Federal Court rules DOJ cannot sue company for non-sports betting under Wire Act

By Heidi McNeil Staudenmaier and Kate Pokorski

On September 15, 2022, the United States District Court for the District of Rhode Island (“Court” or “District Court”) issued a significant declaratory judgment regarding the historically inconsistent interpretation of the Department of Justice (“DOJ ”) of the Federal Wire Act. . In the District Court’s memorandum and order, the court granted plaintiff’s motion for summary judgment International Game Technology PLC (“IGT”), stating that the DOJ cannot sue IGT for non-sports betting under the Wire law. The opinion was written by U.S. District Judge William E. Smith.

This case stems from both the DOJ’s changing interpretation of the Wire Act and recent litigation arising from such uncertainty over the Wire Act.

Until 2011, the DOJ was of the view that the Wire Act was not limited to sports betting and could apply to a wide range of other forms of interstate gambling. According to this interpretation, the DOJ prosecuted at least 17 cases involving the prohibited activities over a six-year period. In a similar vein, in 2009 the DOJ went so far as to tell officials in New York and Illinois that their states’ plans to use lottery systems provided by IGT were criminal.

In 2011, the DOJ reversed its earlier position, narrowing the scope of the Wire Act. The DOJ’s Office of Legal Counsel (“OLC”) issued an advisory in 2011 that specifically stated that “the Wire Act does not apply to interstate transmissions of wire communications that are not related to a ‘sporting event or a contest “. According to this new interpretation. , IGT was able to grow its business in the United States by developing non-sports offerings such as land-based gaming machines, iGaming, iLottery, and traditional lotteries.

Seven years later, the DOJ has once again backtracked. Reverting to its pre-2011 position, the OLC issued a new notice in 2018 (“2018 Notice”), concluding that the Wire Act did in fact affect non-sports betting, including lotteries and connected slot machines. to internet. In response, New Hampshire Lottery officials and the state vendor sought two remedies:

  1. A declaratory judgment that the Wire Act only applied to sports betting.
  2. An order to vacate the 2018 notice in the case.

In NH Lottery Commission v. Rosen, 986 F.3d 38 (1st Cir. 2021) (“CLNH“), the Court of Appeals for the First Circuit (“First Circuit”) ultimately ruled in favor of New Hampshire Lottery officials on the first point. The First Circuit held that the Wire Act prohibitions “do not s apply only to the interstate transmission of communications by wire related to any “sporting event or contest”.

However, on the second point, the First Circuit did not exercise its authority to overturn the 2018 Notice. The First Circuit concluded that “declaratory relief was an adequate remedy in the circumstances.” This means that for states under First Circuit jurisdiction, “the appropriate scope of cable law has been definitively addressed,” but the 2018 advisory as a whole remains in effect.

The CLNH the litigation further muddied the waters on the scope of the Wire Act. The DOJ responded by announcing two separate forbearance periods (“forbearance periods”):

  1. The DOJ will not prosecute state lotteries and their vendors for a period of 90 days after the DOJ issues additional guidance on whether it believes the Wire Act should apply to the state. lotteries. As of October 2022, these guidelines have not yet arrived.
  2. The DOJ would not sue the Wire Act for excluding lottery game under the notice of 2018 until 60 days after the final judgment in the CLNH dispute.

Shortly after First Circuit issued this notice for the CLNH case and the blackout periods took effect, IGT initiated its proceedings. IGT sought declaratory relief barring the DOJ from suing the company for non-sports betting under the Wire Act. It’s the same relief New Hampshire Lottery officials and their vendor received in CLNH.

In response, the DOJ argued that IGT could not sue because it faced no threat of lawsuits in the First Circuit. The DOJ argued that there was no standing, “both because the DOJ did not pursue similar proceedings after the expiration of the non-lottery forbearance period, and because [NHLC] makes successful IGT pursuit in the first circuit impossible. The district court found no compelling argument.

The District Court first explained that there are circumstances in which the threatens enough to bring an action. The Court explained that this is a sliding scale factual inquiry. The decision noted that previously threatened lawsuits and a history of similar lawsuits are evidence that the threat of lawsuits is realistic and credible. In denying the DOJ’s motion to dismiss, the Court had “little difficulty in concluding that IGT has standing.”

The Court noted that the DOJ was challenging the standing CLNH essentially for the same reasons. Expressly follow the reasoning of the first circuit from CLNHthe district court outlined its analysis of why IGT faced a credible threat of litigation.

The Court observed that IGT overtly engages in conduct characterized as criminal in the 2018 notice and that, therefore, “large swathes of IGT’s activities run counter to the DOJ’s latest interpretation of the Wire Act”. The Court then analyzed the likelihood and ability of the DOJ to sue IGT. The district court pointed to the fact that the DOJ’s forbearance period for the non-lottery application had expired. The Court also recognized that IGT was on an equal footing with the plaintiffs in CLNH with respect to the lottery abstention period; both could be sued within 90 days of the DOJ’s announcement of a new policy.

In denying the DOJ’s motion to dismiss, the District Court reviewed the evidence on the record, much as the First Circuit did in CLNH. The Court acknowledged that the DOJ had previously told officials in New York and Illinois that the use of lottery systems provided by IGT would be criminal, stating: IGT faces a realistic and substantial threat of prosecution for its business. of lottery.

In making its decision on the DOJ’s motion to dismiss, the district court only had to deal with one argument that had not been made in CLNH. The DOJ argued that detention in CLNH already “prevents any threat of successful IGT prosecutions anywhere in the First Circuit, including Rhode Island.” The Court disagreed and concluded that this was the wrong test because the analysis is “whether IGT faces a realistic threat of litigation, not whether it faces the threat of ‘a successful pursuit’. And, for the above reasons, the Court concluded that this was a realistic threat.

After denying the DOJ’s motion to dismiss, the court considered IGT’s motion for summary judgment. The DOJ expressed concern that granting declaratory relief in favor of IGT meant that any entity meeting the jurisdictional requirements to seek declaratory relief in the First Circuit could also benefit from First Circuit precedent outside of it. of the first circuit.

For the DOJ, granting declaratory relief in favor of IGT ultimately meant that any company in a similar situation could go down the same path and avoid prosecution for any non-sporting event in any jurisdiction.

In dismissing the DOJ’s concerns, the district court explained that the fact “that both parties are operating here nationwide does not transform a declaratory judgment between the parties into a nationwide injunction against the DOJ generally, does not preclude not the DOJ to prosecute any non-party, or necessarily stop the development of law in other circuits.

The Court sought to protect large swathes of IGT’s business developed by relying on the protections of the 2011 notice – which later ran counter to the 2018 notice. According to the Court, if the DOJ published guidelines ending its deferral period for state lotteries, IGT would have “90 days to significantly reorganize or end its state lotteries in 37 states.” The Court found it troubling that if the DOJ issued an adverse opinion on lotteries, IGT would have only ninety days to liquidate transactions that impact “a significant portion of the $25.3 billion that state lotteries generate annually for state budgets.” This reasoning was used in CLNHas well.

Given these concerns, the Court determined that the issuance of declaratory relief in favor of IGT was warranted. The Court’s goal was to clarify and settle the legal relationships at issue and relieve IGT of the uncertainty created by the DOJ. Finally, the Court clarified that the scope of the remedy would prevent the United States from suing IGT wherever IGT operates.

About Charles D. Goolsby

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