Watts v. Malatesta
262 N.Y. 80, 186 N.E. 210 (1933)
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Rule of Law:
Under New York Penal Law § 994, a casual gambler may recover money lost to a professional gambler in a wagering transaction, but the professional gambler may not offset their own losses or payments made to the casual gambler against this claim.
Facts:
- A plaintiff, considered a casual gambler, placed a series of bets on horse races with the defendant, John B. Malatesta, a professional bookmaker.
- These betting transactions occurred on various dates between April 28, 1928, and April 17, 1930.
- During this period, the plaintiff lost and paid to Malatesta a total of $37,535 on these wagers.
- In the same timeframe, the plaintiff won various wagers, and Malatesta paid him an aggregate sum that was much larger than the amount the plaintiff had lost.
Procedural Posture:
- The plaintiff sued John B. Malatesta in a trial court to recover $37,535 lost on wagers, pursuant to section 994 of the Penal Law.
- Malatesta filed a counterclaim, arguing that he was entitled to recover from the plaintiff the amount by which the plaintiff's winnings exceeded his losses.
- The trial court dismissed the plaintiff's complaint and granted judgment for Malatesta on his counterclaim.
- The plaintiff, as appellant, appealed to the Appellate Division (an intermediate appellate court).
- The Appellate Division reversed the trial court's judgment, granting judgment to the plaintiff for his full losses and dismissing Malatesta's counterclaim.
- Malatesta, as appellant, then appealed to the Court of Appeals of New York, the state's highest court.
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Issue:
Does New York Penal Law § 994, which allows any person who loses money in a wager to recover it, permit a professional gambler to offset money he paid to a casual gambler for winning wagers against the casual gambler's claim to recover his own losses?
Opinions:
Majority - Crouch, J.
No. A professional gambler may not offset his losses against a claim brought by a casual gambler to recover his losses. The statute's purpose is to suppress the public mischief of organized gambling, not to aid those who conduct it. The law distinguishes between a casual gambler and a professional gambler, who is engaged in a criminal enterprise. The two parties are not 'in pari delicto' (equally at fault); the professional is viewed as an outlaw and the source of the temptation. To allow a professional to recover his losses, even as an offset, would permit a criminal act to give rise to a cause of action, which is contrary to public policy. The right of recovery for the casual gambler is not to benefit him personally, but to 'put teeth in the prohibition against all betting' by penalizing the professional.
Dissenting - Crane, J.
Yes, an offset should be permitted, or alternatively, neither party should recover. The majority's holding encourages gambling by creating a 'sure thing' for the bettor, who can keep his winnings but recover all his losses. This nullifies the purpose of the anti-gambling statute. The statute's language allowing 'any person' to recover should apply to both parties, or at the very least, a plaintiff's recovery should be limited to his net losses after accounting for his winnings. The plaintiff, having received more from the defendant than he lost, has in effect been repaid and should not be allowed to profit from his own participation in an illegal activity. To allow the plaintiff to recover his gross losses while keeping his much larger winnings is an absurd and unjust result that the legislature never intended.
Analysis:
This decision establishes a significant legal distinction between professional and casual gamblers under New York's anti-gambling laws. By denying professional gamblers the ability to offset losses, the court reinforces a strong public policy against organized gambling. The ruling creates a one-way street for recovery, empowering customers to reclaim their losses without having to account for their winnings. This precedent strengthens the deterrent effect on professional bookmaking by making the business financially precarious, as professionals cannot use the courts even defensively to mitigate their liability from illegal transactions.
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