Lawyers for sweepstakes mobile application Fliff filed a motion asking a federal court judge in California to dismiss a class action lawsuit and compel the matter to arbitration on an individual basis.
San Diego-based Attorney Dennis Stewart filed the suit June 6 on behalf of plaintiff Bishoy Nessim, who seeks more than $5 million in damages for himself and every Californian who lost money on Fliff.
The lawsuit alleges that Fliff operates an illegal online sportsbook under the guise of a free sweepstakes contest, violating the federal Wire Act, California’s Unfair Competition Law and anti-bookmaking laws.
Fliff lawyers counter that Fliff’s terms of service and sweepstakes rules require parties to arbitrate disputes related to the sweepstakes.
Sports and gaming attorney Daniel Wallach tells PlayUSA that the motion sets up Judge Sunshine Suzanne Sykes to make a key determination on whether the arbitration agreement with class action waiver is enforceable.
“There is a strong presumption against class arbitration unless the agreement explicitly authorizes it. Additionally, there may be issues as to whether there was a valid agreement to arbitrate in these types of cases. Plaintiffs often argue that no valid or enforceable agreement to arbitrate was ever formed.”
Details of Fliff lawsuit
Sweepstakes have become popular forms of online gaming, particularly in states such as California that don’t allow online betting.
Fliff, which operates in 42 states, bills itself as sports betting reimagined as a social, free-to-play game.
The app utilizes Fliff Coins and Fliff Cash. People can claim Fliff Coins for free every two hours. But they can also purchase Fliff Coins and receive Fliff Cash as a bonus. Fliff Coins can be used in social gameplay to gain experience that can be used to redeem gift cards.
Patrons can use Fliff Cash to make sports predictions. By making successful sports predictions, they can redeem Fliff Cash for real money.
The lawsuit argues that the alleged sports prediction games are really online sports betting. And last November, California voters overwhelmingly rejected Prop 27, a ballot measure to legalize online sports betting.
Nessim alleges that the real thrust of Fliff is the ability of users to wager using Fliff Cash. He proposes a class of all persons in California who purchased Fliff Cash on the app. Nessim claims to have lost $7,000 on Fliff.
But Fliff’s motion indicates that, as a condition of participating in its sweepstakes, each participant agrees that:
“Any and all disputes and causes of action arising out of or connected with this Sweepstakes, including but not limited to prizes awarded, shall be resolved individually, without resort to any form of class action, and exclusively by final and binding arbitration …”
Plaintiff argument likely to focus on sweepstakes legality
Sykes ordered the plaintiff to submit a response to the defendant’s motion to compel arbitration by Sept. 1.
Among other things, Wallach expects the plaintiff to argue that the arbitration agreement is void as a matter of law because it purports to legitimize an illegal gambling transaction.
“The general legal principle is that contracts to engage in illegal activity such as illegal gambling are void and unenforceable,” Wallach said. “While that hasn’t been established yet in this lawsuit, in other cases courts have declined to enforce arbitration provisions in a contract for gambling because the subject matter of the contract was illegal.”
The defendant has until Sept. 15 to reply to the plaintiff’s response. A hearing on the motion to compel arbitration is scheduled for Sept. 29 at the US Central District of California Court in Riverside.
Potential ramifications of arbitration ruling
Stewart seemed to strategically choose the Riverside federal court to make this claim. He even previously filed the case with a different plaintiff in the Northern District of California before requesting a refund and moving forward with Nessim, a Riverside resident.
Indian tribes dominate the gaming landscape in California. Tribes spent more than $200 million to defeat online sports betting last election. Riverside County is home to many Indian tribes including Pechanga, which was one of the leading opponents of Prop 27.
The Riverside court randomly assigned the case to Sykes, a member of the Navajo Nation tribe in Arizona. Sykes is the first Native American federal judge to serve in a California court.
If Sykes denies the motion to compel arbitration, it could set up a jury trial in a county friendly to tribes that don’t want commercial companies coming into their space and offering digital gaming.
If she agrees to order the matter to arbitration and enforce the class action waiver, requiring the case to proceed on an individual basis, damages to Fliff are limited and the claim likely disappears quickly.
“I can understand why Fliff would want to avoid having claims like this adjudicated in a jury pool in Riverside County. This may be the ideal forum for the plaintiff given the strong tribal opposition to Prop 27 and the highly charged debate over sports betting in California. Although they will not come right out and say it, the obvious concern for Fliff is its belief (rightly or wrongly) that it will not receive a fair trial in that location. That’s the likely motivation behind Fliff’s efforts to have this case adjudicated in an arbitration, a forum that isn’t susceptible to any local influence.”