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Gaming Law in Washington State: Court Rules that Virtual Chips are “Things of Value”

 
USA April 11 2018

The United States Court of Appeals for the Ninth Circuit recently rendered a decision based on the State of Washington’s gamling law, known as the Recovery of Money Lost at Gambling Act (“the RMLGA”), that could have broad implications for online gaming platforms. In the lawsuit, Plaintiff Cheryl Kater (“Kater”) sued Defendant Churchill Downs Incorporated (“Churchill Downs”), the owner and operator of an online gaming platform which operates as a virtual casino. Kater alleged that she lost over $1,000 worth of virtual chips while playing “Big Fish Casino” and that it constituted illegal gambling under the RMLGA. On March 28, 2018, the Ninth Circuit Court of Appeals held that Kater stated a cause of action under the RMLGA, reversing the District Court. In Kater v. Churchill Downs Inc., 2018 U.S. App. LEXIS 7739, the Ninth Circuit found that Big Fish Casino’s virtual chips are things of value within the meaning of the RMLGA and that the gaming law case should proceed.

Why did the Court find that the Complaint stated a claim under Washington’s Gaming Law?

Internet gambling and online fantasy sports wagering are illegal under Washington State Law. Pursuant to the RMLGA, all persons losing money or anything of value on illegal gambling have a cause of action to recover the value of the thing that was lost. A “thing of value,” for purposes of determining illegal gambling, is defined to include a “form of credit . . . involving extension of . . . entertainment or a privilege of playing at a game . . . without charge.” Wash. Rev. Code § 9.46.0285. Churchill Downs argued that its virtual chips do not extend gameplay, but only enhance it. The Court of Appeals disagreed, finding that a user needs the virtual chips in the first place in order to play the various games that Big Fish Casino offers, such as blackjack, poker, and slots. Moreover, when a player runs out of chips, he/she needs to buy more in order to continue playing. The virtual chips, in the view of the Ninth Circuit, extend the privilege of playing Big Fish Casino, making said chips things of value, and rendering Big Fish Casino games violative of the RMLGA.

In response to the Kater v. Churchill Downs Inc. ruling, the Washington State Gambling Commission issued a press release. In addition to announcing that the Commission was not a party to the decision-making process, the Gambling Commission Press Release explained that “[s]ince the decision was published, we have become aware that some online social gaming websites, including Poker Stars, have proactively made the business decision to deny Washington residents access to their sites. . . . Customers with concerns should contact these websites directly.”

Gaming Law: Proceed with Caution

We have previously blogged about online poker law, fantasy sports law, sweepstakes law and other gaming law matters. With the uncertainty surrounding the law in the State of Washington, many operators in the gaming and fantasy sports spaces are now blocking the State. Against this backdrop, before launching any online gaming contest, it is important to retain qualified legal counsel to help navigate the nuanced issues presented by applicable state and federal law.