BLT/4e CP 7-10



Chapter 13

Capacity and Legality

Case 13.1

267 Conn. 351, 838 A.2d 179, 52 UCC Rep.Serv.2d 567

Supreme Court of Connecticut.

YALE DIAGNOSTIC RADIOLOGY

v.

ESTATE OF HARUN FOUNTAIN et al.

No. 16922.

Argued Sept. 22, 2003.

Decided Jan. 13, 2004.

BORDEN, J.

The sole issue in this appeal [FN1] is whether a medical service provider that has provided emergency medical services to a minor may collect for those services from the minor when the minor's parents refuse or are unable to make payment. The defendants, the estate of Harun Fountain, an unemancipated minor, and Vernetta Turner-Tucker (Tucker), the fiduciary of Fountain's estate, appeal from the judgment of the Superior Court following an appeal from an order of the Probate Court for the district of Milford. The Probate Court had denied the motion of the plaintiff, Yale Diagnostic Radiology, for distribution of funds from the estate. The trial court ordered recovery of the funds sought by the plaintiff. The defendants claim that the trial court improperly determined that they are liable to the plaintiff for payment of Fountain's medical expenses. We affirm the judgment of the trial court.

FN1. The defendants appealed from the judgment of the Superior Court to the Appellate Court, and we transferred the appeal to this court pursuant to General Statutes § 51-199(c) and Practice Book § 65-1.

The plaintiff filed a proof of claim against the defendants and a motion for distribution of funds in the Probate Court. The Probate Court denied the motion for distribution of funds. The plaintiff appealed to the trial court, which sustained the appeal and rendered judgment in favor of the plaintiff.

The following facts and procedural history are undisputed. In March, 1996, Fountain was shot in the back of the head at point-blank range by a playmate. As a result of his injuries, including the loss of his right eye, Fountain required extensive lifesaving medical services from a variety of medical services providers, including the plaintiff. The expense of the services rendered by the plaintiff to Fountain totaled $17,694. The plaintiff billed Tucker, who was Fountain's mother, [FN2] but the bill went unpaid and, in 1999, the plaintiff obtained a collection judgment against her. In January, 2001, however, all of Tucker's debts were discharged pursuant to an order of the Bankruptcy Court for the District of Connecticut. Among the discharged debts was the judgment in favor of the plaintiff against Tucker.

FN2. There is no reference to Fountain's father in the record or briefs of either party. We therefore assume that he is not available as a viable source of payment of the plaintiff's bill for services rendered to Fountain.

During the time between the rendering of medical services and the bankruptcy filing, Tucker, as Fountain's next friend, initiated a tort action against the boy who had shot him. Among the damages claimed were "substantial sums of money [expended] on medical care and treatment...." A settlement was reached, and funds were placed in the estate established on Fountain's behalf under the supervision of the Probate Court. Tucker was designated the fiduciary of that estate. Neither Fountain nor his estate was involved in Tucker's subsequent bankruptcy proceeding.

Following the discharge of Tucker's debts, the plaintiff moved the Probate Court for payment of the $17,694 from the estate. The Probate Court denied the motion, reasoning that, pursuant to General Statutes § 46b-37(b), [FN3] parents are liable for medical services rendered to their minor children, and that a parent's refusal or inability to pay for those services does not render the minor child liable. The Probate Court further ruled that minor children are incapable of entering into a legally binding contract or consenting, in the absence of parental consent, to medical treatment. The Probate Court held, therefore, that the plaintiff was barred from seeking payment from the estate.

FN3. General Statutes § 46b-37(b) provides: "Notwithstanding the provisions of subsection (a) of this section, it shall be the joint duty of each spouse to support his or her family, and both shall be liable for: (1) The reasonable and necessary services of a physician or dentist; (2) hospital expenses rendered the husband or wife or minor child while residing in the family of his or her parents; (3) the rental of any dwelling unit actually occupied by the husband and wife as a residence and reasonably necessary to them for that purpose; and (4) any article purchased by either which has in fact gone to the support of the family, or for the joint benefit of both."

Although § 46b-37(b) was amended by No. 01-195 of the 2001 Public Acts to include a technical change for purposes of gender neutrality, that change is not relevant to this appeal. References herein are to the current revision of § 46b-37(b).

The plaintiff appealed from the decision of the Probate Court to the trial court. The trial court sustained the appeal and rendered judgment for the plaintiff, holding that, under Connecticut law, minors are liable for payment for their "necessaries," even though the provider of those necessaries "relies on the parents' credit for payment when [the] injured child lives with his parents...." The trial court reasoned that, although parents are primarily liable, pursuant to § 46b-37(b)(2), for their child's medical bills, the parents' failure to pay renders the minor secondarily liable. Additionally, the trial court relied on the fact that Fountain had obtained money damages, based in part on the medical services rendered to him by the plaintiff. This appeal followed.

The defendants claim that the trial court improperly determined that a minor may be liable for payment for emergency medical services rendered to him. They further claim that the trial court, in reaching its decision, improperly considered the fact that Fountain had received a settlement, based in part on his medical expenses. We disagree with both of the defendants' claims.

Connecticut has long recognized the common-law rule that a minor child's contracts are voidable. See Shutter v. Fudge, 108 Conn. 528, 530, 143 A. 896 (1928); Strong v. Foote, 42 Conn. 203, 205 (1875). Under this rule, a minor may, upon reaching majority, choose either to ratify or to avoid contractual obligations entered into during his minority. See 4 S. Williston, Contracts (4th Ed.1992) § 8:14, pp. 271-72. The traditional reasoning behind this rule is based on the well established common-law principles that the law should protect children from the detrimental consequences of their youthful and improvident acts, and that children should be able to emerge into adulthood unencumbered by financial obligations incurred during the course of their minority. See Shutter v. Fudge, supra, at 530, 143 A. 896. The rule is further supported by a policy of protecting children from unscrupulous individuals seeking to profit from their youth and inexperience.

The rule that a minor's contracts are voidable, however, is not absolute. An exception to this rule, eponymously known as the doctrine of necessaries, is that a minor may not avoid a contract for goods or services necessary for his health and sustenance. See 5 S. Williston, Contracts (4th Ed.1993) § 9:18, pp. 149-57. Such contracts are binding even if entered into during minority, and a minor, upon reaching majority, may not, as a matter of law, disaffirm them. Id.

The parties do not dispute the fact that the medical services rendered to Fountain were necessaries; rather, their dispute centers on whether Connecticut recognizes the doctrine of necessaries. As evidenced by the following history, the doctrine of necessaries has long been a part of Connecticut jurisprudence.

In Strong v. Foote, supra, 42 Conn. at 205, this court affirmed a judgment in favor of a dentist against a minor for services rendered to the minor, who had an estate and who was an orphan for whom a guardian had been appointed. This court stated: "In suits against minors, instituted by persons who have rendered services or supplied articles to them, the term 'necessaries' is not invariably used in its strictest sense, nor is it limited to that which is requisite to sustain life, but includes whatever is proper and suitable in the case of each individual, having reference to his circumstances and condition in life." Id. The court further noted that the services were "within the legal limitations of the word 'necessaries,' " and that the plaintiff was not required to inquire as to the minor's guardianship before rendering the services because the services were "necessary to meet an unsupplied want." Id.

Furthermore, from 1907 to 1959, statutory law regarding minors and the doctrine of necessaries remained unchanged. General Statutes (1958 Rev.) § 42- 2 provided: "Capacity to buy and sell is regulated by the general law concerning capacity to contract, and to transfer and acquire property. When necessaries are sold and delivered to an infant, or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price therefor. Necessaries in this section mean goods suitable to the condition in life of such infant or other person, and to his actual requirements at the time of delivery." Therefore, insofar as it referred to minors, this statute codified the common-law doctrine of necessaries. See Shutter v. Fudge, supra, 108 Conn. at 533, 143 A. 896. We recognize that § 42-2 was repealed in 1959; see Public Acts 1959, No. 133, § 1-103; when Connecticut adopted the Uniform Commercial Code. That repeal was not intended, however, to eliminate the doctrine because the statute was replaced by General Statutes § 42a-1-103, which contemplated that the Uniform Commercial Code would continue to be supplemented by the general principles of contract law regarding minors. [FN4]

FN4. General Statutes § 42a-1-103 provides: "Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions." (Emphasis added.)

In light of these precedents, we conclude that Connecticut recognizes the doctrine of necessaries. We further conclude that, pursuant to the doctrine, the defendants are liable for payment to the plaintiff for the services rendered to Fountain.

We have not heretofore articulated the particular legal theory underlying the doctrine of necessaries. [FN5] We therefore take this occasion to do so, and we conclude that the most apt theory is that of an implied in law contract, also sometimes referred to as a quasi-contract. We further conclude that based on this theory, the defendants are liable.

