Temper Those Expectations: NH Wire Act Lawsuit Faces Uphill Battle

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Wire Act

The new Wire Act decision is wrong, as has been discussed extensively by me and many others.

But simply because the 23-page opinion written by Assistant Attorney General Steven A. Engel is wrong, it does not mean a court is going to simply overrule the Justice Department’s interpretation.

Wire Act lawsuit a poorly kept secret

The initiation of a lawsuit against the Attorney General (welcome to your first day of work, Bill Barr), had been rumored for some time.

Attorney Generals Gurbir Grewal and Josh Shapiro of New Jersey and Pennsylvania, respectively, wrote to Acting Attorney General Matthew Whitaker, looking for a reversal of the reversal. Alternatively, they sought assurances the DOJ would not seek to scuttle the still-nascent online gaming industries in the two states.

On Valentine’s Day, New Jersey Senate President Steve Sweeney indicated New Jersey’s intent to seek declaratory judgment against the DOJ. If successful, it would mean the state’s interpretation of the Wire Act would prevail.

It came as somewhat of a surprise that the New Hampshire Lottery, not anyone from New Jersey, filed suit seeking declaratory judgment.

What is a declaratory judgment?

The Cornell Legal Information Institute explains as follows:

A declaratory judgment is a binding judgment from a court defining the legal relationship between parties and their rights in a matter before the court.

Typically, a party will first send a cease and desist letter prior to seeking declaratory judgment from a court.

A declaratory judgment is often prior to the filing of a lawsuit, and as such, courts are sometimes hesitant to issue declaratory judgments, as they would prefer to see the case develop more before issuing a judgment.

Further, under Article III of the US Constitution, a federal court may only issue a declaratory judgment when there is an actual controversy.

What is in the Wire Act lawsuit?

A few elements of the suit for declaratory relief may raise eyebrows.

First, the New Hampshire Lottery contends:

“This action challenges a binding opinion issued by the USDOJ on November 2, 2018 titled Reconsidering Whether the Wire Act Applies to Non-Sports Gambling (the “2018 Opinion”). 42 Op. O.L.C. 1-23.”

The bindingness of the Office of Legal Counsel’s (OLC) opinion on the Wire Act is not entirely clear.

Trevor Morrison asked in a 2010 Columbia Law Review article:

Does OLC in fact treat its past decisions as presumptively binding without regard to whether it now deems them correct? Or does OLC instead see its precedents as merely helpful resources worth consulting, on the theory that past occupants of the office were thoughtful lawyers whose work is liable to be illuminating even though not binding?

Binding? Not quite …

The conclusion supports the idea that opinions are precedential on the office, which would support that they are effectively binding on the executive branch — which includes the DOJ. But, it is not definitive that the opinions are indeed binding on the DOJ.

While the opinions may be binding on executive branch officials, including DOJ prosecutors, two important things should be noted:

What is the Lyons case?

The New Hampshire complaint and accompanying motion for Summary Judgment also cites the 2014 First Circuit case, United States v. Lyons for the proposition that courts have ruled that the Wire Act only applies to sports betting.

The Lyons case centered on Antigua-based Sports Off Shore (SOS), a bookmaking business that accepted wagers from US-based customers. According to the First Circuit, the operation ran as follows:

A bettor who wished to place bets on credit with SOS received a password and a customer code for placing bets through the internet or by phone.

SOS employed agents in the United States, including Eremian [Lyons co-defendant] and Todd Lyons, to “settle up” with credit bettors, collecting losses from losers and making payments to winners.

These agents met with bettors in person in public places and primarily conducted transactions in cash or by receiving checks. Each agent managed a group of regular customers and received as a commission a percentage of those customers’ losses.

Some agents also employed sub-agents who managed their own customers and shared commissions with the agents under whom they worked.

The Lyons case is a fascinating one regarding the prosecution of an offshore sportsbook, but not one of the 16 matters considered on appeal was not whether the Wire Act applied to activities beyond sports betting. The court did mention it in reference to the case In re Mastercard, which addressed the scope of the Wire Act.

