By Jarett Warner*
A federal judge from the District of New Jersey has granted the defendants’ motion to dismiss a complaint alleging that several fantasy website sports operators had violated anti-gambling laws.
The plaintiff Charles E. Humphrey, Jr. commenced an action in federal court against Sportsline.com, Inc., ESPN, Inc., Vulcan Sports Media alleging that the defendants, who operate online fantasy sports leagues, had violated New Jersey’s anti-gambling laws.
More specifically, the complaint alleged that the defendants operated fantasy sports websites that violated several states’ qui tam gambling loss-recovery laws and sought to recover losses for the residents of those states who had participated in the defendants’ games. The plaintiff asserted that the games constituted gambling because the participant had to pay an entry fee for the league and the outcome of the league was based on chance, due to injuries and the nature of sports. The Court explained that qui tam statutes had derived from the 1710 Statute of Queen Anne and were intended to prevent gamblers and their families from becoming dependent on the State and provided a method for the gambler’s family to recover the gambler’s losses from the winner.
In its analysis of the defendants’ motion to dismiss, the Court first addressed the merit of the plaintiff’s qui tam allegations. Honorable Dennis M. Cavanaugh noted that courts have constructed these laws narrowly in light of their history and opined that such narrow construction was appropriate in this case since the plaintiff had no personal connection to the unspecified losses. The Court noted that although it was not the judiciary’s role to abolish legislature regardless of how ancient they are, the Court could decline to extend its application and “will not extend the qui tam statutes to cover fantasy sports league entry fees unless that coverage is warranted by the explicit language of each statute and is supported by specific allegations of Plaintiff.” The Court opined that the plaintiff’s complaint was only tailored to New Jersey’s gambling loss-recovery statute, as the plaintiff did not address the elements of any other state’s statute. New Jersey’s gambling loss-recovery statute allows a loser or a qui tam plaintiff to recover from a “winner, depositary or stakeholder” money lost by a “wager, bet, or stake.” N.J.S.A. 2A:40-6.
Next, the Court determined that the plaintiff had failed to set forth facts to support his claim of a specific loss under New Jersey’s statute. The Court found that the plaintiff did not: identify any individual who paid an entry fee, identify the nature of the wager or bet placed with any of the defendants, allege when the loss occurred or allege a lost wager or bet to any of the defendants. Judge Cavanaugh also found that the plaintiff had failed to plead that a “loser” failed to commence a lawsuit within six months of losing the bet and that instead he had commenced his action within six months of the “loser’s” failure to do so, as required by New Jersey case law.
The Court also tackled the issue of whether payment of an entry fee to participate in fantasy sports was gambling. It held that as a matter of law “entry fees for [d]efendants’ fantasy sports leagues are not ‘bets’ or ‘wagers’ because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) [d]efendants do not compete for the prizes.” The Court stated that:
“Courts throughout the country . . . have long recognized that it would be ‘patently absurd’ to hold that ‘the combination of an entry fee and a prize equals gambling,’ because if that were the case, countless contests engaged in every day would be unlawful gambling, including ‘golf tournaments, bridge tournaments, local and state rodeos or fair contests . . . literary or essay competitions, . . . livestock, poultry and produce exhibitions, track meets, spelling bees, beauty contests and the like,’ and contest participants and sponsors could all be subject to criminal liability.” State v. Am. Holiday Ass’n, Inc., 151 Ariz. 312, 727 P.2d 807, 812 (Ariz. 1986).
Further, the Court found that the defendants were not winners as required by the qui tam statute. Rather, they were parties to an enforceable contract. They provided consideration by administering the league and providing statistical and analytical services in exchange of entry fees and did not participate in any bets.
Charles E. Humphrey, Jr., Plaintiff v. Viacom, Inc., CBS Corporation, CBS Television Network, Sporsline.com, Inc., The Walt Disney Company, ESPN, Inc., The Hearst Corporation, Vulcan, Inc., Vulcan Sports Media and The Sporting News, Defendants (D.NJ; No. 06-2768; 2007 U.S. Dist. LEXIS 44679; 6/20/07)
Attorneys of Record: (for plaintiff): James Stuart Notis, Gardy & Notis; (for Sportsline.com, Inc., Vulcan Sports Media) Kenneth Friedman, Manatt, Phelps, & Phillips, LLP); (for ESPN, Inc.) Peter C. Harvey, Patterson Belknap Webb & Tyler.
*Mr. Warner is an associate at Havkins Rosenfeld Ritzert & Varriale, LLP in New York, New York. Warner and Carla Varriale, a partner at the firm, have litigated several high profile cases for professional and minor league sports teams. They also counsel risk managers, venue owners and operators, general counsels and clients with self-insured retentions to minimize liability and to develop successful litigation strategies.