On Monday, June 3, 2019, U.S. District Judge Paul Barbadoro rendered a decision in the lawsuit filed by the New Hampshire Lottery against the U.S. Department of Justice (DoJ). Judge Barbadoro found that the Wire Act only applies to sports betting, directly countermanding the Wire Act opinion issued by the DoJ's Office of Legal Counsel (OLC) in January 2019.

In his decision, Judge Barbadoro decreed:

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.

This is good news for fans of regulated, state-legalized online gaming products. It means that businesses offering poker, casino, and other types of gambling online are permitted to transact across state lines with the exception of sports betting, which must remain confined within the borders of each individual state separately.







Background

For several decades, there has been a lot of uncertainty about the Interstate Wire Act of 1961, often referred to as the “Federal Wire Act” or just the “Wire Act.” Designed to combat illicit, mafia-controlled bookmaking organizations, the text of the Act reads as follows:

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.

This basically means that using a “wire communication” (of which the internet is an example) for certain interstate and/or foreign betting activities is illegal. The doubt creeps in when trying to determine what types of betting are included within the wording of the Wire Act.

There are four separate types of activities prohibited. All of them mention “bets or wagers,” but only the second instance explicitly restricts this to “bets or wagers on any sporting event or contest.”

The question is: Do the “bets or wagers” found throughout the Wire Act apply only to sports betting or do they relate to all kinds of gambling? Clearly, the part that reads, “information assisting in the placing of bets or wagers on any sporting event or contest,” specifically mentions sports, but it's not obvious from a casual reading of the text whether this qualifier is implied in the other three cases or is isolated to just that one.

Judge Barbadoro summarized the entire quandary quite succinctly in his judgment:

The key question this case presents is whether the limiting phrase “on any sporting event or contest” in § 1084(a)’s first clause modifies all references to “bets or wagers” in both clauses or only the single reference it directly follows in the first clause. If, as the OLC concluded in 2011, the sports-gambling modifier limits each reference to “bets or wagers,” then both clauses apply only to sports gambling. On the other hand, if the OLC’s current interpretation is correct, then § 1084(a)’s first clause prohibits the interstate transmission of both sports and non-sports bets or wagers but punishes the interstate transmission of information only if the information assists in the placing of bets or wagers on sports.

DoJ 2011 Opinion

The lack of real money online gaming products in the '60s, '70s, and '80s meant that it was largely a moot point as to whether or not the Wire Act affected casino and poker games taking place in the virtual sphere. However, the growth of such internet-based forms of entertainment in the '90s and '00s meant that there was increasing confusion surrounding the entire issue.

In a September 2011 document penned by then-Assistant Attorney General Virginia Seitz, the Department of Justice answered questions posed to it by New York and Illinois, which were curious as to the legality of online lottery sales. The answer was that selling lottery tickets over the internet was fine because the Wire Act applied only to wagering on sports.

Virginia Seitz, Who Authored the 2011 DoJ Wire Act Memo, at Her Swearing-in Ceremony

Virginia Seitz, Who Authored the 2011 DoJ Wire Act Memo, at Her Swearing-in Ceremony

Based on this information, several states began online lottery operations. Furthermore, Delaware, Nevada, New Jersey, and Pennsylvania passed laws setting up licensed internet poker rooms. The first three of these states have actually signed a compact to combine their poker player pools, explicitly engaging in facilitating interstate wagering.

2019 DoJ Opinion Reversal

The DoJ shook up the licensed internet gaming economy with a stunning reversal of its opinion on the Wire Act in January 2019 (although the text was actually backdated to November 2018). In this new approach, the Department held that the Wire Act was applicable to all types of betting or wagering, not just sports betting. This new document was written by Assistant Attorney General Steven Engel.

Steven Engel Wrote the New 2018 DoJ Wire Act Opinion

Steven Engel Wrote the New 2018 DoJ Wire Act Opinion

This meant that the Multi-State Internet Gaming Agreement was, in the eyes of the DoJ, illegal, and all similar arrangements developed in the future would also not be kosher. This was bad news for the signatories to the Agreement and also for other states that had legalized internet poker but have not yet seen it go live, like Pennsylvania and West Virginia.

