The moment we have been waiting for since Feb. 15 has finally arrived, as we have a Wire Act memo decision from the New Hampshire District Court.
This afternoon, Judge Paul Barbadoro said:
I hereby declare that § 1084(a) of the Wire Act, 18 U.S.C. § 1084(a), applies only to transmissions related to bets or wagers on a sporting event or contest. The 2018 OLC Opinion is set aside.
With the decision, lottery operators, poker players, and iGaming enthusiasts can breathe a small sigh of relief. But do not get too excited here — especially you sports betting enthusiasts.
Two reasons to moderate your expectations:
- The Wire Act’s application to sports betting was never in doubt; it applies. This decision does not add clarification to the still lingering sports betting application questions out there.
- There is a fairly good chance that the Department of Justice appeals this ruling.
Why the Wire Act lawsuit?
The decision begins by noting that the Office of Legal Counsel (OLC), the branch of the Department of Justice that issued both the 2011 and 2018 Wire Act opinions, effectively just changed their mind in 2018 about the scope of the statute.
Notably, the 2018 OLC opinion determined that the Wire Act covers lotteries. The state of New Hampshire offers lottery games like Powerball.
These lotteries rely on interstate wire communication in order to operate. Under the new OLC opinion, these offerings would violate federal criminal law. This is why the lottery brought the lawsuit.
The lottery is how we got the 2011 opinion
Barbadoro notes that the reason that the OLC issued the first Wire Act opinion in 2011 was that New York and Illinois wanted to offer online lottery sales. Uncertain of the scope of the Wire Act (apparently not wanting to rely on the 5th Circuit’s decision in In re Mastercard) the states asked the Department of Justice, who referred the matter to the OLC.
The OLC produced an opinion authored by Virginia Seitz that stated interstate transmissions unrelated to bets or wagers on a “sporting event or contest” are outside the reach of the Wire Act.
The OLC decides the Wire Act means something totally different
In 2018, Assistant Attorney General Steven Engel effectively reversed the 2011 opinion stating that the Wire Act applies to all forms of online gambling.
Engel’s opinion was based on an interpretation of the language and the canon of statutory construction called “the rule of last antecedent,” which allowed the sporting event or contest language to be read to only apply to a specific clause and not the entire statute.
Addressing the preliminary matters
The first question that the court needed to address is whether the plaintiffs have standing to bring this lawsuit.
Standing requires showing three things:
- The plaintiff must have suffered an injury;
- The injury is traceable to the defendants’ conduct;
- The matter is something the court is capable of redressing.
Now, the first prong is where things appear most sticky for the plaintiffs. The injury must be:
“concrete and particularized” and “actual or imminent, not conjectural or hypothetical.”
The imminence requirement can be satisfied if there is certainty of an event occurring that would cause injury, or “’substantial risk’ that the harm will occur.”
In order to determine if there is an imminent risk, Barbadoro says, courts use “a sliding scale judgment that is very hard to calibrate.”
Barbadoro states that the new 2018 interpretation of the Wire Act creates a sufficient threat of prosecution by the DOJ that they satisfy the first prong.
There’s a small catch …
But, Barbadoro says that a case where the prosecutor disclaims the application of a statute covering an activity would not meet the imminence standard.
This is interesting given the DOJ wavered on concluding whether the 2018 interpretation applied to lotteries.
Had the OLC clearly stated that the opinion did not apply to iLottery sales, there is potential this portion of the decision would have come out differently.
About the Administrative Procedures Act
The next question is whether the 2018 OLC opinion constitutes a final agency action. This is a prerequisite under the Administrative Procedures Act (APA) for a court to review the decision.
The idea is that if an executive branch agency has not issued a final ruling on the matter, the judicial branch should not be used as a means of review until the rulemaking agency has completed its “decisionmaking process.”
The New Hampshire District Court said:
The finality requirement for an APA claim is satisfied if “a decision is a ‘definitive statement of the agency’s position and [has] a direct and immediate effect on the day-to-day business’ of the complaining parties.”
Barbadoro focused on the day-to-day peril the lottery faces if the 2018 opinion stands for the proposition that the interpretation is a final decision. The idea that the lottery (and its employees and vendors) will face potential prosecution under the new opinion is sufficient final for the purposes of the APA.
So, does the Wire Act only apply to sports betting?
Yes. According to Barbadoro, the Wire Act, as the plaintiffs argued, was meant only to apply to sports gambling. In such, the 2011 OLC opinion was correct.
But the plaintiffs failed to correctly cite case law arguing that the 1st Circuit had ruled that the Wire Act only applied to sports betting when in fact such a statement was not binding precedent.
Thus, this was a matter of so-called First Impression within courts under the umbrella of the 1st Circuit. The Lyons case (more on that in coming weeks) was a case about sports betting, and therefore it did not address whether the Wire Act was applicable more broadly.
The New Hampshire District Court, in noting that the Lyons determination was not binding, did observe that both Lyons and the 5th Circuit’s decision in the case In re Mastercard noted that the Wire Act was intended to be applied to sports wagering only.
So, while chastising the plaintiffs, the court ended up arriving at the same conclusion the plaintiffs wanted them to reach.
Was there ambiguity in the Wire Act’s wording?
No, the statute was not sufficiently ambiguous, in the District Court’s interpretation, to justify the interpretation exercise that the 2018 OLC opinion undertakes. Barbadoro instead relies on the rule of statutory construction that:
“[s]tatutes should be interpreted ‘as a symmetrical and coherent regulatory scheme.’”
The District Court found that the OLC’s interpretation results in incoherence that is not supported by the legislative history of the statute.
What does this decision mean?
This is not a nationwide decision granting declaratory relief, as Barbadoro limited the decision to the plaintiffs involved in the case.
With that said, Neopollard, who operates in Michigan as well, is protected from enforcement beyond New Hampshire.
We are likely at the beginning of what could be a drawn-out process for what happens to the 2018 Wire Act memorandum. Barbadoro’s decision opens the door for the government to potentially create some chaos if they choose to declare that the 2018 opinion would not be enforced against lottery operators.
Steve Silver, an Associate at Ogletree Deakins and adjunct professor of gaming law at the University of Maine School of Law, said:
“With so much at stake, not just in terms of interstate wagering, but also for how the DOJ internally operates with respect to overruling its prior opinions, it seems clear that an appeal is forthcoming. Based on the public rhetoric from the DOJ thus far, it seems that SCOTUS [the Supreme Court] is the real target.”
There are likely to be questions raised by the government on appeal as to the finality of OLC memorandums (you might have heard these opinions have been in the news a bit recently.)
This case involves issues that go far beyond the Wire Act, and for this reason, we have likely only heard the beginning here.