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Stanwood Duval's gambling Mastercard Visa Court Ruling

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Federal judge Stanwood R. Duval, Jr., of the U.S. District Court in New Orleans issued the ruling in late February, 2001, that Internet gambling is not a crime - sometimes. Two cases brought against MasterCard and Visa were thrown out, enabling online gambling sites to continue taking credit cards. The question in dispute was: If a player uses his credit card to make bets online, does he have to pay the bill when it comes in the mail?

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The fact is, since 1710, when Queen Anne of England signed the Statute of Anne, gambling debts have been unenforceable under the common law of the English-speaking world. This means anyone who lends anyone else money, knowing the money will be used for gambling, is making a contract that is usually unenforceable.

A good example is Nevada. If a las vegas casino agrees to an oral bet and the player loses and won't pay, the casino has no legal right to sue. The Nevada Legislature had to pass a special law to permit suits against players where a written agreement is involved.

In 1991, the Massachusetts Appeals Court ruled that a gambler, Richard Kommit, did not have to pay his MasterCard bill for $5,500 cash he withdrew from an ATM on the floor of an Atlantic City casino. The Court held that under the laws of Massachusetts, where Kommit lived, New Jersey, where he gambled and Connecticut, where the bank issuing the MasterCard was located, credit card loans for gambling are unenforceable.

MasterCard and Visa sued Cynthia H. Haines in 1998 for more than $70,000, which they claimed she lost gambling via the Internet. A counterclaim was filed, in which Haines's attorney, Ira Rothken of Corte Madera, California, limited his legal claims to the California state laws, which bar credit card loans for gambling. He asked for money damages, but his main focus was to get a court order that MasterCard and Visa had to stop doing business in California with online gambling operators. Rothken ended up winning big, but the terms of the settlement have not been disclosed.

In the most recent cases, lawyers haven't been quite as successful. In recent cases they chose to sue under the wrong law - the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"). However, these cases are tough to win, as plaintiff's lawyers would have to prove that Visa and MasterCard were part of a criminal enterprise conspiring with Internet gaming operators. Even if the operators themselves were included as defendants, which they were not, there simply wasn't any "enterprise." RICO also requires a pattern of racketeering activity, meaning specific federal crimes or state gambling felonies had been committed.

In Judge Duval's case, he got the parties to agree to two test cases, involving players from New Hampshire and Kansas. However, illegal gambling is almost always a misdemeanor, meaning there were no laws on the books in New Hampshire and only one in Kansas that could conceivably apply, so plaintiffs had no way of showing that these credit card companies had committed gambling felonies.

In an attempt to find federal crimes, the attorneys cited the Wire Act, which Duval ruled was limited to sports betting. They made the mistake of limiting their lawsuits to Internet casinos and lotteries. It was enacted to allow the federal government to go after bookies who took sports bets by phone.

The plaintiffs could have won if the complaints had used an alternative angle. The trick would have been to: forget RICO, file in state court, make sure the clients were making sports bets by phone, and ask for a tidy settlement, rather than a huge amount.

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