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Here’s the quick backstory:
New York enacted a law in 2016, mostly to legalize and regulate the daily fantasy sports industry in the state. Soon after, an anti-gambling group brought a lawsuit in New York State Supreme Court, alleging that the law was unconstitutional.
The state constitution says limits the forms of gambling in the state. The state legislature, via the new law, specifically defined paid-entry fantasy sports as a game of skill and exempt from the state’s gambling laws. Whether the legislature can make that determination without changing the constitution is what is at question in the case.
The case has mostly been quiet since coming about last fall. But this week, the judge in the case denied a motion to dismiss from NY Attorney General Eric Schneiderman, who is the defendant as a result of having to represent the state.
According to a blog that follows the New York court system, it was an “unsurprising decision.” The ruling from a court in Albany is simply allowing the case to proceed and is narrowly confined to whether the case should be dismissed. From the order of Judge Gerald Connolly:
While defendants argue that the legislation is presumed to be constitutional, such presumption alone does not itself bar plaintiffs’ action herein and while plaintiffs ultimately bear the burden of proof in this action, the Court’s analysis upon the instant motion is limited.
Plaintiffs complaint challenges the constitutionality of Chapter 237 of the Laws of 201 6. Accepting the facts alleged as true, plaintiffs have alleged that daily fantasy sports constitutes “gambling” and that such activities violate Article I, Section 9 of the Constitution.
Based upon the record, plaintiffs have stated a cause of action. …
Defendants assert that the courts have accorded the Legislature substantial latitude in determining what conduct constitutes prohibited gambling, however, such assertion does not mandate dismissal of plaintiffs’ complaint at this juncture … such argument is more appropriate on a motion for summary judgment and not the instant motion to dismiss for failure to state a cause of action.
Here is the full judge’s ruling, via the NYS Appeals blog.
For those that have followed the history of the DFS industry, that Schneiderman must defend the law is an interesting development.
He famously brought unwanted attention to the industry for issuing cease and desist letters to DraftKings and FanDuel for operating illegal gambling businesses in the state. He argued at the time that the sites operated in violation of the state constitution.
The new law ultimately resolved the sites’ legal status in the state. Now, New York DFS is legal for any operator that the state licenses.
Schneiderman’s office filed a brief in January in the case defending the law, saying that it the legislature could define what is and isn’t gambling without altering the constitution. From that brief:
Article I §9 of the State Constitution expressly delegates to the Legislature the authority to enact appropriate laws to effectuate the constitutional prohibition against “gambling” — a term the Constitution itself leaves undefined.
Consistent with that authority, the Legislature has enacted L. 2016 Ch~ 237 (“Ch. 237”), which resolved the legal status of specific internet games known as interactive fantasy sports and declared that such contests properly fall outside the definition of gambling in New York as defined in the Penal Law.
The case will see more filings, and eventually a decision from the judge in the case. But no matter what the decision, the case is likely to be appealed up the food chain in the state court system.
From NYS Appeals:
The parties will fully brief the issues on the merits, and soon enough the Judge will decide whether the legislation authorizing DFS in New York passes constitutional muster.
That decision will not be the end of the case, however. An appeal to the Appellate Division, Third Department will follow, possibly a stay application depending on how the merits come out below, and then on to the Court of Appeals because a substantial constitutional question is at the heart of the case.
The case could be tied up in challenges for years. And the DFS industry is likely to enjoy the status quo until the case’s ultimate resolution.
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