The Court of Appeals for the Seventh Circuit, in George v. National Collegiate Athletic Ass'n., No. 09-C-3667, 2010 WL 2788452 (7th Cir. July 16, 2010) , determined that a class action lawsuit against the NCAA over a contest involving the distribution of tickets to its wildly popular NCAA Basketball Tournament can proceed — reversing the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case.
The Complaint, filed in May 2008, alleged that the NCAA was operating an illegal lottery by giving applicants who submitted a $6-$10 handling fee along with the face value of the tickets the chance to win NCAA Basketball Tournament tickets. If the applicant was selected, he or she would receive the tickets in the mail. If the applicant was not selected, he or she would be reimbursed for the face value of the tickets, but the handling fee would not be refunded.
The NCAA moved to dismiss the suit claiming that the contest was not an illegal lottery and that, in any event, dismissal was appropriate because plaintiffs participated in any “illegal” conduct that took place. The District Court agreed and dismissed the Complaint with prejudice. The class action plaintiffs appealed to the Seventh Circuit.
In its decision, the Court of Appeals determined that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter. In so holding, the Court noted that it was troubled by the fact that the NCAA retained the handling fee it received from individuals who were not selected to receive tickets. The Court also found that the District Court had erred in ruling that the plaintiffs were equally at fault for their participation in the NCAA’s contest.
This case underscores the need for companies to proceed with caution when structuring their contests, especially when the contest involves any monetary payment to enter. As the Court of Appeals noted in its decision, if the NCAA had simply set up its contest so that the handling fee was repaid to those participants who did not receive tickets, the contest would have been legal.