First Circuit Rejects DOJ's Expansive View of Wire Act - JD Supra

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On the first day of the Biden administration, the US Court of Appeals for the First Circuit confirmed that state-run intrastate online lotteries may continue to operate, consistent with the US Department of Justice's guidance during the Obama administration, which the DOJ had withdrawn and reversed in 2018.² Forty-five states, the District of Columbia, Puerto Rico, and the US Virgin Islands have authorized lotteries, as well as New Hampshire, whose lottery commission was a claimant in the First Circuit case. The First Circuit's opinion gives comfort to those state-run lotteries already operating online, as well as their service providers around the world, to continue operating without fear of criminal exposure under the 1961 Wire Act. In addition to removing that significant criminal enforcement risk, the decision may signal momentum for significant growth in the gambling industry despite some continuing limitations to online wagering.

The 1961 Wire Act

A product of the Kennedy administration's war on organized crime, the 1961 Wire Act criminalizes the use of interstate wire communications to assist "in the placing of bets or wagers on any sporting event or contest." The Act goes on to prohibit various other activity concerning "bets or wagers."³ But the absence of the qualifying clause “on any sporting event or contest” concerning that other activity and throughout Section 1084(a) of the Act has spawned nearly two decades of controversy.

Although not discussed in the First Circuit's decision, a June 2003 letter from the DOJ Criminal Division to the National Association of Broadcasters signaled DOJ’s eagerness to discourage advertising for internet gaming by invoking the Wire Act (among other federal statutes).⁴ Two years later (as the First Circuit did note in its opinion), the DOJ Criminal Division warned the Illinois Lottery Superintendent that pending Illinois legislation to authorize lottery ticket sales to in-state purchasers on the internet would violate the Wire Act if sales transactions were routed out of state.⁵ The Criminal Division issued a similar warning in 2009 in response to similar requests from New York and Illinois,⁶ even as both states planned to sell lottery tickets only to in-state adults and using out-of-state transaction processing designed to comply with the Unlawful Internet Gambling Enforcement Act (“UIGEA”).⁷

But, recognizing the tension between operating lawful in-state lotteries, the Wire Act's prohibition on only interstate commerce, and the UIGEA’s authorization of wagering "initiated and received . . . within a single State,"⁸ the Criminal Division sought guidance from the DOJ Office of Legal Counsel about the Wire Act's reach. The OLC's 2011 guidance concluded that the Wire Act applied only to sporting events and contests—not state-run lotteries⁹—spawning a lucrative online lottery landscape.¹⁰ But in 2018, OLC reconsidered that decision (reportedly as a result of lobbying from the Coalition to Stop Internet Gambling¹¹) and reversed it: "While the Wire Act is not a model of artful drafting, we conclude that the words of the statute are sufficiently clear and that all but one of its prohibitions sweep beyond sports gambling."¹²

The First Circuit decision similarly criticized the Act's drafting in its 49-page opinion. But the court, adopting the arguments of the New Hampshire Lottery Commission and one of its online vendors, concluded that the Act and its prohibitions apply only to "sporting events or contests."¹³

Takeaways from the New Hampshire Lottery Commission decision

• The First Circuit decision likely settles the issue for the foreseeable future. The decision reconfirms the status quo dating from the 2011 OLC guidance issued during the Obama administration. The Biden administration has already announced other DOJ priorities (e.g., criminal justice reform, environmental justice). And the New Hampshire Lottery Commission's case included broad participation. About 20 state attorneys' general offices and/or lotteries appeared in the case as amici aligned against DOJ and, for example, the Coalition to Stop Internet Gambling.¹⁴ The decision is, thus, a test case whose impact will persist. We doubt a Biden DOJ would seek US Supreme Court review, and doubt even more that the Court would agree to review it. The Fifth Circuit (in dicta) interpreted the Wire Act in a 2002 decision just as the First Circuit did in its recent decision, and so there is not classic circuit split demanding resolution.¹⁵
• The decision could fuel new partnerships. The First Circuit decision protects state lotteries as well as the out-of-state service providers on which they rely and whose limited out-of-state assistance the UIGEA protects.¹⁶ Those states reluctant to enter such previously contested ground now have added legal clarity and may go online. And while limitations to online gaming persist (see below), the First Circuit decision will surely encourage the increasing number of UK and EU service providers that already have or are considering deals with US casinos and lotteries to move forward, paving the way for further growth of online gambling.
• The decision—and the pandemic—might encourage brick-and-mortar casinos to shift priorities. The New Hampshire lottery decision will surely add momentum for all kinds of intrastate online gaming. The decision builds on the US Supreme Court's 2018 decision in Murphy v. NCAA,¹⁷ which confirmed the ability of states to determine lawfulness of intrastate sports betting. Sports betting is now legal in 22 states and the District of Columbia. The New Hampshire Lottery decision may cause other states to reconsider, if only because the decision highlighted the enormous revenue intrastate online gaming has generated.¹⁸
   

