In the
United States Court of Appeals
For the Seventh Circuit
No. 09-3667
T OM G EORGE, C HRIS V ITRON, L ORI C HAPKO and
E DWARD S NEAD, on behalf of themselves and
all others similarly situated,
Plaintiffs-Appellants,
v.
N ATIONAL C OLLEGIATE A THLETIC A SSOCIATION,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 08-CV-1684–William T. Lawrence, Judge.
A RGUED M ARCH 29, 2010—D ECIDED JULY 16, 2010
Before
C UDAHY and K ANNE, Circuit Judges, and
D ARRAH, District Judge.
D ARRAH, District Judge. Plaintiffs brought this proposed
nationwide class action against the National Collegiate
Honorable John W. Darrah, United States District Judge
for the Northern District of Illinois, is sitting by designation.
2 No. 09-3667
Athletic Association (“NCAA”) and Ticketmaster,
alleging that both defendants operated illegal lotteries
to sell and distribute tickets for certain Division I champi-
onship tournaments. The NCAA moved to dismiss Plain-
tiffs’ Second Amended Complaint. The district court
dismissed all claims with prejudice, and this appeal
followed.
BACKGROUND
The named plaintiffs are residents of Arizona, Oregon,
and New York. Each applied for tickets to NCAA men’s
basketball games through NCAA-owned websites, and
each of them forfeited service fees when they were not
selected as winners in the process. Plaintiffs claim the
NCAA’s ticket-distribution system, which the NCAA
has operated since at least 1994, is an illegal lottery and
a means of increasing revenues at Plaintiffs’ expense.
Plaintiffs believe the number of potential class members
to be in the hundreds of thousands.
The ticket-distribution system has been used for inter alia
the NCAA’s Division I men’s and women’s basketball
and hockey championship tournaments. In their Second
Amended Complaint, Plaintiffs specifically describe the
application of the NCAA’s system for distributing
tickets to the 2009 Men’s Basketball Tournament. For
the final games of that tournament, during which the
top four teams (the “Final Four”) compete for the Champi-
onship title, Plaintiffs explain the process as follows:
Each person who applied for tickets to Final Four games
submitted a single application with up to ten entries.
No. 09-3667 3
Each entry was a chance to win, at the most, two tickets
and required a payment of a six-dollar “non-refundable
handling fee.” An applicant could win only once. None-
theless, each applicant was required to submit the full
face value of the tickets for each entry submitted. Ac-
cordingly, in order to maximize the chances for winning
a single pair of $150 tickets, an applicant would have to
submit $3,060 (the face value of ten pairs of tickets plus a
six-dollar handling fee for each of ten entries). If the
applicant were to win, he would receive a pair of tickets
via overnight mail and, eventually, a $2,700 refund (the
total ticket price for the remaining nine entries). The $60
in handling fees would be forfeited to the NCAA. If
the applicant were to lose, he would receive a $3,000
refund (his entire up-front investment minus the
handling fees).
Plaintiffs allege that these retained “service” or “han-
dling” fees, as well as the NCAA’s use of the applicants’
money, constitute consideration for a chance to win the
right to purchase “highly prized” tickets for priority
seating at venues that “are much too small to meet ticket
demand” and that the NCAA’s ticket-distribution
system constitutes an unlawful lottery. (Second Am.
Compl. ¶¶ 46-47.)
Plaintiffs allege that “the number of applicants greatly
exceeds the number of tickets on virtually every occasion,”
that the NCAA falsely advertises the availability of
certain seats and “manipulate[s]” the purportedly ran-
dom drawings “to accommodate business needs,” and that
the resale market value of the tickets is high due to their
4 No. 09-3667
scarcity. (Second Am. Compl. ¶¶ 25, 47, 49.) Plaintiffs
further allege that the “service fees” and “handling fees”
charged by the NCAA bear “no relationship to the costs
of running the lottery and grossly exceed[] any costs
associated with the lottery.” (Second Am. Compl. ¶ 41.)
