No one who plans and manages a promotional sweepstakes wants to dispute the prizes. But one of the main reasons a trader wants a set of experienced eyes on a set of official rules is to make sure the trader is covered – just in case there is a dispute with one or more of the. competitors. Sometimes operators astutely anticipate that an arbitration clause will help reduce the risk of litigation involving a competition or raffle. And, without a doubt, there could be situations where arbitration can help the operator reduce the risk of costly litigation. But, like many substantive provisions in the promotional contract between a raffle organizer and a participating consumer, the smart protections you and your lawyer put in place are only effective if they are part of the contract.
In Root c. Robinson, No.5: 20-cv-00239-M, 2021 US Dist. LEXIS 5550 (EDNC 23 Jun 2021), Tony Robinson, along with his companies Tony the Closer LLC and I Close Deals LLC (collectively Robinson), was on a mission to host conferences to teach others how to be successful in real estate. Business. Robinson hosted one of these conferences in Las Vegas called “The 100K Club Conference 2019”. Robinson sought to promote the conference through a raffle. The promotional structure was as follows: Those who purchased tickets to attend the conference would be entered into a draw to win $ 100,000 in cash. The draw was announced via an FAQ section of the conference website, which read in part:
How can I earn $ 100,000? Buy a ticket of any level and attend live or online with our pay-per-view option. Is there a catch? No, a lucky person will walk away with $ 100,000. To win, you must purchase a ticket in person or on demand. The winner will be drawn from among the ticket buyers. That’s it!
There was also a “100,000 Drawing Warning” that read, “Only one lucky person (in person or a la carte) will walk away with $ 100,000. To win you must purchase a ticket in person or a la carte. winner will be drawn from among ticket buyers, free tickets do not apply.
A consumer, Gaege Root, purchased a ticket to attend the conference. He attended the conference and alleged that he did so based on the announcement of Robinson’s competition. Root was drawn and presented with an oversized replica of a check for $ 100,000. But Root didn’t “walk away” with $ 100,000 in cash. Instead, Robinson presented him with an Affidavit of Eligibility and Release (Affidavit) which Root was required to sign and have notarized, and then returned to Robinson within five days. The affidavit contained blanks where Root had to fill in personal information. It also contained a statement that Root was the “potential winner” of an award and that the affidavit was being submitted “to assist in determining whether [Root was] eligible to receive the prize in accordance with the official promotion rules. The affidavit also contained a statement that Root had complied with the Official Rules and that Root understood that the prize would be paid according to a specified payment schedule. Finally, the affidavit provided Root’s consent to use his image and his discharge of Robinson from any claims Root might have against Robinson or his affiliates regarding the raffle.
After Root executed the affidavit and had it notarized and returned it to Robinson, Robinson sent Root a check for $ 30,000. Root asked for the remaining $ 70,000; Robinson refused to pay the additional amount and Root sued in federal court alleging (1) breach of contract; (2) fraud; (3) unfair and deceptive business practices; and (4) constructive trust. He sought punitive damages (which helped push the amount in the controversy above the $ 75,000 threshold).
For the purposes of this discussion, we will ignore whether the prize promotion was in fact an illegal lottery, as attendees had to pay for the conference ticket in order to participate in the draw. The object of this case, on Robinson’s motion to dismiss and contravene arbitration, was whether Root should be bound by the Official Rules and more particularly by the arbitration provision contained therein.
Initially, Robinson argued that the official rules, which were only referred to in the affidavit, were the defining terms of the relationship between the parties. The official rules contained a requirement that disputes be submitted to arbitration. As a result, Robinson argued, the court should dismiss the case because the terms of the official settlement, accepted through the affidavit, precluded Root from suing.
