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Tuesday, February 17, 2015
"Exact Contours" Key to NJ Sports Betting Appeal

Although the professional sports leagues are slowly warming up to the "inevitability" of expanded legal sports betting and have openly embraced the daily fantasy sports phenomenon (which many liken to sports betting), they continue to vehemently oppose New Jersey's efforts to legalize sports wagering. (This interesting dynamic has led many to accuse the leagues of "hypocrisy" and for New Jersey to assert that the leagues have "unclean hands.") The current battleground is the United States Court of Appeals for the Third Circuit, which is set to hear oral argument on New Jersey's latest appeal on Tuesday, March 17, 2015, in Philadelphia. The primary issue on appeal is whether New Jersey's partial repeal of its state-law prohibition against sports betting is "preempted" by the Professional and Amateur Sports Protection Act of 1992 ("PASPA"), as the leagues argue and as the lower court specifically held, or whether New Jersey's partial repeal--which allows sports betting activity to take place only at state-licensed and state-regulated casinos and racetracks -- is permitted by the Third Circuit's prior opinion in National Collegiate Athletic Ass'n v. Christie, 730 F.3d 208 (3d Cir 2013) (hereinafter "Christie I")

In Christie I, the Third Circuit upheld the constitutionally of PASPA, dealing a temporary setback to New Jersey's efforts to license and regulate sports betting. But, in rejecting New Jersey's constitutional challenge (which was grounded in Tenth Amendment and equal sovereignty principles), the Third Circuit may have inadvertently provided a pathway for states to legalize sports betting without running afoul of PASPA. That "pathway," based on language in the Third Circuit majority opinion (as interpreted by New Jersey in Christie II), would allow states to "decriminalize" sports betting. The majority explained that a "repeal" of state-law prohibitions against sports betting would not violate PASPA because:
[PASPA] . . . leaves much room for states to make their own policy. Thus, 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 (emphasis added)

The meaning of this "exact contours" language is at the heart of Christie II (the current appeal) and has been given vastly different interpretations by the parties. Employing a "plain-language" interpretation, New Jersey maintains that the phrase "the exact contours of the prohibition" can only logically mean that New Jersey is free to decide just how much of a prohibition against sports betting it wishes to maintain on its books, and that a partial repeal (like the one New Jersey enacted) would be permissible. For their part, the leagues interpret the "exact contours" language much more narrowly: as referring only to the range of criminal penalties for a violation of the complete ban on sports wagering--i.e., whether it will enforced civilly or criminally, what penalties will attach, etc. Thus, the leagues (backed by U.S. District Judge Michael A. Shipp) maintain that anything short of a complete repeal would impermissibly conflict with PASPA. In siding with the leagues, Judge Shipp also expressed concern that limiting the repeal to state-licensed casinos and racetracks (the intended beneficiaries of New Jersey's prior unsuccessful attempt to legalize sports betting) would allow New Jersey to accomplish indirectly what it cannot do directly and lead to other states implementing New Jersey's approach, thereby undermining PASPA.

These arguments were revisited in the Answer Brief filed by the sports leagues on late Friday night. (Note -- New Jersey filed their opening brief some four weeks earlier, and the entire appeal has been expedited). Calling this "a case of deja vu all over again" (Yogi Berra!), the leagues described the issue on appeal as follows: "Whether the District Court correctly concluded that New Jersey's attempt to 'partially repeal' its otherwise-blanket sports gambling prohibitions solely at state-licensed gambling venues, and solely if those venues confine sports gambling to the persons and sporting events of the state's choosing, violates PASPA's prohibitions against authorizing or licensing sports gambling."

