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Sunday, October 26, 2014
Federal Judge Blocks NJ Sports Betting: What's Next?
Less than 48 hours before Monmouth Park Racetrack was scheduled to open the first legal sports book in New Jersey’s history (and with crowds expected to top 10,000 people for this historic event), a federal court judge put a temporary halt to those plans. On Friday, U.S. District Judge Michael A. Shipp entered a temporary restraining order prohibiting the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park) and the New Jersey Sports and Exposition Authority (the owner of the land) “from conducting sports wagering at Monmouth Park.” Additionally, the order temporarily enjoins the New Jersey defendants (including Governor Christie and the New Jersey Legislature) from “sponsoring, operating, advertising, promoting, licensing or authorizing” sports wagering schemes or “implementing, enforcing, or taking any action pursuant to New Jersey Senate Bill 2460 (the law partially repealing the state law ban against sports wagering). The order further states that these restraints “shall remain in effect until this Court resolves [the pending] application for a preliminary injunction.” As a condition of the temporary restraining order, the court indicated that the leagues would be required to post a monetary bond of $1.7 million (the operators of Monmouth Park had asked for $1.2 million per day based on projected lost profits).
The TRO Cannot be Appealed
Friday’s court order decided only the motion for a temporary restraining order filed by the four professional sports leagues and the NCAA on Tuesday (the DOJ was not a party – more on that later). Left unresolved – for now – was the leagues’ request for a preliminary injunction (included within the same set of motion papers). As I explained in a prior post, there is a key difference between a temporary restraining order and a preliminary injunction. A temporary restraining order preserves the status quo (e.g., no sports betting in New Jersey casinos or racetracks) only until a hearing on the motion for preliminary injunction can be held. By contrast, a preliminary injunction preserves the status quo for the balance of the case (through and including the trial and any possible appeals).
Although preliminary injunctions are immediately appealable, temporary restraining orders are not. The rationale for distinguishing between a temporary restraining order and a preliminary injunction for purposes of appealability is that temporary restraining orders are of much shorter duration and terminate with a ruling on the preliminary injunction, making an immediate appeal unnecessary to protect the rights of the parties. Once the motion for preliminary injunction is decided, however, either side can take an appeal. Even an order denying a motion for preliminary injunction can be appealed. Expect the losing party to file an appeal of the eventual preliminary injunction ruling.
The Court Will Likely Schedule A November Hearing
Immediately following the issuance of the temporary restraining order, Judge Shipp entered a “Scheduling Order,” in which he ordered the parties to file “joint e-correspondence” by Monday, October 27, at 11:00 a.m. indicating: (1) whether any party seeks discovery prior to the Court’s decision on the leagues’ preliminary injunction application; (2) each party’s position “regarding the necessity of a preliminary injunction hearing”; and (3) whether any party wishes to file a supplemental brief in support of or in opposition to the leagues’ application for a preliminary injunction. The 11:00 a.m. deadline on the filing of the joint e-correspondence suggests that the Court wishes to enter a scheduling order (perhaps setting a hearing date and allowing for limited pre-hearing discovery) later in the day on Monday. Expect New Jersey to ask for a hearing on the preliminary injunction motion and for “pre-hearing” discovery, while the leagues (as the early victors) will insist that neither is necessary. No surprise there.
Although a hearing is not automatically required on a motion for preliminary injunction, courts typically hold one when the nonmoving party requests it. As a general rule, hearings in the preliminary injunction context are required only when there are “material factual disputes" to resolve. This case does not appear to present the garden-variety factual dispute where a court would be tasked with determining what occurred as between two competing versions. The question of whether New Jersey may allow unregulated sports betting at casinos and racetracks (through the enactment of legislation partially repealing the ban on sports betting) is largely a question of law based on how one interprets the language in the Third Circuit’ majority opinion (and the prior statements of the leagues and Department of Justice) acknowledging that legislation “repealing” a state-law ban on sports betting would not violate the Professional and Amateur Sports Protection Act (“PASPA”), with the DOJ going as far as saying that even a “partial repeal” of the ban would not violate PASPSA and the Third Circuit opining that it would be “left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.” (emphasis added) The italicized language provides much hope for New Jersey should this case return to the Third Circuit and the DOJ is estopped from disavowing its prior concession.