FN5. Courts in other jurisdictions that have held that minors may be liable pursuant to the doctrine of necessaries for medical services have done so by applying varying legal theories. See annot., Infant's Liability for Medical, Dental, or Hospital Services, 53 A.L.R.4th 1249 (1987). For example, some courts have held minors liable only if the creditor can show that the minor was not living with or being supported by his or her parents at the time the contract arose or the services were rendered, or, put another way, only if it is shown that the services were furnished on the minor's credit and not that of his or her parents. See North Carolina Baptist Hospitals, Inc. v. Franklin, 103 N.C.App. 446, 450, 405 S.E.2d 814 (1991) (minor not liable when parents provided all necessaries but were found not to be willing or able to pay one bill); see also Kennedy v. Kiss, 89 Ill.App.3d 890, 894-95, 45 Ill.Dec. 273, 412 N.E.2d 624 (1980); Gaspard v. Breaux, 413 So.2d 288, 290-91 (La.App.1982); Hoyt v. Casey, 114 Mass. 397, 399 (1874); Westrate v. Schipper, 284 Mich. 383, 386, 279 N.W. 870 (1938); Gardner v. Flowers, 529 S.W.2d 708, 711 (Tenn.1975). Some courts have held that liability is only established where an express or implied in fact contract arose between the minor and the creditor. See North Carolina Baptist Hospitals, Inc. v. Franklin, supra, at 450, 405 S.E.2d 814; Madison General Hospital v. Haack, 124 Wis.2d 398, 404, 369 N.W.2d 663 (1985). Still other courts have held minors liable after determining that the goods or services rendered were necessaries, and the minor's parent or guardian was unwilling or unable to pay for them. See Schmidt v. Prince George's Hospital, 366 Md. 535, 555, 784 A.2d 1112 (2001) (minor's father's use of insurance proceeds to buy minor car sufficient for finding that father was unwilling to pay minor's medical expenses); see also In re Dzwonkiewicz's Estate, 231 Mich. 165, 167, 203 N.W. 671 (1925); Greenville Hospital System v. Smith, 269 S.C. 653, 655, 239 S.E.2d 657 (1977); Gardner v. Flowers, supra, at 711. Some courts, however, have held minors liable under the doctrine of necessaries primarily due to the fact that the minor had recovered from a tortfeasor. See, e.g., Cole v. Wagner, 197 N.C. 692, 698-99, 150 S.E. 339 (1929). Still other courts have reasoned that the minor's ever present secondary liability for payment for medical services rendered to him gives rise to an implied in law contract. See In re Dzwonkiewicz's Estate, supra, at 167, 203 N.W. 671; In the Matter of Peacock, 261 N.C. 749, 753, 136 S.E.2d 91 (1964); McAllister v. Saginaw Timber Co., 171 Wash. 448, 451, 18 P.2d 41 (1933). As we explain in the text of this opinion, we agree with this latter approach.

[1] "In distinction to an implied [in fact] contract, a quasi [or implied in law] contract is not a contract, but an obligation which the law creates out of the circumstances present, even though a party did not assume the obligation.... It is based on equitable principles to operate whenever justice requires compensation to be made.... Brighenti v. New Britain Shirt Corporation, 167 Conn. 403, 407, 356 A.2d 181 (1974). With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary ... to examine the circumstances and the conduct of the parties and apply this standard. Cecio Bros., Inc. v. Greenwich, 156 Conn. 561, 564-65, 244 A.2d 404 (1968)." (Emphasis in original; internal quotation marks omitted.) Bershtein, Bershtein & Bershtein, P.C. v. Nemeth, 221 Conn. 236, 242, 603 A.2d 389 (1992).

Thus, when a medical service provider renders necessary medical care to an injured minor, two contracts arise: the primary contract between the provider and the minor's parents; and an implied in law contract between the provider and the minor himself. The primary contract between the provider and the parents is based on the parents' duty to pay for their children's necessary expenses, under both common law [FN6] and statute. [FN7] Such contracts, where not express, may be implied in fact and generally arise both from the parties' conduct and their reasonable expectations. The primacy of this contract means that the provider of necessaries must make all reasonable efforts to collect from the parents before resorting to the secondary, implied in law contract with the minor.

FN6. Our common law has long recognized the parents' obligation to provide for their minor child. See, e.g., Finch v. Finch, 22 Conn. 411, 415 (1853) ("[t]here is a law of our universal humanity ... which impels parents, whether fathers or mothers, to protect and support their helpless children").

FN7. For the text of § 46b-37(b), see footnote 3 of this opinion.

[2] The secondary implied in law contract between the medical services provider and the minor arises from equitable considerations, including the law's disfavor of unjust enrichment. Therefore, where necessary medical services are rendered to a minor whose parents do not pay for them, equity and justice demand that a secondary implied in law contract arise between the medical services provider and the minor who has received the benefits of those services. These principles compel the conclusion that, in the circumstances of the present case, the defendants are liable to the plaintiff, under the common-law doctrine of necessaries, for the services rendered by the plaintiff to Fountain.

The present case illustrates the inequity that would arise if no implied in law contract arose between Fountain and the plaintiff. Fountain was shot in the head at close range and required emergency medical care. Under such circumstances, a medical services provider cannot stop to consider how the bills will be paid or by whom. Although the plaintiff undoubtedly presumed that Fountain's parent would pay for his care and was obligated to make reasonable efforts to collect from Tucker before seeking payment from Fountain, the direct benefit of the services, nonetheless, was conferred upon Fountain. Having received the benefit of necessary services, Fountain should be liable for payment for those necessaries in the event that his parents do not pay.

Furthermore, in the present case, we note, as did the trial court, that Fountain received, through a settlement with the boy who caused his injuries, funds that were calculated, at least in part, on the costs of the medical services provided to him by the plaintiff in the wake of those injuries. Fountain, through Tucker, brought an action against the tortfeasor and, in his complaint, cited "substantial sums of money [expended] on medical care and treatment...." This fact further supports a determination of an implied in law contract under the circumstances of the case.

The defendants claim, however, that the doctrine of necessaries has been legislatively abrogated by § 46b-37(b)(2). See footnote 3 of this opinion. We disagree. Section 46b-37(b)(2) governs the joint liability of parents for the support and maintenance of their family, and, in doing so, merely codifies the common-law principle, long recognized in Connecticut, that both parents are primarily responsible for providing necessary goods and services to their children. See Finch v. Finch, 22 Conn. 411, 415 (1853); see also footnote 6 of this opinion. Section 46b-37(b)(2), however, is silent as to a child's secondary liability. That statute neither promotes nor prohibits a determination of secondary liability on the part of a minor when the minor has received emergency medical services and the parents are either unwilling or unable to pay for those services. We, therefore, decline the defendants' invitation to read into § 46b-37(b)(2), which governs the relationship of parents to one another and to their creditors, any rule regarding the relationship of their minor children to those same creditors. Nothing in either the language or the purpose of § 46b-37(b)(2) indicates an intent on the part of the legislature to absolve minors of their secondary common-law liability for necessaries.

To the contrary, the purposes behind the statutory rule that parents are primarily liable and the common-law rule, pursuant to the doctrine of necessaries, that a minor is secondarily liable, when read together, serve to encourage payment on contracts for necessaries. Those purposes are (1) to reinforce parents' obligation to support their children, and (2) to provide a mechanism for collection by creditors when, nonetheless, the parents either refuse or are unable to discharge that obligation.

The defendants further contended, at oral argument before this court, that, even if we were to conclude that the doctrine of necessaries is applicable, the defendants are not liable to the plaintiff because there has been no showing that Tucker was unwilling or unable to provide necessaries to Fountain. Specifically, the defendants argue that, because Fountain lived in Tucker's home, it cannot be shown that, as a matter of law, Tucker was unwilling or unable to provide Fountain with necessary medical care. We disagree.

The undisputed facts show that Tucker had four years to pay the plaintiff's bill for the services rendered to Fountain. She did not pay that bill even when the plaintiff pursued a collection action against her. These facts are sufficient to show that Tucker was unwilling or unable to pay for Fountain's necessary medical services.

Furthermore, the premise underlying the legal structure placing primary liability in the parent and secondary liability in the minor, and requiring that the creditor first exhaust reasonable efforts to collect from the parent, is that the creditor has the legal capability, beyond moral suasion, to require the parent to pay. That premise simply disappears when the parent's primary obligation has been erased by an intervening bankruptcy.

This reasoning applies, moreover, whether the minor is living in the parent's home, as was the case here, or elsewhere. The place of the minor's residence is simply irrelevant to the question of whether the creditor has an enforceable claim against the parent. That is because the fact that Tucker may be supplying other necessaries, such as food and shelter, does not undermine the claim that she has not made payment for this necessary medical service, which was already provided by the plaintiff to Fountain.

The judgment is affirmed.

Case 13.2

Court of Appeals of Georgia.

STULTZ et al.

v.

SAFETY AND COMPLIANCE MANAGEMENT, INC.

No. A07A0202.

June 13, 2007.

BERNES, Judge.
Safety and Compliance Management, Inc. (S & C) commenced this action against Angela Burgess for her alleged breach of a non-competition agreement. FN1 The trial court subsequently denied partial summary judgment to Burgess and granted partial summary judgment to S & C on the issue of whether the agreement was legally enforceable. For the reasons discussed below, we conclude that the non-competition agreement is unreasonable in terms of the scope of the prohibited activity and therefore reverse.

Summary judgment is proper when the moving party shows that no genuine issue of material fact exists, and that the movant is entitled to judgment as a matter of law. We apply a de novo standard of review to an appeal from a grant or denial of summary judgment and construe the evidence most favorably to the nonmovant.

(Footnotes omitted.) Welch v. Ga. Dept. of Transp., 283 Ga.App. 903, 642 S.E.2d 913 (2007). See Lau's Corp. v. Haskins, 261 Ga. 491, 405 S.E.2d 474 (1991).

Viewed in this light, the record reflects that S & C is a Georgia corporation with its principle place of business in Rossville, Georgia. S & C provides alcohol and drug testing services to various companies and organizations located in multiple states.

In February 2002, S & C hired Burgess to serve as office manager of its Rossville office. Burgess' job title later changed to Vice President of Operations. Her job duties, however, did not substantially change and included providing general customer service, ensuring that specimens were properly retrieved from clients and transported to the testing lab, contacting clients, and performing general office management.

Upon her employment with S & C, Burgess executed a non-competition agreement. The agreement provided in full:

This agreement is made this 28th day of February 2002 between Safety and Compliance and Angela Burgess.

I Angela Burgess, will not compete with Safety and Compliance Management in any area of business conducted by Safety and Compliance Management. This includes solicitation of existing accounts, primarily drug and alcohol testing services.

This agreement is in force for a two year period and a fifty (50) mile radius of the [sic] Rossville, Georgia beginning at the termination of employment by either party.

In May 2004, Burgess quit her job with S & C and began working at Rossville Medical Center (“RMC”). RMC is a medical facility that provides a variety of medical services, including occupational medicine, medical physicals, and workers' compensation injury treatment. RMC also offers alcohol and drug testing services. RMC employed Burgess as a medical assistant. Her duties included setting patient appointments; taking patient medical histories; checking vital signs; performing urinalysis testing for glucose, protein, blood, and pH-level monitoring; administering injections; conducting alcohol breath tests; and collecting specimens for drug testing.

The parties dispute whether Burgess also solicited S & C clients on behalf of RMC in an effort to have them switch to RMC for their alcohol and drug testing.

