disgorgement can't be a lottery windfall--even when D was engaged in illegal gambling

TNT Amusements, Inc. v. Torch Electronics, LLC, 2026 WL 411747, No. 4:23-CV-330-JAR (E.D. Mo. Feb. 13, 2025)

Previously. TNT leases traditional arcade games in retail locations throughout Missouri. Torch Electronics leases “no-chance” gaming devices in the same market. A jury accepted TNT’s argument that Torch’s devices are illegal slot machines that divert TNT’s customers in violation of state law. Statements that the devices eliminated chance were false, and therefore the statement “this amusement device does not fit any definition of a ‘gambling device’ in the state of Missouri and is not prohibited for use by you” was also false. The jury awarded $500,000 in damages, which the court found was $125,000 for lost profits and the rest for injuries to TNT’s reputation and goodwill. (In a separate opinion, 2026 WL 413322, the court enters declaratory judgment that these are illegal gambling devices in Missouri, given the trial evidence, including from both parties’ experts, that the games contain “multiple elements of chance.”)

The court also found the case exceptional for purposes of attorneys’ fees. “[T]he Missouri Gaming Commission declared Torch Devices illegal in 2019. However, because the Commission’s jurisdiction is limited to licensed operators, Torch simply ignored the Commission’s opinion and continued to operate outside the Commission’s regulatory reach.” The Missouri Highway Patrol and multiple local law enforcement agencies also warned Torch that its devices were illegal, and several prosecutors pursued charges against its customers, and one store was convicted. “Missouri jurisprudence since 1913 has held that a gaming machine with a prize viewer is still a gambling device. Appellate courts in sister states have reached the same conclusion in recent years, as cited in the Commission’s 2019 opinion.”

Thus, “Torch was on notice since at least 2019 that its commercial representations defied the realities of the legal landscape and were therefore willfully and deliberately false when viewed in context. Torch simply chose to ignore existing authority in pursuit of profit. For the same reasons, the substantive strength of TNT’s position, both in fact and law, was exceptionally compelling, as reflected by the jury’s swift and significant verdict in TNT’s favor.” There were also some litigation shenanigans.

The court also planned to award partial disgorgement; out-of-circuit precedent suggests as factors “whether the defendant had the intent to confuse or deceive, whether sales have been diverted, the adequacy of other remedies, any unreasonable delay by the plaintiff in asserting its rights, the public interest in making the misconduct unprofitable, and whether the case involves palming off.” And, as the Supreme Court said, “A ‘defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.’ ” Ultimately, “the district court is given broad discretion to award the monetary relief necessary to serve the interests of justice, provided it does not award such relief as a penalty.”

From 2017 to 2023, Torch collected over $5.5 million from 100 machines in locations where it overlapped with TNT, though Torch operates more than 6,000 devices statewide and might have profited by $68 million in the past year alone. The court declined to order statewide disgorgement (which suggests that Torch will still continue to break the law unless stopped by regulators) but did ask for briefing on appropriate disgorgement.

Torch relied on Retractable Techs., Inc. v. Becton Dickinson & Co., 919 F.3d 869 (5th Cir. 2019), “where the Fifth Circuit opined that disgorgement, separate from recovery of diverted profits, would have constituted a windfall to the plaintiff.” The court found this non-binding case “largely inapposite,” but noted that it still affirmed the broad discretion of a district court to consider the equities.

Torch also argued that it had a good faith belief in the veracity of its statements, based on a 2017 opinion letter from a Chicago law firm and the fact that some county prosecutors opted not to pursue charges involving Torch devices. “But the opinion letter was supplied by an Illinois lawyer prior to the Missouri Gaming Commission’s unequivocal warning in 2019, and the county prosecutors who abstained from pursuing charges did so in direct reliance on Torch’s false statements at issue here…. Overall, the evidence belies any objectively reasonable claim of good faith.”

In addition, Truck Equip. Serv. Co. v. Fruehauf Corp., 536 F.2d 1210 (8th Cir. 1976), although based on an earlier version of the statute, supported the view that “where the evidence shows willfulness and bad faith, disgorgement may exceed a plaintiff’s demonstrated losses in order to serve as a deterrent.” The court was also sympathetic to TNT’s argument that “the Lanham Act offers multiple forms of recovery precisely due to the inadequacy of diverted sales and the difficulty of proving the full extent to which a defendant’s misconduct has harmed the plaintiff or impacted the market.” The court wasn’t convinced that the amount awarded by the jury fully compensated TNT for the totality of its market injury, given that TNT was a long-established business that suffered a loss of 35% after Torch entered; some of TNT’s accounts lost to Torch had been TNT customers for 20 to 30 years. Though the parties compete for floor space, TNT’s owner explained that “it’s not a fair fight” and “We can’t generate the revenue that slot machines generate.”

The court also found that deterrence was an important consideration and that disgorgement would serve the interests of justice and further the public interest of making Torch’s conduct unprofitable. “If Torch hadn’t falsely represented and marketed its devices as ‘no-chance’ games exempt from Missouri’s definition of a gambling device, Torch couldn’t have operated anywhere in its current territory. Rather, it could only have operated in licensed casinos subject to state gaming taxes benefiting public education. One hundred percent of its revenue is attributable to its misrepresentations.”

However, given the scope of Torch’s operations, “a disgorgement award sufficient to render Torch’s advertising unprofitable would inevitably result in a ‘lottery-level windfall’ to TNT.” Thus, disgorgement limited to overlapping locations was appropriate to deter Torch’s willful conduct “and render it at least slightly less profitable, to fully compensate TNT for its market loss, and to serve the greater interests of justice given the unique circumstances of this case.” Consumers spent over $32 million on Torch devices in overlapping locations alone during the relevant period. “Torch has profited tremendously from its misrepresentations and had avoided regulation, taxation, and prosecution by virtue of its government relations efforts and the Gaming Commission’s limited jurisdiction. In this regulatory void, TNT’s lawsuit not only vindicates its own competitive interests but also protects consumers from the fallacy of ‘no-chance’ gaming going forward.” Further briefing, and possibly discovery, was required to set the size of the award.