May 9, 2016

sweepstakes-lawsuitThis January, we reported on a proposed class action sweepstakes lawsuit filed on behalf of all runners who entered the New York City Marathon’s (“Marathon”) general entry drawing (“Drawing”) between 2010 and 2015.  Last month, two of the named plaintiffs voluntarily withdrew their claims against the Marathon’s organizer and operator – New York Road Runners, Inc. (“Road Runners”) – after Road Runners moved to compel the two plaintiffs to arbitrate their claims.

What can sweepstakes sponsors do to stay out of plaintiffs’ crosshairs?

New York City Marathon’s Drawing and Sweepstakes Lawsuits

In order to compete in the Marathon, most prospective runners must apply via the Drawing and pay Road Runners a non-refundable “processing fee” of $11. However, court records suggest that fewer than 18% of the 80,000 prospective runners that participated in the Drawing from 2010–2015 won a spot in the Marathon.

This January, two residents of Utah who entered the Drawing but were passed over for the Marathon sued Road Runners in the U.S. District Court for the Southern District of New York (Case No. 1:16-cv-00450-KBF), claiming to represent all those who entered the Drawing in 2010, 2011, 2012, 2013, 2014 and/or 2015, respectively, and suffered damages as a result.  The sweepstakes lawsuit alleges that Road Runners conducted an illegal lottery because each member of the class purportedly risked something of value (the entry fee) upon the outcome of a game of chance (the Drawing) for the opportunity to receive something of value (qualification to run in the Marathon).

Less than two weeks later, a separate class action plaintiff commenced legal action against Road Runners in the Southern District (1:16-cv-00791-KBF) with similar claims related to the Road Runners Marathon and Drawing.  This March, the Court consolidated the two sweepstakes lawsuits.

Road Runners’ Motion to Stay and Compel Arbitration

Last month, Road Runners filed a motion to compel arbitration of the allegations of two of the Plaintiffs and to stay the consolidated sweepstakes lawsuit pending the completion of those arbitration proceedings.

According to Road Runners, when two of the named class action plaintiffs sought entry into the 2015 Marathon, they each agreed to arbitrate any claims arising out of or relating to their participation in any Road Runners event or activity.  Road Runners further claimed that the two plaintiffs agreed not to pursue claims against Road Runners collectively or as part of a class action.

In light of these arbitration and class/collective waiver provisions, Road Runners asked the Court to order the two subject plaintiffs to resolve their claims in individual arbitrations and stay Plaintiffs’ remaining claims in the consolidated sweepstakes lawsuit pending the outcome of the allegedly arbitrable claims.

Withdrawal of Two Plaintiffs

On April 20, 2016, in response to Road Runners’ motion to compel, the two plaintiffs in question voluntarily withdrew all of their claims against Road Runners without prejudice.  The subject plaintiffs further agreed not to pursue arbitration of their claims.

In light of the foregoing, Road Runners has agreed to withdraw its motion.  It appears that the consolidated case will proceed with one named plaintiff seeking to represent the class of prospective runners.

How to Avoid a Sweepstakes Lawsuit

Although two plaintiffs’ claims in the above-referenced actions have been eliminated following their voluntary withdrawal from the proposed class action, it appears that the defendant’s legal battles are far from over.

Specific state and federal laws apply to contests, sweepstakes and drawings. Non-compliant sweepstakes and contests could be deemed illegal lotteries, which would place their sponsors at risk of significant legal liability.  Such promotions should be carefully vetted by an experienced marketing attorney before their launch to ensure compliance with applicable laws, rules and regulations.

If you are interested in learning more about this topic, or pursuing a promotional contest- or sweepstakes-related venture, please e-mail us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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Related Blog Posts:

NYC Marathon Drawing an Illegal Lottery?

Illegal Lottery Lands Ironman Triathlons in Hot Water

Running Sweepstakes Promotions: An Endeavor Best Not Left to Chance

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