No one who plans and operates a promotional sweepstakes wants to litigate over the prizes. But one of the primary reasons an operator wants a set of experienced eyes on a set of Official Rules is to ensure that the operator is covered – just in case there is a dispute with one or more of the contestants. Sometimes, operators cleverly anticipate that an arbitration clause will help to lower the risk of a dispute involving a contest or sweepstakes. And, undoubtedly, there might be situations where arbitration can help the operator lower the risk of costly litigation. But, like many substantive provisions of the promotional contract between an operator of a sweepstakes and a participating consumer, the clever protections you and your attorney put in place are only effective if they are made a part of the contract.
In Root v. Robinson, No. 5:20-cv-00239-M, 2021 U.S. Dist. LEXIS 5550 (E.D.N.C. June 23, 2021), Tony Robinson, along with his companies Tony the Closer LLC and I Close Deals LLC (collectively Robinson), was in the business of setting up conferences to teach others how to be successful in the real estate business. Robinson organized one such conference in Las Vegas called “The 100K Club Conference 2019.” Robinson sought to promote the conference by way of a sweepstakes. The promotional structure was as follows: Those who purchased tickets to attend the conference would be entered into a drawing to win $100,000 cash. The sweepstakes was advertised through an FAQ section of the conference website, which read in part:
How Can I Win $100,000? Buy a ticket of any level and attend live or online through our pay-per-view option. Is there a catch? No, one lucky person will walk away with $100,000. In order to win you must purchase a ticket in person or pay-per-view. Winner will be drawn randomly from ticket buyers. That is it!
There was also a “100K Drawing Disclaimer” that read, “Only one lucky person (in person or pay-per-view) will walk away with $100,000. In order to win you must purchase a ticket in person or pay-per-view. Winner will be drawn randomly from ticket buyers, complimentary tickets do not apply.”
A consumer, Gaege Root, bought a ticket to attend the conference. He did attend the conference, and he alleged that he did so in reliance on Robinson’s advertisement of the sweepstakes. Root was drawn as the winner and was presented with an outsize replica of a check for $100,000. But Root did not “walk away” with $100,000 in cash. Rather, Robinson presented him with an Affidavit of Eligibility and Release form (Affidavit) that Root was required to execute and have notarized and then return to Robinson within five days. The Affidavit contained blanks where Root was to fill in personal information. It also contained a representation that Root was the “potential winner” of a prize and that the Affidavit was being submitted “to assist in determining whether [Root was] eligible to receive the Prize in accordance with the Official Rules of the Promotion.” The Affidavit also contained a representation that Root had complied with the Official Rules and that Root understood that the prize would be paid out according to a specified payment schedule. Finally, the Affidavit provided Root’s consent to use his likeness and his release of Robinson from any claims Root might have against Robinson or its affiliates regarding the sweepstakes.
After Root executed the Affidavit and had it notarized and returned it to Robinson, Robinson sent Root a check for $30,000. Root demanded 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 trade practices; and (4) constructive trust. He sought punitive damages (which helped to push the amount in controversy over the $75,000 threshold).
For purposes of this discussion, we will ignore whether the prize promotion was actually an illegal lottery because participants were required to pay for the conference ticket in order to enter the drawing. The focus of this case, on Robinson’s motion to dismiss and to compel arbitration, was whether Root should be bound by the Official Rules and specifically the arbitration provision contained therein.
Initially, Robinson argued that the Official Rules, which were referenced only in the Affidavit, were the controlling terms for the relationship between the parties. The Official Rules contained a requirement that disputes be submitted to arbitration. Accordingly, Robinson argued, the court should dismiss the case because the terms of the Official Rules, agreed to through the Affidavit, precluded Root’s lawsuit.
The court initially ordered limited discovery in order to flesh out the record as to whether or not the Official Rules had been made part of the contract between Root and Robinson. Subsequently, Robinson presented two pieces of evidence to support its contention that Root had agreed to the Official Rules in connection with his participation in the sweepstakes. First, Robinson testified that the Official Rules were made available to all Sweepstakes participants through an unspecified website and an unspecified “app” through which conference participants communicated. Second, Robinson presented a copy of the Official Rules themselves which contained the statement, “Participation in the Sweepstakes Constitutes Your Agreement to be Bound by these Official Rules,” as well as release language and the arbitration clause, among other provisions. The court noted that at the hearing following the limited discovery, Robinson dropped the specious contention that the signed Affidavit referencing the Official Rules was sufficient to bind Root to the rules after the fact.
