© Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose, www.GamblingAndTheLaw.com.

A federal judge in Ohio has reminded us how important Terms and Conditions can be.

PartyGaming was facing a $600 million class action. The plaintiffs, Rose Wong and Patrick Gibson, had filed suit in September 2006 alleging they “and others similarly situated” had lost money at PartyPoker. The timing on the suit was interesting: It was filed after Congress pass the Unlawful Internet Gambling Enforcement Act and PartyPoker stopped accepting players from the U.S.

Wong and Gibson claimed they had been the victims of other poker players with multiple accounts colluding against them. So why would Party Poker be liable? The plaintiffs claimed PartyPoker knew about the collusion and did nothing to prevent it.

Substantively, the suit was weak from the start. Wong and Gibson quoted from PartyPoker’s “Collusion Prevention Statement” on its website, to prove that the operator did nothing to prevent collusion. Of course, the Statement actually warned about collusion and described the ways PartyPoker was trying to identify and eliminate players who collude.

But all lawsuits with the potential for large verdicts have to be taken seriously. This is particularly true with class actions or claims for punitive damages, where a runaway jury could decide a legal gaming company is a limitless deep pocket.

Even the best trial lawyers will tell you that the best way to defend against a possible adverse jury verdict is to not let the case go to trial. That is the reason gaming companies’ attorneys make so many motions to dismiss.

Cases can also be won even before they are filed. For operators with U.S. residents as patrons, this means ensuring that lawsuits have to be heard in courtrooms in far distant lands. If Ohio resident Rose Wong had been told by every lawyer that she consulted that her case would have to be filed in Gibraltar, which also does not allow class actions, she would not have pursued her claim for a few hundred dollars.

PartyGaming had done just about everything it could do to try to avoid being dragged into court in the U.S. to defend frivolous suits. Its T&Cs had the following provision:

This Agreement shall be governed by and construed in accordance with the laws of Gibraltar without giving effect to conflicts of laws principles. You irrevocably agree to submit, for the benefit of the Company, to the exclusive jurisdiction of the courts of Gibraltar for settlement of any disputes or matters arising out of or concerning this Agreement or its enforceability.

This provision accomplishes two things: It requires that any court deciding any case involving a dispute between a patron and PartyGaming has to apply the laws of Gibraltar; and that that court has to be in Gibraltar. The first is called a choice-of-laws provision; the second a forum selection clause. They are not the same, but they both work together to make it clear any case against PartyPoker should not be heard anywhere else.

And that is exactly what the federal district court judge in Ohio, Ann Aldrich, ruled. She quoted the boilerplate clause found in all online Agreements that patrons are required to read and agree to the T&Cs. And she noted that the plaintiffs did not claim PartyPoker’s forum selection clause was unknown to them.

(For the attorneys in the audience: PartyPoker’s trial lawyers did make a minor procedural error. They filed a motion to dismiss for improper venue under FRCP 12(b)(3). They should have filed under forum non conveniens, because technically the venue was correct under 28 U.S.C. §1391. The question was not whether the suit could be filed in federal court in Ohio, but rather if there was a much better place for the case to be brought, a court that both the plaintiff and defendant had agreed upon in advance. Fortunately, Judge Aldrich decided she could raise the issue herself, sua sponte.)

The ruling means that the case is dismissed and cannot be refiled anywhere, except in a court in Gibraltar. Which is not going to happen.

I know operators who simply cut and paste large blocks of language from the T&Cs from other sites, often their direct competitors. There’s actually nothing wrong with that, assuming the T&Cs are not copyrighted and the operator is not trying to pass itself off as its competitor; and, that the T&Cs are examined in detail by experienced gaming lawyers.

Because T&Cs are not just boilerplate. They literally are the rules of the game.

Tex Rees, eCOGRA’s Fair Gaming Advocate, says that “Bonuses are the single greatest cause of player versus casino disputes.” She notes that savvy players keep copies of the T&Cs they have signed up for. So the worst thing to do would be to try to retroactively change the T&Cs.