S & C thereafter commenced the instant lawsuit, alleging, among other things, that Burgess, through her employment with RMC, was actively competing with S & C in violation of the non-compete agreement.

Burgess moved for partial summary judgment on the ground that the non-competition agreement was unreasonable in terms of scope and territorial coverage, thereby rendering the agreement void as a matter of law. S & C countermoved for partial summary judgment on the same issue. The trial court denied Burgess' motion and granted S & C's motion. Burgess now appeals.

[1] [2] [3] [4] Restrictive covenants that are ancillary to an employment contract are subject to strict scrutiny and will be voided by Georgia courts if they impose an unreasonable restraint on trade. Allied Informatics v. Yeruva, 251 Ga.App. 404, 406(2), 554 S.E.2d 550 (2001). See Ga. Const. of 1983, Art. III, Sec. VI, Par. V(c); OCGA § 13-8-2(a)(2).

Whether the restraint imposed by the employment contract is reasonable is a question of law for determination by the court, which considers the nature and extent of the trade or business, the situation of the parties, and all the other circumstances. A three-element test of duration, territorial coverage, and scope of activity has evolved as a helpful tool in examining the reasonableness of the particular factual setting to which it is applied.

(Citations and punctuation omitted.) W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 465(1), 422 S.E.2d 529 (1992). Because Georgia does not utilize the “blue pencil” doctrine of severability in this context, if any portion of the restrictive covenant is found unreasonable, “the entire covenant must fall.” Uni-Worth Enterprises v. Wilson, 244 Ga. 636, 640(1), 261 S.E.2d 572 (1979). See also Advance Technology Consultants v. Roadtrac, 250 Ga.App. 317, 320(2), 551 S.E.2d 735 (2001) (noting that “in restrictive covenant cases strictly scrutinized as employment contracts, Georgia does not employ the ‘blue pencil’ doctrine of severability”).

[5] With these principles in mind, we turn to the present case.

Burgess contends that the trial court erred in concluding that the non-competition agreement was reasonable as to the scope of the activity prohibited.FN2 Applying the strict scrutiny standard, we agree with Burgess and conclude that the non-competition agreement is unreasonable because it is overly broad and indefinite.

The non-competition agreement provides that Burgess “will not compete ... in any area of business conducted by [S & C].” Although the next sentence of the agreement provides some particularity by referring to the solicitation of existing accounts, the agreement, when read as a whole, plainly is intended to prevent any type of competing activity whatsoever, with the reference to solicitation merely being illustrative of one type of activity that is prohibited. By using the phrase “[t]his includes” to begin the sentence referring to the solicitation of existing accounts, the contracting parties clearly intended for the reference to solicitation to be illustrative rather than exclusive. See generally Unified Govt. of Athens-Clarke County v. McCrary, 280 Ga. 901, 903, 635 S.E.2d 150 (2006) (noting that “plain ordinary words [should be] given their usual significance” when construing a contract). Thus, when properly construed, the non-competition agreement prohibits, without qualification, Burgess from competing in any area of business conducted by S & C.

[6] Such a prohibition clearly is unreasonable under our case law. “A non-competition covenant which prohibits an employee from working for a competitor in any capacity, that is, a covenant which fails to specify with particularity the activities which the employee is prohibited from performing, is too broad and indefinite to be enforceable.” Nat. Teen-Ager Co. v. Scarborough, 254 Ga. 467, 469, 330 S.E.2d 711 (1985). See also Howard Schultz & Assoc. of the Southeast v. Broniec, 239 Ga. 181, 184-185(2), 236 S.E.2d 265 (1977).FN3 And, Georgia courts have interpreted contractual language similar to that found in the present case as essentially prohibiting an employee from working for a competitor in any capacity whatsoever.

See Orkin Exterminating Co. v. Walker, 251 Ga. 536, 539(2)(c), 307 S.E.2d 914 (1983) (concluding that covenant providing that former employees “may not engage in the pest control, exterminating, fumigating, or termite control business effectively prohibit[ed] them from working for a competitor in any capacity” and therefore was void) (punctuation omitted); McNease v. Nat. Motor Club of America, 238 Ga. 53, 56(2), 231 S.E.2d 58 (1976) (covenant restricting former employee “from engaging in the motor club or automobile association business without restricting the employee as to the kind and character of activity of which he could not engage” was overly broad and unreasonable because it “in effect prohibited [him] from working in any capacity for a competitor,” even in positions unrelated to his prior position); Russell Daniel Irrigation Co. v. Coram, 237 Ga.App. 758, 760-761(2), 516 S.E.2d 804 (1999) (covenant restricting former employee from “engag [ing] in any activity which is directly competitive with any activity engaged in by [former employer]” was “unenforceable because it purports to prevent [the employee] from obtaining employment with any competitor in any capacity” and is too indefinite); Johnstone v. Tom's Amusement Co., 228 Ga.App. 296, 300(4), 491 S.E.2d 394 (1997) (covenant restricting former employee from “carrying on or engaging in the amusement game business” implied that employee could not participate in such a business in any capacity, rendering the covenant unreasonable and void) (punctuation omitted); Fleury v. AFAB, Inc., 205 Ga.App. 642, 643, 423 S.E.2d 49 (1992) (covenant restricting former employee from, among other things, “engaging in ... any business performed by [his former employer]” was unreasonable in scope because it prohibited the employee from working for a competitor in any capacity) (punctuation omitted). In light of this case law, we conclude that “the [non-competition agreement] imposes a greater limitation upon [Burgess] than is necessary for the protection of [S & C] and therefore is unenforceable.” (Citations and punctuation omitted.) Fleury, 205 Ga.App. at 643, 423 S.E.2d 49.

[7] It is true, as S & C maintains, that there are factual circumstances where an otherwise questionable restrictive covenant that prohibits working for a competitor will be upheld as reasonable. See Nat. Teen-Ager Co., 254 Ga. at 469, 330 S.E.2d 711; Koger Properties v. Adams-Cates Co., 247 Ga. 68, 69, 274 S.E.2d 329 (1981); AGA, LLC v. Rubin, 243 Ga.App. 772, 774, 533 S.E.2d 804 (2000).

More specifically, a suspect restriction upon the scope of activity may nevertheless be upheld when the underlying facts reflect that the contracting party was the very “heart and soul” of the business whose “departure effectively brought the business to a standstill.” Arnall Ins. Agency v. Arnall, 196 Ga.App. 414, 418(1), 396 S.E.2d 257 (1990) (physical precedent only). See Watson v. Waffle House, 253 Ga. 671, 673(2), 324 S.E.2d 175 (1985); Allen v. Hub Cap Heaven, 225 Ga.App. 533, 538(5)(a), 484 S.E.2d 259 (1997). Moreover, the “heart and soul” exception is applicable only where the restrictive covenant otherwise applies to “a very restricted territory and for a short period of time.” Russell Daniel Irrigation Co., 237 Ga.App. at 761(2)(a), 516 S.E.2d 804.

[8] S & C, however, has failed to allege or present evidence showing that Burgess was the heart and soul of its alcohol and drug testing business. “Although [Burgess] was a major player in [S & C's] business, [she] was, when all is said and done, an employee. [Her] departure may have hurt [S & C]; but it did not bring the business to a halt. It cannot be said, therefore, that [Burgess] was the heart and soul of the business.” (Punctuation omitted.) Arnall Ins. Agency, 196 Ga.App. at 418(1), 396 S.E.2d 257. See also Russell Daniel Irrigation Co., 237 Ga.App. at 761(2)(a), 516 S.E.2d 804. FN4



For these combined reasons, we conclude that the non-competition agreement executed by Burgess is unreasonable as to the scope of the activity prohibited and thus is unenforceable as a matter of law. We therefore reverse the trial court's denial of Burgess' motion for partial summary judgment and its grant of S & C's motion for partial summary judgment. Judgment reversed

Case 13.3

Court of Common Pleas of Pennsylvania, Philadelphia County.

THIBODEAU

v.

COMCAST

AFROILAN

v.

AT & T WIRELESS, et al.

No. 4526 MARCH TERM 2004, 0469 AUG. TERM 2002.

Jan. 27, 2006.

, J.

"The law in its majesty prohibits rich and poor alike from sleeping under bridges."--Anatole France

AMENDED OPINION

Defendants in Thibodeau v. Comcast, April Term, 2003 No. 4526, and Afroilan v. AT & T Wireless, August Term, 2002 No. 0469, raise the issue of whether class actions may be precluded in consumer contracts of adhesion. In the interest of judicial economy, this Court addresses this issue in one opinion.

Afroilan v. AT & T Wireless

On August 7, 2002, Brandon Beckmeyer filed this class action lawsuit against AT & T Wireless and Panasonic Corporation, alleging that his Panasonic cellular phone contained a locking device which prevented him from using it on networks other than AT & T. On March 4, 2005, this Court granted Lorena Afroilan's motion to replace Mr. Beckermeyer as class representative, and ordered her to file an amended complaint raising personal factual allegations. Ms. Afroilan complied with this Court's order, filed a Fifth Amended Complaint on March 24, 2005, and was substituted as class representative.

Defendants filed preliminary objections to Ms. Afroilan's Fifth Amended Complaint, asserting that her class action claims were barred by the phone's "Welcome Guide," given to Ms. Afroilan with her phone after purchase. The "Welcome Guide" required all dissatisfied customers to arbitrate all claims individually, and precluded class action litigation. On July 12, 2005, this Court dismissed three counts of the complaint, finding that The Honorable C. Darnell Jones had previously decided these issues, and overruled the remainder of the defendants' objections.

Defendants Panasonic and AT & T Wireless now appeal this Court's July 12, 2005 order. Specifically, defendants allege this Court abused its discretion in overruling defendant's first objection which sought to preclude class action litigation by compelling individual arbitration.

