By: Neli Traykova
The increase in popularity of online gambling games has posed the question of whether online games violate state-specific anti-gambling laws. Courts generally hold that online and app-based games are not gambling, as the tokens or points players rack up are not redeemable for cash.[1]The Ninth Circuit shook up the online gambling industry when it found that such online tokens can be considered a “thing of value” and, therefore, in violation of the state’s anti-gambling law.[2]
The question arose in 2015 when Cheryl Kater brought a class action suit against Churchill Downs claiming that their Big Fish app is online gambling and thus violates Washington state’s anti-gambling laws.[3] Kater argued that she should be able to recover the $1,000 she lost based on a Washington statute allowing “the plaintiff to recover money or anything of value lost from an illegal gambling game”.[4] Later in 2015, Kater added Big Fish Games Inc. to the lawsuit when the company took over the app from Churchill Downs.[5] Following the Ninth Circuit’s 2018 decision that Kater can recover the money she spent on virtual chips as they are “a thing of value”, the appellate court revived the original class action filed against Big Fish.[6]
In August of 2019, Big Fish responded to the revival of the 2015 class action suit by installing a pop-up in its online game that alerted users to a change in Big Fish’s terms and conditions.[7] The language of the terms was specific to the pending class action suit and by agreeing to the terms and conditions, users agreed to be excluded from any class action suits against Big Fish.[8] The District Court allowed the pop-up with a change in the language, and the plaintiffs are persisting that the Ninth Circuit should hear the case.[9]
With the class action still pending, Washington state lawmakers threw a wrench into the process by proposing two bills regarding online gambling.[10] House Bill 2720 and Senate Bill 6568, if passed, would find a person engaging in online gambling not entitled to recovery unless the game allows for the person to withdraw their winnings.[11] In the Big Fish case, players are not able to withdraw their winnings, therefore, these games are not covered by state specific gambling loss statutes.[12] Passage of these bills will specifically exclude “online games of chance” from the “illegal gambling games” covered by the Money Lost at Gambling Act.[13] Since the Senate and House proposed these bills as a clarification of existing law, rather than a change in the statute, it is unclear how such a clarification will affect the future of Kater’s class action.[14]
Although it may be advantageous for states to exclude social casino games from gambling regulations to protect the broad video game and online gambling industries that bring jobs and tax revenue to the states, such classification poses a risk for consumers.[15] Under this classification, players would be left with no remedy if they find themselves, in a similar place at Kater, with thousands of dollars in debt after spending real money for additional virtual tokes.[16]The decision whether to pass the Washington state bill and the future of the Big Fish class action will be an important precedent for the online gambling industry.
[1]James Gatto, Courts are Dismissing Class Actions Involving Virtual Casinos, Law360, (Dec. 1, 2015, 11:16 AM) https://www-law360-com.proxy.wcl.american.edu/articles/732223.
[2]Kater v. Churchill Downs, 886 F.3d 784, 787-88 (9th Cir. 2018).
[3]Id.at 786 (noting that Kater purchased and subsequently lost over $1,000 worth of chips through the online game).
[4]Id.at 789 (referring to the Washington Revenue Code).
[5]Ryan Boysen, Gamers Can’t Appeal Big Fish App Pop-Up Fight, Court Told, Law360, (Jan. 27, 2020, 10:03 PM) https://www.law360.com/articles/1238017/gamers-can-t-appeal-big-fish-app-pop-up-fight-court-told.
[6] Kater 886 F.3d at 789; Zachary Zagger, Free Social Casinos Come Under Fire in Anti-Gambling Suits, Law360, (Apr. 26, 2019, 4:59 PM) https://www-law360-com.proxy.wcl.american.edu/articles/1151622.
[7]Kater v. Churchill Downs, No. C15-0612-RBL, 2019 WL 6130844, at *2 (W.D. Wash. Nov. 19, 2019).
[8]Id. (noting that users were required to agree to the updated terms and conditions to continue using the app).
[9]Id.; Zachary Zagger, 9thCirc. Told It Can Wade into Big Fish App Pop-Up Fight, Law360, (Jan. 15, 2020, 10:04 PM) https://www-law360-com.proxy.wcl.american.edu/articles/1234727?scroll=1&related=1.
[10]Zachary Zagger, Wash. Bills Aim to Stop Social Casino Illegal Gambling Suits, Law360, (Jan. 27, 2020, 9:47 PM) https://www-law360-com.proxy.wcl.american.edu/articles/1237922?scroll=1&related=1.
[11] H.B. 2720, 66 Leg., Reg. Sess. (Wash. 2020); S.B. 6568, 66 Leg., Reg. Sess. (Wash. 2020).
[12]Zagger, Wash. Bills Aim to Stop Social Casino Illegal Gambling Suits, supranote 8.
[13]Id.
[14]Id.
[15]Id.
[16] See generally Kater v. Churchill Downs, 886 F.3d 784, 787-88 (9th Cir. 2018) (noting that Kater lost over $1,000 by purchasing virtual game tokens).
