Opinion: 2018 Interpretation Not Likely To Hold Up

DOJ Goes All-In Against Online Gambling, But Can Wire Act Opinion Withstand Scrutiny?

Wire Act

The following is a guest legal analysis contributed to Legal Sports Report.

On Jan. 14, the US Department of Justice (DOJ) sent shockwaves through the online gambling world by releasing an updated opinion regarding the interpretation of the Wire Act of 1961 (18 U.S.C. § 1084) (the “Wire Act”), applying its prohibitions to all online wagering, not just online sports betting.

To better understand what this means, and what further implications may result, we will discuss a brief history the Wire Act, the basis for the 2018 DOJ opinion, and why this new interpretation is not likely to withstand scrutiny when tested by the courts.

A brief history of the Wire Act

The Wire Act was an attempt by Congress to crack down on widespread underground bookmaking. The core goal of the Wire Act was to reduce organized crime by making it a federal offense to take sports bets using a “wire communication facility.”

At the time, there was no doubt that “wire communication facility” was a lawyerly euphemism for the telephone and its accessories. The 1961 Congress could not have possibly foreseen the potential wide-ranging application of the Wire Act many years later with the birth of a new, wire-based, global information superhighway – the internet.

The expansion of the internet in the late 1990s and early 2000s marked the meteoric rise of online poker and online casinos. The application of the Wire Act to these new forms of betting became a matter of intense debate.

Case law offers insight

In 2002, the 5th Circuit provided clarity, holding in In re: Mastercard, 313 F.3d 257 (5th Cir. 2002) that, based on its statutory interpretation, “the Wire Act does not prohibit non-sports internet gambling.”

From 2002 to 2011, online poker flourished into a billion-dollar industry, and online casinos became omnipresent, at all times occupying a strange, unclear legal space where even top scholars could not be certain as to the state of the law.

In 2011, at the request of the DOJ’s Criminal Division, the DOJ’s Office of Legal Counsel issued an opinion that arrived at the same conclusion that the 5th Circuit did in Mastercard. See Whether Proposals by Illinois and New York to Use the Internet and Out-of-State Transaction Processors to Sell Lottery Tickets to In-State Adults Violate the Wire Act, 35 Op. O.L.C. __ (2011) (the “2011 Opinion”).

In part due to the 2011 Opinion, the legislation explicitly legalizing online wagering began to spread on a state-by-state basis, replacing the quasi-legal online wagering that was so prevalent in the early 2000s. Since 2011, a number of states have legalized online casinos, poker and lotteries, and a host of other states are on the brink of doing the same.

The 2018 DOJ opinion

On Jan. 14, the DOJ released an opinion, drafted in November 2018, “superced[ing] and replac[ing]” the 2011 Opinion with one that concludes that the Wire Act applies to all bets or wagers, not just those on placed on sporting contests. Reconsidering Whether the Wire Act Applies to Non-Sports Gambling, 42 Op. O.L.C. 1 (2018) (the “2018 Opinion”).

In light of the recent rapid expansion in legal online wagering, this 2018 Opinion was surprising to gaming law practitioners and downright terrifying to industries that depend upon online wagering for their existence.

In issuing this rare reversal of its own previous opinion, the DOJ relies on a tortured grammatical exercise while wholly disregarding basic common sense. The key text of the Wire Act at issue is:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both. 18 U.S.C. § 1084(a).

A matter of language

The question of statutory interpretation is thus whether the phrase “on any sporting event or contest” (the “Sports Modifier”) modifies all of the prohibited conduct in the statute, or only the prohibited conduct immediately preceding the Sports Modifier.

The 2018 Opinion analyzed the statute using the “last antecedent rule,” a doctrine of interpretation by which a court finds that qualifying words or phrases refer to the language immediately preceding the qualifier unless common sense shows that it was meant to apply to something more distant or less obvious.

The 2018 Opinion stated, “the Wire Act’s reference to gambling ‘on any sporting event or contest’ modifies only the phrase it immediately follows.” 2018 Opinion at 8.

Coherent and consistent?

While this argument is not entirely unreasonable on its face, a fundamental rule of statutory interpretation is that it “must, to the extent possible, ensure that the statutory scheme is coherent and consistent.” Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 222 (2008).

As the 2011 Opinion argues:

“it is difficult to discern why Congress, having forbidden the transmission of all kinds of bets or wagers [in prohibition 1], would have wanted to prohibit only the transmission of information assisting in bets or wagers concerning sports, thereby effectively permitting covered persons to transmit information assisting in the placing of a large class of bets or wagers whose transmission was expressly forbidden by the clause’s first part.” 2011 Opinion at 5.

The 2018 Opinion considers this argument and quickly rebuts it by stating “[t]here is a logic to this reasoning, but unlike the 2011 Opinion, we view the statutory language as plain, and, absent a patent absurdity, we must apply the statute as written.” 2018 Opinion at 14 (emphasis added).

The 2018 Opinion goes on to cite Supreme Court precedent to support the proposition that where statutory language is clear, only an absurdity that no reasonable person could intend should negate its plain interpretation (the “Absurdity Standard”).

However, the Absurdity Standard is only applicable “where [absurdity is] the result of applying the plain language” of the statute. Public Citizen v. United States Dept of Justice, 491 U.S. 440 (1989) (emphasis added).

In closing

For more than half a century, all of the Wire Act’s prohibitions were generally construed to apply only to sports wagering. Therefore, to the extent there is any “plain meaning” of the Wire Act, it is in line with the 2011 Opinion and not the 2018 Opinion.

Further, it strains credulity that Congress intended to prohibit betting and wagering generally, while only prohibiting the transmission of information assisting such prohibited wagering where the information relates to sporting events.

Finally, “bet” and “wager” are undefined in the text of the Wire Act. Thus, if the Sports Modifier is not applied to the prohibition on wagering or betting, it begs the question of how broad this prohibition may be. Could it prohibit the online trading of options? Securities? Mutual funds? Government bonds?

The 2018 Opinion will ultimately be tested in federal courts, where they are likely to find that, to the extent the Wire Act has a plain meaning at all, it is not the meaning ascribed by the 2018 Opinion.

The courts will attempt to interpret the statute in the likely manner that the 1961 Congress intended, notwithstanding that it could not possibly have foreseen the internet, and therefore not possibly intended any of this at all.

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- Scott Balber is the Managing Partner of Herbert Smith Freehills' New York office and is the US Head of Investigations and Financial Services Litigation for the firm. Steven Jacobs is an associate at the firm specializing in Litigation, Corporate Crimes and Investigations.
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