Some other highlights and noteworthy soundbites from the leagues' brief:
  • "The 2014 Law is no more consistent with PASPA than the invalidated 2012 Law was. Just as before, New Jersey has enacted a law that ensures that sports gambling will occur only under the conditions of the state's choosing. It has dictated where sports gambling may occur, by whom, and even which sporting events will be excluded. Worse still, New Jersey has dictated that sports gambling must be only at state-licensed gambling venues, thereby ensuring that the sports gambling it has authorized will occur only under the auspices of a state license. In a sea of prohibitions on sports (and other) gambling, New Jersey has dictated that sports (and other) gambling is permitted only at these islands of state-authorized gambling. No matter what New Jersey tries to label those actions, those cosmetic efforts cannot hide the reality that the 2014 Law is yet another attempt to authorize state-licensed sports gambling in violation of PASPA. " 
  • "[T]his Court explicitly considered and explicitly rejected the very same argument that the [New Jersey] defendants repeat anew here--namely, that if PASPA forces states to choose between prohibiting sports gambling entirely or not at all, then it unconstitutionally commanders the states. The defendants' continued disagreement with the Court's conclusion does not entitle them to another bite at the constitutional apple." 
  • "At bottom, no amount of clever labeling or parsing of this Court's opinion can save [New Jersey] from the conclusion that the District Court correctly reached: Like the 2012 Law before it, the 2014 Law authorizes state-licensed sports gambling in violation of PASPA.
  • "Notwithstanding the state's deliberate effort to style the 2014 Sports Wagering Law as a 'repeal' rather than as an 'authorization, there is no escaping the reality that New Jersey has enacted a law that dictates where sports gambling may occur, by whom, and on what sporting events. The notion that this does not amount to an authorization of sports gambling on the state's chosen terms blinks reality. "
  • "And to make matters worse, New Jersey has made sports gambling legal only if it takes place at a state-licensed venue for state-authorized gambling. In other words, New Jersey has made obtaining a license or permit to operate a commercial gambling establishment a condition of operating sports gambling. Like its 2012 predecessor, the 2014 Law thus violates PASPA twice over: It not only authorizes sports gambling, but also ensures that it will take place only under the auspices of a state license--and a state license to operate a commercial, state-sanctioned gambling establishment, no less. That the 2014 achieves this end indirectly, rather than by establishing a distinct 'sports gambling licensing regime is no matter. Either way, the ultimate result is the same."
  • "The defendants' principal response to all this is to insist that this Court's decision in Christie I somehow entitles states to make any sports gambling policies they choose, so long as they do so under the guise of 'repealing' existing sports gambling prohibitions, rather than expressly 'authorizing,' 'licensing,' or 'regulating' the sports gambling that they permit."
  • The notion that [the 2014 Law] does not "authorize" sports gambling defies reality. The state has not deregulated all sports gambling in New Jersey or taken an agnostic position on whether or how sports gambling will occur. Instead, the state has decided on the narrow conditions under which it approves of sports gambling, and then codified those conditions as an exception to its otherwise-blanket sports gambling prohibitions. New Jersey has maintained a statewide prohibition on sports gambling with the exception of the 'islands" of state-authorized gambling called casinos and racetracks, and even there dictates who can bet on what. That cannot rationally be understood as anything other than an effort to permit sports gambling 'under the auspices of state approval and authorization,' Christie I, 730 F.3d at 232--i.e., under the very circumstances that PASPA prohibits."
The leagues then zero in on the meaning of the phrase "the exact contours of the prohibition." They maintain that this language requires nothing short of a "complete repeal," arguing that the majority opinion in Christie I makes this the only plausible interpretation:
The "exact contours" language on which the defendants reply so heavily in making that argument [i.e., that a partial repeal would not offend PASPA] comes in a sentence identifying what a state may do if it "choose[s] to keep a complete ban on sports gambling." In that sentence, the court observed, "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."
As explained by the leagues, "what the Court plainly was contemplating in that passage were changes to the 'exact contours' of a state's scheme for enforcing its complete ban--i.e., whether it will be enforced civilly or criminally, what penalties will attach, and so on." "That much," according to the leagues' brief, "is clear from the fact that the 'exact contours' language is preceded immediately by a reference to 'how much of a law enforcement priority [the state] wants to make of sports gambling' if it maintains its complete ban." The leagues also point to Judge Thomas Vanaskie's dissenting opinion in Christie I to buttress its "all-or-nothing" view of the majority's "exact contours" language: in his dissent, Judge Vanaskie described the majority opinion as "essentially giv[ing] the states the choice of allowing totally unregulated betting on sporting events or prohibiting all such gambling."