Thibodeau v. Comcast

On March, 19, 2004, plaintiff Philip Thibodeau filed this class action lawsuit against Comcast Corporation, alleging that his cable television provider overcharged its subscribers for cable converter boxes and remote control devices. On April 23, 2004, Mr. Thibodeau's case was removed to the U.S. District Court for the Eastern District of Pennsylvania. On October 25, 2004, his case was remanded to the Court of Common Pleas. On December 17, 2004, defendants filed a motion to dismiss all class allegations and compel individual arbitration. On December 23, 2004, defendants filed Preliminary Objections to plaintiff's complaint. In their preliminary objections, defendants argued that Comcast's customer agreement, which included a mandatory individual arbitration clause and a class action preclusion clause, barred plaintiffs from pursuing a class action lawsuit. On June 10, 2005, this Court denied Comcast's objections to plaintiff's class action allegations and representative claims, and their motions to compel individual arbitration. Defendants now appeal this Court's order denying their motions to preclude class action litigation by compelling individual arbitration.

Afroilan v. AT & T Wireless

Plaintiff Lorena Afroilan purchased a Panasonic cell phone which contained a locking device which prevented its use on any network other than AT & T. In her complaint, Ms. Afroilan claimed that the defendants failed to disclose the presence of the locking device in the phone's accompanying documentation, and failed to inform customers that the phone would only work with AT & T's service, even though the phone is otherwise compatible with other networks. When Ms. Afroilan became dissatisfied with AT & T's cellular service and wanted to switch cellular phone providers, she could not use the phone on another network because of the locking device.

Ms. Afroilan was first notified of binding, mandatory individual arbitration and the bar of class action litigation in the AT & T Wireless "Welcome Guide." The "Welcome Guide" is a document not seen before purchase, but is included with the phone's packaging. On the 24th page of the 25 page document, the pamphlet reads:

The relevant sections of the AT & T Wireless customer agreement are reproduced precisely as attached to Defendant's Preliminary Objections of Defendant AT & T Wireless Services, Inc. to Plaintiff's Fifth Amended Class Action Complaint, August Term, 2002 No. 0469.

TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE

Thibodeau v. Comcast

Plaintiff Philip Thibodeau has been a Comcast cable television subscriber since 1983. As part of his subscription, Mr. Thibodeau rented two cable converter boxes and two remote controls which he believed were necessary to receive cable television. In his complaint, Mr. Thibodeau alleged that Comcast failed to inform customers that basic-level cable, "Expanded Basic" (also called "Standard") cable, and other non-premium programming could be viewed without renting these converter boxes. Mr. Thibodeau also contended that Comcast failed to inform customers that it was unnecessary to rent remote controls, because third-party remote controls were available for all levels of cable service. Comcast continued to charge Mr. Thibodeau monthly rental fees for the unnecessary converter boxes and remote controls. Mr. Thibodeau alleged that this practice violates the Pennsylvania Unfair Trade Practices and Consumer Protection Law, et seq., and constituted common law fraud, negligent misrepresentation, and unjust enrichment.

Mr. Thibodeau was originally a customer of AT & T Broadband. In 2002, Comcast acquired AT & T Broadband. After the acquisition, AT & T customers were mailed a new Comcast customer agreement which contained new terms unilaterally imposed by Comcast. The new customer agreement mandated individual arbitration and precluded class actions by aggrieved customers. The old AT & T and new Comcast agreements were visually identical in terms of style, font size, type and layout. The only aesthetic difference between them was a small icon on the first page. The image was originally the AT & T logo which was replaced by the Comcast logo.

There were, however, significant substantive differences. On the 8th page of the 10 page document, the Comcast agreement reads:

The relevant sections of the Comcast customer agreement are reproduced precisely as attached to Defendant's Petition to Compel Arbitration in Thibodeau v. Comcast, March Term, 2004 No. 4526.

10. MANDATORY AND BINDING ARBITRATION

IF WE ARE UNABLE TO RESOLVE INFORMALLY ANY CLAIM OR DISPUTE RELATED TO OR ARISING OUT OF THIS AGREEMENT OR THE SERVICES PROVIDED, WE HAVE AGREED TO BINDING ARBITRATION EXCEPT AS PROVIDED BELOW, YOU MUST CONTACT U.S. WITHIN ONE (1) TEAR OF THE DATE OF THE OCCURRENCE OF THE EVENT OR FACTS GIVING RISE TO A DISPUTE (EXCEPT FOR BILLING DISPUTES WHICH ARE SUBJECT TO PARAGRAPH 3. RATES AND CHARGES ABOVE), OR YOU WAIVE THE RIGHT TO PURSUE A CLAIM BASED UPON SUCH EVENT, FACTS OR DISPUTE.

THERE SHALL BE NO PUGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED ON A CLASS ACTION OR CONSOLIDATED BASIS OR ON BASES INVOLVING CLAIMS BROUGHT IN A PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE GENERAL (SUCH AS A PRIVATE ATTORNEY GENERAL). OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED UNLESS YOUR STATES LAWS PROVIDE OTHERWISE.

Business regularly uses binding arbitration as a mechanism for alternate dispute resolution. The prevalence of arbitration is evidenced by the ever-increasing number of private arbitrations conducted annually, in the many excellent firms doing arbitration and other forms of ADR, and in the proliferation of mandatory binding arbitration clauses in consumer and business contracts. In virtually every jurisdiction in the United States, the judiciary encourages arbitration as an alternative to the potential delay, costs and unpredictability of litigation.

Murray S. Levin, The .

Arbitration usually provides a quicker, less expensive, and always a more private alternative to traditional litigation. Arbitration typically involves simplified procedures, a less formal setting, and often more technically experienced and knowledgeable decision-makers. Although arbitration is similar to traditional litigation in that it requires the presentation of proofs, arguments and neutral decision-making, parties can often tailor arbitration processes to the dispute involved. The less formal nature of arbitration proceedings can minimize hostility between parties, thus facilitating ongoing and future business relationships. Arbitration is justifiably favored by the law.

The organized bar officially recognized Alternative Dispute Resolution thirty years ago, when in 1976 the American Bar Association established a Special Committee on Minor Disputes, now called the ABA Section of Dispute Resolution. Virtually all state and federal bar associations now have ADR committees. The United States Supreme Court views arbitration as a viable alternative to traditional litigation. In , the United States Supreme Court held that "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration." Pennsylvania law also encourages arbitration. As early as 1968, the Pennsylvania Supreme Court stated that "[Pennsylvania] statutes encourage arbitration and with our dockets crowded and in some jurisdictions con[g]ested arbitration is favored by the courts." Arbitration is considered a "necessary tool for relieving crowded dockets and ensuring the swift and orderly settlement of disputes."

The ABA Section of Dispute Resolution can be found on the internet at .

.

.

Pennsylvania law also regulates class action consumer litigation and encourages class action arbitration. In , the Superior Court affirmed Pennsylvania's longstanding policy favoring classwide arbitration. Defendant Shearson Lehman's customer agreement was silent as to whether plaintiffs could pursue a class arbitration. Holding that explicit language permitting class action arbitrations was unnecessary, the Superior Court enforced the agreement's "any controversy" language:

"Given the three paths down which this litigation can be directed-- compelled individual arbitration, class action in a court of law, or compelled classwide arbitration--the last choice best serves the dual interest of respecting and advancing contractually agreed upon arbitration agreements while allowing individuals who believe they have been wronged to have an economically feasible route to get injunctive relief from large institutions employing adhesion contracts."

The Superior Court reasoned that if the agreement sub silentio compelled individual arbitration and precluded class actions, the effect was against public policy because it would force consumers:

"... already straghtjacketed by an industry-wide practice of arbitration agreements to fight alleged improprieties at an exorbitant cost. Individual arbitration would be a small deterrent to companies certain that few proceedings will be instituted against them. Because the principles of res judicata and collateral estoppel are not applicable to arbitration proceedings, each plaintiff would be forced to fully litigate his complaint."

The Superior Court held that in Pennsylvania, consumer class action litigation is of such public importance that public policy considerations allow class action arbitration even if an arbitration agreement does not explicitly so provide. Nonetheless, control of class action litigation is also of such public importance that the proper referral to class arbitration occurs only after a Court determines whether certification is proper.

Federal court decisions have held contra, precluding class action arbitration unless specifically provided in the agreement. See ; Gray v. Conseco, Inc., 2001 U.S. Dist. LEXIS 21696 (D.Cal.2001); Bischoff v. DirecTV, 180 F.Supp.2d at 1108.

In the cases presently before this Court, the agreements explicitly preclude class action arbitration, and the issue presented is whether such preclusion is permissible under Pennsylvania law. Before addressing this question directly, the Court must dispose of the claim that Federal law preempts any Pennsylvania public policy prohibiting the exclusion of consumer class litigation. The interrelationship and compatibility between Federal and Pennsylvania law regarding arbitration was fully explained in :

"... Pennsylvania law on the enforceability of agreements to arbitrate is in accord with federal law and requires enforcement of arbitration provisions as written, permitting such provisions to be set aside only for generally recognized contract defenses such as duress, illegality, fraud, unconscionability. See . Since there is no appreciable difference between Pennsylvania law and the provisions of the FAA on the enforceability of agreements to arbitrate, we will presume, solely for purposes of this appeal, that the contract between the parties is one involving interstate commerce, thus rendering the FAA controlling upon the issue of the enforceability of the arbitration agreement.

The standard of review which the United States Supreme Court has prescribed for a state court determination of whether there is a valid agreement to arbitrate has been keenly described as directing that a state court

'must look to the body of federal arbitration law,' which recognizes that 'the question of arbitrability [is to] be addressed with a 'healthy regard for the federal policy favoring arbitration, with doubts regarding the scope of the agreement resolved in favor of arbitration. id. (quoting As to the more specific issue of whether there is a valid agreement to arbitrate, " 'courts generally ... should apply ordinary state-law principles that govern the formation of contracts'," (quoting ), but in doing so, must give "due regard ... to the federal policy favoring arbitration," Id. (quoting ; ("In construing an arbitration agreement within the scope of the FAA, 'as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability'.") (quoting . At the same time, however, the court may grant relief to a party opposing arbitration where he presents "well supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract'," (quoting ); see also (court should at all times "remain keenly attuned to well-grounded claims that 'the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds "for the revocation of any contract." " ' (quoting ); ("[ 'gives States ... methods for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision' both in equity and under principles of contract law." (quoting .'

