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Wednesday, October 29, 2014
Transcript Provides More Insights Into Judge Shipp's Reasoning for Granting TRO to Leagues
[This is an update of my prior post for the sole purpose of incorporating the latest developments in the case, such as the issuance of a scheduling order and the release of the transcript from last Friday's hearing]
Less than 48 hours before Monmouth Park Racetrack was scheduled to open the first legal sports book in New Jersey (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.”
The Judge’s Preliminary Findings
Although the written order does not contain any specific findings of fact or conclusions of law, the official transcript of last Friday’s court proceedings lays out the judge’s rationale for issuing the TRO. After evaluating the four factors which govern the TRO analysis (discussed below in greater detail), Judge Shipp concluded that the leagues “were entitled to a temporary restraining order to maintain the status quo pending full consideration of their application for a preliminary injunction.” The transcript is replete with statements by the judge to the effect that there was insufficient time to fully consider the merits of the motion since there were numerous briefs filed, with the last brief filed just one day earlier and sports betting due to begin at Monmouth Park that weekend.
Nonetheless, Judge Shipp said plenty on the record that should give proponents of expanded sports betting cause for concern. As to the first factor – “likelihood of success on the merits,” Judge Shipp acknowledged that the core issue was whether New Jersey’s “partial repeal” (exempting only state-licensed casinos and state-licensed racetracks from the state-law ban on sports betting) followed the path set out by the Third Circuit in the prior case involving the same parties. In National Collegiate Athletic Ass'n v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013) (“Christie I”), New Jersey had argued that the Professional and Amateur Sports Protection Act (“PASPA”), which prohibits “state-sponsored” sports betting, violated the Tenth Amendment because it "commandeered" New Jersey's legislative authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting.
In rejecting that argument, the Third Circuit stated “we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." The court explained that a “repeal” of state-law prohibitions against sports betting would not violate PASPA, explaining:
[PASPA] . . . leave[s] much room for states to make their own policy. Thus, under PASPA, on the one hand, 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 (emphasis added). In the current case, New Jersey is arguing that its new law, Senate Bill 2460 (the “2014 Law”) fits within the parameters of the Third Circuit majority opinion because it merely “repeals” state-law prohibitions and does not "authorize" or "sponsor" sports betting (which would be a violation of PASPA).
Judge Shipp did not appear to be persuaded by this argument. While acknowledging that the 2014 Law “is styled as a ‘repeal,’ and at first blush, it appears to be an attempt to comply with the Third Circuit’s interpretation of PASPA in Christie I,” Judge Shipp pointed out that the new law “repeals prohibitions on sports wagering in the state only so much, so that the state may keep some restrictions over the activity.” He noted that the 2014 Law contains “several exclusions,” most notably, an exemption for “Atlantic City casinos or current or former horse racetracks.” This statement reveals that Judge Shipp may have been troubled by the fact that the partial repeal was limited to state-licensed casinos and state-licensed racetracks. While not saying it in so many words, Judge Shipp seemed concerned that 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 New Jersey countered in its court filing, the same “background regulation” over casinos and racetracks would exist even under a complete repeal of the law.
As to the second factor – whether the leagues would suffer “irreparable harm” – Judge Shipp focused specified three distinct types of harm. First, he noted that since it appeared that New Jersey is violating a federal law (PASPA), irreparable harm is presumed because “[c]onstitutional and statutory violations often cannot be adequately remedied through damages and therefore generally constitute irreparable harm.”
The second type of irreparable harm that Judge Shipp found (at least preliminarily) was “reputational harm” to the leagues. The leagues had argued that they would sustain irreparable harm to their “reputation” because sports betting on their own games “will result in a negative effect on the perception of their games and relationship with their fans.” Calling this “a very real harm,” Judge Shipp observed that “the Third Circuit, and this Court, have already found ‘a link between legalizing sports betting and a harm to the integrity of [plaintiffs’] games,’ and a resulting increase in a negative perception or reputation associated with the plaintiffs.”
Judge Shipp also found irreparable harm to exist at this early stage based on the increased incentive for “game-rigging” due to expanded sports betting. Quoting from the Third Circuit’s opinion, Judge Shipp stated that “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.” Thus, he reasoned, this spread of sports betting “would engender the very ills that PASPA sought to combat.” He agreed with the leagues that the 2014 Law’s “carve-out” for collegiate games occurring in the state or involving New Jersey colleges “belies any argument that plaintiffs are not injured by gambling on their games.”
