In a decision that may increase the likelihood that gambling corporations be able to slip through legal loopholes, the Supreme Court of Alabama earlier this month held that an arbitration clause in a gambling-related contract was enforceable, thereby forcing an allegedly victimized participant in the scheme to go through arbitration before receiving formal judicial recourse for her damages. This holding contradicts Alabama Code Sec. 8-1-150 (1975), which clearly voids all contracts “founded upon gambling consideration.”

The case, Johnson v. Jefferson Co. Racing Ass’n, turned on whether Plaintiff Johnson was challenging the contract as a whole or the arbitration clause specifically. Alabama’s highest court determined that, in accordance with the United States Supreme Court’s holding in Buckeye Check Cashing, Inc. v. Cardegna, although a contract itself may be void, if the agreement nonetheless has a valid arbitration clause, the arbitrator himself must determine the legitimacy of the contract as a whole.

Scrabulous

Significantly, several other states have statutes regarding contracts founded on gambling consideration that are highly similar to Alabama’s. For example, Georgia Code Sec. 13-8-3 states directly that “gambling contracts are void.” Similarly, Tennessee state code specifies that “All contracts founded, in whole or in part, on a gambling or wagering consideration, shall be void to the extent of such consideration.” Although an Alabama decision would clearly not be binding for a Georgia or Tennessee court, the decision nonetheless could be persuasive precedent in those jurisdictions, thereby potentially influencing the jurisprudence in neighboring states. Surely gambling corporations similar to the aforementioned defendant will breathe easier in knowing that a self-selected arbitrator may determine the validity of their operation and/or parts of their contracts before such a decision ever sees a bench with a voter-elected or politician-appointed judges.

NOTE: The Johnson court expressed serious doubt that an arbitrator would find the contract in question was enforceable and stayed the plaintiff’s suit pending the decision of the arbitrator. For more thorough analysis of other Alabama appellate cases, visit The Alabama Appellate Watch.

- James Gibson

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