February 09, 2011

The Intersection of Law & Online Poker:
Part 2—Subject Matter Jurisdiction in Civil Cases

In Part 1 of this series*, we looked at the concept of personal jurisdiction, which is the legal analysis of whether a court has the sufficient authority over a person or company to enter an enforceable legal judgment or decree that would be binding on that person or company. In this post, we turn to the concept of subject matter jurisdiction in the context of civil cases. Jurisdiction in the context of criminal cases will be discussed in the next post in this series.

While personal jurisdiction is concerned with whether a court has authority over the parties to a legal dispute, subject matter jurisdiction focuses on whether a court has authority over the dispute itself. Federal court jurisdiction is limited by the U.S. Constitution and federal statutes. State court jurisdiction is determined by the U.S. Constitution, state constitution, and state and federal statutes (state court jurisdiction over certain types of claims can be preempted by federal law). State courts, however, are courts of general jurisdiction, meaning they can generally adjudicate all claims arising from statute, common law, or equity. State district courts will hear a wide variety of legal claims, including cases dealing with tort, contract, probate, family law, and criminal matters. Federal district courts, on the other hand, are courts of special jurisdiction, meaning their jurisdiction is limited to a narrow range of claims, notably including cases arising from federal statutes ("federal questions"), federal constitutional issues, admiralty law, and bankruptcy law. Federal district courts do hear tort or contract cases when the claim is against the federal government, or when exercising diversity jurisdiction, which allows parties who reside in different states to have their cases heard by a federal court rather than one of the parties' home turf state court (there is a statutory threshold for the amount in controversy—currently $75,000—for diversity cases).

Subject matter jurisdiction issues arise in litigation differently in federal and state courts. In federal court, subject matter jurisdiction issues are common, as the question before the court is whether the Constitution or a federal statute has granted the court jurisdiction over the claim in question. By contrast, subject matter jurisdiction issues are rather rare in state court, since the court generally has jurisdiction over claims except when there is a specific constitutional or statutory bar to jurisdiction. Regardless of the forum, however, subject matter jurisdiction issues are significant, because a lack of subject matter jurisdiction is an issue which can never be waived, the parties to a dispute can never agree (e.g., by contract, admission, or consent) to give a court jurisdiction it does not have under the law, and the lack of subject matter jurisdiction can be raised at any time in the litigation (yes, even on appeal after an adverse judgment in trial court).

Turning to gambling-related civil litigation, two of the most significant areas where subject matter jurisdiction concerns arise are when the legal issues in dispute run headlong into administrative law or tribal law issues. For example, let's say that you are playing poker at your local poker room or casino. You win a bad beat jackpot, but when the poker room manager goes to process the paperwork, it's discovered that a player at the table was only 20 years old, while the legal gambling age is 21. The underage player was dealt into the hand, but folded preflop. Despite the logical fallacy of assigning any causative link between the underage player being dealt into the hand and the eventual hitting of the badbeat jackpot, the poker manager declares the jackpot win void, and refuses to award you any money.

Like most Americans, your first thought is to take the bastards to court. Your first thought is almost certainly wrong, at least in term of legal strategy. Why? Because in most states, the courts lack subject matter jurisdiction over gaming-related disputes between casinos and their patrons.

This jurisdictional issue can be counterintuitive to laypersons. After all, the claim for a share of a wrongfully denied jackpot would seem to be a classic claim for breach of contract or conversion (a tort claim to recover money or property wrongfully withheld from the rightful owner). Instead, by state law, disputes over payments on wagers or jackpots are likely delegated to the state's regulatory agency with responsibility for gaming oversight (often referred to as a "gaming commission" or "gaming control board").** A casino patron with a dispute over payments of wagers or jackpots must file a claim with the gaming agency. The rationale behind this policy is that the gaming agency has expertise in understanding the intricacies of casino wagering processes, often having approved them in the first place. So, it makes sense to require patrons to submit wagering related claims to the agency rather than a court for adjudication.

One example of this principle in practice arose from a 19 year old man who won a $1.06 million slot machine jackpot. The federal court hearing the case determined that the claim was based on a dispute over payment of a gambling debt, and thus the court lacked subject matter jurisdiction to consider the case. Erickson v. Desert Palace, Inc., 942 F.2d 694 (9th Cir. 1991). However, the court noted that a claim that a casino was running a fraudulent game (e.g., intentionally using loaded dice, an incomplete deck, or a rigged slot machine) could still be brought in court.