Despite being presented with a relatively straightforward legal interpretation, I expect Judge Shipp to schedule a hearing on the motion for preliminary injunction for mid-November (or perhaps the same November 21st date that he had set aside for a hearing on New Jersey’s motion for clarification and/or modification of the existing injunction). I am convinced of this for several reasons. First, it has been Judge Shipp’s past practice in this case (or, more accurately, in Christie I) to schedule hearings on important motions, even where they could easily have been decided on the papers. In Christie I, Judge Shipp scheduled hearings on the motion to dismiss for lack of standing, the motion for summary judgment, and the motion for clarification and/or modification of the injunction (which was withdrawn prior to the hearing date, undoubtedly due to the fact that it had little to no chance of being granted). While oral arguments in federal court are becoming increasingly rare as federal judges are handling larger caseloads than ever before, they occur with greater frequency in high-profile cases. I doubt that Judge Shipp would deviate from his past practice of holding hearings especially for such an important motion (often described as an “extraordinary remedy”) with lasting ramifications to the parties. It would not surprise me if Judge Shipp issued a Scheduling Order this week (maybe Monday) setting a hearing date and authorizing limited pre-hearing discovery.
But even apart from Judge Shipp’s habit of setting hearings, there may be legally compelling reasons for doing so. While the determination of whether New Jersey’s "partial repeal" law is permitted by the Third Circuit majority opinion presents a relatively straightforward question of law, it is also bundled up with a number of factual issues, such as: (1) the degree to which New Jersey would be able to “indirectly” regulate the sports betting activities of casinos and racetracks (through its authority to regulate such venues generally) if the new law were to take effect; (2) the "irreparable harm" issue, which may require expert testimony (although Judge Shipp dispatched with this issue by reasoning that more "legal" sports betting will lead to more "total" sports betting, which, in turn, leads to an increased incentive to fix the plaintiffs' matches); (3) the muddled and confusing ownership situation of Monmouth Park Racetrack (the leagues allege that it is a “state-owned” facility, whereas New Jersey claims that the track is operated and leased by a private trade association with the state only owning the land); and (4) the proper amount of an injunction bond (under Federal Rule of Civil Procedure 65, the successful applicant is required to post a bond to protect the non-moving party from losses in the event that future proceedings determine that the injunction was issued wrongfully. Towards this end, the operators of Monmouth Park will seek to adduce additional evidence to increase the bond from $1.2 million to something more closely approximating its projected lost revenues and profits). These factual issues (and several others) will likely necessitate an evidentiary hearing before Judge Shipp.
Additionally, the New Jersey defendants would be eager to take discovery prior to the hearing. Because an evidentiary hearing on a motion for a preliminary injunction is tantamount to a “mini-trial” (but compressed into one day or less), the parties would want to have access to the other sides’ evidence prior to the hearing so that there are no surprises. For instance, the parties might wish to request key documents from the other side and also take the depositions of witnesses (including experts). We could even see Roger Goodell being deposed again (remember, he and David Stern had their depositions taken in Christie I), adding to his already-busy November with the Ray Rice appeal on tap for next week. New Jersey’s attorneys would salivate at the prospect of deposing Goodell, who has been shaky in past courtroom settings. Moreover, counsel for the New Jersey defendants would undoubtedly seek to depose NBA Commissioner Adam Silver, who was recently quoted as saying that expanded legal sports betting is “inevitable” and the NBA would be open to participating in it. That statement (along with many other recent developments) would seem to undermine the leagues’ claim that they would suffer “irreparable harm” from legal sports betting outside of Nevada. At the very least, New Jersey's attorneys would want to ask Silver about that recent statement and extract concessions designed to peck away at the leagues’ claim of irreparable harm.
