Online Poker Players Lose Lawsuit Bet on Forum Non Conveniens Grounds

In the middle of the holiday season, the U.S. Court of Appeals for the Sixth Circuit dealt a losing hand to a group of online poker players who filed a class-action lawsuit against a Gibraltar-based host of online poker games. for those not aware, the Sixth Circuit handles federal court appeals in the states of Kentucky, Michigan, Ohio, and Tennessee.

In Wong v. PartyGaming Ltd., the plaintiffs filed the lawsuit in Ohio, alleging breach of contract, misrepresentation, and violation of Ohio consumer protection laws. PartyGaming moved to dismiss the suit arguing that a forum selection clause in its terms and conditions barred the Ohio action. The plaintiffs had accepted the terms and conditions when they registered on the poker site. The forum selection clause stated that all disputes would be subject to the exclusive jurisdiction of the courts in Gibraltar. The district court dismissed the lawsuit sua sponte on forum non conveniens grounds and the plaintiffs appealed.

In deciding the appeal, the Sixth Circuit had to determine whether the forum selection clause was enforceable. Before doing that it had to determine whether Ohio or federal law controlled that question since the federal court was exercising its diversity jurisdiction. In its analysis, the court of appeals noted that recent Ohio state court decisions “have held that forum selection clauses are less readily enforceable against consumers,” but that federal courts do not recognize this distinction. The Sixth Circuit had not decided this choice of law issue before, so it turned to decisions of sister circuit courts of appeal. It found that a majority of federal appeal courts that had decided the issue applied federal law rather than state law. The Sixth Circuit agreed specifically with the Ninth Circuit’s view that “forum selection clauses significantly implicate federal procedural issues,” and it also noted the importance of maintaining harmony with other circuit courts on issues of law.

In deciding the enforceability of the forum selection clause, the court observed that such clauses are upheld “absent a strong showing that it should be set aside” and that the party opposing the forum selection clause bears the burden of showing it should not be enforced. The court did not find (and the plaintiffs did not claim) that the plaintiffs were fraudulently induced into accepting the forum selection clause. The plaintiffs did not show that the Gibraltar courts would not effectively or fairly handle the lawsuit. In making this finding, the court of appeals noted that it has upheld forum selection clauses calling for proceedings in Brazilian, English, and German forums. The lack of class-action litigation for damages or jury trials did not prove to be “ace-in-the-hole” arguments for the plaintiffs and both were rejected by the court.

Finally, the Sixth Circuit found that the plaintiffs failed to show how litigating in Gibraltar would be so inconvenient that it would be unjust or unreasonable to litigate their claims there. After weighing factors for determining if the district court abused its discretion by sua sponte dismissing the action for forum non conveniens, the court of appeals affirmed the dismissal.

In a concurring opinion, Judge Merrit raised an interesting point. He looked at the practical issue presented in the case and found that the most important fact for him was that “the gambling contract entered into between the parties here is likely illegal in Ohio but completely legal in Gibraltar." His thought was that if Ohio law controlled the contract in question, "the parties probably are guilty of a crime under Ohio law, the contract is void," and both parties could be prosecuted in an Ohio criminal court. In Judge Merrit's view, the forum selection clause had to be read as controlled by English law as “the only way to keep the contract from being void and subject to criminal penalties.”

So I suggest that whether found in the terms and conditions of a purchase order, employment agreement, commercial agent or distributorship agreement, or a click-wrap agreement, an enforceable forum selection clause is essential for international business transactions. This case shows its importance to a non-U.S. party particularly well. Without it here, PartyGaming could have been facing a U.S. class-action lawsuit to be decided by a jury and likely having to first engage in U.S. pretrial discovery. It will not because of its forum selection clause. But maybe even better than a forum selection clause, as a general rule, parties may want to consider using an international arbitration provision. This was the the subject of my 15 November 2009 posting, “Case Dismissed in Michigan; Parties to Arbitrate Contract Dispute in Ontario.”