A similar result may arise in the context of casino gaming on tribal territory. Tribal gaming is governed by a series of state-tribe compacts negotiated pursuant to the Indian Gaming Regulatory Act (IGRA). One item negotiated and included in any compact is the extent of the state's regulatory authority over casino gaming activities on sovereign tribal lands. In many situations, a tribe may offer casino gaming in states where no other gaming is available, or offer a wider variety of games than authorized in state regulated casinos. When claims arise based on non-payment of wagers or jackpots, tribes often retain sole jurisdiction for determining the validity of such claims. However, the scope of the tribe's jurisdiction may be even broader, encompassing claims based on related tort claims, such as fraud or violation of state consumer protection statutes. In cases where tribal authorities retain jurisdiction over these kinds of gambling claims, casino patrons are required to pursue their claims before the tribal regulators or in the tribal court system, and are barred from pursuing their claims in state or federal court.

The potential breadth of tribal jurisdiction over gambling claims can be seen in the North Carolina case of Hatcher v. Harrah's NC Casino Co., LLC, File No. COA04-823 (N.C. Ct. App. 2005). The case arose when a patron at a Cherokee Indian casino (operated by Harrah's) won an $11,000 jackpot on a slot machine, but was denied payment (apparently because of machine malfunction, though the case is not entirely clear as to the basis for non-payment). Cherokee tribal gaming regulations set forth an administrative procedure for contesting adverse wager payment decisions. However, the patron brought suit in North Carolina state court, seeking damages under the state's unfair and deceptive trade practices statutes. The court of appeals affirmed the trial court dismissal of the case for lack of subject matter jurisdiction:

It is clear that the Eastern Band of Cherokee Indians has policies and procedures in place to resolve disputes such as the one plaintiff presents in the case sub judice. Thus, for our courts to exercise jurisdiction in this case would plainly interfere with the powers of self-government conferred upon the Eastern Band of Cherokee Indians and exercised through the Cherokee Tribal Gaming Commission. It would subject a dispute arising on the reservation between the casino and its patron to a forum other than the one the Indians have established for themselves.

Whereas the Eastern Band of Cherokee Indians has a greater interest in resolving patron disputes related to activities within the casino, and has policies and procedures for resolving such disputes, the interests of the Indians outweigh the interests of the state. Therefore, the exercise of state court jurisdiction in the present case would unduly infringe on the self-governance of the Eastern Band of Cherokee Indians. For these reasons, we hold that our state courts must yield subject matter jurisdiction to the Eastern Band of Cherokee Indians in the case sub judice and affirm the decision of the trial court.

Hatcher v. Harrah's NC Casino Co., LLC, File No. COA04-823 (N.C. Ct. App. 2005) (citations omitted).

This kind of broad preemptive jurisdictional statute is not limited to tribal casinos. Some state courts give broad preemptive effect to state gaming statutes, finding that comprehensive state gaming regulations bar state courts from considering a wide range of common law tort or contract claims. For example, a pair of cases from Indiana arose from claims against casinos based on allegations the casinos had failed to bar compulsive gamblers from their premises. In the older case, a federal court of appeals affirmed the dismissal of a lawsuit making various claims including breach of contract, breach of duty, fraudulent misrepresentation, intentional infliction of emotional distress, and a federal civil racketeering (RICO) claim. Williams v. Aztar Indiana Gaming Corp., LLC, 351 F. 3d 294 (7th Cir. 2003). The court held that there was no evidence to support the racketeering allegations, even though the casino sent the patron a "Cease Admissions" letter, but subsequently permitted him to continue gambling despite knowing he was psychologically a compulsive gambler. Absent a RICO claim, the federal court lacked jurisdiction to consider any of the claims. Thus, the court did not reach the merits of the state law claims, which presumably were considered in due course by a state court.

The casino patron in the more recent Indiana case did not receive a warm welcome in the Indiana state courts. Caesars Riverboat Casino, LLC v. Kephart, 934 N.E.2d 1120 (2010). In Kephart, the casino sued its patron for unpaid counter checks. The patron countersued, alleging the casino knew she was a compulsive gambler, but nonetheless had actively solicited her to gamble through a series of offers of free rooms, meals, alcohol, and transportation, and the provision of a line of credit via counter checks, resulting in losses of over $125,000 in one night of gambling. The patron based her claims for damages (the recovery of her losses plus additional sums for mental and emotional distress) on a common law claim for a breach of duty by the casino. The Indiana supreme court held that the state's extensive regulatory scheme for gambling preempted any common law claim against the casino, and thus the court lacked jurisdiction over the patron's counterclaim:

