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Illinois Supreme Court Finds Daily Fantasy Sports to Be Legal, Rejects DFS Loser's Gambling Loss Recovery Act Claim

May 1, 2020

Illinois Supreme Court Finds Daily Fantasy Sports to Be Legal, Rejects DFS Loser's Gambling Loss Recovery Act Claim

May 1, 2020

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The Dew-Becker Court first made new law by formally adopting the “predominate factor test” to determine whether a contest is one of skill or chance.

In Dew-Becker v. Wu, 2020 IL 124472 (April 16, 2020), the Illinois Supreme Court, finally and definitively, has put to rest the question of whether DFS (daily fantasy sports) is unlawful in Illinois. In addition, as a result of the decision, the DFS industry dodged the potential impact of tens of thousands of lawsuits that otherwise could have been lodged against winning DFS players in Illinois by DFS contest losers seeking to recoup their losses under the Illinois Loss Recovery Act (LRA)(720 ILCS 5/28-8).

Thirty-one states have statutes allowing persons to recover monies lost at gambling. The Illinois LRA dates back at least as far as Section Nine of the Vice & Immorality Act adopted in the 1807 Laws of the Territory of Illinois—some 11 years before Illinois was granted statehood. The Illinois LRA allows a “loser” to sue a “winner” to recover wagers where the wager exceeds $50. 720 ILCS 5/28-8(a). If the “loser” fails or chooses not to assert their claim, the Illinois LRA remarkably allows any person to sue the “winner,” and further directs that the circuit court judge shall enter a judgment trebling the amount of the loss, with costs of suit. 720 ILCS 5/28-8(b).

The LRA claim here started aptly on April 1, 2016, when Dew-Becker invited Wu to participate in a $100 “head-to-head” DFS contest offered on the FanDuel technology platform, Dew-Becker lost, and promptly sued Wu on April 4, 2016, in the circuit court of Cook County, seeking to recover the $100 he lost under the Illinois LRA. Wu chose to represent himself and won, offering testimony that he did not view the DFS game as an “illegal gambling situation” in which “millions” of people were involved.

After a short bench trial, the circuit court concluded that Wu was entitled to judgment as a matter of law on the grounds that the LRA was not intended to “allow recovery when the gambling is not connected”—conducted between one person and another person, in this case, because of FanDuel. The circuit court did not reach the issue of whether the DFS contest was gambling. The plaintiff appealed.

On appeal, the Appellate Court for the First District affirmed. Dew-Becker v. Wu, 2018 IL App (1st) 171675 (December 14, 2018). Wu, still representing himself, did not appear or file a brief, but won again. The appellate court agreed with the circuit court’s interpretation of the LRA, reasoning that recovery could only be had under the statute when there was a “direct connection between the two persons involved in the wager,” which was not present in an internet gaming environment where persons are identified by screen names only and do not necessarily know each other. Id. ¶ 19. The appellate court observed further that the result urged by the plaintiff―that every victorious contestant on the FanDuel website was subject to an LRA claim by any loser―would wreak havoc on the court system and was inconsistent with the current trends toward expansion of gambling. Id. ¶¶ 19-20, 22, 25.

Notably, however, the First District appellate court assumed that the activity on the DFS site was gambling for purposes of the LRA in view of Illinois’ broad definition of gambling―“A person commits gambling when he or she knowingly plays a game of chance or skill for money or other thing of value.” Id. at ¶¶ 16-17; 702 ILCS 5/28-1(a)(1). The appellate court concluded that the DFS contest “was a game of chance, a game of skill, or some combination thereof,” and therefore assumed “arguendo” that the head-to-head DFS contest at issue qualified as gambling for purposes of the act.

The plaintiff appealed, again. The Illinois Supreme Court granted the petition for leave to appeal on the issue: “Whether the Illinois Loss Recovery Act applies in the instance where the gambling in question is facilitated by a DFS intermediary such as FanDuel.” This time, Wu was represented by counsel, who entered the case and submitted an extensive brief on Wu’s behalf.

[Note: Wu was represented by William M. Gantz, a veteran trial lawyer who has represented igaming industry clients for nearly two decades. Gantz had been tracking the case, concerned it could open the door for trial lawyers and professional litigants to sue thousands of “winners” for treble damages under subsection (b) of the LRA. Gantz argued the appeal in September 2019 in a special session held before a packed auditorium at the Lewis & Clark Community College in Godfrey, Illinois. Gantz joined Duane Morris in March 2020.]

Taking advantage of the review de novo to be performed by the Illinois Supreme Court, Wu’s brief led off with the argument that DFS is not gambling because it is a contest of skill. Illinois’ definition of gambling provides an exception for a participant in any contest that offers “prizes, award or compensation to the actual contestants in any bona fide contest for the determination of skill, speed, strength or endurance…” 720 ILCS 5/28-1(b)(2). Wu also argued that federal law also specifically contains a “carve-out” excepting qualifying fantasy sports contests from the realm of wagering and gambling under the Unlawful Internet Gambling Enforcement Act (UIGEA), such that entrance fees are not bets or wagers. 31 U.S.C. § 5362(1)(E)(ix) (2006). The plaintiff countered that DFS was gambling because the Illinois attorney general issued an opinion in 2015 that DFS was gambling and did not fit within the exception for bona fide contests of skill. Ill. Op. Att’y Gen. No. 15-006 (December 23, 2015).

