## Facts

- Michael T. Watts placed repeated horse-race wagers with John B. Malatesta from 1928 to 1930.
- Watts was treated as a casual bettor; Malatesta operated as a professional bookmaker conducting betting as a business.
- Over the wagering relationship, Watts lost and voluntarily paid Malatesta an aggregate $37,535.
- During the same period, Malatesta also paid Watts sums on wagers Watts won, with Watts’s total winnings exceeding the amount Watts had paid in losses.
- Watts sued under New York Penal Law § 994 to recover the money he had paid to Malatesta on prohibited wagers.
- Malatesta asserted a counterclaim seeking the net balance in his favor based on the overall course of dealing.

## Issues

1. Whether a professional bookmaker may assert a counterclaim to recover the net balance of illegal wagers paid out to a casual bettor when the bettor sues under Penal Law § 994 to recover losses voluntarily paid.
2. Whether civil courts will recognize a claim grounded on transactions that are criminal when carried on as a professional gambling business.

## Decision

- The Court of Appeals affirmed judgment for Watts for the full amount of his losses paid to Malatesta.
- The court held Malatesta could not maintain a counterclaim to recover any net balance from the wagering relationship.
- The court rejected using civil litigation to settle accounts arising from a professional gambling enterprise treated as criminal under the statutory scheme.

## Legal Principles

- Anti-gambling statutes aimed primarily at organized, professional gambling may create asymmetric civil remedies that disadvantage professional gamblers to suppress that activity.
- Penal Law § 994 grants a loser a cause of action to recover money voluntarily paid on prohibited wagers; it does not authorize an inter-party accounting that nets mutual illegal wagers.
- Courts will not aid a party whose claim requires reliance on illegal transactions; a claim based on a criminal enterprise will not be recognized as a civil cause of action, including by counterclaim.
- A casual bettor’s statutory right to recover losses paid is not reduced because the bettor also received payments on other illegal wagers during the same period.

## Conclusion

The court enforced Penal Law § 994 as a one-way restitution remedy for a casual bettor and refused to allow a professional bookmaker to use a counterclaim to net out illegal wagering transactions, because civil relief cannot be grounded on the counterclaimant’s criminal gambling business.


Watts v. Malatesta, 262 N.Y. 80, 186 N.E. 210 (N.Y. 1933)