The U.S. District Court for the Middle District of Louisiana recently dismissed Casino City's motion for declaratory judgment regarding its right to carry advertising for Internet gambling services. The judge ruled that Casino City lacks standing to bring such a case to court because it failed to demonstrate that it faces a "realistic danger of sustaining direct injury."
Rather than take the court's ruling as failure, Casino City and its lawyers believe the ruling could actually be beneficial to them because the case has been elevated to the circuit court level much earlier than they had expected.
"Now we have a pure First Amendment rights case to be decided by the circuit court through the appeal process," Casino City President Michael Corfman explained. "No matter the outcome, the case would have been appealed to the circuit court level. Now the appeal to the circuit court will be able to be more focused on the First Amendment rights issues, and we believe this will likely result in broader support than if the focus were on the narrower issue of online gambling advertisements."
Though it was not obligated to do so, the district court delivered its opinion on the merits of the case, stating that it does not believe Casino City has a valid claim for a First Amendment violation. Casino City has argued that the overseas companies for which it advertises are lawful, but the court points out that it does not allege that it is legal for those companies to accept wagers from U.S. bettors. The court notes that the Wire Act prohibits the use of the Internet to transmit betting information and states that it is illegal to aid and abet "the commission of any offense against the United States." The first prong of the Central Hudson Test, which is called into play for First Amendment advertising cases, states that there is no right to advertise illegal activity.
Keeping in mind the district court's opinion that Casino City's case is not a valid First Amendment complaint, we sought the opinion of lawyers who specialize in gaming, media and freedom of speech.
We asked the experts:
Is the district court correct in reasoning that Casino City has no claim under the First Amendment? What will happen in the Circuit Court?
Martin Owens: What does it mean when the Department of Justice tries to get the Casino City suit dismissed? Simply this: the Bush administration is hiding behind legal technicalities to avoid the admission that it is acting beyond the law, pretending to have powers that it knows it does not have.
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Casino City will prevail in this action if it is pursued. The best that can be said for the government's position is that they know how wrong they are.
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The core of this fight is the June 2003 letter of intimidation from the DOJ to America’s broadcasters and publishers. In this amazing document, the DOJ told two lies. . . . Sorry, there's no other word for it.
First it proclaimed that Internet gambling was illegal--this despite the fact that 10 states allow bets to be placed on their horse races via the Internet and 16 more allow a semi-interactive system; despite the fact that states like New Jersey have been using the Internet for years in "second chance" drawings for their lotteries. It passes belief that the responsible department of the federal government should be unaware of these things and similar developments, of the dispute in the Fifth Circuit over the meaning of the Wire Act, the Supreme Court's decision on gaming advertising in Greater New Orleans Broadcasting vs. U.S. or more recently, the WTO decision against U.S. anti-gambling policy in the Antigua case.
Second, it threatened any advertiser of online gaming with prosecution as "aiding and abetting" a federal crime (18 U.S.C. §2). This is pure fantasy: Neither the statute itself nor the federal case law contains the least support for such an extreme position. To the contrary, an advertiser or other supplier of fungible services on demand is the least likely to be branded as an "abettor." Again, it simply defies credibility that the law enforcement professionals at DOJ could have been ignorant of this. Any bright high school student could go to the library and find out the true state of affairs in a few hours.
That being so, we must ask why the Justice Department of a Republican administration should adopt--and attempt to enforce--positions so clearly at variance with the letter and spirit of the existing law. The answer is: despotism. While John Ashcroft was attorney general, he attempted to transform the DOJ from a department of government into the cutting edge of a fundamentalist social and moral agenda--a jihad from the cornfields. For such people, there simply cannot be a distinction between a sinner and a criminal, and so where the law did not reflect the dictates of Jehovah, Ashcroft and company stepped in to make up the difference.