The court held that Robinson did not meet his burden of proving that Root was aware of, saw, or agreed to be bound by the Official Rules. The court did not address at this stage any of the substantive claims alleged by the plaintiff. Rather, the court merely concluded that Robinson was not entitled to rely on the Official Rules to compel arbitration of the dispute. Despite the preliminary nature of this decision in relation to the underlying causes of action, the need to litigate the matter in federal court is likely to lead to a settlement favoring Root.
The Official Rules of a sweepstakes form a contract between the organizer and the participants. Careful planning and structuring of a prize promotion can ensure that one’s promotional efforts are optimized and that the goodwill sought by the promotion is maintained and protected. Official Rules can condition receipt of a prize; they can provide for a structured payout; they can anticipate and provide procedures for dealing with contingencies; and they can establish how the parties will resolve disputes that may arise to the extent the participant has not expressly released the organizer from liability pursuant to the terms of the Official Rules. The Official Rules can also establish that notwithstanding the presentation of an outsize replica check, the participant whose name was drawn is only a “potential winner” unless and until they execute an affidavit and otherwise release the organizer from any liability.
But even the most elegantly constructed Official Rules generally will be ineffective if they are not published along with the advertising for the sweepstakes. A link to the Official Rules in all advertising is the least that an organizer should do to ensure that it can establish that no participant could have relied on the sweepstakes invitation without being made aware of the Official Rules. For certain promotions, especially those with complicated prizes or those for which compelling arbitration is particularly important, a radio button evidencing express acceptance might be warranted. We particularly recommend express acceptance of the Official Rules in connection with international promotions in which international arbitration might be the best way to resolve disputes.
Organizers may like to relegate key terms to an FAQ section of a website or simply use promotional language to attract consumers to the sweepstakes without any limitation or reference to Official Rules, but they do so at their peril. The Official Rules are an organizer’s life raft. We are sometimes asked whether a promotion requires Official Rules. There are regulatory reasons one must disclose certain terms and conditions associated with a prize promotion. Unless the organizer is placing all of those mandatory disclosures in the advertisement, it would need the Official Rules to disclose those pieces of information, such as prize value, odds, and number of available prizes. Apart from the regulatory disclosure requirements, the Official Rules protect the organizer. Sweepstakes are all “fun and games” until they are not. Once there is a dispute, all eyes turn to the Official Rules. That is why prudent promotion organizers and their counsel draft rules carefully for each and every promotion they run. That is also why they routinely include abbreviated references to the Official Rules in all advertising and marketing materials.
At their core, Officials Rules are subject to common law contract principles, especially those principles that apply to unilateral contracts. That means it is imperative to always be cognizant of how consumers “substantially perform” and thereby bind organizers to the terms of the contract. That also means that one cannot impose terms on the other party after the sweepstakes is completed without additional consideration. As one can see in the Root case, the organizer could not legitimately rely on the Affidavit as the basis for compelling arbitration, even though the notarized, executed document expressly included reference to Root’s full compliance with the Official Rules.
Finally, an organizer who thinks the Official Rules subject them only to common law contract principles will be mistaken. In the promotion context, it is common to see causes of action based on common law contract and quasi-contract theories paired with allegations based on state unfair and deceptive acts and practices statutes. Although the Root case was only concerned with the issue of whether arbitration could be compelled, the decision implies that the plaintiff also alleged violations of the applicable unfair and deceptive acts and practices (UDAP) statute, which provides for various forms of damages above and beyond the contract damages presumably sought. Thus, being able to demonstrate that an organizer has acted fairly and in good faith compliance with the applicable Official Rules, and has communicated those terms and conditions in a manner that is not deceptive or misleading, can help to mitigate the risk of a UDAP violation in addition to avoiding liability for common law contract breach.