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March 21 2001
U.S. Judge
Backs Visa, MasterCard in Internet Gambling Ruling
Visa, MasterCard and several banks that issue the cards have won
an
important federal legal case involving credit card debts arising
from
Internet gambling. If a U.S. District Judge in New Orleans had
ruled against
them, the result could have been chaos in the already chilly
relationship
between online casinos and the credit card companies and U.S.
banks that
issue the cards.
More than 11 federal cases against the credit card companies and
several of
the issuing banks were consolidated and assigned to Judge Stanwood
R. Duval
Jr. in New Orleans. The plaintiffs were people who had lost money
gambling
online.
They argued that the banks and credit card companies were involved
in
"illegal gambling on the Internet." In sending out
monthly statements to the
plaintiffs who had used the cards to gamble online, the plaintiffs
alleged
that the defendants committed mail and wire fraud in trying to
collect
"illegal" debts. The plaintiffs also charged that the
financial institutions
were "aiding and abetting" criminal enterprises.
If the casinos had not accepted credit cards, the plaintiffs
argued, they
wouldn't have gambled online.
On Feb. 23, Duval dismissed the cases outright, before they even
got to
trial. That's an unusually strong step for a judge, but Duval
ruled that the
plaintiffs had no grounds to bring these cases. Perhaps more
significantly,
he also ruled that Internet casinos do not violate federal law.
"Plaintiffs in these cases are not victims," the judge
stated in his ruling,
"they are independent actors who made a knowing and voluntary
choice to
engage in a course of conduct. Litigation over their own actions
arose only
when the results of those actions became a debt that they did not
wish to
pay. At this point in time, Internet casino gambling is not a
violation of
federal law."
Duval quoted with approval an Appeals Court ruling that stated,
". . .
plaintiffs, i.e. the players, can avoid any injury simply by
walking away
from the alleged wrongdoers, the casinos, by not playing . . . in
the
casinos."
In an opinion shared by many lawyers, Duval ruled that the 1961
federal Wire
Act, under which telephone and Internet bookmaker Jay Cohen was
convicted
last year, applies only to sports betting and "does not
prohibit Internet
casino gambling."
In addition to dismissing the allegations involving federal laws,
Duval also
ruled that the plaintiffs did not make valid claims that the
defendants
violated state laws.
These cases were filed after a California woman, Cynthia Haines,
won a state
case against Providian Bank, which had sued her for not paying her
credit
card bills. She had run up large debts while gambling online. She
filed a
counter-claim arguing that the bank and Visa and MasterCard should
be
prohibited from profiting from "illegal gambling on the
Internet."
MasterCard settled with Haines in July 1999, and Visa and
Providian settled
several months later. California has a tradition of refusing to
enforce the
collection of gambling debts, even those that are incurred at
traditional
casinos.
Joseph Kelly, a professor of business law at SUNY College at
Buffalo, told
RGT Online that the ruling by the New Orleans judge would have no
effect on
cases like those of Haines. Duval simply stated that no federal
questions
were involved in these cases. It's up to state courts to decide if
gambling
debts are legally collectible, Kelly said.
In the federal cases that Duval handled, the plaintiffs - who had
sought
class action status - had sued under the RICO Act. That stands for
Racketeering Influenced Corrupt Organizations Act. It was passed
in 1970 as
a weapon against organized crime, which sometimes takes over
otherwise
legitimate businesses or labor unions.
As Kelly and New York lawyer Paul Hugel stated in a paper last
summer, the
RICO Act has been used by lawyers in cases that Congress clearly
didn't have
in mind when the act was passed. That's because a successful RICO
claim
includes mandatory treble damages and automatic payment of
attorneys' fees.
"The twin siren song of treble damages and attorneys' fees
has proven to be
an almost impossible lure for plaintiff's attorneys to
resist," Kelly and
Hugel wrote. They said the risk of losing a RICO case, with the
treble
damages, meant that defendants often felt pressure to settle.
They also predicted, accurately, that the plaintiffs in these
credit card
cases would have a hard time succeeding under the RICO rules.
In his ruling, Duval examined the requirements for bring a RICO
case, and
determined that the plaintiffs did not meet any of them. He
stated, "This
case is no different than Jubilirer."
That was a reference to the case of Art Jubilirer, who lost $25
playing
blackjack online and tried to bring a RICO claim against
MasterCard and MBNA
Bank. His suit was dismissed by a different federal court in
September 1999.
The federal cases that Duval dismissed originated in different
parts of the
country. They were consolidated into two cases and assigned to
Duval on
March 1, 2000. Last Thursday, the plaintiffs' lawyers filed a
notice of
appeal of Duval's ruling.
The director of litigation for Visa International, Steve Zelinger,
was
quoted in a story about the ruling in today's issue of The
American Banker
as saying: "It's not our role to legislate people's lives.
We're not a
police organization, we're a payment mechanism."
That comment will be welcomed by online gaming operators.
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