July 24, 1998 5:00 AM PDT

Net gambler sues credit firms

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Cynthia Haines gambled away $70,000 on the Net over the course of 18 months. She doesn't believe she is a compulsive gambler, but she does admit she made a mistake.

Now she wants Visa and MasterCard to pay for it. Haines filed a lawsuit in Superior Court of California in Marin County yesterday claiming the companies shouldn't have let the cybercasinos take her money in the first place.

Haines's lawyers allege that the bets she placed are illegal in California, and therefore it was wrong for Visa, MasterCard, and other credit card companies to authorize the charges she made at more than 50 online wager houses, which were based overseas. In other words, Haines wants to be excused from her debt.

"[Visa and MasterCard] provided See special report: Regulating online gambling the merchant accounts, and every time the casinos make a transaction they pay a 2 percent to 5 percent fee to the [credit] companies," Haines's lead attorney Ira Rothken told CNET NEWS.COM.

"We want the court to say Visa and MasterCard can't make money on illegal transactions, which will hopefully put casinos out of doing business with people living in the United States," he added. Visa and MasterCard representatives could not immediately be reached for comment.

The case sparks an array of controversial issues surrounding Net gambling. Legal and legislative debates have been raging to determine whether the practice is legal in the United States. Some states--and many foreign countries--have legalized some forms of gambling, while others have not. The Internet breaks down the walls between those territories.

The federal Wire Act clearly prohibits sending wagers over phone lines, but each state is placing different odds on the legality of online gambling. New York and Missouri are going after online wager houses based outside their territories, while others have yet to step into these murky legal waters.

Just yesterday, the Senate passed legislation to ban most forms of online gambling, with the exception of state lotteries and horse-race betting.

Federal lawmakers aren't the only ones who want to keep a lid on Net gambling. The Justice Department has gone after numerous alleged Net casino operators, but the agency also issued a report that calls the law passed yesterday overly broad. Still, the agency estimates that the Net gambling industry raked in $600 million last year.

Haines's lawyers said she is not admitting to participating in any illegal activity, however.

"She was tricked into to believing it was legal because the servers were based offshore," Rothken said. "She believes they skewed the odds in favor of the house."

In California, it is illegal to offer or play casino games ranging from roulette to black jack, in which the gamblers play against the house, although card rooms can let people play poker games against each other, for example.

The attorneys said they didn't go after the casinos because they can't identify the owners of the operations. But legal experts said Haines's legal team probably wouldn't have sued Visa and MasterCard if she hadn't been sued first. Haines was sued by Providian National Bank, which issued her credit cards, for the debt she incurred while rolling the dice online. Her lawyers filed a cross-complaint against the major credit card companies claiming they are engaging in unfair business practices by "profit-taking from illegal gambling on the Internet."

"Visa and MasterCard are both actively involved in e-commerce and knew or should have known of the numerous online casinos using their credit cards for illegal gambling transactions," the complaint states. "Providian cannot collect on a debt arising out of an illegal gambling transaction as being against the public policy of California."

Net legal experts had mixed reactions to the lawsuit. All agreed that despite the merits of the case, a boost in similar lawsuits could deter credit card companies from issuing merchant accounts to online betting operations.

"Wherever large amounts of dollars are flowing, it's going to be a great temptation to give merchants accounts," said Lance Rose, author of NetLaw. "If they win [the case] on a theory like this, the result would be a ratcheting up of the requirements to get a merchant account for online gambling operations."

But the amount Haines wagered could be used against her, Rose added.

"The legality of online gambling is not clear," he said. "Even if Visa and MasterCard had a duty to not sign up 'bad' gambling operations, if someone goes forward and knowingly gambles the money away, the court could say it was the gambler's fault. In legal terms it's called the 'assumption of the risk.'"

In the end, the merits of the case may not even matter, said Philip McGuigan, an attorney at Gordon Glickson.

"It's hard for a court to have a huge amount of sympathy for someone that has blown a lot of money and is looking for someone to take the heat," McGuigan said. "The motivation of this lawsuit may be to throw up enough dust so they won't go after her for the payments."

Las Vegas gaming attorney Tony Cabot, who wrote the Internet Gambling Report, said even if the credit card companies stopped giving online casinos merchant accounts, the industry wouldn't go under.

"That would just force Net gambling sites to use other types of fund transfers," Cabot said. "The bottom line is that when e-cash becomes an accepted form of payment on the Net, it will replace debit and credit cards for the purposes of Net gambling."

 

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