And they needed to take long steps. American gambling law--state and federal--is decades behind developments and nowhere near dealing intelligently with the problems of the Internet. Unable to reach the offshore operators, Ashcroft's regime beat up on the closest substitute, innocent or not. The powers of investigation were used as a blunt instrument of coercion: "Even if we can’t win in court, we can use the weight of the system to crush you." The confiscation of deposited funds, vexatious and burdensome subpoenas, questionable charges; these were all part of the administrative inquisition that he held over the head of U.S. publishers and broadcasters. A more open exercise of raw oppression, a clearer interdiction of the right of speech can hardly be imagined.
Ashcroft is gone now; his behavior became so obnoxious that even his former colleagues in the Senate were incensed, and George Bush had to show him the door, reelection notwithstanding. What the DOJ now has on its hands is a king-sized embarrassment--a bald piece of tyranny which it cannot disavow for reasons of pride and dare not defend in anything like a fair public hearing.
This is why Uncle Sam is running from Mike Corfman's lawsuit. One good look at the government's cards would probably result in a summary judgment for the plaintiff, and the DOJ knows it. Further, a loss here would encourage challenges of other federal overreaching in such matters as wiretaps and probing financial records, which even the DOJ admits it uses against ordinary Americans but has yet to deploy against Al Qaeda. The most the DOJ can hope for is to hide from the controversy until it blows over.
Casino City will prevail in this action if it is pursued. The best that can be said for the government's position is that they know how wrong they are. It is high time this aberration was put right.
Martin Owens is an attorney who specializes in the problems of operating gambling businesses online. Services emphasize strategic planning and preventive action in such areas as legal compliance and proper corporate structuring, as well as contracts, intellectual property protection, technology transfer, domain names, and the assorted other ramifications of operating online. Feel free to address questions and comments to mowens@trade-attorney.com.
Lawrence G. Walters: Recognizing the importance of this case to the online gaming industry, I am happy to share my thoughts on some of the legal issues raised by the district court's ruling in the Casino City case. Since all litigation is a chess game, I will not share all my thoughts or strategy insight, because some of my insights, if published, may adversely impact future proceedings, or provide ammunition for the government to use in the appellate process. In short, some matters are best discussed in private while the case is still active.
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The fact that the district court chose to dismiss the case based on standing is unfortunate because it gives the appellate court an opportunity to render a ruling that ducks the critical constitutional issues, by confining its analysis to whether Casino City does (or does not) have standing to pursue the litigation.
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The first matter that must be acknowledged with the Casino City litigation is that this is a test case. As such, the initial trial court decision is of little consequence to either side, since the ultimate goal is to get the issues in front of an appellate court, or, ideally, before the United States Supreme Court. Therefore, both parties are likely focused on the anticipated ruling by the Fifth Circuit Court of Appeal, as opposed to the trial court's order. Both parties recognize that if the trial court had held that online gambling advertising is protected speech, and could not be constitutionally criminalized by the Department of Justice through aiding and abetting laws, that ruling would have likewise been appealed, and the Fifth Circuit would have the same opportunity to render its ultimate ruling. Thus, while the industry, and Casino City, would certainly have preferred a favorable ruling from the trial court, the most important part of this litigation is still before us in the appellate court.
By far, the best scenario would have been for the trial court to have ruled squarely, and solely, on the First Amendment issues, without any reference to the other defenses raised by the government, such as standing. The fact that the district court chose to dismiss the case based on standing is unfortunate because it gives the appellate court an opportunity to render a ruling that ducks the critical constitutional issues, by confining its analysis to whether Casino City does (or does not) have standing to pursue the litigation. In my view, the court's dismissal based on standing should be reversed, given the significant chilling effect that the government's warning letter and grand jury investigation had on the industry as a whole. It was the Justice Department's clear intent to disseminate its message far and wide, by sending a letter to the National Association of Broadcasters, which was instructed to in turn notify all its members of the government’s position on the legality of online gambling advertising. To now argue that Casino City is not sufficiently impacted because it did not personally receive a copy of the warning letter is somewhat disingenuous, given the government's desire to notify as many advertising outlets as possible of its position. However, the district court bought the argument and found a way to avoid directly ruling on the merits of the First Amendment challenge.