The Leagues Will Likely Prevail at the Preliminary Injunction Hearing
Assuming that Judge Shipp schedules a hearing (and the smart money says that he will), can we expect a different outcome? Don’t bet on it. The leagues are undefeated before Judge Shipp, having prevailed in three consecutive significant motions: the motion to dismiss and the motion for summary judgment in Christie I and the motion for a temporary restraining order in Christie II (the current case). Further, by virtue of granting the motion for temporary restraining order, Judge Shipp has already telegraphed how he will likely rule on the motion for preliminary injunction. After all, they are governed by the same test. While he has not yet issued a written opinion explaining his reasons for issuing the temporary restraining order, Judge Shipp said Friday (while ruling from the bench) that "at this stage of the proceedings, the court can't read the 3rd Circuit's order so as to render PASPA null." Judge Shipp may have been troubled by the fact that the partial repeal was limited to state-licensed casinos and state-licensed racetracks, the same entities that were the beneficiaries of the 2012 legislation that was held to be a violation of PASPA in Christie I. He could very well have viewed the repeal legislation as a blatant circumvention of PASPA and the permanent injunction that he issued in February 2013. Judge Shipp may have also been troubled by the fact that, under the new repeal law, New Jersey would be able to “regulate” sports betting (forbidden by PASPA) through its extensive regulatory oversight over casinos and racetracks generally. He may have been skeptical that a “Chinese Wall” could realistically be constructed between a casino’s regular gaming operations and its sports book (which, by law, would have to be housed in the same facility). But, as Ted Olson pointed out, the same “background regulation” over casinos and racetracks would exist even under a complete repeal of the law.
While past performance is not necessarily indicative of future results (as they say in the mutual fund business), it does tend to be a reliable indicator in the law, especially as we move from a TRO to a preliminary injunction hearing. To secure a temporary restraining order, the leagues were required to demonstrate a “reasonable probability of success on the merits” (along with a showing of irreparable harm and a demonstration that their harm outweighs whatever harm New Jersey would suffer from the issuance of a TRO). This is the same standard that governs a motion for preliminary injunction. If Judge Shipp already believes that the leagues had met this standard for purposes of a TRO, he is just as likely to believe that they will meet the same standard on a motion for preliminary injunction. What could possibly change in just a few short weeks to turn Judge Shipp around, especially since the leagues are three-for-three before him and the merits of the case turn primarily on issues of law rather than intensive fact-finding? While many believe that the TRO was just a “place-holder” until he could resolve the motion following a hearing (and Judge Shipp did hint at this in his oral ruling), the fact remains that a TRO does not issue unless the moving party can demonstrate a reasonable probability of success on the merits, irreparable harm, greater harm than the other side, and a showing that a TRO will serve the public interest. Having already satisfied each of these elements for purposes of the TRO, the leagues remain the odds-on favorite to obtain a preliminary injunction that is governed by the exact same legal standard in front of a judge before whom they have never lost.
Friday’s Ruling Was Foreshadowed by Judge Shipp’s Prior Decision
Judge Shipp’s prior rulings also shed light on why he granted the temporary restraining order. In his February 28, 2013 Order granting final summary judgment to the leagues in the original case, Judge Shipp made plain that a repeal or amendment of PASPA was the only pathway for legal sports betting in New Jersey. He wrote that “[t]o the extent that the people of New Jersey disagree with PASPA, their remedy is not through passage of a state law, but through the repeal or amendment of PASPA in Congress.” (italics added). Taken literally, these words would seem to be the death knell for any state legislative “work-around" (which arguably is what New Jersey has done here).
In his earlier order, Judge Shipp also made a specific finding of “irreparable harm” to justify the granting of a permanent injunction in that case. On that point, he wrote that the spread of state-sponsored sports betting "would engender the very ills that PASPA sought to combat.” This foreshadowed his statement on Friday, in ruling from the bench, that the leagues would be irreparably harmed because “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.” He also stated that expanded sports betting could result in "a negative effect on the perception of [the leagues' ] games," calling this "a very real harm." It appears that Judge Shipp is improperly conflating irreparable harm with the "injury-in-fact" requirement for purposes of Article III standing. Nonetheless, Judge Shipp is unlikely to do a 180-degree on the issue of irreparable harm in just a few short weeks. He has already made his position (read: ruling) on this issue clear in his TRO ruling.
Irreparable Harm is the Key
Although Judge Shipp siding with the leagues following a preliminary injunction hearing appears to be a fait accompli, New Jersey still needs to make a record for its eventual appeal to the Third Circuit. And this starts with the preliminary injunction hearing, where New Jersey will need to present compelling evidence to counter Judge Shipp's "assumption" that the leagues will be irreparably harmed by expanded legal sports betting. In his prior ruling, Judge Shipp did not make any factual finding of "irreparable harm." Rather, he simply assumed "irreparable harm" by virtue of the violation of the Supremacy Clause. If New Jersey could establish that its partial repeal conforms to the Third Circuit language and does not violate PASPA (again, this is all for the benefit of an eventual appeal), the leagues would have to prove irreparable harm. So far, in this proceeding, they have not attempted to do so, relying only on Judge Shipp's prior ruling which had assumed such harm through the violation of federal law. This is a stunning omission because the leagues have also argued that the "partial repeal" legislation violates the New Jersey Constitution, yet they did not submit any "proof" of irreparable harm to support that argument. Perhaps New Jersey's best play here is to not seek a hearing or supplemental briefing and just simply take it up the Third Circuit after Judge Shipp converts the TRO to a preliminary injunction without any evidence of irreparable harm.