  This momentum also may cause a shift among gaming companies. Online gaming has been a significant source of competition for bricks-and-mortar casinos and integrated gaming resorts. But those businesses have been among those that have suffered the most during the global pandemic. As we go to press, Encore Boston Harbor (Wynn Resorts' East Coast location) has only now (ten months into the pandemic) resumed 24/7 operations with the lifting of a Massachusetts-wide 9:30 pm curfew—but only at 25% capacity.¹⁹ Recent press coverage has signaled that these businesses may be reconsidering their stance on online gaming opportunities.²⁰

• Obstacles remain. US law continues to ban interstate gaming—for sports²¹ as well as games of chance and lotteries, with the exception of state-run lotteries permitted by agreements between or among states (e.g., Powerball, Mega Millions).²² UIGEA continues to target entities that process illegal internet gambling proceeds/transactions. The DOJ has investigated and/or prosecuted various entities involved in the off-shore gambling, including their internet service providers.²³ But as intrastate operations flourish—and, we expect, expand—lobbying efforts to reconsider interstate bans on online gaming may no longer seem Sisyphean.

1 The authors are lawyers at White & Case LLP. Ira Raphaelson is a senior counsel. He is a former general counsel of Scientific Games, a major lottery supply company. Partner Kevin Bolan (Boston) and associate Rebecca Copcutt (London) are members of the Firm's White Collar practice group.
2 N.H. Lottery Comm'n v. Rosen, No. 19-1835 (1st Cir. Jan. 20, 2021).
3 18 U.S.C. § 1084(a).
4 Letter from John G. Malcolm, Deputy Asst. Atty. Gen., Crim. Div., US Dep't of Justice, to Nat'l Ass'n of Broads. (June 11, 2003), https://www.commlawcenter.com/files/2014/02/NAB_letter-030611.pdf.
5 N.H. Lottery Comm'n, slip op. at 6.
6 N.H. Lottery Comm'n, slip op. at 7.
7 31 U.S.C. §§ 5361 et seq.
8 31 U.S.C. § 5362(10)(B).
9 Whether the Wire Act Applies to Non-Sports Gambling, 35 Op. O.L.C. 134, 151 (2011).
10 E.g., N.H. Lottery Comm'n Commission, slip op. at 11-13 & nn. 4-5, 23 (noting the hundreds of millions of dollars state lotteries have generated for “a myriad of state programs”).
11 E.g., N.H. Lottery Comm'n Commission, slip op. at 8 n.2.
12 Reconsidering Whether the Wire Act Applies to Non-Sports Gambling, 42 Op. O.L.C. __, slip op. at 2 https://www.justice.gov/sites/default/files/opinions/attachments/2018/12/20/2018-11-02-wire-act.pdf.
13 N.H. Lottery Comm'n, slip op. at 5.
14 N.H. Lottery Comm’n, slip op. at 8 n.2.
15 In re MasterCard Int’l Inc., 313 F.3d 257, 262 n.20 (5th Cir. 2002); see also N.H. Lottery Comm’n, slip op. at 6, 8, 47.
16 N.H. Lottery Comm’n, slip op. at 11-12.
17 138 S. Ct. 1461 (2018).
18 See n.10 supra.
19 See, e.g., Sean Philip Cotter, Encore casino to open 24-7 again, Boston Herald (Jan. 22, 2021),
20 See, e.g., Richard N. Velotta, Goldstein, Dumont elevated to leadership of Las Vegas Sands, Las Vegas Review-Journal (Jan. 26, 2021), https://ift.tt/3azHFEe.
21 18 U.S.C. § 1084.
22 E.g., 18 U.S.C. §§ 1301-1303, 1307, 1953.
23 See, e.g., American Gaming Ass'n, Illegal Sports Betting: How Offshore Operators—and Those Who Support Them—Break US Law (Aug. 17, 2020), https://www.americangaming.org/illegal-sports-betting/.

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