US Appeals Court Upholds Duval Ruling

The United States Court of Appeals for the 5th Circuit on Wednesday upheld the dismissal of two Internet gaming-related cases involving MasterCard International Inc. and the Visa International Service Association as defendants.

The plaintiffs in both cases were asking the court to forgive credit card debts with Internet gambling companies and seeking damages from Visa and MasterCard for allowing them to gamble online. Judge Stanwood R. Duval dismissed the cases in the U.S. District Court in New Orleans in February 2001.

The two cases, Larry Thompson v. MasterCard and Lawrence Bradley v. Visa, were consolidated from 21 similar cases. Lawyers for the plaintiffs argued that Visa and MasterCard committed violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

On Wednesday, the Appeals Court for the Eastern District of Louisiana sided with Duval, ruling that the credit card associations showed no pattern of racketeering activity.

"We agree that the Plaintiffs' allegations do not show a pattern of racketeering activity or the collection of unlawful debt," the Appeals Court wrote. "Because this conclusion, alone, is positive, we need not consider whether the Plaintiffs sufficiently alleged the other elements."

The appeals judges, of which there were three, also concluded that the plaintiffs' debts could not be deemed unenforceable on the grounds that accepting their online bets was a violation of the Federal Interstate Wire Act of 1961. Both plaintiffs lost money on casino gambling sites, which the judges affirmed is not covered by the Wire Act.

"Because the Wire Act does not prohibit non-sports Internet gambling, any debts incurred in connection with such gambling are not illegal," the court wrote. "Hence, the Defendants could not have fraudulently represented the Plaintiffs' related debt as legal because it was, in fact, legal."

While the decision is being taken by many in the I-gaming industry as a positive step, analysts are saying it probably won't affect the business substantially.

"You still have so many of the credit card companies refusing to allow Internet transactions," said Joe Kelly, a gaming expert and a professor at the State University of New York-Buffalo. "But certainly the opinion very clearly says that the Wire Act does not prohibit non-sports Internet gambling, and that's a big boost."

However, the decision could also draw attention from I-gaming's detractors, who will be returning to Congress when the next legislative session starts in January.

"The Catch-22," Kelly said, "may be that the people who are going to show up in the 108th Congress will say this is all the more reason why we need legislation that would amend the Wire Act, so as to prohibit all offshore gaming."

Most notably, said Keith Furlong, the deputy director of the Interactive Gaming Council, the Appeals Court decision splits from the opinion of the U.S. Justice Department

On Aug. 28, the Justice Department told the Nevada Gaming Commission and Gaming Control Board via a letter that it believes all Internet gambling and betting to be illegal by the Wire Act.

"The impact is basically that you now have two differing opinions between the Department of Justice and the 5th Circuit," he said. "Basically, while the decision is not surprising, it does present a situation where you have differing opinions and it kind of poses some questions with regard to whether casino-style games over the Internet are a violation of the Wire Act."

To view the decision of the Appeals Court, click here.