Correction – Oct 4, 2023: Judge Sykes has not in fact dismissed the case as yet. Bonus—and other outlets—misread an update on the docket to mean the case had been vacated, when only a hearing for oral arguments had been. Sykes must still render a decision on the case and will do so without hearing in-person arguments from the legal teams, but her final decision is still pending.
A proposed class action lawsuit against Fliff may not proceed if a California federal judge rules that the sweepstakes-model sports prediction site’s compelled arbitration clause is valid. What that means, in effect, is that users of the site agreed to terms & conditions that require them to resolve disputes through individual arbitration, not collectively or through litigation.
Such compelled arbitration clauses or class action waivers are increasingly standard in the social gaming industry because of the number of companies operating in that space have faced. For instance, Pulsz owner Yellow Social Interactive (YSI) has employed a similar strategy in fighting class actions by customers in Georgia and Ohio.
Fliff uses the same business model as online sweeps casino but applied to a product resembling a sportsbook. That is, players can wager two types of virtual currency on the outcomes of real-world sporting events. One of these two types of currency can be traded for cash prizes, but the company says it’s legal under federal law because the product is structured as a sweepstakes.
The attempted class action against Fliff was unique among such suits in that it directly challenged this sweepstakes model. Those against YSI and other sweepstakes casinos have instead argued that even play money chips have “value” if they’re required to play a game, and so social casino games that charge for chips constitute illegal gambling regardless of whether players can win anything in return.
If the court sides with Fliff on the arbitration clause, however, we won’t get to see how that argument plays out. The lead plaintiff, Bishoy Nessim, will have to pursue his grievance through an arbitration process, if at all.
Fliff’s Arguments for Compelled Arbitration
Judge Sunshine S. Sykes had indicated on Aug. 2 that she intended to dismiss the case as Fliff requested. However, she gave Nessim’s team 30 days to provide a compelling reason to invalidate the compelled arbitration clause.
They did so on Sep. 1. Nessim’s team argued that the clause was unenforceable in California due to precedent, because it was “unconscionable,” and because the alleged illegality of the business rendered the entire contract void.
The McGill Precedent
The choice of California as the venue for the case was no accident. In a previous case, McGill v. Citibank, the Supreme Court of California ruled that Citibank’s compelled arbitration clause wasn’t enforceable because it waived the plaintiff’s right to seek public injunctive relief in any forum.
“Public injunctive relief” means a court order forcing the defendant to stop doing whatever it is that’s at issue. It differs from private relief in that it aims to protect the general public from the defendant’s behavior, not only the plaintiff or class.
Fliff pushed back on this portion of Nessim’s argument by saying that nothing Nessim is asking for constitutes public injunctive relief. It argues that anything on behalf of a class is definitionally not public since a class of plaintiffs represents only a subset of the general public.
It also challenged whether California law is even applicable, claiming that Pennsylvania law should apply to its terms and conditions. Finally, it pointed out that if Nessim wishes to seek public injunctive relief, nothing in the terms and conditions prevents him from doing so through arbitration.
Unconscionability
Nessim also contended that it was unconscionable—i.e., excessive and unreasonable to the point of shocking the conscience—for Fliff to force its users to waive their right to sue in order to use the service.
Fliff counters that its service is far from a necessity of life. It points to other cases where courts found arbitration clauses reasonable because those who agreed to them were in a position where they could have chosen otherwise. Furthermore, it argues that if Nessim considered Fliff to be an illegal sportsbook, he would have many alternatives to choose from without such a clause:
Plaintiff further asserts that the arbitration terms are procedurally unconscionable because he does not have other market alternatives, relying solely on the false assertion that Defendant is the only provider for illegal internet sports betting in California. While Fliff disagrees with Plaintiff’s characterization that Fliff is an unlawful internet sports betting operator entirely, there are myriad actual illegal offshore sports betting websites which California residents may readily find via simple Google searches for “online sports betting available in California.”
Fliff goes on to argue that the remedy Nessim is seeking—his money back, essentially—is a sufficiently small amount that depriving him of it can’t rise to the level of “shocking the conscience.”
Illegal Contract
The final argument by Nessim’s team was interesting in that it almost seemed to ask the court to determine the case’s outcome before deciding if it could proceed. After all, the issue was whether Fliff’s business was illegal. Nessim argued that if it is, then the entire contract—including the arbitration clause—should be considered invalid.
Fliff countered this by saying that the arbitration clause was severable from other parts of the contract. That is, a court could hypothetically decide that some aspects of the agreement were illegal without voiding the arbitration clause in the process. Fliff pointed out that interpreting the law otherwise would mean that any arbitration clause could be circumvented simply by alleging that other parts of the contract were illegal since proving that would require the trial to proceed.
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