Gaming Guru

The Major Internet Gambling Case That Isn't

A decision by Manhattan Judge Charles Edward Ramos of the Supreme Court of New York created a minor panic in the Internet gaming community. A company which designs software for on-line casinos saw the price of its stock plummet. Operators who had been taking bets from New Yorkers wonder whether they have to avoid the state, or perhaps the entire country. Owners of other gaming websites, who had prohibited wagers from Americans, now fear being dragged into U.S. courts if undercover cops lie about their addresses.

The decision does contain some rather startling language: "The Internet site creates a virtual casino within the user's computer terminal." Judge Ramos held that because the user was in New York, the licensed Antigua company could be sued in New York.

There are a few reasons not to be overly concerned about this decision. In fact, this supposedly major Internet gambling case is neither major nor primarily about Internet gambling.

• Despite its name, the "Supreme Court" of New York is only a trial court. The decision is important to the parties involved in the law suit, but is not of any precedence for anyone else.
• Much of the opinion involves a discussion of federal law. While intellectually interesting, the conclusions of this state trial judge are not binding.
• The "user" was an undercover agent, who was automatically cut off when she entered her address as New York. She logged on again and this time typed in "Nevada." The opinion is misleading when it implies that a foreign corporation can be forced to defend a law suit in a state when its only contact with that state is created by a customer's intentional misrepresentation.
• The fact that the operator was licensed in Antigua was irrelevant; and
• The fact that the operator's server was in Antigua was irrelevant; and
• The fact that the operator was incorporated in Antigua was irrelevant; because. . .

This was actually a New York company doing business in New York, with principals and assets in New York. The case revolved around allegations that the defendants sold unregistered securities through a New York boiler room operation to New Yorkers. So, of course the courts of New York have the power to seize a New York bank account and to enjoin activities which were found to have been run out of offices in New York.

Judges always write opinions as if the losing side had almost no facts or law on its side. So we do not know what evidence defendants' attorneys presented that the judge may have ignored. But we do know that Judge Ramos found the following: The defendants "are clearly doing business in New York..."

The corporation with the Antigua gaming license, Golden Chips Casino ("GCC"), is a wholly owned subsidiary of another corporation, World Interactive Gaming Corp. ("WIGC"). Judge Ramos found GCC was so dominated by WIGC that "he deemed GCC an alter ego of WIGC." As one example: "All GCC top employees were hired by and reported to WIGC."

Although WIGC was incorporated in Delaware, its entire business was operated from its headquarters in Bohemia, New York. It was from the New York office that defendants "fraudulently" and "actively solicited investors to buy WIGC shares."

A court of appeals will undoubtedly find that it need not consider Judge Ramos's discussion of Internet activities to and from Antigua because so much of the gaming operation took place in New York.

"All administrative and executive decisions as well as the computer research and development of the Internet gambling website were made in New York." "From their New York corporate headquarters, they downloaded, viewed, and edited their Internet casino website."

The casino website and its servers were purchased by the New York parent company.

Most damning, Judge Ramos held that the gaming website was actually run out of New York, not Antigua. "The use of the GCC casino website was handled from WIGC's corporate headquarters" in New York.

"The evidence also indicates that the individuals who gave the computer commands operated from WIGC's New York office."

It is said that bad cases make bad law. Judge Ramos's decision that New York had power over these defendants and their bank account was correct. But his discussion of the Internet in general and Internet gambling in particular is an example of unnecessary and bad law.

Let's hope no one will try to use this case to sue foreign companies which are truly not doing business in the states. For if they do, we will have bad law making bad cases.