A Closer Look At The Wire Act Lawsuit Puzzle And The Future Of NJ Online Gambling

Posted By Bill Gelman on April 10, 2019

The Department of Justice’s latest Wire Act opinion is back in the spotlight this week. More specifically, the spotlight is in New Hampshire.

The New Hampshire Lottery filed suit against the DOJ over the 2018 Wire Act opinion released in January. And in March, New Jersey filed an amicus brief in support of New Hampshire’s challenge.

Those hearings are set to take place Thursday morning.

DOJ Wire Act memo changes things

But on Monday, Online Poker Report reported that an April 8 memo signed by Deputy Attorney General Rod Rosenstein adds a new wrinkle to the case.

In the memo, Rosenstein said the DOJ did not conclude that lotteries are impacted by the new opinion. Such a statement puts in jeopardy the validity of New Hampshire’s lawsuit.

The 2011 OLC opinion stated the Wire Act applies only to sports betting and was the impetus for New Jersey and other states to launch and regulate online gambling. The new opinion, however, points the finger at online gambling.

The concern was it could spell doom for the future of Atlantic City, and more specifically, NJ online casinos.

So what does the New Hampshire case mean to New Jersey and others who have credible fears about the future of online gambling? What is the best plan of attack for New Jersey?

To get some insight and clarifications of what this all means, Play NJ caught up with Boston-based attorney Mark Hichar. His practice, Greenberg Traurig, is focused on the gaming industry. Hichar handles work for casinos, gaming machine manufacturers, gaming operators, system suppliers, game developers, and gaming licensees.

He supports Gibson Dunn on behalf of NeoPollard Interactive / Pollard Banknote, plaintiffs in the New Hampshire litigation.

More about the New Hampshire hearing

Play NJ: How should people look at this in terms of what could unfold in New Hampshire this week?

Hichar: The most recent Rosenstein memo from [Monday] is an effort by the government to enhance their argument that the plaintiffs lack standing. …

And now they’ve formalized that argument in the memo. The deputy attorney general says that we’re going to look into whether or not the Wire Act applies to state lotteries. I expect them to argue on Thursday morning that the plaintiffs lack standing because it’s not clear that they will suffer any adverse consequences as a result of the January DOJ opinion.

This seems to me to be an effort to get the suit kicked out of the court.

And then nothing would prohibit the Department of Justice within the time period set in the memo from deciding, “We’ve looked at it and now we’ve decided it does apply to state lotteries.” In which case, they would have gotten the suit dismissed without prejudice.

The parties would have to gear up and refile.

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NJ online gambling facing credible fears

Play NJ: States like New Jersey have credible fears because they have online casinos and online sports betting. What does the New Hampshire case mean for states like New Jersey?

Hichar: They could benefit greatly from a decision on the merits that the New Hampshire case applies nationwide.

But they would still benefit indirectly from a decision that only applies to the parties. [New Jersey] would then have an established ruling by a federal judge on this very issue that they would find, I think, helpful were they then to bring suit in the Third Circuit where New Jersey is.

If it’s a home run in New Hampshire, where the decision applies nationwide to all, whether or not they are part of the case, then New Jersey’s online casino industry is wildly benefited.

If, on the other hand, it’s a more narrow decision, then they are not directly affected, but they’re certainly benefited if it’s a favorable ruling.

But Hichar notes that New Jersey has a substantial non-sports related online casino industry, which is kind of right in the crosshairs of the DOJ’s latest opinion.

Hichar: The business in New Jersey, as you know, is not operated by the state lottery. It’s commercially licensed.

If this decision were to apply, then any instance where the communications of constituted bets or wagers, or constituted information entitling the recipient to winnings from bets or wagers, would, if those communications traveled outside the state, be a Wire Act violation.  …

Would a bet placed from Newark, traveling to Atlantic City and back, but traveling [at some point] outside New Jersey, be an interstate communication?

If it is held to be an interstate communication, there would be a Wire Act violation. So it has the potential of having very severe consequences in New Jersey if the existing decision is not struck down.

Wire Act + DOJ opinions

Play NJ: Do you think the DOJ is splitting hairs over the latest interpretation of the Wire Act? What are your thoughts on this opinion compared to the 2011 version?

Hichar: The 2011 version came about as a result of lotteries (a) wanting to put their games online, and then (b), stepping back and saying, “Well, wait a second, our existing lottery games travel in some cases to out-of-state data centers, which process the bets.”

