Ninth Circuit Reinstates Virtual Platform Gambling Lawsuit Against Big Fish
This is a lawsuit against the parent of Big Fish Games (Churchill Downs*), alleging that the Big Fish Casino offers illegal gambling. The district court dismissed. (Here’s my post on that ruling: “Big Fish’s Virtual Casino Doesn’t Violate Washington’s Gambling Statute.”) The Ninth Circuit reverses.
As alleged in the complaint, Big Fish offers free games, such as blackjack, poker, and slots. It gives new users some free chips so a player can play initially for free. After that, users can “earn” (through gameplay), transfer (but not sell), and purchase chips. The plaintiff lost over $1,000 of chips playing the app’s casino games and brought a putative class action asserting claims for Washington’s gambling statute, Washington’s Consumer Protection Act, and unjust enrichment.
The key question is whether Big Fish’s virtual chips are “a thing of value.” The gambling statute defines a “thing of value” as follows:
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 Ninth Circuit holds that Big Fish’s virtual chips fit the definition because they are a “form of credit . . . involving extension of . . . entertainment or a privilege of playing [the game] without charge.”
Big Fish argued that the chips only enhance the game and do not merely extend it because users can keep playing with the chips they receive from gameplay. The court says the complaint alleges otherwise. The court considers the only Washington case (Bullseye Distributing) analyzing the gambling statute and finds that it supports plaintiff’s position. In Bullseye, the Washington appeals court concluded that “play points” players received were things of value because they extended gameplay. It did not matter whether these points were redeemable for money.
The parties also battled over a Washington gambling commission slideshow deck that Big Fish claimed support its position. The court says the deck did not constitute a definitive agency position so it’s of minimal authoritative value anyway.
The court distinguishes similar defense-favorable rulings due to the Washington statute’s broad definition of “thing of value”. Specifically, the court says that, unlike the plaintiff in Machine Zone, plaintiff can recover the value of virtual chips under the Washington statute. Big Fish, like all gaming platforms, makes an argument that the closed-loop nature of the system means that there are no “losses”. This argument fails. In a footnote, the court acknowledges that selling virtual chips on the “black market” is contrary to the Big Fish terms of service, so that isn’t the basis of its holding. The court interestingly distinguishes the ability to transfer (which apparently is allowed) from the right to sell (which is prohibited).
* Churchill Downs made a motion to substitute Big Fish Games, Inc. as the defendant on the basis that it transferred the Big Fish entity that operates the casino to a third party. The court rejects this request saying it’s only appropriate when a transfer has occurred, not when it is merely contemplated.
This is a noteworthy ruling.
As the court notes, numerous courts have rejected gambling lawsuits against gaming platforms that provide virtual currencies and games of chance. Although only resolving things at the pleading stage, this is a clear and emphatic ruling that plaintiffs may be able to take to the bank (literally).
Second, selling virtual currency is a big moneymaker for several gaming companies. If participants can recover their online gaming losses, it would drastically change the economics of a particular operation. One wonders whether this will lead to forum shopping by plaintiffs, and efforts to try to hold state operators to local (Washington) law.
It’s worth noting that this ruling only addresses things at the pleading stage. It’s a big hurdle to get over but one of many. I wondered why Big Fish didn’t try to push this dispute into arbitration. Perhaps that’s a battle the parties will fight down the road.
Eric’s Comment: You surely recall this classic scene from the movie Casablanca. The court says: “Churchill Downs, like Captain Renault in Casablanca, purports to be shocked— shocked!—to find that Big Fish Casino could constitute illegal gambling. We are not.” BURN!
Case citation: Kater v. Churchill Downs, No. 16-35010 (9th Cir. Mar. 28, 2017)