Enter the Gotti Factor

4 September 2006

A recent federal court opinion may not bode well for the Internet gambling industry.

"This is not good news for the industry. It hasn't actually closed everything up, but the Department Of Justice is a big step closer to where they want to be to say that all Internet gambling is illegal.
- Martin Owens
Law Offices of Martin Owens

The Second Circuit Court of Appeals in New York ruled on July 12 that an online sports book run by Richard Bondi, an associate of the Gambino crime family of New York, was doing business in the state of New York and that, therefore, the court has jurisdiction.

In the case of United States v. Peter Gotti, Bondi was one of 17 defendants convicted in 2005 on a 68-count indictment on charges relating to the Racketeer Influenced and Corrupt Organizations (RICO) Act, a law intended to eliminate the ill effects of organized crime on the nation's economy.

In an appeal of the conviction on April 7, 2006 in New York's Second Circuit Court, Bondi's lawyer, Richard Medina, challenged one of the charges relating to Pelican Sportsbook, an online gaming operation allegedly based in Costa Rica.

Medina argued that because the sports book was based in Costa Rica, bets were not made in the United States, meaning that New York had no jurisdiction. Therefore, he argued, the court could not hook his client on this particular charge.

Martin Owens, an attorney who specializes in the problems of operating gambling businesses online, said Medina's argument was a desperation ploy because the sports book was being run out of New York.

"They seized the records in New York, and there's people they paid and collected from in New York--in person, not online," Owens said. "These guys were actually taking the bets and making the bets and paying things off. So this is no more a Costa Rican operation than Coca Cola."

The Second Circuit arrived at its decision by digging up a 10-year-old quote from New York State Judge Charles Ramos in the case of People v. World Interactive Gaming Corp. Ramos stated, "The act of entering the bet and transmitting the information from New York via the Internet is adequate to constitute gambling activity within New York state."

"That was another case where somebody screwed up, saying, 'Well, this is offshore in Antigua,'" Owens said. "And Ramos said, 'The hell I care, I got you right here in New York with bank accounts and offices. Don't talk to me about jurisdiction. You're here. We've got jurisdiction.' But he made this comment at the time saying that anytime you fire up a computer from New York and access an Antigua site that makes a gambling presence in New York."

When a judge makes comments that aren't pertaining directly to the case at hand or the direct point of law, what he says is considered dicta, which means the judge is, in essence, editorializing. It is commentary on the side, so other judges are not required to follow it.

"You know how the Pope's supposed to be infallible in matters of faith and morals, but it doesn't mean he can pick the horses?" Owens said. "This is like the Pope picking horses . . . when a judge comments on the side. He's got a right to his opinion, but nobody has to follow it."

But in this case, the federal judges in the Second Circuit dusted off the old opinion and agreed with it, making it a much more dangerous opinion. Now it is a pronouncement on a point of law by a federal judge, which makes it something somebody can quote.

"I don't agree with their analysis because they didn't analyze anything," Owens said. "They just agreed with Ramos."

When the U.S. Supreme Court says something is or is not law, all eleven circuit courts must follow it. But where there is no ruling from the Supreme Court, the circuits can (if necessary, and at the judges' discretion) draw on the pronouncements of other circuits.

"The Second Circuit, being in New York, is one of the most influential circuits in the country," Owens said. "They've had quite a few Supreme Court justices come out of there, and a lot of people look to them for guidance in areas like this."

Owens is concerned that courts previously without guidance can look to the new ruling if they want to get hostile toward I-gaming.

"This is not good news for the industry," Owens said of the decision. "It hasn't actually closed everything up, but the Department Of Justice is a big step closer to where they want to be to say that all Internet gambling is illegal."

Emily Swoboda is the senior staff writer at IGamingNews. She lives in St. Louis, Mo.