In this case, not only does the statutory scheme cover the entire subject of riverboat gambling, but the statutory scheme and Kephart's common law claim are so incompatible that they cannot both occupy the same space. As the sole regulator of riverboat gambling, the Commission has adopted detailed regulations at the legislature's direction. See 68 Ind. Admin. Code §§ 1-1-1 to 19-1-5. Indiana Code sections 4-33-4-3(a)(9) and (c) require the Commission to enact a voluntary exclusion program. See 68 I.A.C. §§ 6-1-1 to 6-3-5. Under this program any person may make a request to have his or her name placed on a voluntary exclusion list by following the required procedures. 68 I.A.C. § 6-3-2. To request exclusion, applicants must provide contact information, a physical description, and desired time frame of exclusion — one year, five years, or lifetime. Id. Casinos must have procedures by which excluded individuals are not allowed to gamble, do not receive direct marketing, and are not extended check cashing or credit privileges. 68 I.A.C. § 6-3-4. A casino's failure to comply with the regulations makes it subject to disciplinary action under 68 Indiana Administrative Code article 13.

Kephart's common law claim would hold Caesars to a similar standard regarding known pathological gamblers in absence of the voluntary exclusion program. The existence of the voluntary exclusion program suggests the legislature intended pathological gamblers to take personal responsibility to prevent and protect themselves against compulsive gambling. The legislature did not require casinos to identify and refuse service to pathological gamblers who did not self-identify. Kephart's claim directly conflicts with the legislature's choice. To allow Kephart's claim to go forward under the common law would shift primary responsibility from the gambler to casino. It is apparent that the legislature intended otherwise. Therefore allowing a common law negligence claim addressing behavior essentially the same as prohibited under the statutory scheme irreconcilably conflicts with the intent of the legislature.

In sum it appears to us that by unmistakable implication the Legislature has abrogated any common law claim that casino patrons might otherwise have against casinos for damages resulting from enticing patrons to gamble and lose money at casino establishments.

Caesars Riverboat Casino, LLC v. Kephart, 934 N.E.2d 1120 (2010) (emphasis added).

Turning to online poker, at present no states or Indian tribes currently authorize and regulate internet gambling (though New Jersey recently passed an internet gaming bill, and several other states are considering doing so). However, subject matter jurisdiction issues can still prevent online poker players from suing internet poker sites when they have been the victim of fraud or cheating. For example, assume an insider at an internet poker site finds a way to view opponents' hole cards and uses his position in the company to defraud players of millions of dollars. Or, assume players violate rules by colluding or multi-accounting. Or assume an internet poker site refuses to pay back player deposits. What U.S. court would have subject matter jurisdiction if online poker players wanted to bring a civil claim for monetary damages against an internet poker site, or against another player using that site for nefarious purposes?

It's a difficult question to answer. In most states, there is a regulated gaming industry, but the online poker sites fall outside the state or tribe's regulatory scheme. So, claims against internet poker sites could not be brought through administrative channels. However, state courts might find that they lack subject matter jurisdiction over claims based on gambling that is illegal (or at least non-sanctioned) in the state. Or, courts might consider that a claim involving a victim in one state, a perpetrator in another state, using an internet poker site regulated by a Canadian Indian tribe with headquarters in Costa Rica or Gibraltar is simply a claim better pursued in a different jurisdiction (an issue which we'll return to in our upcoming discussion of issues of venue and forum). Given the costs and difficulties in bringing civil claims outside the United States, online poker players seeking monetary damages in civil court might well find themselves without any legal recourse whatsoever as a practical matter.

Next Up:  Subject Matter Jurisdiction in Criminal and Quasi-Criminal Matters

* Thanks to Drizz at Nickels & Dimes and Dr. Pauly at Tao of Poker for their links to Part 1.

** Nevada gaming complaints and decisions are available online. Some of the more interesting complaints include:
  • A baccarat player walking on the baccarat table at Caesar's Palace.
  • Security guards at Treasure Island improperly detaining and removing from a player's pockets a $500 wager the player had improperly removed from a table game.
  • A Harrah's sportsbook supervisor unilaterally rescinding sports wagers which had been accepted.
  • The Palms co-sponsoring an improper charity poker tournament, then withholding payment of proceeds for several months.
  • Planet Hollywood allowing a nightclub on premises to run amok. 

1 comment:

  1. Interesting paths to justice. We have the LV cabbie's encounter with a state commission. We can see laws with a direction such as RICO get broadened by overzealous prosecutors.

    My state, in an attempt to control benefiting from such seizures, directed the proceeds to education. Instead, outside prosecutors scarfed up the gilt and pennies end up in the fund. Only two counties provided more than pennies from those seizures.

    Good law seems to have developed over the centuries and moving common law and such out of the picture creates a very slippery slope.

    Every product seems to come with an arbitration clause decided at a remote location. You may understand the law as you should. We average folks respect the law or at least the one that isn't eroded for special interest benefit.

    I'm not sure if you are best as describing justice or the gaming of unintended consequences.