Another pass at the Wire Act?

Steve Silver, an adjunct professor at the University of Maine School of Law and associate at Ogletree Deakins, told Legal Sports Report:

This entire situation highlights the need for Congress to revisit the Wire Act. Federal gaming policy is and has long been largely incoherent and inconsistent.

But there is no such thing as a slam dunk, particularly when asking for summary judgment at this early stage. It is also peculiar to see citations to binding precedent from Lyons when the mention of the wire act only applying to sports was in dicta.

That was not the holding of the case or really even a major component of what was at issue.

The distinction between dicta and binding precedent is important because dicta is not precedential. Indeed, the term originates from the Latin term, Obiter dictum, which translates into “something in passing.”

The Supreme Court has articulated that dicta is not binding authority, though it can be influential. For that reason, yes, it is interesting that the First Circuit has mentioned the scope of the Wire Act.

But this statement is far different than a First Circuit case addressing the activities covered by the Wire Act, and holding that the statute only applies to sports betting. This was never a question for Lyons; he was running a sportsbook, which is indisputably an activity covered by the Wire Act.

Is this case ripe?

Like an avocado, court cases must be ripe; otherwise they should be tossed away.

In order for a legal dispute to be ripe, there must be an actual case or controversy. In order for a case to be ripe, it must be occurring, not a future event that is uncertain as to whether it may happen. Courts are generally prohibited from issuing advisory opinions.

The question of ripeness often arises in cases where the harm asserted by the plaintiff has not yet occurred. Because courts are not permitted to decide merely hypothetical questions or possibilities, the court must determine whether the issues are fit for judicial review.

A case is typically considered ripe if it presents a purely legal issue, or if further development of the facts will not render the issue more concrete.

Which brings us back to New Hampshire …

This brings forward a two-part question:

  1. Is the New Hampshire claim ripe currently?
  2. Will the New Hampshire claim be ripe in the future?

In regard to the first question, I think there is a fair possibility the claim is not ripe, as the Wire Act memo was issued on January 15, 2019 and is not meant to go into effect for 90 days, meaning the Federal government is not actively shutting down online gambling.

There is also the pending requirement: “The Deputy Attorney General also indicated that, to ensure continuity across the country, any Wire Act charges must be reviewed and approved by the Criminal Division’s Organized Crime and Gang Section.”

This may well be pro forma, but until there is codification of the new opinion, there is an argument that this is merely a hypothetical problem incapable of judicial review.

Ripe but not picked?

After the 90 days, it remains unclear if this controversy is ripe, absent some definitive action to move against state-licensed operators.

The Wire Act (regardless of which OLC memo is in place) has been used selectively, likely because most small-scale sports betting operations implicated are a net loss in terms of recovery for the DOJ.

But until there is some definitive new direction put forward at the DOJ to begin actively enforcing the Wire Act, there is an argument that the matter is not ripe for judicial review.

Like statutes prohibiting eating oranges in bath tubs that are not enforced, unless there is a real threat of enforcement, there is a possibility that the matter is not ready for a court.

Other issues in play

There is a possibility that others will seek to join New Hampshire in the lawsuit. This could mean New Jersey, Pennsylvania, or operators like MGM Resorts or DraftKings, or even DraftKings partner Major League Baseball.

There are two types of intervention under the Federal Rules of Civil Procedure.

Rule 24, the first, is Intervention by Right, which is mandatory on the court, but only applies if a statute says so, or not allowing a party to intervene would “impair or impede the movant’s ability to protect its interest.”

Permissive intervention, by contrast, may be granted by the court to parties having “a claim or defense that shares with the main action a common question of law or fact.” Under Rule 24, a court could allow these other parties to join, though there may be strategic jurisdictional reasons why some parties might not seek to intervene.

Setting aside the procedural aspects of the case, Silver said

New Hampshire has strong arguments and the DOJ’s reinterpretation of the Wire Act should not hold muster, but it seems like we are on course for another collision between states’ rights and federal authority.

Indeed, we could be seeing battle no. 1 of the next war over regulation of gambling.