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Harley J. Goldstein
 

Online Wagering Firm Ensnared in Minnesota's Web

24 June 1998

By Harley J. Goldstein

Faced with the issue of whether advertising a wagering service on the Internet confers personal jurisdiction in Minnesota over out-of-state defendants where it was accessible to that state's residents, the Minnesota Supreme Court – solely by reason of an even split among its justices – affirmed the determination that an assertion of jurisdiction was proper. State v. Granite Gate Resorts Inc., No. C6-97-89, 1998 WL 240133, 1998 Minn. LEXIS 278 (Minn., May 14). Disappointingly, however, no justice issued an opinion, providing observers with little insight into the court's reasoning.

The State of Minnesota brought suit primarily for declaratory and injunctive relief from deceptive trade practices, false advertising and consumer fraud in violation of state law. The state charges that the defendants had inappropriately represented the legality of placing bets with their online wagering service, and that, contrary to those representations, the "WagerNet" service violates federal gaming law, 18 U.S.C. 1084.

Section 1084 criminalizes the knowing "transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest" by one "engaged in the business of betting or wagering" by way of a "wire communication facility," which is defined as "any and all instrumentalities, personnel and services (among other things the receipts, forwarding or delivery of communications) used or useful in the transmission of writings, signs, pictures and sounds of all kinds by aid of wire, cable or other like connection between the points of origin and reception of such transmission." Although it is uncertain whether section 1084 applies to wagers sent via the Internet, legislation pending in Congress aims explicitly to outlaw Internet gambling activities.

Because WagerNet has not yet begun accepting bets, Minnesota officials were constrained to ask the court to resolve the question of Internet gambling's legality in this circuitous manner.

Significantly, a consumer investigator for the Minnesota attorney general contacted the defendants, "identified himself as a Minnesotan interested in placing bets," was told that "the betting service was legal," and was provided information on how to place bets with WagerNet once it started its gambling operations.

In affirming the trial court last year, the Minnesota Court of Appeals held that by advertising on the Internet an online gambling facility said to be based in Belize, the defendants, a Nevada resident and a Nevada corporation, "purposefully availed themselves of the privilege of doing business in Minnesota to the extent that the maintenance of an action based on consumer protection statutes does not offend traditional notions of fair play and substantial justice". State v. Granite Gate Resorts Inc., 568 N.W.2d 715,721.

In so holding, the appeals court first considered the quantity of the defendants' contacts with Minnesota, noting that the trial court found that computers throughout the United States, including those in Minnesota, accessed the defendants' Internet site, U.S. and Minnesota residents contacted the defendants at telephone numbers advertised on the site, and WagerNet's mailing list contained the name and address of at least one Minnesota resident. (As the defendants had refused to produce WagerNet's mailing list, the trial court as a sanction, established as a fact that the list contained at least one Minnesota resident.)

Next, examining the quality of the defendants' contacts, the court likened the Internet advertisement to broadcast and direct mail solicitation, and found an apparent "intent to seek customers from a very broad geographic area," which amounted to a clear "clear effort to reach and seek potential profit from Minnesota," Coupling these factors with the strength of the connection between the defendants' contacts and the consumer protection cause of action, the court said it was impelled to conclude that the exercise of jurisdiction fell within the strictures of constitutional due process.

The court also considered, albeit without the same measure of importance, the state's interest in providing a forum (finding that Minnesota has an "interest in enforcing consumer protection statures and regulating gambling") and the convenience of the parties (finding that "an American corporation and its officer, who facilitated WagerNet's solicitation of business in Minnesota, have not shown that the inconvenience of defending themselves in Minnesota would be so great, by itself, as to offend traditional notions of due process," particularly in light of the fact that WagerNet reserved the right to sue customers in either Belize or the customers' home forum).

Only days after oral argument, the seven-justice Minnesota Supreme Court came down evenly divided (as one justice had recused himself). In the absence of the grant of a motion for reconsideration by the state high court or of certiorari by the U.S. Supreme Court, the quick disposition leaves little precedent and many unanswered questions.

In addition to the State of Minnesota, the federal government and at least two other states -- Missouri and Wisconsin - have launched prosecutions aimed at curbing Internet gambling activity.

Reprinted with permission of the Chicago Daily Law Bulletin (http://www.lawbulletin.com)

Online Wagering Firm Ensnared in Minnesota's Web is republished from iGamingNews.com.
Harley J. Goldstein
Harley J. Goldstein