REGULATION

REGULATION

States Hold Advantage In Wire Act Battle

The New Hampshire District Court struck a significant blow in favor of state rights by rejecting the Department of Justice’s revised interpretation of the Wire Act. But the DoJ is unlikely to take the defeat lying down, warn Christopher Soriano and Samantha Haggerty

While the implementation of both internet gaming and sports betting in the US has been proceeding at a deliberate pace, it has been moving forward. The Department of Justice, however, seemed intent on slowing things even further when it reinterpreted the Wire Act in an opinion released in January. A recent successful lawsuit by the state of New Hampshire, combined with the DOJ’s decision to suspend enforcement of its reinterpretation until 2020 at the earliest, leaves some uncertainty—but the advantage seems to have shifted to the states in their efforts to expand internet gaming.

On 14 January 2019, in response to growing pressure from constituencies on both sides of the issue, the DOJ published an updated legal opinion again reinterpreting the Wire Act. The opinion reconsidered the DOJ’s 2011 opinion that declared the Wire Act only applied to sports gambling.

PROBLEMS WITH THE WIRE ACT

There are at least two practical difficulties. First, the Act was adopted in 1961 as part of a federal effort to assist the states in combating illegal bookmaking across state lines. State law enforcement was having difficulty in keeping up with organized crime syndicates illegally accepting wagers on sporting events and passing those wagers to other syndicate members—using telephone and telegraph—across state lines.

As part of Attorney General Robert F. Kennedy’s strategy to crack down on crime, the Wire Act came into being. At the time only one state—Nevada—had legal sports wagering. Neither (of course) did the internet exist. Practically, then, the Act does not fit the paradigm of modern wagering realities.

Second, the Wire Act contains several ambiguities in terms of what it actually prohibits. Whether it bans all wagers from passing across state lines, or just wagers on sporting events, has been at the heart of the recent attention paid to it. Against this backdrop, several states throughout the country have adopted, or are in the process of adopting, legislation authorizing intrastate internet sports betting, despite the existence of the Wire Act. Moreover, several states have authorized non-sports online gaming transactions to pass across state lines where permissible under state law.

But then the DOJ issued its 2019 opinion. “While the Wire Act is not a model of artful drafting, we conclude that the words of the statute are sufficiently clear and that all but one of its prohibitions sweep beyond sports gambling,” Assistant Attorney General for the Office of Legal Counsel Stephen Engel said. Therefore, the prohibition on transmitting “bets or wagers” across state lines applies to all bets or wagers—not just those on a sporting event or contest. In other words, the DOJ’s opinion takes the position that the transmission of any bet or wager—even one permitted by state law—across state lines, violates the Act. The opinion also states the DOJ’s belief that the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 did not modify the terms of the Act, even though UIGEA presents a more flexible approach to “intermediate routing” (data that passes across state lines even though the data originates and ends in a state where the bet or wager is legal).

MUDDIED WATERS

The updated opinion created more questions than answers and left the future of internet gaming— sports-related or not—in a state of uncertainty. What is certain is that states and private companies have invested years and significant funds into developing legal, regulated and promising internet gaming markets, and such states and companies did not intend to surrender without a fight. Following the release of the 2019 Opinion, the New Hampshire Lottery Commission initiated litigation against the DOJ in the United States District Court for the District of New Hampshire, challenging the legality of the Opinion. Various parties filed amicus briefs in the case, including the State of New Jersey.

On 8 April 2019, the DOJ filed a declaration in the litigation, which included as an exhibit a memorandum that states that the 15 January 2019 Opinion “did not address whether the Wire Act applies to State lotteries and vendors.” This made the DOJ’s position even more ambiguous, leading the judge hearing the case to demand clarification from the DOJ.

In response, on 25 April the DOJ filed a brief stating that “the New Hampshire Lottery Commission fails to demonstrate” that the Commission, its employees, and its vendors may be prosecuted under the Wire Act. Perhaps in an effort to avoid a decision in a circuit with unfavorable precedent, and to avoid a judge who had expressed skepticism about its new interpretation, the DOJ took the position that the Lottery Commission lacked standing to challenge the statute based on the lack of a present credible threat of prosecution under the Act.

JUDGMENT DAY

On 3 June 2019, the judge concluded that the purview of the Wire Act is limited to sports wagering. First, the judge flatly rejected the DOJ’s contention that the Lottery lacked standing to challenge the DOJ’s interpretation. The court then turned to the central question of whether the Wire Act applies beyond sports wagering.

First, the court determined that, despite the DOJ’s position to the contrary, the language of the Wire Act is ambiguous. The court cited the fact that in 2011 the DOJ had clearly stated that the Wire Act was ambiguous and that it could “be read either way.” Further, the court noted that the OLC’s 2018 Opinion produces “incongruous” results that the 2011 Opinion avoids. Additionally, the court stated that “if anything, the legislative history [of the Act] supports the plaintiffs’ position” that the Wire Act applies only to sports wagering.

Finally, and perhaps most importantly for non-parties to the case, the Opinion addressed the parties’ remedies. By virtue of being a district court decision, the decision only has precedential effect in the state of New Hampshire.

The court maintained that its decision binds only the parties to the case, and declined to give a broader scope to its declaratory judgment. However, it noted that its judgment binds the parties beyond the geographic boundaries of its district, due to the plaintiffs’ operation in states other than New Hampshire. Thus, while the court’s opinion is clear that the Wire Act does not apply to non-sports betting as to the parties in the litigation, immediate uncertainty has resulted from the applicability of the decision beyond New Hampshire.

WHAT NEXT?

Several courses of action can result. First, the DOJ can seek to appeal the decision to the US Court of Appeals for the First Circuit, which could affirm, reverse, or modify the district court’s decision. Any such appeal would take a fair amount of time to resolve.

Second, another court in another circuit might come to a contrary conclusion, thus setting up the potential for a circuit split on the same question and making US Supreme Court review a possibility.

Third, the DOJ might choose to amend its opinion further to comply with the court’s reasoning. In any of these cases, while the advantage currently lies with the states, any court could come to a contrary conclusion.

These questions could drag this controversy out for years and lead to continued ambiguity when it comes time for operators to make decisions as to how to comply with the Wire Act.

Recognising this uncertainty, on 12 June 2019, the DOJ issued a memorandum stating that it will not prosecute violations of the Wire Act until “31 December 2019 or 60 days after entry of final judgment in the New Hampshire litigation, whichever is later.” Perhaps 2020 will remove the cloud of uncertainty from the Wire Act’s legacy—or perhaps, like sports betting, we’re heading for more years of litigation.

Disclaimer: This article is for informational purposes only and should not be construed as legal advice. The views expressed in this article are those of the authors and do not necessarily reflect the views of the authors’ law firm or its individual partners.


CHRISTOPHER L. SORIANO is a partner in the Cherry Hill, NJ, office of Duane Morris LLP. He concentrates his practice in gaming law, where he represents casino operators, gaming equipment manufacturers, igaming companies, financial institutions and other participants in the gaming industry in all aspects of their operations.

 

SAMANTHA L. HAGGERTY is an associate in the Cherry Hill, NJ, office of Duane Morris LLP. She practices in the areas of gaming law and litigation and is the treasurer of the New Jersey State Bar Association’s Casino Law Section.