In a surprising twist, the leagues' interpretation of this critical language is not shared by the United States Department of Justice (the "DOJ"), the primary defender of PASPA. In an amicus curiae brief submitted one week earlier, the DOJ maintained that "[t]he district court erred in thinking that anything short of a global repeal is ipso facto 'authorization by law' of whatever falls within the scope of the repeal." The DOJ elaborated as follows:
While certain language in the Court's opinion might be read as having contemplated a binary choice between maintaining sports wagering prohibitions in whole and repealing the completely, other language in the opinion points in then opposite direction, suggesting greater room for state policy choices. See 730 F.3d at 233 ("it is left up to each state to decide . . . what the exact contours of the prohibition will be.")' id. ("both choices leave much room for the states to make their own policy." Given the lack of clarity on this point in the opinion, and given that the permissibility of partial repeals of sports gambling prohibitions was not actually before the court in Christie I, the Court's decision cannot fairly be taken to have resolved that issue.
So, what gives? Why would the DOJ (which is otherwise completely aligned with the leagues in their opposition to New Jersey's efforts to legalize sports betting) part company with the leagues and assert that the lower court "erred" in this one respect? A brief history lesson. You may recall that in Christie I, the United States Solicitor General (Donald B. Verrilli Jr.) filed a brief with the United States Supreme Court in which he asserted that New Jersey was free to repeal its sports betting prohibitions "in whole or in part" without violating PASPA. Having made such a statement, the DOJ would be hard-pressed to completely disavow it barely one year later. Thus, the DOJ has to walk a fine line in Christie II to avoid the application of the doctrine of judicial estoppel (which prevents parties from changing their position): on the one hand, it could not deny what it had said earlier, but it also had to argue that New Jersey's partial repeal still violated PASPA. And this is how the DOJ walked that fine line, arguing that:
It does not follow, however, that every partial repeal of a state's prior sports betting prohibitions will automatically satisfy PASPA, or that a state legislature is free to enact any laws that it wishes regarding sports gambling as long as it takes care to frame them as "partial repeals" of existing prohibitions. For example, if a state repeals its prohibitions on sports gambling only for chosen persons or entities, it may run afoul of PASPA's licensing prohibition, as New Jersey has done in this case. And other legislative efforts to encourage sports gambling may result in "authorization by law" even when cast in the form of a partial repeal. If the rule were otherwise, a state could circumvent the restrictions in [PASPA] at will simply by using the language of repeal to specify or leave intact only those sports gambling activities it wishes to sponsor and promote. In this case, the structure and scope of the 2014 [Law] suggest that New Jersey is engaged in precisely that: the authorization by law of sports gambling in the guise of repeal.
Another notable aspect of the leagues' brief is their treatment of the "fantasy sports" issue. In their opening brief, the New Jersey Thoroughbred Horsemen's Association ("NJTHA") accused the leagues of having "unclean hands" through their sponsorship of "the same activity they seek to enjoin, namely, betting money on their games and the performances of their players on their games." By hosting games in jurisdictions where sports betting is legal (e.g., Las Vegas, London, etc.) and by entering into strategic business alliances with daily fantasy sports operators, "the leagues," the NJTHA contended, "are self-described hypocrites in this litigation and their unclean hands are rooted in their hypocrisy."

Calling this argument "barely deserving of [a] response," the leagues characterize the NJTHA's argument as "little more than a repackaging of the same fundamentally flawed standing arguments that this Court considered and rejected in the last round of litigation." The leagues defend their embrace of daily fantasy sports as "an activity that the Unlawful Internet Gaming Enforcement Act of 2006 explicitly states does not constitute gambling." (Note -- this is not an entirely accurate statement. Fantasy sports are not automatically exempt under the UIGEA. It must satisfy three criteria, including that the value of the prizes is not determined by the number of participants or the amount of fees paid, and that the winning outcomes reflect the relative knowledge and skill of the participants).

Finally, the leagues conclude their 50-page response brief by positing that "if anyone comes to this Court with unclean hands, it is the defendants, who all but invited this litigation by insisting upon enacting a law that the Governor himself previously recognized is a blatant effort 'to sidestep federal law."

Next up: New Jersey's reply brief, which is due on February 27th.


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