According to Plaintiffs, the NCAA reaps huge profits
by holding and using the money received from ap-
plicants (approximately $100 million in 2008).
Plaintiffs’ Second Amended Complaint asserts six
claims, five of which remained at the time the NCAA
filed its motion to dismiss.1 Count I seeks a declaratory
judgment that the NCAA’s ticket-allocation process
constitutes illegal gambling in violation of Indiana
law;2 Count II is a claim for unjust enrichment; Count III
alleges a civil conspiracy between the NCAA and
Ticketmaster; Count V is for monies had and received;
and Count VI claims the NCAA violated the Indiana
Deceptive Consumer Sales Act (“DCSA”), codified at
Ind. Code § 24-5-0.5-1 et seq.
The district court dismissed the entire Second Amended
Complaint with prejudice on the NCAA’s Motion to
Dismiss pursuant to Federal Rules of Civil Procedure
12(b)(6) and 9(b).
1
With the exception of Count III, all counts were later dis-
missed against Ticketmaster pursuant to a settlement agree-
ment. Because Count IV was asserted against Ticketmaster
only, it is not at issue.
2
Plaintiffs also cite California prohibitions against private
lotteries. Plaintiffs’ appeal, however, is based on Indiana
law only.
No. 09-3667 5
LEGAL STANDARD
A district court’s grant of a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6) is reviewed de
novo. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th
Cir. 2008). All well-pleaded facts are accepted as true,
and all reasonable inferences are drawn in the plain-
tiff’s favor. Id. The allegations in the complaint “must
plausibly suggest that the plaintiff has a right to relief,
raising that possibility above a ‘speculative level’; if they
do not, the plaintiff pleads itself out of court.” Equal
Employment Opportunity Comm’n v. Concentra Health
Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (citing Bell
Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1965, 1973 n.14
(2007)).
ANALYSIS
Lottery
Indiana law defines a lottery as “a scheme for the
distribution of prizes by lot or chance.” Lesher v. Baltimore
Football Club, 496 N.E.2d 785, 789 (Ind. Ct. App. 1986)
(Lesher), vacated in part on other grounds, 512 N.E.2d 156
(Ind. 1987), (quoting Kaszuba v. Zientara, 495 N.E.2d 761,
763 (Ind. App. Ct. 1986); Tinder v. Music Operating, Inc., 142
N.E.2d 610, 614 (Ind. 1957) (Tinder)). These cases identify
three elements necessary to establish a lottery: (1) a prize,
(2) an element of chance, and (3) consideration for the
chance to win a prize. The NCAA does not dispute this.
The NCAA argues that its distribution process only
grants an opportunity to purchase tickets at full price,
6 No. 09-3667
which the NCAA contends is not a prize. This ar-
gument misconstrues the nature of the ticket-distribution
process as pled by Plaintiffs.
As detailed above, Final Four games, in particular,
required a significant up-front investment—as much as
$3,060. Included in this cost were “non-refundable han-
dling fees.” Unsuccessful applicants were refunded a
portion of their up-front investment at some later point
in time, but all handling fees were retained by the NCAA.
In dismissing Plaintiffs’ Second Amended Complaint,
the district court cited Lesher, a case from the Indiana
court of appeals, which held that a distribution scheme
for season tickets to Indianapolis Colts games did not
constitute an unlawful lottery. 512 N.E.2d at 789-90.
In Lesher, all applicants submitted the face value of the
tickets sought plus a handling fee. Id. at 787-88. Winners
were selected at random. Id. Losers received a full
refund of the ticket price and the handling fee. Id. at 787-88.
Defining a prize as “something of more value than
the amount invested,” the Lesher court held that the
applicants merely “invested the price of the tickets
and received in exchange either the tickets or the
entire amount invested,” such that “those receiving
tickets got nothing of greater value than those who re-
ceived refunds.” Id. at 789-90. Because the court found
that no prize had been awarded, it held that the
scheme was not a lottery. Id. at 790.