Assuming that New Jersey asks for a hearing and supplemental briefing (which I assume they will), New Jersey will seek to introduce new evidence that did not exist in 2013 to counter the leagues' claim of irreparable harm. They will point to NBA Commissioner Adam Silver’s recent statement that expanded legal sports betting is "inevitable" and that the NBA is open to "participating" in it (suggesting that the NBA’s acquiescence on sports betting is available for "the right price") and the leagues' recent embrace of daily fantasy sports leagues (which many have characterized as akin to sports betting), as evidenced by lucrative team sponsorship deals with FanDuel and Draft Kings. These recent events post-date Christie I and may be key to New Jersey's efforts to rebut irreparable harm. Although raised previously without much success, New Jersey will again note that the leagues host games in jurisdictions (e.g., Las Vegas, London, and Canada) where sports betting is legal, and that extensive gambling has occurred on sporting events for many years without injuring the leagues or their reputations. Additionally, New Jersey could point to the astronomical growth of the leagues while sports wagering (both legal and illegal) has increased ten-fold (from $50 billion to approximately $500 billion) since the early 1990’s. While this is not likely to sway Judge Shipp, whose syllogistic reasoning (e.g., more "legal" gambling will lead to more "total" games, which, in turn, will lead to a greater incentive to fix the plaintiffs' games) is entirely derivative of his prior ruling, it may persuade the Third Circuit (which has not previously considered the issue of irreparable harm in this context).
New Jersey’s lawyers will also attempt to show that any "assumed" harm that would be suffered by the leagues through expanded sports betting is greatly “outweighed” by the real, tangible harm that would be sustained by Monmouth Park Racetrack (and other New Jersey casinos and racetracks) if a preliminary injunction were entered. This is a critical element on a motion for a preliminary injunction. “Irreparable harm” by itself is not enough; the leagues also need to show that the harm they would suffer from sports betting occurring is worse than the losses that would be sustained by New Jersey without sports betting. While the leagues would point to a “reputational injury” through the "negative perceptions" on the part of fans that the leagues' games might be fixed, the fact remains that the leagues have thrived financially while sports betting has increased exponentially. By contrast, the harm suffered by New Jersey would appear to be more real and tangible: casinos closing their doors, the loss of thousands of jobs, adverse economic impact (e.g., decline in tourism), and lost tax revenue (due to shuttered casinos and racetracks). Sports betting is considered a lifeline for New Jersey’s struggling casinos and racetracks, and an injunction could sound the death knell for these businesses. The “balancing of the harms” would thus appear to heavily favor New Jersey and militate against the granting of a preliminary injunction. But not according to Judge Shipp, who summarily dispatched with this inquiry by saying that "much of this harm is self-inflicted" because Monmouth Park spent "great sums of money" without waiting for a court ruling. Such a statement, lifted directly from the leagues' reply brief, ignores all of the prospective or future harm that would likely be sustained by Monmouth Park if it were prevented from offering sports betting. Expect this to be a key issue in any Third Circuit appeal.
