Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.C. Sup. Ct.: Illegal gamblers cannot seek recovery under Unfair Trade Practices Act, (Oct 9, 2015)

By Greg Hammond, J.D.

The South Carolina Supreme Court has overruled its previous decisions that implicitly authorized recovery of losses sustained by illegal gambling, holding that one engaged in illegal gambling cannot recover under the state’s Unfair Trade Practices Act (UTPA). However, the Court partially affirmed a state appellate court decision finding that South Carolina gambling loss statutes were not the exclusive remedy and the individual who illegally gambled could seek to recover under the UTPA losses sustained prior to the ban on her gambling activity (Proctor v. Whitlark & Whitlark, Inc., October 7, 2015, Beatty, D.).

A consumer that frequently gambled on video poker machines located at a bar and restaurant owned by Whitlark & Whitlark, Inc., filed suit against Whitlark and its owners, seeking to recover losses incurred as a result of her gambling. The consumer alleged that Whitlark violated section 32-1-10 of the South Carolina Code and the legislative prohibition against operating video gambling machines. South Carolina’s legislature banned the operation of video poker machines in the state, effective July 1, 2000, but Whitlark continued to operate video poker machines at its bar and restaurant.

The trial court granted the consumer’s motion for partial summary judgment, finding that the doctrine of in pari delicto—the general principle that a person cannot base a cause of action upon an illegal or immoral act—had been abrogated with regard to gambling losses, due to the South Carolina legislature passing a number of statutes, including Sections 32-1-10 and 32-1-20 of the South Carolina Code, as well as the UTPA. The state appellate court affirmed, finding that Sections 31-1-10 and 31-1-20, which authorize gamblers and affected third parties to recover gambling losses in certain circumstances, were viable despite the in pari delicto doctrine, and that the consumer could seek recovery under the UTPA. The South Carolina Supreme Court granted review.

In pari delicto. The Court first noted that by retaining sections 32-1-10 and 32-1-20 and limiting their application to losses sustained by illegal gambling, the South Carolina Legislature clearly intended for gamblers or third parties to recover losses sustained by illegal video poker gambling. This, according to the Court, constituted definitive evidence that the state legislature abrogated the doctrine of in pari delicto in the context of recovery for illegal gambling losses.

UTPA. The Court, however, re-evaluated its previous decisions that implicitly permitted illegal gamblers to recover under the UTPA, finding that these decisions were contrary to the intent of the legislature. Instead, the Court now holds that the gambling loss statutes are the exclusive remedy. It noted that if a gambler prevails on a cause of action under the UTPA, he or she has the potential of profiting from his or her illegal activity, but the gambler is not entitled under 32-1-10 to recover treble damages. “We believe that to permit a gambler to recover a windfall under UTPA when the Legislature has specifically limited losses to actual damages under section 32-1-10 would be in direct contravention of legislative intent,” the Court stated.

Viable UTPA claim. Nevertheless, the Court affirmed a portion of the appellate court’s decision, which found that the operation of video poker machines was in contravention of state law and was an unfair act under the UTPA. Because Whitlark did not appeal this ruling, it became the law of the case. The consumer, however, would only be entitled to seek recovery for losses sustained prior to July 1, 2000, when the ban on video poker became effective in South Carolina.

The case is Opinion No. 27580.

Attorneys: Ariail Elizabeth King (Lewis Babcock & Griffin, L.L.P. for Lauren Proctor and Trans-Union National Title Insurance Co. Jessica Hanna Lerer (Strom Law Firm, L.L.C.) for Whitlark & Whitlark, Inc.

Companies: Trans-Union National Title Insurance Co.; Whitlark & Whitlark, Inc.

Cases: StateUnfairTradePractices SouthCarolinaNews