The Lytle opinion continued, quoting Justice Stephen G. Breyer who was writing for the majority of the U.S. Supreme Court in :

" [of the FAA] gives States a method for protecting consumers against unfair pressure to agree to a contract with an unwanted arbitration provision. States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause 'upon such grounds as exist at law or in equity for the revocation of any contract (emphasis added). What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit) but not fair enough to enforce its arbitration clause. The Act makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal 'footing', directly contrary to the Act's language and Congress' intent."

The Lytle court concluded:

"Thus, appellants may avoid being compelled to arbitrate their claims if they produce evidence of such "grounds as exist at law or in equity for the revocation of any contract." . "Generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements without contravening" the enforcement provisions of the Federal Arbitration Act. ."

Accordingly, this Court has analyzed the Comcast and AT & T agreements in light of common law contract defenses including unconscionability. Contracts of adhesion are standardized form contracts presented to consumers without negotiation or any option for modification. In Robinson v. , the Superior Court defined a contract of adhesion as one "prepared by one party, to be signed by the party in a weaker position, [usually] a consumer, who has little choice about the terms." The Comcast and AT & T customer agreements received by the plaintiffs and all other class members are clearly contracts of adhesion. They were sent without any opportunity for customers to negotiate and even without any requirement of assent to the mandated individual arbitration and preclusion of class action litigation. There is nothing per se wrong with a contract of adhesion. Not every contract of adhesion contains unconscionable provisions. A contract of adhesion is only unconscionable if it unreasonably favors the drafter. In the United States District Court for the Eastern District of Pennsylvania interpreted Pennsylvania State law, holding:

"In determining whether a clause is unconscionable, the court should consider whether, in light of the general commercial background and the commercial needs of a particular trade, the clause is so one-sided that it is unconscionable under the circumstances."

In , the Superior Court found that provisions of an insurance policy, while facially equal, were factually "completely unconscionable." The policy required that any arbitration award under $15,000 was binding on the parties, but either party was entitled to a trial de novo if an award was greater than $15,000. Although the provision was facially equal because either party could appeal a large award, the clause was unconscionable because the effect of the clause was clearly unequal:

"[The policy] allows the insurance company the unfettered right to a trial whenever an award is made in favor of a claimant or insured while a losing claimant or insured is bound by the award. The clause so clearly favors the insurer over the claimant or insured that it is repugnant to notions of due process, equal protection, justice, and fair play." The Superior Court found the clause void because unconscionable. The Zak decision instructs that even language which appears to be facially neutral can nonetheless be unconscionable if its effect is one-sided.

In plaintiffs were required to pay unearned finance charges and prepayment penalties when they refinanced their mortgage. The refinancing agreement had a mandatory arbitration clause requiring all controversies over $15,000 to be arbitrated individually, and precluded class litigation or arbitration. On appeal, plaintiffs who had lost below, argued that the arbitration agreement was unconscionable, against public policy, and unenforceable because it effectively, factually reserved the right of access to the courts to the mortagee alone. While remanding the case to the lower court for further factual findings of costs associated with individual arbitration, the Superior Court held mandatory individual arbitration unconscionable when it actually prohibits consumer claims. The court said:

"... the reservation by [the defendant] of access to the courts for itself to the exclusion of the consumer creates a presumption of unconscionability, which in the absence of "business realities" that compel inclusion of such a provision in an arbitration provision, renders the arbitration provision unconscionable and unenforceable under Pennsylvania law."

The Lytle Court held that if the costs associated with arbitrating a single claim effectively deny consumer redress, prohibiting class action litigation or class action arbitration is unconscionable.

Two years later, in , the Superior Court reaffirmed this principle, holding that it was unconscionable to require individual arbitration and preclude class action litigation if the costs of arbitration effectively prevented an individual from pursuing a claim. The court said:

"While there may be a select few who are so incensed by the notion of the e-filing fee they would spend significant time and $50 .00 for the possibility of a $30.00 award, this is a situation where the costs of arbitration, minimal though they may seem, work to preclude the individual presentation of claims."

The court held: "As applied to the facts of this case, the enforcement of the arbitration provision would work to deny the allegedly injured parties' access to justice and is therefore unconscionable."

The high cost of arbitration compared with the minimal potential value of individual damages individual denied every plaintiff a meaningful remedy. If class action litigation is the only effective remedy, a contract of adhesion cannot preclude such litigation.

Pennsylvania is not the only state which has addressed the preclusion of class action litigation in consumer contracts of adhesion. The California Court of Appeal recently ruled on the identical issue presented in these cases, finding that forced individual arbitration by precluding class actions is so one-sided as to be "blindingly obvious" and violated "fundamental notions of fairness." The plaintiff in Szetela v. Discover Bank, 97 Cal. App 4th 1094, , challenged the mandatory individual arbitration and class action preclusion provisions of his customer agreement. The court found that because the effect of enforcement agreement was corporate immunity, preclusion of class action litigation was unconscionable:

"This provision is clearly meant to prevent customers, such as Mr. Szetela and those he seeks to represent, from seeking redress for relatively small amounts of money, such as the $29 sought by Mr. Szetela. Fully aware that few customers will go to the time and trouble of suing in small claims court, [the defendant] has instead sought to create for itself virtual immunity from class or representative actions despite their potential merit, while suffering no similar detriment to its own rights."

The California court continued:

"The clause is not only harsh and unfair to Discover customers who might be owed a relatively small sum of money, but also serves as a disincentive for Discover to avoid the type of conduct that might lead to class action litigation in the first place. By imposing this clause on its customers, Discover has essentially granted itself a license to push the boundaries of good business practices to their furthest limits, fully aware that relatively few, if any, customers will seek legal remedies, and that remedies obtained will only pertain to that single customer without collateral estoppel effect. The potential for millions of customers to be overcharged small amounts without an effective method of redress cannot be ignored."

Class actions were created in response to public need. As early as 1854, the United States Supreme Court recognized that the representative nature of class action litigation serves a unique function in our judicial system. In , the Court wrote:

"Where the parties interested in the suit are numerous, their rights and liabilities are so subject to change and fluctuation by death or otherwise, that it would not be possible, without very great inconvenience, to make all of them parties, and would oftentimes prevent the prosecution of the suit to a hearing. For convenience, therefore, and to prevent a failure of justice, a court of equity permits a portion of the parties in interest to represent the entire body, and the decree binds all of them the same as if all were before the court."

Class actions are still of great public importance. Class action lawsuits are an remain the essential vehicle by which consumers may vindicate their lawful rights. The average consumer, having limited and financial resources and time, cannot individually present minor claims in court or in an arbitration. Our justice system resolves this inherent inequality by creating the procedural device which allows consumers to join together and seek redress for claims which would otherwise be impossible to pursue. Both the Federal and Pennsylvania Rules of Civil Procedure delineate specific rules for publicly selected trial court judges to actively manage class action lawsuits through the public judicial system. Accordingly, under Pennsylvania law, the trial court judge remains responsible for all of the key procedural decisions that ensure fairness for named and unnamed plaintiffs in the class, even in a class action removed to class arbitration.

and Pennsylvania Rule 1709 mandate that trial court judges ensure that the rights of all class members are adequately represented by counsel. Federal and Pennsylvania Rule 1712 mandate that trial court judges approve class notification to ensure that absent plaintiffs receive adequate notice of class actions. Federal and Pennsylvania Rule 1711 mandate that trial court judges ensure that class members who elect not to participate in the class action understand their rights. Federal and Pennsylvania Rule 1714 mandate that trial court judges approve of the terms of any settlement agreement. Federal and Pennsylvania Rule 1714 mandate that trial court approval is required before discontinuance. Lytle v. Citifinancial Services mandates that state court judges determine the procedural setting within which trial court judges send cases to arbitration.

A fundamental principle of justice is "everyone should have a day in court." The Pennsylvania Constitution, Section 11, proclaims: "All courts shall be open; and every man for an injury done him in his lands, goods, person or reputation shall have remedy by due course of law ..." Most consumer complaints involve miniscule claims. No individual consumer possibly could or ever will individually litigate most consumer claims. The cost of lawyers, fees, and expert witnesses makes individual lawsuit or arbitration so completely impractical as to be fairly and properly characterized as impossible. It is only the class action vehicle which makes small consumer litigation possible. Consumers joining together as a class pool their resources, share the costs and efforts of litigation and make redress possible. Should the law require consumers to litigate or arbitrate individually, defendant corporations are effectively immunized from redress of grievances. Both the Comcast and AT & T customer agreements attempt to preclude all class action litigation in court or in arbitration, and attempt to mandate that all customers arbitrate all claims as individuals. The Comcast and AT & T customer agreements are contracts of adhesion unilaterally imposed on all consumers. Consumers including Ms. Afroilan and Mr. Thibodeau are subject to every term without choice. Ms. Afroilan was forced to accept every word of all 25 pages of the mass-delivered AT & T customer agreement, or her cellular phone was useless. Mr. Thibodeau was forced to accept every word of all 10 pages of the mass-delivered Comcast customer agreement or have no cable television service whatsoever, since Comcast holds a government-authorized geographic monopoly.

Ms. Afroilan, Mr. Thibodeau and their class members are claiming minimal damages. Ms. Afroilan and each of the class members allege the cellular phones they purchased for $50 are unusable. Mr. Thibodeau and each of his class members allege they were unlawfully overcharged $9.60 per month. Everyone knows that these claims will never be arbitrated on an individual basis, either by the named plaintiffs or by any other of the millions of class members they represent. No individual will expend the time, fees, coasts and or other expenses necessary for individual litigation or individual arbitration for this small potential recovery. If the mandatory individual arbitration and preclusion of class action provisions are valid, Comcast and AT & T are immunized from the challenges brought by Ms. A froilan, Mr. Thibodeau, brought by any class member, or effectively from any minor consumer claims. It is clearly contrary to public policy to immunize large corporations from liability by allowing them preclude all class action litigation or in arbitration. The preclusion of classwide litigation or claswide arbitration of consumer claims, imposed in a contract of adhesion, is unconscionable and unenforceable. For the reasons set forth above, the decision of the Court should be affirmed.

Supplemental Case Printout for: Contemporary Legal Debates

United States District Court,

D. New Jersey.

Charles E. HUMPHREY, Jr., Plaintiff,

v.

