir. 1997) (mother sued to recover minor son's gambling losses) ("The Loss Recovery Act was intended to deter illegal gambling by using its recovery provisions as a powerful enforcement mechanism.").
[FN2] See, e.g., Zellers v. White, 208 Ill. 518, 526-28, 70 N.E. 669, 672 (1904) (draw poker was a "common vice" and also illegal gambling); Porter v. First Nat. Bank, 212 Ill. App. 250, 251 (Ill. App. Ct. 1918) (considering enforcement of note obtained by playing stud poker); People v. Mitchell, 111 Ill. App. 3d 1026, 1028-29, 444 N.E.2d 1153, 1155-56 (Ill. App. Ct. 1983) (hold-em poker played in a tournament format was illegal gambling).