Though there are only a few regulated online gambling states, there are more that host their own lotteries. Those that participate in multi-state drawings, like Powerball, were dismayed because the new Wire Act interpretation appeared to criminalize such games.

New Hampshire Lottery Files Suit

It was state lotteries that were the impetus behind the 2011 DoJ Opinion, and it is these same organizations that have led the fight against the 2019 reversal. To be more specific, it's the New Hampshire Lottery that sued the Attorney General, William Barr, over the new DoJ opinion in the United States District Court for the District of New Hampshire.

New Hampshire Is Concerned About Losing Out on Money for Education

New Hampshire Is Concerned About Losing Out on Money for Education

The New Hampshire Lottery Commission sought a declaratory judgment that the Wire Act treated with sports betting and sports betting alone while also attempting to get the judge to order the DoJ to set aside its new opinion. The NH Lottery's software vendor, NeoPollard, also filed a complaint, which was combined with that of the New Hampshire Lottery.

The government tried a two-pronged defense. First, they argued that New Hampshire didn't have standing to sue because the DoJ had not indicated that it had any intention of prosecuting lotteries. Second, the government asked the court to render summary judgment stating that the Wire Act was relevant to forms of betting and wagering other than those dependent on the outcome of sporting contests.

New Jersey, Pennsylvania, and Michigan filed what are known as amicus briefs in support of New Hampshire's position. The State of Michigan further informed the court that Kentucky, Tennessee, Virginia, Rhode Island, Colorado, North Carolina, Delaware, Idaho, Vermont, Mississippi, Alaska, and the District of Columbia supported its brief. iDEA, an online gambling industry group, also filed a similar brief.

On the other side of the fence, the Coalition to Stop Internet Gambling and the National Association of Convenience Stores filed amicus briefs in support of the Attorney General.

Judge's Decision

On the issue of whether or not New Hampshire had standing to sue, Judge Barbadoro had to decide if the New Hampshire Lottery Commission faced the prospect of “imminent injury” from the DoJ's actions. He answered in the affirmative. From his opinion:

The plaintiffs in this case easily satisfy the imminence requirement. 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 OLC 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 OLC’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.

Next tackling the question of how the Wire Act is to be interpreted, Judge Barbadoro had a more challenging task confronting him. Noting that “each side maintains that its interpretation is compelled by the plain language of § 1084(a) [the Wire Act],” the judge disagreed with both parties: “I conclude that the text does not provide an unambiguous answer to this question.”

Judge Barbadoro Had to Wade Through Confusing Textual Arguments Before Rendering His Decision

Judge Barbadoro Had to Wade Through Confusing Textual Arguments Before Rendering His Decision

After going through detailed and esoteric grammatical arguments from the government and the New Hampshire Lottery Commission, Judge Barbadoro conceded that it was impossible to determine exactly what the Wire Act means strictly from the grammar and wording alone. He therefore had recourse to “turn to the significant contextual evidence that calls the OLC’s current interpretation into question.”

He looked at the probable intentions of the lawmakers when framing the Wire Act as well as the text of another act, the Interstate Transportation of Wagering Paraphernalia Act, that was passed by Congress on the same day. Barbadoro also considered early drafts of the Wire Act and the legislative history of discussions and amendments before it reached its final version.

After surveying the broader context surrounding the passage of the Wire Act, Judge Barbadoro wrote:

In sum, while the syntax employed by the Wire Act’s drafters does not suffice to answer whether § 1084(a) is limited to sports gambling, a careful contextual reading of the Wire Act as a whole reveals that the narrower construction proposed by the 2011 OLC Opinion represents the better reading. The Act’s legislative history, if anything, confirms this conclusion. Accordingly, I construe all four prohibitions in § 1084(a) to apply only to bets or wagers on a sporting event or contest. [emphasis added]

Possible Impact on Gaming

Assuming the verdict in favor of New Hampshire is the final word of the courts on this matter, it could lead to significant growth in the USA legalized gaming sphere. Not only will the existing online gaming states be able to pursue their plans unfettered, but legislators in other states will be more inclined to experiment with internet wagering legalization too.

This is perhaps most pertinent to online poker as opposed to casino or lottery games. Because of the way enhanced poker participation tends to beget larger prizes and more tables, combining volume across state borders can lead to a snowball effect whereby the whole becomes greater than the sum of its parts. The is much less true for lotteries and is almost irrelevant for casino amusements, like slots and blackjack, which most often feature just a single player against the house.