This would be especially true when the patron has caught the operator making a mistake in the player’s advantage. Word of poorly designed or worded promotions, which give bettors a significant statistical advantage, spread instantly through player networks.

Her advice, when an operator has erred, is to “take your financial lumps and attend to the internal problems that created the situation in the first place.”

This does not mean that gaming operators are always going to win, even with the best written T&Cs, vetted by gaming professionals and attorneys.

For example, some courts still feel that forum selection clauses are unenforceable. In 1998, a Texas player, Tom Thompson, filed a suit for breach of contract, fraud, and violations of the Texas Deceptive Trade Practices Act against Handa-Lopez, Inc., which operated Funscape’s Casino Royale, which claimed to be the “World’s Largest” Internet Casino. Handa-Lopez was a California company, whose server was also in California; but Tompson filed in his local court in Texas.

The online casino allowed patrons to purchase game tokens, called “Funbucks” with credit cards, to use in games like blackjack and poker. Winners were entitled to redeem 100 Funbucks for $1 in cash or prizes. Thompson had amassed 19,371,840, and he demanded $193,728.40. Handa-Lopez believed that Thompson had hacked into its computer system and refused to pay. So he sued.

The fight, naturally, started with the online operator’s motions to dismiss or to transfer to a court in California.

The T&Cs for Funscape’s Casino Royale contained a provision that any disputes:
. . . shall be governed by the laws of the State of California, excluding choice of law principles, and shall be resolved exclusively by final and binding arbitration in the City of San Jose, County of Santa Clara, State of California, USA under the rules of the American Arbitration Association, and, in the event of such arbitration, no punitive, special, incidental, or consequential damages may be recovered by any party and the arbitrator shall not have the power to award any such damages . . .

Judge Edward C. Prado, of the federal court sitting in San Antonio, Texas, refused to enforce this provision. He decided, probably incorrectly, that this was not really a forum selection clause, because it did not expressly say that all lawsuits must be filed in California.

It is hard to see how the clause can be read as anything other that what it is: a requirement that all disputes be resolved through arbitration in California. Judges usually view arbitration clauses favorably, because they take disputes out of the court system. And arbitrators’ awards can be taken by the winners to a court and automatically turned into an official, enforceable judgment.

But Judge Prado clearly did not like the gaming operator’s T&C. He noted that the clause was “buried” in the site’s online Agreement, which, he said, nobody reads. And he went on to hold that the state of Texas’s interest in protecting its citizens outweighed the Agreement.

To get problems like this, it is important that the T&Cs say exactly what you mean, even if it seems redundant. Legal writing is boring, because it spells out in detail everything lawyers can think of. So, if you want arbitration, it seems you have to say not only that arbitration is the exclusive remedy, but that no suit can be filed in a court of law except to enforce an arbitrator’s award, to get around the Judge Prados of the legal world.

You also have to get around the “buried” argument. This is usually done by requiring patrons to scroll down through the T&Cs, and then check a box saying they have read and agreed to them. If some parts are particularly important, you should have the player check a box next to that clause.

T&Cs are like any other contract. There are defenses, such as the claim that the patron had been defrauded into signing. But these are very difficult to prove.
The trend is definitely in favor of enforcing T&Cs, including forum selection clauses. Judge Aldrich’s decision in the recent PartyPoker case can be persuasive for other online operators. It showed that T&Cs can indeed make the difference, especially in disputes involving gaming operators in foreign countries.

And it is interesting to note that in these cases, as well as others, the only question the court reached was the enforceability of the T&Cs. In fact, neither Judge Aldrich nor Judge Prado ever raised the question of whether the online gaming was legal.

At least for some motions to dismiss, the language of the T&Cs is more important than whether the gaming operator was breaking the law.

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© Copyright 2009. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law. His latest books, Internet Gaming Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.