Contracts and Poker: Dispute Resolution

You have a contract to back another poker player. You claim that the player is in breach of the contract but the player does not agree. What can you do?

In contract law we have what are called “default” rules. These are the rules that apply unless the parties agree otherwise. These rules are analogous to the settings in your word processing program. You have default settings for fonts, margins, and so forth, and those are the rules that apply unless you take steps to change them. Other rules are regulatory and you are not free to change them. For example, if your contract provides for punitive damages in the event of breach, contract law does not allow you to recover those damages. This is a regulatory rule that you can’t change.

When you study the law, one of the important things you learn is which rules are default rules and what you have to do to change them. For example, in sales law, the default rule is that a seller who regularly sells goods of that kind gives a warranty that the goods are “merchantable” – they are fit for the ordinary purposes of those goods. For example, a used car dealer gives that warranty on the cars it sells. But this is a default rule that can be changed. One way to change it is to conspicuously indicate that the goods are sold “AS IS.” Now the seller is giving you no promise that the goods are merchantable. If they are defective, the buyer bears the cost of repair. If a seller does not regularly sell the goods, however, the default rule changes, and no warranty of merchantability is given. So if I sell a car to you, I don’t have to say I am selling it “AS IS” because that is the default rule anyway.

With dispute resolution, the default rule is that you go to court to resolve your dispute. The rules of civil procedure make that less easy than it sounds, however. You have to choose a court that has “subject matter jurisdiction.” That is, it hears that kind of dispute. More importantly, you have to have “personal jurisdiction” over the person you sue. That is, you have to have the right to bring the person into that court. If I am in Arizona and you are in Nevada, you may have trouble getting personal jurisdiction over me in Nevada and you might have to come to Arizona to sue me. Some contracts even change the default rule on this, and instead of letting the plaintiff (the one who brings the claim) bring it any court that has jurisdiction, the contract has a “forum selection” clause that requires the plaintiff to sue in a specific court.

But you can change the default rule that a dispute is heard in court by agreeing with the other party to what is called alternative dispute resolution, or ADR. That is, these methods of dispute resolution are an alternative to going to court. You can provide for these in your contract, in which case both parties are bound to use them when a dispute arises, or you can agree after the dispute has arisen. But if both parties don’t agree at that time, you go to court.

One type of ADR is mediation. In mediation, you choose a mediator who helps the parties resolve the dispute themselves. An advantage of mediation is that it is less polarizing than an adversarial method of dispute resolution. If you expect to have a long-term relationship with the other party, mediation can prevent the kind of acrimony that often results when a dispute arises. On the other hand, mediation is not binding, so if the mediator can’t help you solve the problem, you have to move on to the next level.

The most common type of ADR is arbitration. In arbitration, the parties agree to have the dispute resolved by an arbitrator who will resolve the dispute with the same finality as if it was resolved by a judge. In fact, after the arbitrator has rendered a decision, if the loser refuses to pay up, the arbitrator’s decision can be enforced in a court of law the same as the decision of a judge. In fact, the decision of the arbitrator is more final than a judge’s decision because it can’t be appealed.

An appeal from a court’s decision has to be based on a claim that the judge did not follow the law – not that they did not get the facts right, but they did not apply the right law to those facts. That rule does not apply in arbitration because arbitrators don’t have to follow the law! An arbitrator may try to make a decision that seems fair, even though that decision may not technically follow the law. An arbitrator might “split the baby” so that both sides come away with something, while in court it is often all or nothing.

There are many advantages to arbitration. One is that since they don’t have to follow the law, arbitrators don’t have to follow the rules of evidence, so you have a much better chance of having your story heard without technical objections. Another advantage is that the decision of a court is publicly reported, while an arbitrator’s decision is private so no one knows about the dispute other than the parties.

But probably the biggest advantage of arbitration is your freedom to choose the arbitrator or even a panel of arbitrators. While it may be costly, some contracts provide for three arbitrators, with each party choosing one and then those two arbitrators pick a third. Perhaps most importantly, arbitration gives you the opportunity to choose someone with expertise to hear the case. Most judges wouldn’t have a clue about the world of high stakes poker, but if you name a fellow poker player whom you both trust as the arbitrator, then you don’t have to worry about bringing the judge up to speed.

Have you ever seen an arbitration? Of course you have! Those TV “judges” like Judge Judy may put on the black robe, but they are not judges in any court. They are arbitrators, and the parties have agreed to have the decision made by them instead of taking it to court.

So when you enter a contract, in addition to thinking through everything else that might happen, think through how you want a dispute resolved in the unhappy event that one arises. ♠

Scott J. Burnham is the Curley Professor Emeritus at Gonzaga Law School in Spokane, Washington. He can be contacted at [email protected]. This column is adapted from his article, A Transactional Lawyer Looks at the Rules of Tournament Poker, which was published in Gaming Law Review and Economics.