What is odd is the fact that the court then chose to gratuitously, albeit superficially, dispose of the First Amendment issues as well, although it did not need to do so. On the one hand, the court ruled that Casino City is not violating the law, based on its own allegations, since it stated that none of the offshore casinos it advertises accept bets from United States citizens. On the other hand, it also concluded that the aiding and abetting laws prohibit assisting violations of the Wire Act, which, when read most broadly, prohibits knowingly using a wire communication facility for the transmission of "information assisting in the placing of bets or wagers on any sporting event or content." (18 U.S.C. § 1084(a)). The court ultimately concluded that the only speech to which the Department of Justice is directing its threats of prosecution involves illegal activity "namely Internet gambling." (See the ruling at p. 14, Casino City, Inc. v. United States Department of Justice, Case No. 04-557-B-M3 (M.D. La. February 15, 2005).) Thus, the district court concluded that since Casino City's speech misleads the public as to the legality of Internet gambling, the speech is not entitled to First Amendment protection (Id. at 14-15). Unfortunately, the court did not engage in any detailed analysis regarding the scope and applicability of the Wire Act to offshore casino gambling that is licensed and legal in its country of origin. No consideration is given to the issue of "where" the gambling takes place, or "where" the activity must be legal, in order to meet the first prong of the Central Hudson Test, i.e. proving that the advertising involves legal activities. Nor did the District Court address the critical nuance regarding the type of gambling to which the Wire Act applies.
Binding precedent in the Fifth Circuit Court of Appeals (In re MasterCard International, Inc. Internet Gambling Litigation, 132 F.Supp.2d 468 (E.D. La. 2001), aff’d 313 F.3d 257 (5th Cir. 2002)) holds that the Wire Act applies only to sports betting and not to typical online casino gambling. The trial court could readily have rendered a ruling that found First Amendment protection applicable to advertising of online casino gambling, but inapplicable to advertising of sports betting, had it chosen to follow the reasoning of the binding case in that judicial circuit (Id). Instead, the court made no reference to the distinction between casino gambling and sports betting, and rendered a broad ruling, finding that all online gambling advertising is illegal, when it stated, "Thus, the speech which the DOJ is directing its concern only addresses illegal activity." (Ruling, supra, at 14)
While many would have hoped for a more detailed (and favorable) analysis of the online gambling/First Amendment issues, the superficial treatment that these matters received by the trial court may actually help Casino City's chances on appeal, and encourage the Fifth Circuit to dig into these issues in an effort to clarify what is now becoming a confused state of the law in that Circuit. Appellate courts expect the lower courts under their jurisdiction to follow the precedent they establish through their written opinions. The In re MasterCard (Supra) case constitutes binding precedent in the Fifth Circuit, which must be followed by all the lower courts in that geographic area.( The Fifth Circuit is currently comprised of the states of Louisiana, Mississippi and Texas.)
The quick dismissal ruling ordered by the trial court may actually be a blessing in disguise for the Plaintiff. Ordinarily, litigants are required to go through a substantial amount of discovery, motion practice, and summary judgment proceedings, before a legal issue like this can be considered at the appellate level. Here, Casino City bypassed all of those traditional (expensive) delays and hurdles, by receiving a quick ruling on the merits that is ripe for appellate review. Should the Fifth Circuit be inclined to address this case on the merits of the First Amendment claim, Casino City will have benefited tremendously by avoiding the traditional roadblocks that most litigants must pass before obtaining appellate review. Therefore, the perceived negative aspects of the trial court decision may ultimately benefit Casino City in its attempt to create or clarify some law in this complex and high stakes area of online gambling advertising.