The Absence of the DOJ was a Strategic Decision to Avoid Judicial Estoppel
Conspicuous by its absence from last week’s filing was the Department of Justice, which has standing to enforce PASPA in federal court. Indeed, the DOJ was an active participant in Christie I. Many have wondered why the DOJ was not added to last week's complaint or motion. While the leagues have publicly stated that nothing should be read into the DOJ’s absence, I suspect that the DOJ’s exclusion from this lawsuit was by design: to distance the leagues from prior statements made by United States Attorney Paul Fishman and United States Solicitor General Donald Verrilli, Jr. that a “repeal” of the state-law prohibition against sports betting would not violate PASPA and to avoid the preclusive effect of such statements. In his Third Circuit brief, Mr. Fishman wrote that “nothing in [PASPA] requires New Jersey to maintain or enforce its sports wagering prohibitions.” Later, when asked at the June 26, 2013 oral argument whether New Jersey could “repeal” its ban against sports wagering, Mr. Fishman responded "as a matter of law, it could." When further pressed by the Third Circuit panel if such a repeal would violate PASPA, Mr. Fishman responded by saying "no." The U.S. Solicitor General reaffirmed this position ten months later in a filing with the Supreme Court when he stated that "PASPA does not even obligate New Jersey to leave in place state-law prohibitions against sports gambling that it had chosen to adopt prior to PASPA's enactment. To the contrary, New Jersey is free to repeal those prohibitions in whole or in part." (United States Brief to the Supreme Court in Opposition to Petitions for Writ of Certiorari (Nos. 13-967, 13-979 & 13-980), dated May 14, 2014, at p. 11)
The Third Circuit appeared to adopt Mr. Fishman's concession in its written decision. In rejecting New Jersey's contention that PASPA violated the United States Constitution because it "commandeered" New Jersey's authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting, the Third Circuit observed that "we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." National Collegiate Athletic Ass'n v. Christie, 730 F.3d 208, 232. (3d Cir. 2013). Echoing Mr. Fishman's comments at oral argument, the Third Circuit stated that "under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.” Id. at 233.
Under the doctrine of judicial estoppel, parties are precluded from advancing a position in litigation that is inconsistent with one previously asserted in another judicial proceeding. Judicial estoppel generally prevents a party from prevailing in one phase of a case on a particular argument and then relying on a contrary argument to prevail in another phase against the same party. The purpose of the doctrine is to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment.
Thus, the DOJ's inclusion in the new lawsuit would be extremely problematic for the leagues. If the DOJ were joined as a co-plaintiff in the new lawsuit, New Jersey would have a much better chance of prevailing on its judicial estoppel argument. Although the leagues made similar statements in Christie I, none approach the explicitness of the DOJ’s concession that a “repeal” (even one that is partial) would not violate PASPA. Thus, it appears that the leagues made a strategic decision to distance themselves from the DOJ’s prior statements by filing the latest lawsuit without the joinder of the DOJ in order to avoid the application of the doctrine of judicial estoppel. That strategy has already borne fruit. In his ruling from the bench on Friday, Judge Shipp dismissed New Jersey's arguments centered on the DOJ's prior statements, observing that since the DOJ is not a party to the lawsuit, "the leagues are not bound to those conclusions." Expect this issue to resurface several ways. First, New Jersey could move to dismiss the leagues' latest lawsuit for failure to join an indispensable party (the DOJ). Alternatively, the State could argue that the leagues made similar concessions in Christie I and was aligned with the DOJ's position.
This Dispute is Headed to the Third Circuit (but not until December)
Judge Shipp will not be the final word on this controversy. Just like its predecessor, this case is ultimately going to be decided by the Third Circuit. If (read: when) Judge Shipp issues a preliminary injunction following the November hearing, New Jersey will appeal that ruling. It is in this for the long haul. Although the filing of a notice of appeal ordinarily divests the district court of jurisdiction, in an appeal from an order granting a preliminary injunction, the district court may nevertheless proceed to determine the action on the merits. Thus, while the appeal of the preliminary injunction is before the Third Circuit, Judge Shipp would retain jurisdiction over the lawsuit and entertain the leagues' expected motion for summary judgment (which he would likely grant). Look for the notice of appeal (on the preliminary injunction) to be filed in December (assuming that Judge Shipp enters his written order before the end of November). New Jersey will then ask the Third Circuit to expedite the appeal based on the harm that would be suffered by its casinos and racetracks through any delay. If the appeal is expedited (as I would expect), all briefing would likely be concluded in March, setting the stage for an oral argument before the Third Circuit in the Spring of 2015. Of course, by that point, Judge Shipp will likely have already granted the leagues' motion for summary judgment, and New Jersey will appeal that ruling as well and ask that it be consolidated with the appeal of the preliminary injunction. That may delay the ruling by the Third Circuit since there would be additional briefing on the appeal of the final summary judgment. At this rate, a decision by the Third Circuit would likely not be made until the late Spring or early Summer, but certainly before the start of the 2015 NFL season. Thus, as a practical matter, you should not expect to see any legal sports betting in New Jersey for at least six more months (maybe longer) and that would depend, of course, on New Jersey ultimately prevailing on its appeal before the Third Circuit.