The Illinois Supreme Court first considered and rejected all arguments based upon legislative intent and statutory construction that the LRA should not apply to games played anonymously and virtually in a global internet environment between persons lacking a direct connection to each other. The Court recognized that the “era of strong opposition” to gambling in Illinois which precipitated the 200-year-old gambling statute was over, as evidenced by Illinois recent enactment of the Sports Wagering Act (Pub. Act 101-31, § 25-5 (eff. June 28, 2019) (230 ILCS 45/25-1 et seq.)), but nevertheless found the rationale of the appellate court unconvincing because the statute remained unchanged by the legislature and the recent gambling expansion act did not authorize DFS. Thus the Court settled in on the question of whether Dew-Becker and Wu were engaged in a “bona fide contest for the determination of skill in order to fit under the exception presented by 720 ILCS 5/28-1(b)(2), a question of first impression in Illinois.

The Dew-Becker Court first made new law by formally adopting the “predominate factor test” to determine whether a contest is one of skill or chance. 2020 IL 124472 at ¶ 25. The Court observed that of the three established tests for gambling generally applied by courts in the United States, the predominate factor test was the most practical, and indeed had been used by the Illinois legislature in the context of excluding certain “redemption” machines from gambling. Id. The Court reasoned that the “any chance” test was “no test at all, as every contest involves some degree of chance.” Id. The “material element” test, according to the Court, “depends too greatly on a subjective determination of what constitutes ‘materiality.’” Id. “The predominate factor test, in contrast, provides a workable rule that allows for greater consistency and reliability in determining what constitutes a contest of skill.” Id.

The Court somewhat summarily bypassed the 2015 opinion of the Illinois attorney general, explaining that that opinion relied heavily on a decision from the Texas Attorney General’s Office which in turn had applied the “any chance” test and not the “predominate factor” test. The court also explained that the Illinois attorney general did not have the benefit of more current “peer-reviewed” studies now relied upon by the court demonstrating that outcomes in DFS were predominated by skill of players over chance.

Wu had argued extensively that the Illinois attorney general’s opinion relied upon by the plaintiff was at most an advisory opinion and that the no enforcement action had occurred in Illinois despite 10 years of open and obvious DFS play. After the attorney general issued the opinion letter, FanDuel brought suit the next day in the circuit court of Sangamon County seeking a declaration that the opinion was invalid and that its services were lawful under Illinois law. See FanDuel Inc. v. Madigan, No. 15-MR-1136 (7 Jud. Cir. Sangamon County, December 24, 2015). Faced with suit, the attorney general sought to avoid adjudication of the legality of DFS, filing a motion to dismiss that declared her opinion was a “nonbinding advisory opinion” that did not have the force of law. The attorney general further acknowledged that it “had not threatened any criminal prosecution.” Ultimately, after over two years passed in FanDuel’s declaratory judgment suit without any ruling on the state’s motion to dismiss and without any law enforcement measures, the suit from FanDuel (and DraftKings, which later joined) was dismissed in March 2018 without prejudice and with the right to refile if necessary. The question raised initially by the 2015 FanDuel lawsuit has now been answered by the Illinois Supreme Court.

Ultimately, the Court, in a 5-1 decision delivered by Chief Justice Anne M. Burke, concluded that the outcome of the contest at issue (a head-to-head DFS contest) was determined predominately by the skill of the participants in using their knowledge of statistics and the relevant sport to select a fantasy team that will outperform the opponent. Id. at ¶ 26. The Court concluded:

Because the outcomes of head-to-head DFS contests are predominately skill based, we conclude that plaintiff was not engaged in “gambling” with defendant as required under section 28-8(a). In so holding, we note that nothing in this opinion should be read as stating that regulation of DFS contests is unnecessary or inappropriate. That determination is for the legislature. We determine here only that the DFS contest at issue in this case does not fall under the current legal definition of gambling. For this reason, we affirm the judgment of the appellate court.

 Id. at ¶ 28.

The lone dissenting justice, former Chief Justice Lloyd A. Karmeier, faulted the majority’s failure to use a “qualitative” approach, which he contended was adopted in the vast majority of jurisdictions which apply the predominate factor test. Under this “qualitative” analysis, even games in which skill level has a measured impact on ultimate performance, games or contests whose outcome depends on the results of a contingent event out of the participant’s control, like DFS, are games of chance as a matter of law. See J. Karmeier, Dissenting Op. ¶ 38. Because once the DFS player selects the team, they no longer have any control over the outcome, Justice Karmeier would have applied the exemption under section 28-1(b)(2) more narrowly, limiting its use to apply only to contests in which the participant’s own skill has the opportunity to overcome chance. Id. at ¶ 48.

The Illinois Supreme Court’s ruling that DFS is not gambling, combined with the Court’s finding that DFS is not within the scope of Illinois’ new Sports Wagering Act, means that a DFS operator does not currently require any license from the state of Illinois and is not subject to regulation. Another important licensing consideration is that participants in DFS now seeking licensure under the Sports Wagering Act may not be penalized in licensing decisions. Importantly, also, there will be no deluge of lawsuits and claims against DFS winners or “discovery” lawsuits against the DFS operators seeking to identify DFS winners so they may then be sued, either by the loser under subsection (a) or any person under subsection (b). Considering that subsection (b) claims are subject to the catchall limitations period of five years under 735 ILCS 5/13-205, hundreds of thousands of demand letters and lawsuits have been stymied.

For More Information

If you have any questions about this Alert, gambling loss recovery acts of other states, or other gaming law matters, please contact William M. Gantz, any of the attorneys in our Trial Practice Group, attorneys in our Gaming Industry Group or the attorney in the firm with whom you are regular contact.

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