It should be noted that an equally likely outcome on appeal could be a simple affirmation of the trial court’s ruling on standing, or even an approval of the entire decision. Appellate lawyers will tell you that the appellate courts reverse the trial courts less than a quarter of a time, sometimes without much comment or analysis. Depending on which panel is assigned to hear the appeal, and how interested those appellate judges are in tackling the complex issues facing them, the litigants (and the industry as a whole) may end up with a disappointing affirmation of all or part of the trial court’s ruling. Should the appellate court affirm the standing decision, that would only mean Casino City is barred from pursuing this case, absent a reversal from the United States Supreme Court on the standing issue, which is highly unlikely. Another advertiser--one who perhaps received the warning letter or a subpoena--could file a new case, thereby potentially avoiding the standing defense. Another option for the appellate court would be to reverse only on the issue of standing, and send the case back to the trial court, with instructions to reconsider the merits of the First Amendment challenge, in light of its hypothetical opinion finding that Casino City had standing to pursue the case. This is what the trial court sought to avoid by rendering a gratuitous ruling on the First Amendment issues, so that it did not have to consider this case a second time if the appellate court found that Casino City was sufficiently impacted to bring the case.
As is evident, this litigation is far from over, and the appellate court has a variety of options when it renders its decision. Should the Fifth Circuit chose to tackle the free speech issues head on, and render a thoughtful opinion on the First Amendment protections of online gambling advertising, the United States Supreme Court could become very interested in this case, and accept certiorari jurisdiction to review the circuit court’s decision, if either party seeks such review. What are the chances that either Casino City or the Department of Justice will pursue Supreme Court review? You can bet on it.
Lawrence G. Walters, Esq., is a partner in the national law firm of Weston Garrou, DeWitt & Walters, with offices in Orlando, Los Angeles, and San Diego. Mr. Walters represents clients involved in all aspects of online gaming operations. Nothing in this article constitutes legal advice. Please contact your personal attorney with specific legal questions. Mr. Walters can be reached at Larry@LawrenceWalters.com, through his website: www.GameAttorneys.com, or via AOL Screen Name: “Webattorney."
Cory Aronovitz: I think the court was correct in dismissing the case. I also think that it is a win-win for both sides. The government escaped a decision based on the merits and may continue to assert its position that all forms of Internet gaming are prohibited under current federal laws; and Casino City may take the position that, until further notice from the DOJ, "it's business as usual." Both sides must now determine how to use the decision. In assessing their conduct--prosecution and business operations--it is important to consider the limited case law on the subject.
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The court opens the door for a First Amendment ruling once there is a proper party willing to take on the challenge. As a result, if not careful in selecting its next target, the DOJ will be inviting itself to a lawsuit with another warning letter.
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The court opens the door for a First Amendment ruling once there is a proper party willing to take on the challenge. As a result, if not careful in selecting its next target, the DOJ will be inviting itself to a lawsuit with another warning letter. To date, letters were sent to parties that are either unwilling to take on the challenge, "friendly" targets, or did not want to trigger further scrutiny of other business. Casino City must be careful not to provoke authorities by pushing the envelope. If it is going to accept I-gaming advertising, it should set some parameters and establish controls and compliance programs. Done properly, a compliance program could possibly deter scrutiny and turn attention to an easier target.
A compliance program should include a review that identifies:
(a) Associations with persons who may be deemed to be unsuitable as a result of reputation or criminal past;
(b) Business practices or procedures that may be deemed questionable or inappropriate (accepting underage play, no certification of game software, no compulsive gaming policy or privacy policy);
(c) Compliance with the laws, regulations, or orders of duly constituted governmental agencies or entities having jurisdiction over the gaming affairs or such other business activities (operation from a jurisdiction that has authorized the activity and has issued a license to conduct igaming activities); and
(d) Review of such other activities that could be deemed to create company liability, including at a minimum:
- Whether the specific I-gaming activity is illegal.
Sports Book - Yes, no further analysis needed. Do not provide any service related to this activity. Whether it is advertising or developing software, the consensus is that current federal laws prohibit the "transmission . . . of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest. . . . " (18 U.S.C. §1084; the "Wire Act"). Any argument to the contrary has no legal support. (e.g. United States v. Cohen, 260 F.3d 68; 2nd Cir. 2001).
Non Sports Book - It depends. The DOJ has publicly stated that all gaming is illegal. Everyone else, however, disagrees with the DOJ. And, with the exception of a handful of states, there is no state or federal law that is specific to internet gambling (non-sports book) OR express prohibition. In fact, in at least one federal circuit, Internet casino-style gaming is not illegal under the Wire Act. (See In re MasterCard International Inc., 132 F. Supp. 2d 468 (E.D. La. 2001) aff. 313 F.3d 257 (5th Cir. 2002).)
