Plaintiff Rolls a Win in Ninth Circuit Gambling Opinion

by Manatt, Phelps & Phillips, LLP
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A virtual game platform constituted illegal gambling under Washington law, the U.S. Court of Appeals, Ninth Circuit has ruled, finding that the casino’s virtual chips are a “thing of value.”

Big Fish Casino, a game platform that functions as a virtual casino, allows users to play various electronic games such as blackjack, poker and slots. Users can download the app free of charge, and first-time users receive a set of free chips. Additional chips can be earned as a reward for winning games, or users can purchase more virtual chips to continue playing for prices ranging from $1.99 to almost $250.

Big Fish Casino’s terms of use state that virtual chips have no monetary value and cannot be exchanged “for cash or any other tangible value.” A mechanism does exist to transfer chips between users, however, on a secondary black market.

In 2013, Cheryl Kater began playing games on Big Fish Casino, eventually buying—and then losing—over $1,000 worth of chips. She filed suit in 2015, alleging violations of Washington’s Consumer Protection Act and Recovery of Money Lost at Gambling Act (RMLGA). Kater claimed that Churchill Downs (the owner and operator of the platform) profited from the secondary market for virtual chips because it charged a transaction fee, priced in virtual gold, for all transfers.

A district court judge dismissed the action with prejudice, holding that the virtual chips were not a “thing of value” as required by Washington state law and therefore the platform was not illegal gambling under the statute. Kater appealed.

Pursuant to the RMLGA, “All persons losing money or anything of value at or on any illegal gambling games shall have a cause of action to recover from the dealer or player winning, or from the proprietor for whose benefit such game was played or dealt, or such money or things of value won, the amount of the money or the value of the thing so lost.”

The statute defines “gambling” as “(1) staking or risking something of value (2) upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence, (3) upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.”

A “thing of value” is “any money or property, any token, object or article exchangeable for money or property, or any form of credit or promise, directly or indirectly, contemplating transfer of money or property or of any interest therein, or involving extension of a service, entertainment or a privilege of playing at a game or scheme without charge.”

Kater told the Ninth Circuit that Big Fish Casino’s virtual chips are a “thing of value” because they are a “form of credit … involving extension of … entertainment or a privilege of playing [Big Fish Casino] without charge.”

The panel agreed. “The virtual chips, as alleged in the complaint, permit a user to play the casino games inside the virtual Big Fish Casino,” the court said. “They are a credit that allows a user to place another wager or re-spin a slot machine. Without virtual chips, a user is unable to play Big Fish Casino’s various games. Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have ‘the privilege of playing the game.’ Likewise, if a user wins chips, the user wins the privilege of playing Big Fish Casino without charge.”

Virtual chips don’t extend gameplay, but simply enhance it, Churchill Downs countered. But the court was not persuaded, as a user needs the virtual chips in order to play the various games within Big Fish Casino.

Case law from the Washington Court of Appeals supported this reading of the RMLGA, the court said, when dismissing a slide show and minutes from the Washington Gambling Commission meeting that did not adopt a formal position on social gambling platforms, let alone Big Fish Casino specifically. Contrary reasoning from federal courts did not sway the Ninth Circuit, as other decisions involved the analysis of different state statutes. “Our conclusion here turns on Washington statutory law, particularly its broad definition of ‘thing of value,’ so these out-of-state cases are unpersuasive,” the court said.

Because the virtual chips are a “thing of value,” putting Big Fish Casino within Washington’s definition of an illegal gambling game, Kater can recover “the value of the thing so lost” from Churchill Downs, the panel further ruled. In the plaintiff’s case, that would be the roughly $1,000 worth of virtual chips she lost while playing the games.

The court reversed dismissal of the complaint.

To read the opinion in Kater v. Churchill Downs Inc., click here.

Why it matters: Although the panel noted its ruling was based on the “broad definition” of “thing of value” found in Washington state law, the Ninth Circuit’s opinion is a notable departure from prior attempts to declare online gaming platforms illegal gambling. The decision is already having an impact, with multiple lawsuits filed against similar online casino games under Washington law in the hopes of duplicating Kater’s success.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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