In a big win for Fliff, Inc., California Judge Sunshine S. Sykes has ruled that the ongoing court case against the California “social sportsbook” brought by plaintiff Bishoy Neshim will be settled by arbitration.
Neshim and his team of lawyers are seeking $7 million in damages in a class-action lawsuit filed against Fliff. Neshim claims Fliff operates in California illegally and he and others lost thousands of dollars while playing on the social casino. They were seeking a court hearing, which would have allowed many others to join the suit.
Fliff, which contends it operates legally under current California laws, countered that arbitration was called for in the case. The company claims its terms and conditions spell out that legal disputes must be settled through arbitration.
Sykes agreed, ruling that third-party arbitration will be utilized to settle the case.
Final decision could cause ripple effect across the US
Voters overwhelmingly shot down propositions to make California sports betting legal last year. There are no efforts currently to get the issue before voters again in the near future.
With no legalized online sports betting or online casino gambling in California, Fliff has stepped into the void to provide similar games and sports betting by using their own currency.
The case could result in a landmark ruling for the US gambling industry. It could settle the issue of what actually constitutes an online sportsbook or casino. The “gray area” that social or sweepstakes casinos reside in is playing out in states across the country.
For example, Fliff is fighting a similar suit in Ohio.
With this ruling, any subsequent plaintiff will have to follow the arbitration path to receive compensation for damages. The final decision could likely deter others from suing Fliff.
Fliff says its structure makes it a sweepstakes operator
Fliff brands itself as a social sportsbook. It allows players to make picks on sporting events and redeem winnings for cash prizes without them making a real-money deposit. Instead, players use free “Fliff Coins” to play. They then can deposit real money which converts to “Fliff Cash.”
Only one of the two types of currency can be traded for cash. Fliff has argued that it’s legal under federal law because it’s structured as a sweepstakes operation.
Neshim’s lawsuit claims Fliff is operating a sportsbook within the state of California without any government oversight or tax revenue. In his 18-page complaint, he says the social sportsbook doesn’t meet California’s definition of a sweepstakes because the prizes don’t come by chance or random drawing.
If Fliff is found to be violating California law, the entire concept of social sportsbooks could be in jeopardy.
The future of California online casinos that follow the sweepstakes model (the only legal and regulated options in the state) could also, in turn, be in jeopardy.
Judge decides user agreement takes precedent
One aspect of the Neshim lawsuit concerned what rules should apply and whether arbitration was even possible. Fliff’s actual headquarters was questioned.
Fliff’s paperwork filed with the Securities and Exchange Commission lists King of Prussia, PA, as its headquarters. However, Pennsylvania has a thriving online sports betting and casino market, so the laws would be different there if applied.
Nessim claims that Fliff CEO Matt Ricci actually lives in Austin, TX, and the company posts jobs for a nearby location.
Then, there was the issue of who should decide the case, a judge or jury. There was precedent set in a prior California case. In McGill v. Citibank, the California Supreme Court ruled that Citibank’s arbitration clause couldn’t be enforced because it meant the plaintiff loses the right to ask the defendant to halt its activities.
After indicating Aug. 2 that she might dismiss the case on those grounds, Sykes gave Nessim’s lawyers 30 days to make arguments against arbitration.
Those arguments obviously didn’t work with the judge. Sykes ruled that users of the social sportsbook agreed to conditions when they signed up that included resolving disputes through arbitration, not collectively or through litigation.
Sykes’ order did not contain a date for a final decision by the arbitrator.