SEATTLE (Legal Newsline) - A Washington federal court has dismissed a class action lawsuit claiming that under Washington State law, social casino games that use purchasable virtual casino chips or coins constitute gambling because they allow users to “extend gameplay” and can be sold in a secondary market.
On Nov. 19, U.S. District Judge Marsha J. Pechman granted Churchill Downs Inc.’s motion to dismiss a class action suit brought by Cheryl Kater in the Western District of Washington.
Kater asserted claims under Washington’s Recovery of Money Lost at Gambling Act and Consumer Protection Act, and for unjust enrichment, alleging that the defendant’s game constitutes illegal gambling under Washington law.
Kater sought to recover money paid to the social gaming company and for other relief, because “those monies were lost to an illegal gambling operation,” court documents state.
“Based on what I have seen, it appears that these cases are driven by plaintiffs’ attorneys seeking money,” said James Gatto, a co-leader of SheppardMullin's Social Media and Games Industry Team.
The federal court found that because virtual chips have no value, the plaintiff was not “staking or risking something of value,” which would need to be the case to constitute gambling.
Washington state law defines gambling as: “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person’s control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome.”
The Washington State Gambling Commission states on its website that social gaming becomes illegal when there is no way to play for free, the prize can be sold or redeemed for “real” money, or the game requires players to pay “real” money to play, give banking information to collect a prize, call before playing, or disclose personal information like a credit card number or social security number.
In its decision, the court disagreed with the plaintiff’s claim that virtual chips had value because users could use them to extend their gameplay and could sell them in a secondary market.
The court also stated that the games are free to play and there is no expectation of receiving real money or merchandise. On the issue of extended gameplay, the court found that the user could not gain anything other than the amusement of playing the game.
In addressing the claim that the virtual chips could be sold in a secondary market, the court highlighted the fact that the virtual chips have no redeemable cash value and cannot be exchanged for cash or merchandise, as stated in the Terms of Service of the game.
The court’s decision is another win for social gaming companies. A similar claim was brought before a court in Maryland against a social gaming company operating an empire-building strategy game.
The game offers users virtual coins for real money, which can be used to enhance games or play casino games within the game. The plaintiff alleged that she lost more than $100 over the course of about a year wagering at the defendant’s casino.
So she sued the social gaming company alleging that the casino “was an unlawful slot machine or device.”
“[The cases have] similar issues in some respects,” Gatto said. “But one difference was that in the (Maryland) case, one of the issues the Court focused on was that the game, as a whole, was a strategy game and that it would be improper to view the mini-game itself as the game for purposes of deciding whether the game was based on skill or chance.
"In contrast, in this Washington state case, the games themselves were casino games. Yet, the court still found no gambling because the virtual chips have no value.”