One worrisome note was sounded in Judge Barbadoro's decision. He opted to limit the applicability of his ruling to the parties involved. This may include just New Hampshire and Michigan (in which NeoPollard does business) although the states that submitted amicus filings are likely covered too or at least will not encounter much difficulty in having the decision expanded to safeguard their own needs. However, that still leaves the remainder of the country bereft of these protections pending further possible legal action.

Reactions

The recent court verdict on the Wire Act met with a mixed reaction from various stakeholders. As could have been expected, New Hampshire leaders cheered their victory in court. Governor Chris Sununu said in a news release:

“Today's ruling is a historic victory for the State of New Hampshire and we are proud to have led this effort. New Hampshire stood up, took action, and won – all to protect public education in our state. I would like to thank the [New Hampshire] Attorney General's Office and the Lottery Commission for their work on this critical case.”

New Jersey Attorney General Gurbir Grewal, who supported the New Hampshire suit, sent out a celebratory tweet:

The Coalition to Stop Internet Gambling, which filed an amicus brief in support of the DoJ's stance on the issue, was less pleased:

While we disagree with many of the views expressed in Judge Barbadoro’s ruling, we are happy that the scope of the opinion was confined to the parties involved. We are confident that other jurisdictions will see this issue very differently and our resolve to protect at-risk populations has only been strengthened by today’s decision.

The Coalition to Stop Internet Gambling Opposed New Hampshire's Efforts



The Coalition to Stop Internet Gambling Opposed New Hampshire's Efforts

Decision May Not Be Final

It's almost a certainty that New Hampshire has simply bought itself some breathing room with Judge Barbadoro's ruling. Appeals are very likely, perhaps all the way to the Supreme Court if necessary. Barbadoro predicted as much during oral arguments in April:

“I have a strong feeling that however I resolve the case, or however the First Circuit resolves the case, it is likely going to be resolved by the US Supreme Court either way.”

[UPDATE: Aug. 16, 2019] As expected, the Department of Justice decided to appeal Judge Barbadoro's decision. In a document filed Aug. 16, the government signaled that it will “hereby appeal to the United States Court of Appeals for the First Circuit” in an attempt to get the ruling overturned.

It's easy to see why gaming interests would have appealed had the case gone against them: There's potentially billions of dollars in annual revenue at stake. What's not as obvious is why there is a strong push to criminalize interstate online gaming.

We get a clue as to what's going on from the fact that the Coalition to Stop Internet Gambling filed a brief in favor of an expanded scope for the Wire Act. This advocacy group was founded by casino mogul Sheldon Adelson who has stated in the past that he was “willing to spend whatever it takes” to strangle online gambling. Adelson's net worth is estimated to be in excess of $33 billion, so “whatever it takes” may be a princely sum indeed.

Adelson has poured $112 million into the political process to secure the victory of his favored candidates – during the 2018 midterm election season alone.

Sheldon Adelson Is an Outspoken Foe of Real Money Internet Gaming

Sheldon Adelson Is an Outspoken Foe of Real Money Internet Gaming

Thus, it's reasonable to suppose – though not proven conclusively by any means – that the new DoJ opinion and the fight to preserve it intact are a form of political payback to this wealthy gentleman with seemingly bottomless coffers. If this is true, then we don't expect the DoJ to just abandon its efforts after losing a single court case.

Offshore Corporations Unaffected

While the recent court decision has been eagerly anticipated by both pro- and anti-gaming forces within the United States, there's another group of entities that is carrying on business as usual. They are offshore providers of poker rooms, sportsbooks, and casino games.

Although they're subject to harsh penalties from the law on paper, they're outside the effective jurisdiction of federal enforcement agents, and so they are de facto free to transact with American customers. All the statutes that apply at the national level penalize those offering the betting services, not their customers, so private individuals can partake in this kind of entertainment without any legal impediments.

To learn more about how you can jump into card games online, browse over to our guide to USA internet poker sites and legalities. If casino thrills excite you more, then our page of recommended U.S.-friendly online casinos may be more up your alley. Finally, to bet on your favorite teams and athletes, head over to our list of the best offshore sportsbooks for American bettors.