In recent years, there have been numerous civil suits filed in United States courts against foreign operators of Internet gambling sites. These cases have involved a wide variety of actions, including domain-name and trademark disputes, patent-infringement claims, and class-action suits alleging racketeering, unfair competition, fraud and false-advertising claims, among others. With the marked exception of a handful of domain-name and trademark-infringement claims which may be valid, most of these suits have two factors in common. First, they are pursued on a contingency-fee basis with the plaintiff and the plaintiff’s attorney seeking huge awards of damages and legal fees, especially in class-action RICO suits where the awards are based on the purported injury to the entire class of “victims” and the statutes provide for treble damages and attorneys' fees. Second, they depend on the reluctance of the foreign operators to submit to the jurisdiction of the United States courts or expose themselves to the risks associated with the civil discovery processes.
In order to avoid these risks, foreign operators frequently ignore the suits or agree to early settlements which are little short of extortion. These are not sound legal strategies. On one hand, ignoring the suits can result in default judgments of tens of millions of dollars. Publicly traded companies cannot risk such judgments and even privately held companies have duties to their shareholders and investors and must be concerned about the loss of valuable domain names and efforts to enforce judgments outside the United States by seizing foreign bank accounts and other assets. On the other hand, rushing into an exorbitant settlement is also unwise. It is not only costly but it encourages the plaintiffs to file similar suits against other targets. Moreover, it is often difficult to craft a settlement agreement which will prevent the plaintiff’s attorneys from filing a similar suit on behalf of another plaintiff or class of plaintiffs, or based on still another patent allegedly infringed. So, settlements often do not settle the matters but rather encourage subsequent actions.
The concern of offshore operators that submitting to the jurisdiction of a United States civil court undermines possible jurisdictional defenses against future criminal charges is largely unfounded. Any operator who intentionally accepts United States customers is likely subject to both the civil and criminal jurisdiction of the United States courts. Ignoring a civil suit, in a misguided attempt to avoid the criminal implications and jurisdiction of the courts, relinquishes any opportunity to defend against the civil suit and accomplishes nothing.
However, the fear of exposure to the United States civil discovery processes is a valid concern. Fortunately, much can be done to defeat a civil lawsuit before meaningful discovery is undertaken and some degree of preliminary discovery usually can be managed without risk to the operator.
The best course of action for operators who learn that they are the subject of a civil suit is to wait until they are served with the Summons and Complaint naming them as a defendant and specifying the charges. This is known as “service of process.” Sometimes, service on foreign defendants is never even attempted and offshore defendants that aren't served never have to defend themselves. Moreover, even if service is attempted, the service in a foreign country must be effected in precise accordance with the United States Rules of Civil Procedure and/or the international Hague Convention, depending on the country where the process is served. That is not a difficult task but it can be time consuming and cumbersome, and if the foreign service is successfully challenged as being improper, plaintiffs must try again and again until they get it right. Frequently, plaintiffs do not try again and again, especially in lawsuits involving multiple defendants, electing instead to only pursue those who have been properly served.
But, a word of caution: Although operators, who have reason to believe they have been named as a defendant in a civil suit, should await formal service of process before taking action to defend themselves, they should have the public court records relating to the case monitored in the interim to ensure that the plaintiff does not claim that service was effected and seek to enter a default judgment. The plaintiff might send the Summons and Complaint in some authorized manner and it may not arrive. Thinking the defendant has been served, the plaintiff’s counsel may file papers with the court asking it to enter a default judgment against the operator without the operator even being aware that the case is proceeding. Although it should be possible to later have such a default judgment vacated or reversed, it would be better to avoid that situation entirely by monitoring the public record and challenging the propriety of the alleged service of process once a plaintiff attempts to enter a default judgment. A more serious situation occurs when the service is properly made on a low-level individual at the foreign operator’s place of business and is tossed aside and ignored. In that situation, if the case proceeds, there will be less likelihood of vacating the default judgment.
Once the operator has been served (or a proof of service is filed with the court mistakenly claiming he has been served), the operator usually has only 20 to 30 days to file a response, depending on the federal or state jurisdiction. There are numerous defenses which can be asserted at this time. Among the defenses we have effectively utilized in Internet gaming cases over the years are: the service of process did not comply with the procedures; the court does not have jurisdiction over the party; the case should be tried in federal rather than state court (sometimes resulting in the case being dropped); the venue is wrong and the case must be tried in a different court in a different part of the country (resulting in cases being dropped when attorneys working on a contingency do not want to incur the expense and inconvenience of trying a case 3,000 miles away); there is, as a matter of law, no “racketeering enterprise” or the defendant is not a member of the enterprise; there is no class for a class action; the plaintiff is not a proper representative of the class; or a trademark or patent is invalid or has not been infringed. All of these defenses and tactics -- and more -- can be asserted and even adjudicated to a great degree without the defendants ever having to enter the United States. Moreover, in the federal courts the lack of jurisdiction defense has to be pled at the outset of the case or it is waived forever.
On another strategic front, once a plaintiff files a lawsuit alleging improper activities by a gaming operator, that particular plaintiff waives many of his or her own personal privacy rights. Therefore, a defendant may seek legitimate discovery from such a plaintiff at the outset of the lawsuit on issues like the plaintiff's suitability to bring the lawsuit, including his or her personal gaming history, related financial matters, their level of experience and sophistication. A defendant may take early depositions of not just the plaintiff, but of his business associates, friends and family who often have knowledge of the plaintiff’s situation and claims. This type of early discovery is appropriate, and may give the plaintiff reason to reconsider whether he or she wants to proceed with the lawsuit.
Moreover, if the plaintiff’s attorneys see that one defendant has obtained quality legal representation and appears ready to fight hard, the plaintiff’s counsel often may not proceed against that well-represented offshore defendant. Plaintiffs in these actions are usually looking for a quick settlement and easy money -- not long, hard fights -- and if one defendant fights each stage of the action, the other defendants will reap the benefits. So, rather than endanger the entire suit, plaintiffs will often just forget about the well-represented defendants and focus on the easier prey.
If the case cannot be disposed of through these tactics, then it may be wise to settle, but a settlement after a tactical fight often can be made on more favorable terms than at the outset. In going up against an operator who fights back with first-class counsel and aggressive defense tactics, the plaintiff and his counsel realize they are in for a long and expensive fight with no assurance of victory. At this point, they may only be looking to cover the time and money they have invested in the suit so they can move on to easier prey. Then it becomes a matter of careful and painstaking negotiation so as to minimize the amount paid and settle the case without leaving open the possibility of a similar suit being filed in the future by the same plaintiff or counsel.
We have successfully used many of these tactics in defending 14 Internet gaming operators. The claims against 13 have been dismissed and one is pending. Perhaps most importantly, all of them were handled without exposing the client to the risk of criminal prosecution in the United States.
George M. Belfield, who co-authored this article, is a civil trial lawyer at Greenberg Traurig with extensive experience defending consumer class actions, RICO claims, unfair competition and false advertising lawsuits in a wide array of industries, including the Internet gambling industry.