Here, Plaintiffs allege they were required to invest the
additional “service fee” or “handling fee” of six to ten
No. 09-3667 7
dollars per ticket or entry, which bears no relation to
the NCAA’s actual cost in administering the ticket-distri-
bution process and was not refunded. Win or lose, the
service fee was forfeited by all entrants and retained by
the NCAA. Thus, Plaintiffs have alleged the existence
of consideration not present in Lesher, where the
handling fee was refunded to those who did not secure
tickets.
Plaintiffs have also alleged the existence of a prize not
present in Lesher. They specifically allege that the
scarcity of the tickets makes those tickets far more
valuable than the cost of purchase. Although the plain-
tiffs in Lesher attempted to make a similar argument,
that case was decided on a motion for summary judg-
ment, and the court determined that the plaintiffs
had not presented evidence necessary to establish that
fair-market value was higher than face value. See id. at 789
(“Because they did not come forward with evidence
disputing the fact of value and because the court had
evidence as to the market value of the tickets, Lesher
and Dillon’s argument on appeal regarding the value of
scarce commodities is of no benefit to them now.”). This
case, by contrast, was dismissed on a motion chal-
lenging the sufficiency of the complaint. To defeat that
motion, Plaintiffs need only have alleged that the
fair-market value of the tickets exceeded their face
value such that those tickets constitute something of
more value than the amount invested. Plaintiffs have
done so.
The NCAA also argues that Plaintiffs have not alleged
an element of chance. In Indiana, the “chance” element
8 No. 09-3667
is met if “the winning of a prize is dependent primarily
on, if not solely, upon chance [rather than skill].” Tinder,
142 N.E.2d at 615. For an event in which the demand
for tickets exceeds the supply and the right to purchase
tickets is allocated at random, the element of chance is
plain. Applicants for NCAA tickets do not obtain their
reward through any exercise of skill or judgment. None-
theless, the NCAA argues that its ticket-distribution
scheme lacks any element of chance because a random
drawing occurs only if the demand for tickets to a given
event exceeds the supply. Therefore, an element of
chance is not necessarily present. But Plaintiffs specif-
ically allege that tickets are highly prized and that the
venues hosting the events are “much too small to meet
ticket demand.” (Second Am. Compl. ¶ 47.) The fact
that all applicants may win tickets for some events
does not obviate Plaintiffs’ claims that they paid money
to enter drawings for valuable tickets where the
demand for tickets did exceed the supply.
Thus, Plaintiffs have alleged all elements of a lottery:
they paid a per-ticket or per-entry fee (consideration)
to enter a random drawing (chance) in hopes of obtaining
scarce, valuable tickets (a prize).
The NCAA also argues that even if its ticket-distribu-
tion process is a lottery, it is not unlawful because it
fits within an exception to Indiana’s statutory definition
of “gambling.” Under Indiana law, it is unlawful for a
person to knowingly or intentionally engage in gambling,
Ind. Code § 35-45-5-2(a), which is defined as “risking
money or other property for gain, contingent in whole
No. 09-3667 9
or in part upon lot, chance, or the operation of a
gambling device; but it does not include participating
in: . . . bona fide business transactions that are valid
under the law of contracts,” Ind. Code § 35-45-5-1(d).
Clearly, the exception in the statute was intended to
exclude such activities as regulated investing from the
definition of gambling. See, e.g., Auten v. State, 542
N.E.2d 215, 222 (Ind. Ct. App. 1989) (stating that
activities of a brokerage firm’s purchasing stocks on
margin would fall under the bona-fide-business-transac-
tion exception under Indiana law); Christopher T.
Pickens, Note, Of Bookies and Brokers: Are Sports Futures
Gambling or Investing, and Does It Even Matter?, 14 Geo.
Mason L. Rev. 227, 248 (2006) (discussing Wyoming’s
nearly identical exclusion of “bona fide business transac-
tions which are valid under the law of contracts” as a
legislative effort to exclude investing activities from the
statutory definition of “gambling”) (quoting Wyo. Stat.