The Wire Act is agnostic between wagering at a retailer location and wagering from your kitchen table with your mobile phone.

In other words, the Wire Act, which was passed in 1961, doesn’t distinguish between whether you are wagering from a formal retail location or at your kitchen table. It would apply to both. The lotteries then sought clarification from the DOJ, and they got the 2011 decision that said the Wire Act only applies to sports events.

So that was essentially the green light to New Jersey and to state lotteries around the country to put non-sports-related games online because there was no need to worry about the restrictions or the prohibitions of the Wire Act.

And in reliance on that, New Jersey went forward. A handful of state lotteries started to offer their games via the internet. It’s not a matter of splitting hairs, it’s a very substantial change in interpretation.

Wire Act and a mobile society

Play NJ: Obviously things have drastically changed since the original Wire Act came out. Whoever thought that years later we would be betting at our kitchen table using a mobile device.

Hichar: You’re right. At the time the Wire Act was passed, the only state in the country that allowed sports betting, or other types of betting, apart from some states that had lotteries, was Nevada. …

But at that time, the idea that states would be enacting sports betting, or enacting, as New Jersey did, online casino gaming, was not in the realm of possibility. Because there was only one state that was doing it, and it was created as an exception to the rule.

In 1961, there weren’t other states on the horizon.

So now it is somewhat curious, for lack of a better word, that the Wire Act is, in fact, a hindrance to states that want to enact mobile sports betting. Or now, in light of the recent decision, it’s a hindrance to states that want to put their lottery games online. And to sell them via mobile devices or PCs.

So yes, you’re absolutely right. When it was enacted in 1961, the idea of having a mobile device or smartphone that does all the things that they do now was not in the realm of comprehension. But so too was the fact that other states would be wanting to authorize sports betting.

New Jersey and a Wire Act plan of attack

Play NJ: We talked with former state Sen. Raymond Lesniak a couple of weeks ago, and he made a statement that New Jersey’s not going to get anywhere with the New Hampshire lawsuit. Would you agree or disagree?

Hichar: I would disagree only to the extent that in the event the judge’s decision is applicable beyond the parties, and it may not be, but if it’s favorable, number one, on the merits, and number two, it’s applicable beyond the parties, then New Jersey will benefit.

But normally, courts limit the effect of their rulings to the parties that are before them. That’s normally the way, but that isn’t always the case.

But even if the case benefits only the immediate parties, it would still be a benefit to the industry, including New Jersey, assuming it’s a favorable result. Other courts, while not bound to follow decisions from other jurisdictions, nevertheless take note of them, and in particular the reasoning to them.

It would be helpful to New Jersey if it felt it had to push its own litigation.

Play NJ: What do you think the best plan of attack for New Jersey would be at this point?

Mark Hichar: I think the best plan would be to wait for a result in New Hampshire.

New Hampshire is a good place for the suit to exist because of the existing precedent from the First Circuit Court of Appeals. In that earlier case, the Wire Act only applies to sports betting. There is not a similar precedent in the Third Circuit.

It was helpful for New Jersey and several other states to write in support of the plaintiffs in New Hampshire, and hopefully, the result will benefit them as well.

NJ sports betting and the Wire Act

Play NJ: Anything else we should touch on?

Mark Hichar: One thing to mention is how this might affect sports betting.

As you know, there’s no dispute that the Wire Act applies to sports betting. The possible effect is that the decision made crystal clear that the UIGEA [Unlawful Internet Gambling Enforcement Act] does not affect the Wire Act.

And you may say, well wasn’t that known already? And the answer is yes.

The UIGEA includes language that says this law shall not amend, affect, or modify any other federal or state law. So as a legal matter, it didn’t amend the Wire Act.

However, the UIGEA with its in-trust state wagering exception, and with its exception for intermediate routing of communications, was generally viewed by many as providing a “spirit of congress” or a spirit of how the law would be enforced.

In other words, let’s say you were restricting wagering, such as New Jersey does, to where the bets begin in the state and end in the state, and it was expressly lawful under state law and you had geolocation and you had data protection and so forth. Even though the Wire Act might have language about intermediate routing, nevertheless, the UIGEA kind of covered that.

But now the new opinion comes out and says, “No, the UIGEA does not affect the Wire Act.” So it could disrupt sports betting for that reason.

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Bill Gelman

Bill Gelman is a veteran sports writer based just outside of Philadelphia and not too far from the Jersey Shore. Bill spends time in Atlantic City writing about casino openings and expansions, special events and now NJ sports betting and online gambling.

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