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Best of Liz Benston

Gaming Guru

Liz Benston

Gaming Industry Wins Key Ruling in Lawsuit

11 August 2004

The gaming industry claimed a partial victory Tuesday when a federal appeals court ruled that the millions of people who have lost money playing video poker and electronic slot machines over the years cannot be included as plaintiffs in a lawsuit against more than 60 gaming companies that are accused of civil racketeering.

The U.S. 9th Circuit Court of Appeals, however, rejected a motion by the casino industry to dismiss the suit, which was filed by three individual gamblers in 1996 against slot makers, casinos and cruise ships. It also ruled that the cruise ship defendants could not be dismissed from the suit for lack of jurisdiction.

David Barrett, a New York-based attorney for the plaintiffs, said he is preparing to litigate the suit in federal court in Las Vegas on behalf of the three individuals who filed the action. The court has yet to rule on the merits of the case.

"We were disappointed that the court didn't award class action status which we thought was appropriate and allowable under the rules," said Barrett, who has served as co-counsel with David Boies, the attorney best known for pursuing the Justice Department's antitrust case against Microsoft Corp. "But (defendants) tried to dismiss the case against them entirely and they lost."

The long-running suit, which has been closely watched by attorneys for more than a decade, could have become the largest and most expensive case against the casino industry if it proceeded as a class action, gaming experts say.

The ruling doesn't affect multiple individual lawsuits pending against casinos nationwide because it doesn't address the issue of liability, observers say.

Determining liability is a separate issue from obtaining class action certification, said John Banzhaf, a professor of public interest law at George Washington University Law School in Washington, D.C. Lawsuits over automobile accidents that have found manufacturers liable tend to involve distinct situations that can't be resolved by lumping plaintiffs together in a class action, for example, he said.

Plaintiffs William Poulos, Brenda McElmore and Larry Schreier claim the gaming companies advertised these machines as games of chance when they are actually controlled by a computer. It alleged the casinos were involved in a scheme to defraud players.

They sought to turn the suit into a class action to include as plaintiffs every person who played video poker or electronic slot machines within the past 15 years.

The suit was originally filed in 1994 in Orlando, Fla., by Poulos and was later amended to include additional plaintiffs and defendants.

U.S. District Judge Roger Hunt in Las Vegas denied the class-status motion in 2002 and the three appealed.

The U.S. 9th Circuit Court of Appeals, in denying the class action, said the millions of players must be "similarly situated" in order to qualify as a class. But it said gamblers do not share a common knowledge or expectation.

"Some players may be unconcerned with the odds of winning, instead engaging in casual gambling as entertainment or a social activity," said the three-judge panel of the court in a decision written by Judge M. Margaret McKeown.

"Others may have played with absolutely no knowledge or information regarding the odds of winning such that the appearance and labeling of the machines is irrelevant and did nothing to influence their perceptions. Still others, in the spirit of taking a calculated risk, may have played fully aware of how the machines operate," wrote McKeown.

The decision is similar to Hunt's ruling, which stated that people have different motivations when they play slot machines. In his ruling, Hunt compared the experience to "buying a music CD."

Lionel Sawyer & Collins, the Las Vegas law firm representing the casino industry, said in a statement that this week's ruling caused "a collective sigh of relief around the globe as the casinos and manufacturers locally, nationally and internationally were able to rid themselves of what would have been a time-consuming, multibillion dollar lawsuit."

The suit contends there is a major difference between video poker and traditional poker where the cards are shuffled and there is a random deal from a conventional deck of cards. In the case of video poker, the suit said, computers determines which cards will be dealt and this gives the casino the ability to set the chances of winning.

The suit says that the old mechanical slot machine operated by a spinning of the wheels that caused a random alignment of symbols on the pay-off line. The three people said this is equivalent to a random chance to win.

They said winning events in the present electronic slot machines are determined by the computer, not by chance. The suit said the gaming companies had created a false perception through the labeling of machines, advertising, promotions and concealment of information that prompted the public to play the machines.

Federal judges appear reluctant to certify class actions in new and uncharted areas, said Banzhaf, who has been involved in suits against tobacco companies over their marketing of cigarettes.

Once individual suits against industries have been successful, judges are more inclined to consider class actions, he said.

"It's a question of convenience ... they don't want to consider hundreds or thousands of (individual) lawsuits."

In any case, plaintiffs' attorneys may have more success bringing individual suits against the casino industry rather than class actions, especially if attorneys can produce people who are largely unfamiliar with casinos or how slot machines work, Banzhaf said.

"If I gambled on these things it would be hard to argue that somebody like me with a legal background and who works in the area of fraud wouldn't know what was going on," he said. On the other hand, someone with little formal education or knowledge about odds might be able to argue that he was duped, he said.

Dennis Kennedy, the co-lead defense attorney for the casinos, said the plaintiffs only lost hundreds of dollars in a few of the casinos named in the suit. The expense of continuing the case individually may not be worth the potential damages, while many of the defendants would likely be dismissed, he said.

Barrett said he is considering legal options that could involve more plaintiffs and said the suit's conspiracy claim would apply to all of the defendants, regardless of where the individuals gambled.

Among the better known companies that were named as defendants were Caesars World, International Game Technology, Bally Entertainment, Boyd Gaming Corporation, Circus Circus Enterprises, Elsinore Corp., Harrah's Entertainment, Hilton Hotels, Lady Luck Gaming Corp., MGM Grand, Mirage Resorts Inc., Sands Regent, Station Casinos Inc. and casinos in other jurisdictions and aboard cruise ships.