- Whether a relationship would established a RICO or aiding and abetting violation.
Racketeer Influenced and Corrupt Organizations statute ("RICO"), 18 U.S.C. §1962 and §1964 - there are four forms of conduct prohibited by RICO, including: conducting or participating, directly of indirectly, in the activities of any enterprise affecting interstate or foreign commerce through a pattern of racketeering or collection of unlawful debt and/or conspiring to further any of the activities. Liability, under RICO, however, seems unlikely given the following from the Court in Jubelirer v. MasterCard Int'l., 68 F. Supp. 2d 1049 (1999):
"[a]ssuming that . . . online casinos constitute RICO 'enterprises,' the law is clear that merely having a business relationship with and performing services for such an enterprise, including financial, accounting and legal services, does not support RICO liability because performance of such services is not the equivalent of participation in the operation and management of the enterprise." The court further held that this would be the case even if the “service provider knows of the enterprise’s illicit nature and performs improper acts itself.” In sum, the court held that merely performing services for or even facilitating an Internet gambling operation is insufficient to satisfy RICO's "enterprise" requirement.
Aiding And Abetting - The statute provides, in relevant part, that "[w]hoever commits an offense against the United States or aids, abets . . . or procures its commission, is punishable as a principal." The technical elements of aiding and abetting liability are: specific intent to facilitate commission of a crime by another; "guilty knowledge" by alleged abettor; commission of substantive offense by someone else; and assistance or participation in commission of the offense. A defendant may be convicted for violating one of the anti-gambling regulations by causing an action to be done which if directly performed by the defendant or another would be an offense under the law. To prove the case for aiding and abetting, the government must prove that the defendant had a "purposeful attitude" and participated in the unlawful action in some manner.
If the statute is applied to I-gaming, any person who knowingly facilitates the operation and use of an illegal Internet-gambling operation would be in violation of federal law and subject to punishment. However, since the elements of an aiding and abetting offense require "guilty knowledge" and "participation in commission of the offense," advertisers would have to do more than unknowingly advertise gambling activity over the Internet. For example, if advertisers were paid based on a percentage or revenue or endorsed the site or allowed untruthful statements, there could be risk of liability - e.g. State by Humphrey v. Granite Gate Resorts>, 568 N.W.2d 715 (1997)(Internet gaming operation "engaged in deceptive trade practices, false advertising, and consumer fraud on the Internet." The site stated in part that it, "provide[s] sports fans with a legal way to bet on sporting events from anywhere in the world. . . ."
Advertisers may consider such disclaimers and incorporate "void where prohibited" or "that the games offered by __________ may be deemed an illegal activity in certain jurisdictions, a reasonable inquiry into the legality of participating in ___________ games wherein you play is advised. [Advertiser] assumes no responsibility for the actions by you and makes no representation or endorsement."
Looking into these issues and developing forms for each new project would demonstrate that there was no intent to commit a crime. Faced with making a case against a compliance-oriented company could simply lead to looking for a company without such standards. And continued legislative action, improved technologies, and foreign challenges should help in defending against scrutiny. Then again the political climate may change the focus of the DOJ. . . . maybe to championship or all-star halftime entertainment.
Cory Aronovitz is founder of the Casino Law Group and concentrates in the area of casino and gaming law. He represents riverboat casinos, Indian casinos, Internet casinos and casino service industries including manufacturers and distributors of gaming related equipment. His practice involves appearing before regulatory agencies related to licensing and game approvals, litigation on behalf of the casino industry and providing creative solutions to client needs. Cory is a frequent writer and speaker on various topics related to gaming, is a member of the Gaming Law Review editorial board, a founding member and member of the Board of Directors of the International Masters of Gaming Law, and an adjunct professor of gaming law at the John Marshall Law School. In August 2000, Cory was named one of the "Top 40 Lawyers Under 40" by the Chicago Law Bulletin for his contributions to the gaming industry.