Ann. § 6-7-101(a)(iii)(B)-(C)).
Moreover, another statutory provision makes it
unlawful to conduct a lottery without regard for the
definition of “gambling” provided in section 35-45-5-1. See
Ind. Code § 35-45-5-3(a)(4) (“A person who knowingly or
intentionally . . . conducts lotteries . . . commits profes-
sional gambling, a Class D felony. . . .”); Lashbrook v. State,
550 N.E.2d 772, 776-77 (Ind. Ct. App. 1990) (affirming
conviction for professional gambling under section
35-45-5-3(a)(4) based on an “airplane investment pro-
gram” held to be an illegal lottery). Indiana proscribes
all lotteries except those run by the State, where profits
10 No. 09-3667
go to benefit Indiana residents. See L.E. Servs., Inc. v.
State Lottery Comm’n, 646 N.E.2d 334, 339-40 (Ind. Ct. App.
1995) (“With the exception of lotteries conducted by
the State Lottery Commission, lotteries are considered
illegal gambling in Indiana.”). Because Plaintiffs have
sufficiently pled that the NCAA conducted a lottery,
the bona-fide-business-transaction exception to the stat-
utory definition of gambling is of no effect.
In Pari Delicto
Under the equitable doctrine of in pari delicto, “where
the wrong of both parties is equal, the position of the
defendant is the stronger.” Knauer v. Jonathan Roberts
Fin. Group, Inc., 348 F.3d 230, 236 (7th Cir. 2003) (quoting
Theye v. Bates, 337 N.E.2d 837, 844 (Ind. Ct. App. 1975)
(Theye)). It literally means “of equal fault.” Theye, 337
N.E.2d at 844 (quoting Perma Life Mufflers, Inc. v. Int’l
Parts Corp., 392 U.S. 134, 135 (1968)). Thus, “where both
parties are in delicto . . . it does not always follow that they
stand in pari delicto, for there may be, and often are, very
different degrees in their guilt.” Stewart v. Wright, 147
F. 321, 329 (8th Cir. 1906) (quoting 1 Story, Eq. Jur. § 300)
(italics added).
Relying on the application of that doctrine in Lesher, the
district court dismissed most of the counts in Plaintiffs’
Second Amended Complaint based on its conclusion
that Plaintiffs were equally at fault for their participa-
tion in the NCAA’s scheme.
But the language in Lesher relied upon by the district
court was dicta, which, in turn, relied on Swain v. Bussell,
No. 09-3667 11
10 Ind. 438 (1858) (Swain). In Swain, the Indiana
Supreme Court held that the defendant’s scheme for
the distribution of real estate through a random
drawing was an unlawful lottery prohibited by Indiana
statute and constitution but that the plaintiff was not
entitled to relief because he was aware of the scheme’s
unlawful nature and had actually arranged with the
defendant to violate the law. Id. at 443.
Here, the Second Amended Complaint does not state
or imply a mutual arrangement to violate the law. Nor
does it reflect that Plaintiffs knew or had reason to
suspect they were agreeing to participate in an illegal
lottery at the time they sought to purchase tickets. When
all reasonable inferences are drawn in Plaintiffs’ favor,
Swain does not support dismissal at the pleadings stage.
Indiana law makes it unlawful to conduct lotteries
or otherwise gamble knowingly. Ind. Code §§ 35-45-5-2,
35-45-5-3(a)(4). As alleged, the NCAA’s act of knowingly
conducting an unlawful lottery demonstrates a greater
degree of fault than Plaintiffs’ act of unwittingly
entering that lottery. As such, the district court erred
in holding that the doctrine of in pari delicto bars
Plaintiffs from seeking relief from the court.
Remaining Counts
After determining that Plaintiffs were barred from
challenging the NCAA’s alleged lottery by the doctrine
of in pari delicto, the district court listed a number
of deficiencies in Plaintiffs’ DCSA claims. Plaintiffs’ re-
12 No. 09-3667
maining counts were not addressed. Without elabora-
tion, the entire action was dismissed with prejudice.
