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Federal Court “Discards” DOJ Interpretation Of Wire Act

In a closely watched case, a New Hampshire federal court has ruled that the Wire Act is limited to sports betting and set aside the DOJ’s recent opinion to the contrary. However, it limited the scope of its declaratory relief to the parties and deferred a decision on whether to extend the declaratory judgment to non-parties on behalf of the Lottery Commission, but gave the Lottery Commission 14 days to file an appropriate motion and supplement the record with adequate factual and legal support on that point.

As we previously reported, the New Hampshire Lottery sued the Department of Justice (DOJ) to prevent enforcement of the DOJ’s Opinion (issued in January 2019) reinterpreting the Wire Act. The DOJ opinion reversed its own 2011 Memo, in which it opined that the prohibitions of the Wire Act were limited to sports betting. In the DOJ Opinion, the DOJ concluded that the 2011 opinion was wrong!  It newly concluded that only one of four parts of the Wire Act apply to sports betting, while the other three apply to any online betting. This concerned the New Hampshire Lottery (and one of its vendors) enough to cause them to file complaints seeking a judicial interpretation of the Wire Act. The NH Lottery complaint raised concerns about its “iLottery” gaming platform that gives players located in New Hampshire the ability to purchase and play select lottery games on their personal computers, mobile and electronic devices. Despite requiring that any players purchasing lottery tickets through its iLottery platform be located in New Hampshire and using age verification software and geolocation technology, the NH Lottery was concerned the new interpretation could render its activity illegal. The reason, as acknowledged in the complaint, is that transmissions through New Hampshire Lottery’s iLottery may sometimes travel across interstate lines. The suit sought a declaration that “the Wire Act does not prohibit the use of a wire communication facility to transmit in interstate commerce bets, wagers, receipts, money, credits, or any other information related to any type of gaming other than gambling on sporting events and contests” and an order setting aside the DOJ Opinion pursuant to the Administrative Procedure Act (“APA”). The Government responded by filing a motion to dismiss the complaints pursuant to Rule 12(b)(1), because the plaintiffs lack standing to sue, and Rule 12(b)(6), because the complaints fail to state viable claims for relief. The Government argued that the plaintiffs lack standing because they do not face an imminent threat of prosecution. The court disagreed.

The Court found that the plaintiffs easily satisfy the imminence requirement for standing, stating:

First, they have openly engaged for many years in conduct that the 2018 OLC Opinion now brands as criminal, and they intend to continue their activities unless they are forced to stop because of a reasonable fear that prosecutions will otherwise ensue. Second, the risk of prosecution is substantial. After operating for years in reliance on [DOJ] guidance that their conduct was not subject to the Wire Act, the plaintiffs have had to confront a sudden about-face by the Department of Justice. Even worse, they face a directive from the Deputy Attorney General to his prosecutors that they should begin enforcing the [DOJ’s] new interpretation of the Act after the expiration of a specified grace period. Given these unusual circumstances, the plaintiffs have met their burden to establish their standing to sue.

The Government challenged this conclusion by arguing that the likelihood that the plaintiffs will face prosecution under the Wire Act is low, because the DOJ Opinion does not explicitly conclude that state agencies, state employees, and state vendors are subject to prosecution under the Act. The Court rejected this argument stating “the record tells a different story.” The Court noted:

It is worth remembering that the 2011 [DOJ Memo] responded to a request from two states for an opinion as to whether they could sell lottery tickets online without violating the Wire Act. In concluding that the Wire Act did not apply to non-sports gambling such as lotteries, the 2011 Opinion did not even hint at the possibility that states would be exempt from the Act’s proscriptions. Had the OLC believed that states were excluded from the Act’s coverage, it could have responded to the states’ request by simply informing them that they were not subject to the Act. To infer from the OLC’s silence on this point that it might conclude in the future that state actors are not subject to the Wire Act requires an unwarranted speculative leap. This is especially true given the fact that a Department of Justice official warned the Illinois lottery in 2005 that the contemplated online sale of lottery tickets by the state would violate the Wire Act (citing a Letter from Laura H. Parsky, Deputy Assistant Attorney General, to Carolyn Adams, Illinois Lottery Superintendent (May 13, 2005), Doc. No. 57-2.).

With respect to interpretation of the Wire Act, the Court noted that the plaintiff’s argument that the First Circuit “authoritatively ruled” that the Wire Act applies only to sports gambling was incorrect. It further stated: “The plaintiffs confuse the court’s dictum in United States v. Lyons, 740 F.3d 702 (1st Cir. 2014), with binding precedent.” As a result, the Court determined that it must conduct an independent interpretation. It addressed the competing grammatical interpretations set forth by the parties, and determined “where, as here, a statute is ambiguous, a court must look at more than grammar to determine its meaning.”

Based on an extensive legal interpretation, the Court concluded that limiting the Wire Act to sports gambling conforms to the rule of construction that statutes should be interpreted as a symmetrical and coherent regulatory scheme, noting that this interpretation “avoids significant coherence problems that result from the [DOJ’s] current interpretation and it construes the Wire Act in harmony with another gambling statute [the Interstate Transportation of Wagering Paraphernalia Act] that Congress enacted the same day as the Wire Act. The Court also found the legislative history to support its interpretation.

Concerning the requested remedies, the Court noted that the parties disagreed as to whether a declaratory judgment should be limited to the parties or have universal effect. The Government contended that any declaratory relief must apply only to the parties to the case. The Court agreed with the Government on this point. It did note however that the judgment binds the parties beyond the geographic boundaries of New Hampshire and that this is relevant because the vendor operates outside of New Hampshire. The Court thus concluded its declaration thus binds the United States vis-à-vis the Lottery Commission and its vendor everywhere the plaintiffs operate or would be otherwise subject to prosecution.

Interestingly, the Court addressed a novel theory, advanced by the state of Michigan (as an amicus), for extending the declaratory judgment to non-parties on behalf of the Lottery Commission. The argument was predicated on the fact that New Hampshire, as a member of the Multi-State Lottery Association, benefits financially from the large scale of multi-jurisdictional games such as Powerball. If another state, such as Michigan, shuttered its state lottery, then the overall revenues of Powerball would decline. If the revenues of Powerball decline, then the share of Powerball revenue that New Hampshire receives would decrease. Based on this Michigan argued that the Court should ensure that New Hampshire not suffer any adverse financial effect and that “anything short of nationwide equitable relief is hollow.”

In response, the Court noted that New Hampshire did not advocate this position and it was insufficiently developed factually and legally. As a result, it declined to take up Michigan’s argument based on the record. It did, however, state: “Should the Lottery Commission wish to pursue such relief, however, I am willing to entertain its claim.” It gave the Lottery Commission 14 days to file an appropriate motion and supplement the record with adequate factual and legal support.

With respect to the APA relied requested, the Court concluded that the DOJ “produced a capable, but mistaken, legal opinion that no additional process can cure. The proper remedy is to ‘set aside” the [DOJ] Opinion.

The Wire Act of 1961 prohibits persons involved in the gambling business from transmitting several types of wagering-related communications over the wires. The prohibitions are found at 18 U.S.C. § 1084(a), which states:

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.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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