VIACOM, INC., CBS Corporation, CBS Television Network, , Inc., The Walt Disney Company, ESPN, Inc., The Hearst Corporation, Vulcan, Inc., Vulcan Sports Media and The Sporting News, Defendants.

No. 06-2768 (DMC).

June 20, 2007.

OPINION

DENNIS M. CAVANAUGH, U.S. District Judge.
This matter comes before the Court upon motions by Defendants ESPN, Vulcan Sports Media and (“Defendants”) to dismiss Complaint of Charles E. Humphrey, Jr. (“Plaintiff” or “Humphrey”) pursuant to Federal Rule of Civil Procedure. 12(b)(6). No oral argument was heard pursuant to Federal Rule of Civil Procedure 78. After carefully considering the submissions of the parties and for the following reasons, Defendants' motions to dismiss Plaintiff's Complaint are granted.

BACKGROUND

Fantasy Sports

Fantasy sports leagues allow participants to “manage” virtual teams of professional players in a given sport throughout a sport's season and to compete against other fantasy sports participants based upon the actual performance of those players in key statistical categories. Fantasy sports have become extremely popular in recent years. They have earned a place in modern popular culture and are the subject of countless newspaper and magazine articles, books, internet message boards and water-cooler conversations. The enormous popularity of fantasy sports can be attributed in part to the services offered on internet websites, such as those operated by Defendants. The websites provide a platform for real-time statistical updates and tracking, message boards and expert analysis. (Compl.¶¶ 26-31).

Fantasy sports leagues allow fans to use their knowledge of players, statistics and strategy to manage their own virtual team based upon the actual performance of professional athletes through a full season of competition. In the early days of fantasy sports, participants compiled and updated the players' statistics manually. Today, the rapid growth of the internet fostered additional services, such as those offered by Defendants, that provide an internet environment and community for playing and discussing fantasy sports. The technology also allows for automatic statistic updates for players and teams and access to expert fantasy sports analysis. As a result, fantasy sports have become much more accessible and popular throughout the country. Id.

Although the rules and services vary somewhat from one fantasy sports provider to another, the websites operate as follows. Participants pay a fee to purchase a fantasy sports team and the related services. The purchase price provides the participant with access to the support services necessary to manage the fantasy team, including access to “real-time” statistical information, expert opinions, analysis and message boards for communicating with other participants. Id.

The purchase price also covers the data-management services necessary to run a fantasy sports team. Using these services, the participants “draft” a slate of players and track the performance of those players in key statistical categories throughout the season. Participants are grouped into “leagues” of as many as twelve teams and compete not only against the members of their own leagues, but can also compete against the winners of the other leagues. Id . at ¶¶ 45-46.

The success of a fantasy sports team depends on the participants' skill in selecting players for his or her team, trading players over the course of the season, adding and dropping players during the course of the season and deciding who among his or her players will start and which players will be placed on the bench. The team with the best performance-based upon the statistics of the players chosen by the participant-is declared the winner at the season's end. Nominal prizes, such as T-shirts or bobble-head dolls, are awarded to each participant whose team wins its league. Managers of the best teams in each sport across all leagues are awarded larger prizes, such as flat-screen TVs or gift certificates. These prizes are announced before the fantasy sports season begins and do not depend upon the number of participants or the amount of registration fees received by Defendants. Id. at ¶¶ 32-48.

Plaintiff's Complaint

Plaintiff filed a Complaint on or around June 20, 2006, against Viacom Inc., the CBS Corporation, the CBS Television Network, , Inc, The Hearst Corporation, The Walt Disney Company, ESPN, Inc., Vulcan, Inc., Vulcan Sports Media and The Sporting News for alleged violations of the anti-gambling laws of New Jersey and several other states. Only ESPN, Sportsline and Vulcan Sports Media remain in the case as Defendants. Plaintiff voluntarily dismissed all other Defendants. The Defendants operate separate pay-for-play online fantasy sport leagues.

The Complaint alleges that Defendants operate three distinct pay-for-play fantasy sports sites in violation of several states' qui tam gambling loss-recovery laws. The Complaint indicates that Plaintiff is invoking the qui tam laws of the District of Columbia, Georgia, Illinois, Kentucky, Massachusetts, New Jersey, Ohio and South Carolina in an attempt to recover losses incurred by the residents of each state who participated in the Defendants' fantasy sports games.

Although each state's qui tam statutes differ slightly, there are no substantial differences between the New Jersey statute and those of the other states. Through invocation of the various qui tam laws, Plaintiff alleges that he is entitled to recover the individual gambling losses of all participants of the Defendants' allegedly unlawful gambling schemes. Plaintiff claims that the registration fees paid by fantasy sports leagues participants constitute wagers or bets, and he seeks to recover these fees pursuant to the qui tam gambling loss-recovery statutes. In other words, Humphrey concludes that the Defendants' fantasy sports leagues constitute gambling because the participant “wagers” the entry fee for the chance to win a prize and the winner is determined predominantly by chance due to potential injuries to players and the vicissitudes of sporting events in general.

The ESPN Defendants filed a 12(b)(6) Motion to Dismiss on September 28, 2006. The Sportsline and Vulcan Sports Media Defendants together filed their own 12(b)(6) Motion to Dismiss on September 29, 2006.

Qui Tam Statutes

The Qui Tam statutes derive from the 1710 Statute of Queen Anne, an English statute that authorized gambling losers and informers to sue to recover losses incurred “at any [t]ime or sitting by playing at [c]ards, [d]ice, [t]ables or other [g]ame or [g]ames whatsoever or by betting on the [s]ides or [h]ands of such as do play at any of the [g]ames aforesaid.” 9 Anne ch. 19 (1710), reproduced in 9 Statutes of the Realm (George Eyre & Andrew Strahan, pubs., 1810-1822).

The American versions of the Statute of Anne contain similar language and were similarly directed at deterring traditional gambling. New Jersey's statute, for example, was adopted in 1797 and permitted the recovery of losses incurred “by playing at cards, dice, billiards, tables, tennis, bowls, shuffle-board, or other game or games, or by betting on the sides or hands of such as do play at any game or games, or by betting at cock-fighting, or other sport or pastime.” Act to Prevent Gaming, February 8, 17907, ¶¶ 4-5, at New Jersey Session Laws, Legislature 21, 149-151.

Although the specific elements of the Qui Tam statutes vary, they share a common origin and purpose. They were intended to prevent gamblers and their families from becoming destitute due to gambling losses-and thus becoming wards of the State-by providing a method for the gambler's spouse, parent or child to recover the lost money from the winner. See Berkebile v. Outen, 311 S.C. 30, 55 (1993) ( qui tam statute's purpose is to “protect a gambler ... from abusing the vice and exceeding limits which bring harm to the gambler and his or her family”); Salonen v. Farley, 82 F.Supp. 25, 28 (E.D.Ky.1949) ( qui tam statute was “primarily intended by the legislature ... for the protection of the dependents of those losing in gambling”). The statutes were also intended to supplement states' general anti-gaming provisions in an era when local governments' own regulatory and enforcement powers were much less effective than they are today. See e.g., Vinson v. Casino Queen, Inc., 123 F.3d 655, 657 (7th Cir.1997) (The [Illinois] Loss Recovery Act was intended to deter illegal gambling by using its recovery provisions as a powerful enforcement mechanism.”); Salomon v. Taft Broadcasting Co., 16 Ohio App.3d 336, 475 N.E.2d (1292, 1293 (Ct.App. Pt Dist., 1984) (observing that qui tam statute was “born in a vanished era where the absence of an organized police authority to enforce criminal statutes made necessary the use of such rewards for informers”).

ANALYSIS

Legal Standard on a Motion to Dismiss

In deciding a Rule 12(b)(6) motion to dismiss, the Court is required to accept as true the allegations in the complaint, and to view them in the light most favorable to the plaintiff, but the Court “need not credit a complaint's ‘bald assertions' or ‘legal conclusions.’ “ Morris v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir.1997). Rather, the Third Circuit has explained that:

the plaintiff must allege sufficient facts in the complaint to survive a Rule 12(b)(6) motion. Confronted with such a motion, the court must review the allegations of fact contained in the complaint; for this purpose, the court does not consider conclusory recitations of law.

Commonwealth of Pa. v. PepsiCo, Inc., 836 F.2d 173, 179 (3d Cir.1988).

A plaintiff who fails to allege basic facts in support of his claims should not be allowed to proceed. See DM Research v. Coll. of Am. Pathologists, 170 F.3d 53, 55-56 (1st Cir.1999) (”[T]he price of entry, even to discovery, is for the plaintiff to allege a factual predicate concrete enough to warrant further proceedings, which may be costly and burdensome. Conclusory allegations in a complaint, if they stand alone, are a danger sign that the plaintiff is engaged in a fishing expedition.).

Stating a Claim under Qui Tam Laws

Plaintiff asserts claims under the gambling qui tam statutes of the District of Columbia, Georgia, Illinois, Kentucky, Massachusetts, New Jersey, Ohio and South Carolina. Courts have long held that the qui tam statutes must be narrowly construed because they are penal in nature. E.g., Justice v. The Pantry, 335 S.C. 572 (1999) (South Carolina statute is penal and must be strictly construed); State v. Schwabie, 84 N.E.2d 768, 770-71 (Ohio App.1948) (Ohio statute is penal and must be strictly construed); see also, e.g., Kizer v. Walden, 198 Ill. 274, 65 N.E. 116 (Ill.1902) (Illinois statute is penal); Donovan v. Eastern Racing Ass'n, 324 Mass. 393, 86 N.E.2d 903 (Supreme Judicial Court, 1949) (Massachusetts statute is penal); Glick v. MTV Networks, 796 F.Supp. 743, 745 (S.D.N.Y.1992) (New Jersey statute is “quasi-penal”); Hartlieb v. Carr, 94 F.Supp. 279, 281 (E.D.Ky.1950) (Kentucky statute provides a penalty).