On the “balancing of the harms” – the third factor in a TRO analysis – Judge Shipp held that any potential harm to the New Jersey defendants was “self-inflicted” because New Jersey “should have anticipated potential hurdles towards implementing sports betting at casinos and racetracks.” Rather than spend significant sums in money in preparation for sports betting, Judge Shipp reasoned that the owners of the Monmouth Park Racetrack “could have easily waited this Court’s decision on the validity of the 2014 Law prior to taking such steps.”
As to the final factor – whether issuance of the TRO “would serve the public interest” – Judge Shipp alluded to the fact that the case had been filed only a few days earlier and that the briefing on the motion – which raised questions of “utmost public importance” -- had concluded only the day before. In view of this limited time-frame, Judge Shipp held that “the public interest is [best] served by preserving the status quo until the merits of a serious controversy can be fully considered by the court.”
New Jersey Nearly Secured the Right to Offer Wagering on Other Sports
Despite ruling against New Jersey at this stage, Judge Shipp nearly opened the door for legal sports betting on soccer, tennis, golf, boxing, and mixed martial arts. Towards the end of the hearing, Ronald Riccio, the lawyer representing the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park Racetrack), asked for clarification on whether the scope of the TRO was “limited to the plaintiffs’ games and not other sporting contests that the plaintiffs have no interest in.” Judge Shipp responded by saying “right now – the scope is limited to the application that’s been put before the Court which is limited to the plaintiffs’ games.” That statement provided some hope (at least temporarily) for Monmouth Park, which was poised to offer sports wagering on everything but NBA, NFL, MLB, NHL and NCAA contests. This would have been a huge victory for New Jersey, as it would have opened the door to limited sports betting. And once that door opens, it would be hard to close.
Within a couple of hours, Judge Shipp had a change of heart. Late in the day Friday, he issued a written order stating that the New Jersey Thoroughbred Horsemen’s Association and the New Jersey Sports and Exposition Authority “are restrained from conducting sports wagering at Monmouth Park.” The words “sports wagering” are not specific to a particular league or sport – it encompasses all sporting events. Judge Shipp explained his action in an addendum to the transcript, stating that:
Upon further consideration of the question posed by counsel . . . . as to the scope of the temporary restraining order, this court finds that the temporary restraining order restrains the implementation, enforcing, or taking any action pursuant to [the 2014 Law], and would apply to any lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly, on one or more competitive games in which amateur or professional athletes compete, or are intended to participate, or on one or more performances of such athletes in such games.
To avoid any confusion, Judge Shipp then clarified that “[t]he scope of [the] restraints is NOT limited to the games sponsored by the plaintiffs’ leagues."
This aspect of the ruling appears problematic in several respects. First, the sports federations governing soccer, golf, tennis, boxing and mixed martial arts are not parties in this case, and certainly did not ask for such relief. Second, and more fundamentally, how can the four major professional sports leagues and the NCAA claim that their leagues and games would be irreparably harmed if a small New Jersey racetrack accepted wagers on tennis matches? The answer is they can’t. While PASPA is certainly broad enough to encompass all professional sporting events, it may have been premature for the judge to enjoin betting on other sporting events, especially at the TRO stage (where a showing of irreparable harm must be made).
The Leagues Will Likely Prevail at the Preliminary Injunction Hearing
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. Left unresolved – for now – was the leagues’ request for a preliminary injunction (included within the same set of motion papers). A temporary restraining order preserves the status quo (e.g., no sports betting) 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).
The TRO remains in place until November 21. It was originally set to expire on November 7 under Federal Rule of Civil Procedure 65(b)(2), but Judge Shipp extended the TRO “for good cause and by the consent of the parties” in order to afford the parties an opportunity for supplemental briefing in advance of oral argument on the leagues’ pending application for a preliminary injunction.
Judge Shipp has scheduled oral argument on the leagues’ application for a preliminary injunction for November 20th. 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 since they are governed by the same standard. 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 federal 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 summary judgment to the leagues in Christie I, 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, although it does appear to satisfy the Third Circuit language.).
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 by a partial repeal of the law because “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.” 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 May Still Be In Play
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. In countering the leagues’ claim of irreparable harm, New Jersey will highlight events occurring subsequent to Christie I. 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"). New Jersey will also emphasize 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 (the two largest daily fantasy sports operators). 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, 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 harm to the leagues through expanded sports betting is greatly “outweighed” by the real, tangible harm that would be suffered 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 wagering is widely seen as 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 court 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 a 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 argue that the leagues made similar concessions in Christie I and were aligned with the DOJ's position in any event. Alternatively, New Jersey could move to dismiss the leagues' latest lawsuit for failure to join an indispensable party (the DOJ), or it could assert a third-party complaint against the DOJ in the same action seeking a declaratory judgment that the 2014 Law does not violate PASPA. In the end, the DOJ’s prior statements likely play a major role in the case.
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.