In 2019, The United States District Court for the District of New Hampshire ruled against the Department of Justice (“DOJ”), concluding that the “Wire Act applies only to transmissions related to bets or wagers on a sporting event or contest.” On January 20, 2021, the First Circuit Court of Appeals affirmed the District Court’s decision, dealing yet another blow to the DOJ. Please note that the DOJ may appeal this ruling and ask the Supreme Court of the United States to opine on the breadth of the Federal Wire Act. However, it will be up to the new administration to decide if this is a legal battle worth addressing.
How did the First Circuit Interpret the Federal Wire Act?
Federal Wire Act Interpretation
It has been a long lingering controversy as to whether the Federal Wire Act’s “prohibitions are limited to bets or wagers on sporting events or contests.” In 2002, the Fifth Circuit Court of Appeals ruled that the plain language of the Federal Wire Act limits the intended reach of the statute exclusively to gambling on sporting events or contests. In 2005, the DOJ’s Criminal Division notified the Illinois Lottery Superintendent that it believed that the sale of lottery tickets over the Internet would violate the Federal Wire Act because the sale of lottery tickets was comparable to the acceptance of wagers, “regardless of whether they were placed on sporting events or contests.” In 2011, the Office of Legal Counsel (“OLC”) of the DOJ issued a narrow interpretation of the statute, agreeing with the Fifth Circuit that the Federal Wire Act is restricted to wire communications related to sporting events or contests. Private gaming businesses proceeded to rely on this interpretation, and some states began selling lottery tickets online. In 2017, the Criminal Division of the DOJ asked the OLC to reconsider its position on the statute, which it did in a 2018 opinion letter, one that expanded the interstate gambling prohibition beyond sporting events and contests.
The New Hampshire Proceeding
The State of New Hampshire then proceeded to challenge the propriety of the DOJ’s interpretive changes to the Federal Wire Act in court. After previously winning a declaratory judgment motion at the district court level, New Hampshire has now defeated the DOJ at the First Circuit Court of Appeals. This ruling broadcasts to gaming businesses located in the First Circuit (and, perhaps, to the country at large) that the Federal Wire Act should be narrowly construed to apply only to gambling on sporting events and contests.
The Future of the Federal Wire Act
Had the district court decision been overturned, online poker operators, such as the WSOP.com, which services Nevada, New Jersey and Delaware, may have had to shut down their interstate operations. The upshot of the First Circuit ruling is the likely accelerated involvement of other states in the online gaming space (including traditional casino games). For example, states such as West Virginia and Pennsylvania, which have legalized online poker, but have been waiting for clarity on the legality of launching on an interstate basis, are likely to jump into the fray now that the First Circuit decision has been handed down.
Notwithstanding the foregoing, the future of the Federal Wire Act is dependent on what stance the Biden administration decides to take on the issue. By and through the 2018 opinion letter, the previous administration sought to expand the scope of the statutory prohibition beyond sporting events and contests. In the past, President Biden has stated that the DOJ’s decision to reassert its expansive interpretation of the Federal Wire Act could serve to stifle growth in online poker and sports betting alike. It is important to note that the statute’s prohibitions have long been understood to apply to sports wagering and, as such, the First Circuit ruling should have no measurable effect on intrastate sports betting markets.
We will monitor how the new administration interprets the Federal Wire Act and update our readers on any changes that may impact the online gambling industry. In the interim, it is critical that gaming businesses work closely with knowledgeable gaming attorneys to ensure compliance with applicable state and federal laws.
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The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.