The court first ordered the limited discovery in order to flesh out the case as to whether or not the official settlement was part of the contract between Root and Robinson. Robinson then presented two pieces of evidence to support his claim that Root accepted the official rules as part of his entry into the draw. First, Robinson testified that the Official Rules were made available to all contest participants through an unspecified website and an unspecified “app” through which conference attendees communicated. Second, Robinson submitted a copy of the Official Rules itself which contained the statement “Entry in the Contest constitutes your agreement to be bound by these Official Rules”, along with the release language and arbitration clause, between other provisions. The court noted that at the hearing following the limited discovery, Robinson dropped the specious claim that the signed affidavit referring to the official rules was sufficient to bind Root to the rules after the fact.
The court ruled that Robinson had failed to meet his obligation to prove that Root knew about, saw or agreed to be bound by the official settlement. At this stage, the tribunal has not considered any of the substantive claims alleged by the plaintiff. Rather, the tribunal simply concluded that Robinson had no right to rely on the official rules to force the dispute to be arbitrated. Despite the preliminary nature of this decision to the underlying causes of action, the need to bring the matter to Federal Court is likely to lead to a settlement in Root’s favor.
Key points to remember
The official rules of a draw constitute a contract between the organizer and the participants. Careful planning and structuring of a price promotion can ensure that its promotional efforts are optimized and that the goodwill sought by the promotion is maintained and protected. The official rules may condition the receipt of a prize; they can provide for a structured payment; they can anticipate and plan procedures to deal with unforeseen events; and they can establish how the parties will resolve any disputes that may arise insofar as the participant has not expressly released the organizer from any liability in accordance with the terms of the official rules. The Official Rules may also establish that notwithstanding the presentation of an oversized replica check, the entrant whose name has been drawn is only a “potential winner” unless and until signing an affidavit. and releases the organizer from all liability.
But even the most elegantly constructed official rules will generally be ineffective if they are not published with the advertisement for the raffle. A link to the Official Rules in any advertisement is the least thing an organizer should do to ensure that it can establish that no entrant could have relied on the competition invitation without first knowing the official rules. For some promotions, especially those with complicated prices or those for which binding arbitrage is particularly important, a radio button attesting to express acceptance may be warranted. In particular, we recommend the express acceptance of the Official Rules for international promotions where international arbitration might be the best way to resolve disputes.
Organizers may wish to relegate key terms to an FAQ section of a website or simply use promotional language to entice consumers into the raffle without any limitation or reference to the Official Rules, but they do so at their own risk. The official rules are the life raft of an organizer. We are sometimes asked if a promotion requires official rules. There are regulatory reasons for disclosing certain terms and conditions associated with a price promotion. Unless the organizer places all of this mandatory information in the advertisement, they would need the official rules to disclose this information, such as the value of the prize, the odds and the number of prizes available. In addition to regulatory disclosure requirements, the official rules protect the organizer. The sweepstakes are all “fun and playful” until they are not. Once there is a dispute, all eyes are on the Official Rules. That’s why careful promotion organizers and their advisors carefully write rules for every promotion they run. This is also why they systematically include abbreviated references to the Official Rules in all advertising and marketing materials.
Basically, formal rules are subject to common law contractual principles, especially those that apply to unilateral contracts. This means that it is imperative to always be aware of how consumers “substantially perform” and thus bind the organizers to the terms of the contract. It also means that one cannot impose conditions on the other party after the toss is over without further consideration. As can be seen in the Root case, the organizer could not legitimately rely on the Affidavit as the basis for a binding arbitration, even though the notarized and signed document expressly included a reference to Root’s full compliance with the Official Rules.
Finally, an organizer who thinks that the Official Rules only subject them to contractual principles of common law will be mistaken. In the context of promotion, it is common to see causes of action based on common law contract and quasi-contract theories paired with allegations based on unfair and deceptive acts and practices of the State. Although the Root case was only concerned with whether arbitration could be forced, the ruling implies that the claimant also alleged violations of applicable Unfair and Deceptive Acts and Practices Law (UDAP), which provides various forms of damages beyond the contractual damages likely to be claimed. Thus, being able to demonstrate that an organizer has acted fairly and in good faith in accordance with applicable official rules, and communicated these terms and conditions in a manner that is neither misleading nor misleading, can help mitigate the risk of a violation of the UDAP. in addition to avoiding liability for breach of common law contract.