9th Circuit finds virtual chips are ‘thing of value’

A 9th Circuit panel reversed a district judge's dismissal of a purported class action against the operator of a virtual casino in a case that alleges the online game platform constitutes illegal gambling under Washington state law.

In a unanimous opinion Wednesday, the 9th U.S. Circuit Court of Appeals panel ruled that the virtual chips extended by the Big Fish Casino game fell within the state's definition of a "thing of value," and therefore, made the operation an illegal gambling game.

Plaintiff Cheryl Kater argued that Big Fish Casino's virtual chips, have value because they are a "form of credit ... involving extension of ... entertainment or a privilege of playing ... without charge," according to the complaint.

Defendant Churchill Downs Inc. contended the chips do not extend game play but only serve to enhance the application experience. The panel disagreed because users need to have the virtual chips in order to play the games. Kater said she spent some $1,000 on the virtual chips.

"Without virtual chips, a user is unable to play Big Fish Casino's various games," wrote Circuit Judge Milan D. Smith Jr. in the opinion. "Thus, if a user runs out of virtual chips and wants to continue playing Big Fish Casino, she must buy more chips to have 'the privilege of playing the game.'"

Smith was joined by Circuit Judge Mary H. Murguia, based in Arizona, and U.S. District Judge Eduardo C. Robreno of the Eastern District of Pennsylvania, who sat on the panel by designation.

Alexander G. Tievsky of Edelson PC argued for the plaintiff, while Matthew R. Berry of Susman Godrey LLP argued for the defense. Neither could be reached for comment.

Plaintiffs alleged violations of Washington's Recovery of Money Lost at Gambling Act, the Washington Consumer Protection Act and laws against unjust enrichment. Kater et al. v. Churchill Downs Incorporated, 16-35010 (9th Cir., filed March 28, 2018).

Although the online casino's terms of use state its chips have no monetary value, the game contains a mechanism for transferring chips between users, which can be utilized to cash out winnings, according to the opinion. A user can sell chips on a secondary black market outside Big Fish Casino and can then use a game feature to transfer them to the purchaser.

Kater claimed that Churchill Downs profits from such transfers on the secondary black market because it charges a transaction fee which is priced in virtual gold, essentially facilitating the process of players cashing out their winnings.

The panel found that the class members can recover their losses under violations of the state's Recovery of Money Lost at Gambling Act.

In a final stand to uphold the district judge's dismissal of the suit, Churchill Downs had argued that the panel should defer to the state Gambling Commission's conclusion that Big Fish Casino is not illegal gambling and other federal courts' findings that "free-to-play" games are also not considered illicit.

"Each case Churchill Downs cites for this proposition involves the analysis of different state statutes, state definitions, and games," Smith wrote. "Our conclusion here turns on Washington statutory law, particularly its broad definition of 'thing of value,' so these out of state cases are unpersuasive."