Caveat Vendor

Federal Court Delivers Stinging Rebuke to Justice Department, Declaring Wire Act Applies Only to Sports

June 05, 2019

Behnam Dayanim and Reade Jacob

On June 3, 2019, a New Hampshire federal judge set aside the U.S. Justice Department’s controversial 2018 opinion that the Federal Wire Act extends beyond sports wagering to include lotteries, poker and casino games.  The court instead held that “[b]ased on the text, context, and structure of the Wire Act, . . . the Act is limited to sports gambling.”
The decision – which almost certainly will be appealed – represents a resounding victory for state lotteries, the gaming industry and their service providers and a stinging defeat for the DoJ’s prestigious Office of Legal Counsel, which placed its considerable credibility on the line in deciding to reverse its prior position under circumstances that many observers attacked as politically motivated.

The Issue Before the Court

The issue in the case involved statutory interpretation of the Wire Act, which prohibits those “in the business of betting or wagering” from, “knowingly us[ing] 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 content, 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 . . . .”   18 U.S.C. § 1084(a).

Until January 2019, the Wire Act had been construed as only applying to gambling on sports events or sporting contests.  The only two appellate courts (in the First and Fifth Circuits) to have construed the scope of the Wire Act’s prohibition both stated that it applies only to gambling on sporting events or sporting contests.  In 2011, the DoJ’s Office of Legal Counsel (“OLC”) released an opinion concurring in that conclusion.

However, in the 2018 opinion, the OLC reversed its prior conclusion, instead opining that the Wire Act applies to all types of gambling, including poker, casino and lottery games, in addition to sports.  The decision to overturn its prior determination occasioned much controversy.  The OLC is traditionally highly regarded, attracting the “best and the brightest” in the legal profession, and projects an image of apolitical professionalism.  It is rare for the Office to reverse a prior opinion, absent a significant intervening factual or legal development.
Here, many observers attributed the OLC’s action to political pressure from opponents of internet gaming, eager to stem the expansion of mobile and online gaming among the states.

In any event, the reaction to the new opinion was swift.  The New Hampshire Lottery Commission and one of its vendors, NeoPollard Interactive LLC, filed challenges in federal court in New Hampshire, seeking declaratory relief that the Wire Act “does not prohibit the use of a wire communication facility to transmit interstate commerce bets, wagers, receipts, money, credits, or any other information related to any type of gambling other than gaming on sports events or contests.”  The court consolidated the actions.  Fourteen states and an industry trade association weighed in to support the plaintiffs, and two associations voiced support for the government.

The Court’s Decision

In its Memorandum and Order, Judge Paul Barbadoro first concluded that he was not bound by the First Circuit’s decision in United States v. Lyons. Plaintiffs had pointed to a statement in that case that the Wire Act only applies to sports betting, but the court agreed with the government that the Lyons statement was dictum and not binding.
Nevertheless, the New Hampshire federal judge agreed with the plaintiffs that the 2018 opinion is “flawed,” leads to "incongruous results” and suffers from a “serious coherence problem.”

The court wrote that “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.”

The Implications

The court expressly limited its remedy to the plaintiffs.  The court concluded that it did not have the authority to grant wider relief, while simultaneously observing that “I have no reason to believe that the Government will fail to respect my ruling that the Wire Act is limited to sports gambling.”

That decision leaves the Department free to attempt its luck elsewhere, so long as it pursues someone other than the New Hampshire Lottery and NeoPollard. That said, the court’s decision is well-reasoned and thorough; a future court is likely to weigh Judge Barbadoro’s reasoning heavily in reaching its own determination.  To date, DoJ has not yet stated its intentions.

Regardless of whether it also seeks recourse elsewhere, it is very likely that DoJ will appeal the decision to the First Circuit.   The appeals process will likely last several months.  For now, at least, the New Hampshire decision is a big win for the gaming industry, state lotteries and their service providers.