Courts have also construed the qui tam statutes narrowly in light of their history and purpose, in part because they provided a remedy in derogation of the common law. E.g., Vinson, 123 F.3d at 657 ( qui tam statute “should not be interpreted to yield a ... result contrary to its purpose”); Cole v. Applebury, 136 Mass. 525, 530-31, 1884 WL 10512, at *5 (Mass.1884) ( qui tam statute “must be enforced ... according to its ... intent”); Thompson v. Ledbetter, 74 Ga.App. 427, 428, 39 S.E.2d 720, 721 (Ct.App.Div.2, 1946) (construing statute narrowly because gambling losses were not recoverable under the common law); Johnson v. McGregor, 41 N.E. 558 (Ill.Sup.Ct.1895) (Statutory conditions for recovery must be strictly observed because the right of action exists “by virtue of the statute only”); Hooker v. Depalos, 28 Ohio St. 251, 262, 1876 WL 6, at *7 (Ohio 1876) (because loss-recovery statutes “are in derogation of the common law ... [they] are to be construed strictly”).

These principles of strict and narrow construction are particularly appropriate in this case, where Plaintiff seeks to recover unspecified losses to which he has no personal connection. While qui tam plaintiffs often have not personally suffered a loss, they are not excused from the obligation to allege specific facts demonstrating that their claims are within the narrow confines of the statutes under which they seek relief. In considering a similar claim brought by a plaintiff seeking damages under a gambling loss-recovery statute, the court in Salomon v. Taft Broadcasting Co., 16 Ohio App.3d 336, 475 N.E.2d 1292, 1298 (Ct.App. 1st Dist., 1984), explained that given the anachronistic purpose of the qui tam statutes, it would be inappropriate to enforce them in any way that would extend their reach beyond the scope originally intended:

[I]t is significant that no authority is cited to us from anywhere in this jurisdiction or elsewhere which would permit a third person, wholly a stranger to the transaction, to recover for his own use, [an] unknown (but presumably substantial) amount of money lost by unnamed and unknowable persons in unspecified games of chance....

Similarly, it is not possible to ignore the ancient and arguably anachronistic nature of qui tam actions of the instant sort, born in a vanished era where the absence of an organized police authority to enforce criminal statutes made necessary the use of such rewards for informers ... While it is not within the authority of the judiciary to abolish legislative enactments, however obsolete they may arguably appear to be, we certainly are authorized to decline any construction which would extend and enlarge the thrust and scope of the legislation in question.

The Salomon court's reasoning is squarely applicable to this case. This Court will not extend the qui tam statutes to cover fantasy sports league entry fees unless that coverage is warranted by the explicit language of each statute and is supported by specific allegations of Plaintiff.

A review of Plaintiff's Complaint indicates that his allegations are tailored exclusively to New Jersey's gambling loss-recovery statute. As the Complaint asserts, New Jersey law allows a loser-or a qui tam plaintiff-to recover from a “winner, depositary or stakeholder” money lost by a “wager[ ], bet[ ], or stake[ ]. N.J.S.A. 2A:40-6). Plaintiff does not address the elements of a cause of action under any state's law other than New Jersey's.

Does Plaintiff Allege the Specific Facts Necessary to Pursue a Qui Tam Claim?

Plaintiff must come forth with facts to support his claim that there exists a specific loss that he is entitled to recover under New Jersey's qui tam statute. In 1898, the New Jersey Supreme Court held that a plaintiff proceeding under the gambling loss-recovery qui tam statute is legally bound” to show with “clearness and certainty” that his case is “within the statute.” Fitzgerald v. Schlos, Vroom 472, 474, 41 A. 677 (N.J.1898). In that case, the qui tam plaintiff identified a specific individual who lost money to the defendant on a specific race. Id . Nonetheless, the Court upheld a dismissal of the complaint because-although the plaintiff had alleged that the individual had “lost” money on a race to the defendant-the plaintiff had not specifically alleged that the money was a bet or wager on the race and that the defendant was the winner. Id.

Here, the Complaint is far less detailed than the pleading dismissed in Fitzgerald. Plaintiff does not identify any individual who paid an entry fee to play one of the Defendants' fantasy sports games; he does not identify the nature of the “wager” or “bet” made between such an individual and either of the Defendants; he does not allege when the loss occurred; and, as in Fitzgerald, he does not allege that such an individual lost such a “wager” or “bet” to either of the Defendants.

Plaintiff fails to identify even one individual who participated in even one of the subject leagues, much less one who allegedly lost money to Defendants in those leagues, and concedes that he has done neither himself. (Compl.¶¶ 9, 71). In short, Plaintiff asks this Court to indulge a gambling qui tam suit seeking a “recover[y] for his own use, unknown amount of money lost by unnamed and unknowable persons.” Salamon, 475 N.E.2d at 1298.

New Jersey's adoption of more modern notice pleading rules has not changed the strict requirement that a plaintiff seeking to pursue a claim under the gambling loss-recovery statute “must, in his pleading, allege all the facts necessary to bring him within the statute.” Zabady v. Frame, 22 N.J.Super. 68, 70 (App.Div.1952). As the Zabady court noted in requiring that every “essential element” of the gambling loss recovery statute must be pleaded:

the substantive law has not been changed by the adoption of our new rules but, on the contrary, it has been preserved, and our procedure has been made to serve the ends of substantial justice, not by abandoning stating the essentials of a cause of action or defense, but by doing so in simple, concise and direct terms.

Id, 22 N.J.Super. at 71.

Here, the Complaint lacks the most basic factual allegations necessary to support Plaintiff's claim. Plaintiff has neither alleged all of the elements of a claim under New Jersey's qui tam statute nor alleged a “factual predicate concrete enough to warrant further proceedings,” DM Research, 170 F.3d at 55-56, much less the type of factual predicate required by courts strictly and narrowly construing the qui tam statutes. Plaintiff fails to allege the purported amount of alleged “losses,” or when those alleged losses were purportedly sustained.

In addition to failing to plead the identity of the loser(s), the amount of each loser's loss, when the loss occurred, the nature of the “wager” or “bet” made between a “loser” and either of the Defendants, Plaintiff does not allege, as he must under the statute, that (1) a “loser” failed to bring suit within six months of losing the bet; and (2) his own suit is brought within six months of the expiration of that “loser's” time to sue. New Jersey courts have held that the six-month time limitation provided for in New Jersey's gambling loss-recovery statute is an affirmative element of the claim that must be pleaded. Zabady, 22 N.J.Super. at 70 (requirement that loser sue within six months “is a condition attached to the right to sue,” rather than a limitation on recovery, and “[a] complaint does not state a cause of action if it fails to contain an allegation showing compliance with this essential element”); Shack v. Dickenshorst, 14 Gummere 120, 122, 122 A. 436, 436 (N.J. Court of Errors and Appeals, 1923). Failure to plead compliance with these time limits mandates dismissal of the Complaint. See Zabady, 22 N.J.Super. at 70 (dismissing complaint for failure to plead compliance with time limits); Shack, 14 Gummere at 122.

Given the absence of the necessary factual allegations showing a recoverable loss under New Jersey's qui tam statute, this Court grants Defendants' motions to dismiss and finds no substantial difference between New Jersey's qui tam statute and those of the other jurisdictions under which Plaintiff brought his Complaint.

Is Payment of an Entry Fee to Participate in Fantasy Sports Leagues Gambling?

Defendants argue that Plaintiff fails to state a claim under New Jersey's qui tam statute because, as a matter of law, the payment of an entry fee to participate in a fantasy sports league is not wagering, betting or staking money. New Jersey allows recovery only of “wagers, bets or stakes made to depend upon any race or game, or upon any gaming by lot or chance, or upon any lot, chance, casualty or unknown or contingent event.” See N.J.S.A. 2A:40-1. Although Plaintiff uses the words “wager” and “bet” to describe the entry fees for ESPN's fantasy sports games ( e.g. Cmplt. ¶¶ 4, 19), those allegations are legal conclusions, and “a court need not credit a complaint's ... legal conclusions when deciding a motion to dismiss.” See Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997).

As Plaintiff alleges, Defendants' fantasy sports league participants pay a set fee for each team they enter in a fantasy sports league. This entry fee is paid at the beginning of a fantasy sports season and allows the participant to receive related support services and to compete against other teams in a league throughout the season. As Plaintiff further alleges, Defendants offer set prizes for each league winner and for the overall winners each season. These prizes are guaranteed to be awarded at the end of the season, and the amount of the prize does not depend on the number of entrants. Moreover, Defendants are neutral parties in the fantasy sports games-they do not compete for the prizes and are indifferent as to who wins the prizes. Defendants simply administer and provide internet-based information and related support services for the games. Plaintiff does not allege otherwise.

New Jersey courts have not addressed the three-factor scenario of (1) an entry fee paid unconditionally, (2) prizes guaranteed to be awarded and (3) prizes for which the game operator is not competing. Courts throughout the country, however, have long recognized that it would be “patently absurd” to hold that “the combination of an entry fee and a prize equals gambling,” because if that were the case, countless contests engaged in every day would be unlawful gambling, including “golf tournaments, bridge tournaments, local and state rodeos or fair contests, ... literary or essay competitions, ... livestock, poultry and produce exhibitions, track meets, spelling bees, beauty contests and the like,” and contest participants and sponsors could all be subject to criminal liability. State v. Am. Holiday Ass'n, Inc., 151 Ariz. 312, 727 P.2d 807, 809, 812 (Ariz.1986) ( en banc ).

Courts have distinguished between bona fide entry fees and bets or wagers, holding that entry fees do not constitute bets or wagers where they are paid unconditionally for the privilege of participating in a contest, and the prize is for an amount certain that is guaranteed to be won by one of the contestants (but not the entity offering the prize). Courts that have examined this issue have reasoned that when the entry fees and prizes are unconditional and guaranteed, the element of risk necessary to constitute betting or wagering is missing:

A prize or premium differs from a wager in that in the former, the person offering the same has no chance of his gaining back the thing offered, but, if he abides by his offer, he must lose; whereas in the latter, each party interested therein has a chance of gain and takes a risk of loss ...

The fact that each contestant is required to pay an entrance fee where the entrance fee does not specifically make up the purse or premium contested for does not convert the contest into a wager.

