Cheryl Kater v. Churchill Downs Inc.
886 F.3d 784
9th Cir.2018Background
- Big Fish Casino is a free-to-download virtual casino app where users play blackjack, poker, slots using virtual chips; players receive some free chips but can purchase additional chips for real money.
- Big Fish’s Terms of Use state virtual chips have no monetary value and cannot be exchanged for cash, but the app contains an internal chip-transfer mechanism; users allegedly cash out on a secondary “black market,” and Churchill Downs charges a transaction fee (in virtual currency) for transfers.
- Plaintiff Cheryl Kater bought and lost over $1,000 worth of virtual chips and sued Churchill Downs in Washington state court alleging violations of the Recovery of Money Lost at Gambling Act (RMLGA), the Consumer Protection Act, and unjust enrichment.
- The district court dismissed with prejudice, holding the virtual chips were not a “thing of value” and therefore Big Fish Casino was not illegal gambling under Washington law; Kater appealed.
- The Ninth Circuit reversed, holding (on the pleadings) that the virtual chips are a “thing of value” because they extend the privilege of playing the game without charge, so Big Fish Casino falls within Washington’s statutory definition of illegal gambling, and Kater can recover under the RMLGA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Big Fish’s virtual chips are a “thing of value” under Wash. Rev. Code § 9.46.0285 | Chips are a form of credit that extend the privilege of playing the game without charge | Chips merely enhance play and have no monetary value; transfers are prohibited by Terms of Use | Held: Chips are a “thing of value” because they permit and extend gameplay (analogous to play points in Bullseye) |
| Whether Big Fish Casino constitutes illegal gambling under Wash. Rev. Code § 9.46.0237 | Because chips are a thing of value, staking them on games of chance satisfies Washington’s gambling definition | The app is not illegal because chips lack pecuniary value and some agency guidance and out-of-state cases suggest otherwise | Held: Big Fish Casino qualifies as illegal gambling under Washington law; Washington proscribes online/virtual gambling |
| Whether Kater can recover value of lost virtual chips under the RMLGA (Wash. Rev. Code § 4.24.070) | RMLGA authorizes recovery of “money or anything of value” lost at illegal gambling; virtual chips’ value is recoverable | Recovery is improper because there was no possibility of winning real money (relying on out-of-state precedent) | Held: Kater stated a RMLGA claim; Washington’s statute is broad and permits recovery of the chips’ value |
| Whether agency materials and out-of-state cases require deference or control | N/A (argues statutory text controls) | Seeks deference to Washington Gambling Commission materials and relies on out-of-state decisions | Held: No deference to informal Commission slides/pamphlet; out-of-state cases inapposite because they apply different statutes and definitions |
Key Cases Cited
- Petrie v. Elec. Game Card, Inc., 761 F.3d 959 (9th Cir. 2014) (standard for de novo review of dismissal)
- Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049 (9th Cir. 2008) (materials properly considered on Rule 12(b)(6) review)
- Rousso v. State, 239 P.3d 1084 (Wash. 2010) (holding online/virtual gambling illegal in Washington)
- Bullseye Distributing LLC v. State Gambling Comm’n, 110 P.3d 1162 (Wash. Ct. App. 2005) (play points that extend privilege to play are “things of value”)
- Mason v. Mach. Zone, Inc., 851 F.3d 315 (4th Cir. 2017) (contrast case applying Maryland law to virtual currency in games)
- State ex rel. Evans v. Brotherhood of Friends, 247 P.2d 787 (Wash. 1952) (noting prize, chance, and consideration elements of gambling)