All of Plaintiffs’ claims, however, incorporate—and, to
some extent, rely on—all of the preceding allegations,
including the lottery claim. As discussed above, Plaintiffs
have sufficiently alleged that the NCAA operated an
unlawful lottery. Accordingly, the district court’s order
of dismissal must be reversed as to all counts remaining
in Plaintiffs’ Second Amended Complaint.
CONCLUSION
For the reasons stated above, the judgment of the
district court is R EVERSED, and the case is R EMANDED for
further proceedings consistent with this opinion.
C UDAHY, Circuit Judge, dissenting. I respectfully dissent
from the conclusion of the majority that the mode of
distribution of certain sought-after tickets for sports
events, as pleaded, is technically an illegal “lottery.”
This case is indistinguishable in relevant respects from
Lesher v. Baltimore Football Club, 496 N.E.2d 785 (Ind. Ct.
App. 1986), vacated in part on other grounds, 512 N.E.2d
156 (Ind. 1987). The principal ground for distinction
asserted by the majority is that in Lesher the application
No. 09-3667 13
fees of the losing applicants were returned while in
the present case they are not. This may be a basis for
finding an overcharge here, but it is hardly grounds
for elevating the present procedure to the status of an
illegal “lottery.”
Lesher relied primarily on a finding of in pari delicto
to invalidate that lawsuit and this is an equally valid
ground for dismissing this one. With respect to an almost
identical scheme in Lesher, the Indiana Court of Appeals
stated:
[P]laintiffs claim the ticket allocation plan constituted
a constitutionally proscribed lottery, yet they partici-
pated in the plan, knowing that a “blind lottery” was
possible. Even if we were to conclude that the plan
did constitute a constitutionally proscribed lottery,
we would note the words of our Supreme Court in
Swain v. Bussell, 10 Ind. 438, 442 (1858): “If the plaintiff,
with the facts before him, saw proper to become
a participant in such an illegal and prohibited trans-
action . . . he is not in condition to ask . . . the aid of
a court.”
Lesher, 496 N.E.2d at 790 n.1. In predicting how the
Indiana Supreme Court would decide a state-law issue,
we can obviously look to the Indiana Court of Appeals
as persuasive authority. See, e.g., AAR Aircraft & Engine
Group, Inc. v. Edwards, 272 F.3d 468, 470 (7th Cir. 2001)
(observing that, where the state supreme court has not
spoken, “the decisions of the state’s intermediate
appellate courts are authoritative unless we have a com-
pelling reason to doubt that they have stated the law
correctly”). I see no reason why Lesher should not be
14 No. 09-3667
treated as authoritative in this instance and I find the
purported distinction regarding the return of fees
to be without significance to the question whether
the plaintiffs participated in the ticket-distribution
mechanism, “knowing that a ‘blind lottery’ was possible.”
Lesher, 496 N.E.2d at 790 n.1. Although the cited state-
ment by the Indiana Court of Appeals was technically
dicta, I find the logic persuasive as applied to the present
case.
The efforts by the majority to rely on the relative culpa-
bility of the defendant compared with that of the plain-
tiffs or between a motion for summary judgment and a
motion to dismiss are also without significance.
In addition, the argument that the tickets awarded,
because of their scarcity, are more valuable than the
price originally charged for them is misleading. Face
value is in fact the value realized by the issuer. After
allocation, they acquire, as a result of the very process
of allocation, a resale value, not necessarily to be
realized, and for that reason irrelevant.
There are other reasons for excluding this process
of ticket distribution from being classified as an illegal
“lottery.” One of these is the statutory exemption for
“bona fide transactions that are valid under the law of
contracts.” Ind. Code § 35-45-5-1(d). This is a very open-
ended exemption that is easily applicable to this de-
vice—incidental to allocating scarce tickets for popular
sports events.
7-16-10