Las Vegas Hacienda, Inc. v. Gibson, 77 Nev. 25, 359 P.2d 85, 86-87 (Nev.1961). See also Am. Holiday Ass'n, 727 P.2d at 810 (“[A] bet is a situation in which the money or prize belongs to the persons posting it, each of whom has a chance to win it. Prize money, on the other hand, is found where the money or other prize belongs to the person offering it, who has no chance to win it and who is unconditionally obligated to pay it to the successful contestant.”). Therefore, where the entry fees are unconditional and the prizes are guaranteed, “reasonable entrance fees charged by the sponsor of a contest to participants competing for prizes are not bets or wagers.” Am. Holiday Ass'n, 727 P.2d at 811.

Plaintiff incorrectly argues that the case law cited by Defendants is inapplicable because it applies only to games of skill. To the contrary, none of the decisions cited by Defendants turn on whether the activity in question is a game of skill or chance. Indeed, courts have made clear that the question whether the money awarded is a bona fide prize (as opposed to a bet or wager) can be determined without deciding whether the outcome of the game is determined by skill or chance. See Las Vegas Hacienda, 359 P.2d at 87. (“Whereas we have concluded that the contract does not involve a gaming transaction [because there is no bet or wager], consideration of ... [whether] the shooting of a “hole-in-one” was a feat of skill ... becomes unnecessary.”).

Plaintiff's argument that the distinction between “bets” and “entry fees” is meaningless in the context of a lottery is similarly unavailing. In his brief in opposition to Defendants' motions to dismiss, Plaintiff states that “Defendants operate[ ] an enterprise that has all of the necessary elements of gambling: ‘prize, chance and consideration.’ “ In the very next line, Plaintiff states that those three elements are essential of a lottery, however a separate statutory scheme governs lotteries.

That betting/wagering is a subset of gambling activity, different from lotteries, is made clear by the fact that a separate statute- N.J.S.A. 2A:40-8-provides for a qui tam action to penalize the operators of lotteries. This distinction between gaming and lotteries has been a part of New Jersey's statutory scheme since the first gambling loss recovery statutes were passed in 1797. See Act to Prevent Gaming, February 8, 1797, ¶¶ 4-5, at New Jersey Session Laws, Legislature 21, 149-151 (providing for qui tam action to recover money lost “by playing at cards ... or other games, or by betting ... at cock-fighting, or other sport or pastime”); An Act for Suppressing of Lotteries, February 13, 1797, ¶ 2, at New Jersey Session Laws, Legislature 21, 166-167 (providing for qui tam action to recover a penalty from any person who operates a lottery).

Plaintiff seeks relief under the betting and wagering statute, N.J.S.A. 2A:40-6, not the lottery statute, N.J.S.A. 2A:40-8. Accordingly, the lottery case law Plaintiff cites is irrelevant. For example, Plaintiff's primary argument in opposition to this motion to dismiss is that he has alleged that Defendants' fantasy sports leagues involve “gambling” as described in Lucky Calendar Co. v. Cohen, 117 A.2d 487, 488 (N.J.1955), a case that dealt solely with New Jersey's now-repealed Lottery Act, N.J.S.A. 2A:121-6. The issue in that case was whether a certain promotional advertising scheme constituted a “lottery” for purposes of the Lottery Act. Lucky Calendar Co., 117 A.2d at 493-94. The mantra Plaintiff repeats in his Complaint and opposition brief-“prize, chance and consideration”-is the Lucky Calendar court's definition of a lottery. Id. This case does not concern a lottery. Consequently, Lucky Calendar is simply irrelevant. Because the “prize, chance, consideration” test is irrelevant here, Plaintiff's argument that fantasy sports leagues are games of chance is without effect. Although Defendants deny that fantasy sports leagues are games of chance, this Court need not reach this issue in deciding Defendants' motions.

As a matter of law, the entry fees for Defendants' fantasy sports leagues are not “bets” or “wagers” because (1) the entry fees are paid unconditionally; (2) the prizes offered to fantasy sports contestants are for amounts certain and are guaranteed to be awarded; and (3) Defendants do not compete for the prizes. Are Defendants “Winners” under the Qui Tam Statutes?

Defendants cannot be considered “winners” as a matter of law. In his opposition brief, Plaintiff asserts that Defendants are winners because they “receive and keep, and thus win, the pay-to-play net consideration that must be paid by the players in order to be allowed to enter theses (sic) fantasy sports games of chance.” Plaintiff, however, provides no legal support whatsoever for this assertion.

This Court need not accept as true Plaintiff's unsupportable assertion that Defendants are “winners” under the qui tam statutes. See Doug Greate, Inc. v. Greay Bay Casino Corp., 232 F.3d 173, 1843 (3d Cir.2000). Defendants plainly are not “winners” as a matter of law, but merely parties to an enforceable contract. Defendants provide substantial consideration, in the form of administration of the leagues and the provision of extensive statistical and analytical services, in exchange for the entry fees paid for participation in the fantasy leagues. At no time do Defendants participate in any bet. Absent such participation, Defendants cannot be “winners” as a matter of law. Las Vegas Hacienda, 359 P.2d at 86 (offering prize to winner of athletic or similar competition does not give rise to a wagering contract if the offeror does not participate in the competition and has no chance of gaining back the prize offered). To suggest that one can be a winner without risking the possibility of being a loser defies logic and finds no support in the law.

Furthermore, Defendants are not “winners” under the plain terms of the qui tam statutes. The statutes make clear that the “winner” must be a participant in the card, dice or other game at issue. For example, the D.C., Massachusetts, and South Carolina statutes define a “winner” as one who wins by playing at cards, dice or any other game, or by betting on the sides or hands of person[s] who play.” D.C.Code § 16-1702; Mass. Gen. Laws ch. 137, § 1; S.C.Code § 32-1-10. In Kentucky, only the “winner” of money from a gambling loser is liable under the statute. Tyler v. Goodman, 240 S.W.2d 582, 584 (Ky.Ct.App.1951). The New Jersey statute likewise makes clear that a “winner” is one who actually “wagers, bets or stakes” upon a race, game or other unknown or contingent event. N.J.Rev.Stat. §§ 2A:40-1, 2A:40-6.

Finally, Plaintiff's allegations in the Complaint confirm that Defendants do not compete against fantasy sports participants in any way, and do not “win” anything from them. Defendants provide extensive services to the participants throughout the course of the relevant sports season. (Compl. ¶¶ 45-48, Friedman Decl. Ex. R at ¶ 2). At the end of the season, Defendants award prizes, in pre-determined amounts fixed by contract, to the team managers who have accrued the most “fantasy points” or victories. At no point do the participant-owners of any team pay anything to Defendants that is in any way dependent on the outcome of any league. Nor do participants ever “risk” losing their entry fee-they irrevocably part with that fee shortly after they enter a league, and receive in exchange substantial services from Defendants over the course of an extended sports season.

Accordingly, because Defendants do not “play” in the fantasy leagues, bet on the side of any of the participants or have any financial interest whatsoever in the outcome of any league, Defendants cannot be “winners” subject to liability under the gambling qui tam statutes as a matter of law. Do Fantasy League Participants Sustain the “Loss” Necessary to Bring a Claim?

A qui tam plaintiff like Humphrey has no right to recovery unless a participant in gambling activity wins money from one who loses money in that activity. In addition to the fact that fantasy leagues are not gambling and that defendants do not win anything, participants suffer no “loss” in participating in the fantasy leagues. See D.C.Code § 16-1702; Ga.Code Ann. § 13-8-3; 720 Ill. Comp. Stat. 5/28-8; Ky.Rev.Stat. Ann. § 372.020; Mass. Gen. Laws ch. 137, § 1; Ohio Rev.Code Ann. § 3763.02; N.J.Rev.Stat. § 2A:40-5; S.C.Code Ann. § 32-1-20.

No fantasy league participant suffered any such “loss.” To the contrary, participants pay Defendants a one-time, non-refundable entry fee to participate in the leagues, and receive in consideration for that fee the benefit of Defendants' extensive administrative, statistical and analytical services throughout the relevant sports season. Only at the end of the sports season are prizes awarded, in amounts fixed by the contracts that govern participation in the leagues. Accordingly, in paying for the right to participate in the leagues and receive Defendants' services, participants simply do not “lose” anything, and certainly suffer no cognizable “gambling” loss. Whether or not a participant is a successful league manager, their entry fee never hangs in the balance in any way in connection with their participation in the league. (Compl. ¶¶ 15, 22; Friedman Decl. Ex. O at 3; http:// contract/canellation.html (Sept. 28, 2006)). Indeed, once participants have selected their team and begin their season, the fee cannot be recovered. There is no “loss” on these facts, and this exchange of consideration is an “ordinary contract,” in which “both parties may ultimately gain by entering into the agreement.” Martin v. Citizens' Bank of Marshallville, 171 S.E. 711, 713 (Ga.1933).

Because those who participate in Defendants' fantasy sports leagues do not suffer the required “loss” under any of the qui tam statutes pursuant to which Plaintiff brings his Complaint, Plaintiff cannot recover as a matter of law.

Federal Law Confirms that the Complaint Should be Dismissed.


The Unlawful Internet Gambling Enforcement Act of 2006 broadly prohibits Internet gambling and related transactions. See 31 U.S.C. § 5361 et seq. That law confirms that fantasy sports leagues such as those operated by Defendants do not constitute gambling as a matter of law. See 31 U.S.C. § 5362(1)(E)(ix). Under the law, an illegal “bet” or “wager” specifically does not include “participation in any fantasy or simulation sports game where, as here:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominately by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

No winning outcome is based-

(aa) on the score, point-spread, or any performance or performances of any single real-world team or a combination of such teams; or

(bb) solely on any single performance of an individual athlete in any single real-word sporting or other event.

Id. Federal law thus confirms that Plaintiff's case must be dismissed. This Court will not deviate from this analysis, nor should it extend the coverage of a 200-year old statute to an activity far removed from the traditional gaming it was never intended to cover. See Salomon, 16 Ohio App.3d at 336, 475 N.E .2d at 1293 (court should “decline any construction which would extend and enlarge the thrust and scope” of the qui tam statute).

CONCLUSIONFor the reasons stated, it is the finding of this Court that defendants' motions to dismiss Plaintiff's Complaint are granted.

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