MasterCard Wins Hollow Victory

MasterCard and Visa recently won a major victory in the Court just below the U.S. Supreme Court, declaring that they could not be sued for being involved with Internet gambling. Yet, these and other credit card companies, and the banks that issue the cards, have announced that they are abandoning this extremely lucrative market.

No one likes to be sued. The suits brought against MasterCard have not been for innocuous breach of contract. Instead, the complaints allege RICO, Racketeer Influenced and Corrupt Organizations.

Imagine having to explain to your children, "No, my company does not collect credit card debts like the Sopranos."

The RICO Act adds injury to the insult of being declared a racketeer in the form of triple damages. More scary are RICO's criminal penalties. The government can throw you in prison and take everything you purchased with tainted money.

Although the credit card companies have been winning most of their lawsuits, the wins are not clean.

In the latest decision, the U.S. Fifth Circuit Court of Appeals agreed with the trial judge that, given the facts alleged, MasterCard and Visa could not be sued for allowing their cards to be accepted by Internet casinos. But, the plaintiffs' lawyers made mistakes that could be fixed.

The case involved numerous class-action lawsuits from around the country. The trial judge ordered the plaintiffs to choose two test cases, to see whether the RICO claim was any good. This meant that potentially millions of players were represented by two typical individuals.

For some reason, the lawyers chose Larry Thompson of Kansas and Lawrence Bradley of New Hampshire. RICO requires proof that the defendants violated certain federal laws or any state felony anti-gambling law. Illegal gambling in Kansas and New Hampshire is almost always a misdemeanor, not a felony.

Kansas does make it a felony to set up or collect an illegal bet. But, the involvement of the credit card companies ended before the first bet was made.

New Hampshire was an even worse choice. The lawyers alleged violations of civil statutes, which were not even misdemeanors, let alone felonies.

The plaintiffs' lawyers still could have won, if they proved a violation of federal anti-gambling laws. The Wire Act, for example, prohibits gambling businesses from knowingly using an interstate wire to transmit "bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest." The statute also uses the phrase "bets or wagers" without adding "sporting event."

The MasterCard decision is important because the Court held that the Wire Act is limited to sports bets. Thus, under federal law, as it is now written, Internet casinos and lotteries are legal.

Plaintiffs' lawyers had again made a terrible mistake. Not once did they allege that either Thompson or Bradley, who gambled for years online, ever bet on a sporting event.

The case had other weaknesses. But, it is easy to see why credit card companies are uneasy. There are states that make illegal gambling a felony.

And next time, the plaintiff will be someone who is happy even when his team loses, as long as it beats the spread.

Professor I. Nelson Rose is recognized as one of the world's leading authorities on gambling law. His website is www.GamblingAndTheLaw.com.