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Wednesday, October 05, 2016

The future of daily fantasy sports in New York may soon be in a state of flux, if not outright jeopardy. In a stunning, but not altogether surprising development (since I’ve highlighted this issue previously), a quartet of New York residents has filed a lawsuit in Albany County Supreme Court to block the implementation of the recently-enacted New York fantasy sports law. (A copy of the complaint can be found here). Specifically, the lawsuit—coordinated by the anti-gambling group Stop Predatory Gambling—seeks a declaratory judgment declaring that New York’s “Interactive Fantasy Sports” Law (Chapter 237 of the Laws of the State of New York) is “unconstitutional” because it impermissibly expands commercial gambling in New York in contravention of Article I, Section 9 of the New York State Constitution. On this point, the lawsuit contends that the New York Legislature was without authority to legalize DFS in New York absent a constitutional amendment, a time-consuming process which requires two successive sessions of legislative approval, separated by a general election, and then followed by a statewide voter referendum. At minimum, this process can take two years or more.

The complaint accuses the state legislature of circumventing this mandatory process. As the lawsuit explains, “the Legislature may not amend the Constitution under the guise of legislating. It cannot unilaterally define ‘gambling’ to deviate from its ordinary and well-understood meaning as used in the Constitution by excluding therefrom interactive fantasy sports contests, and, in particular, DFS. It cannot usurp the right of the people as any such redefinition is the exclusive prerogative of the People via a Constitutional amendment approved in a statewide referendum. See New York Constitution, Article XIX. That process was not followed here. Chapter 237 should therefore be declared unconstitutional and the Defendant State officials and agencies should be permanently enjoined from implementing it.”

Predictably, the lawsuit highlights the fact that New York’s chief law enforcement officer, Attorney General Eric Schneiderman, “has already declared in court filings that DFS violates Article I, § 9 of the [New York] Constitution and successfully obtained an injunction to prevent such activity prior to the adoption of Chapter 237.” Calling DFS “a new business model for online gambling,” the 44-page complaint also attacks the well-worn argument of industry supporters that the predominantly “skill-based” nature of DFS precludes it from being characterized as “gambling.” Referring to this premise as both a “non-sequitur” and “fallacy,” the plaintiffs characterize the “skill vs. chance” distinction as “a false dichotomy conjured up in an obvious effort both to circumvent a clear and unequivocal constitutional prohibition and to prevent the people from exercising their exclusive right to decide whether the Constitution should be amended to exclude DFS from the constitutional ban on gambling.” As the lawsuit explains in greater detail, “[s]kill and chance are not mutually exclusive, and just as betting on a horse can involve skill, the outcome remains uncertain and a bet that one horse will win is still a gamble. Guessing on how an athlete will actually perform in a subsequent real life game always involves chance.” That includes an ‘educated’ guess.”

Interestingly, the lawsuit also alleges that the New York DFS law violates the Professional and Amateur Sports Protection Act (“PASPA”), a 1992 federal law which prohibits states from “authorizing” or “licensing’ sports betting.

More troublingly (for industry operators and players alike), the 44-page lawsuit  seeks to shut down daily fantasy sports in New York. The one-count complaint, which names New York Governor Andrew Cuomo and the New York State Gaming Commission as the sole defendants, seeks a permanent injunction preventing New York State officials from “implementing” Chapter 237 or “expending taxpayer dollars” to implement any of its provisions. While the new law has already been “implemented” so to speak—as a number of companies (including FanDuel and DraftKings, among others) have obtained temporary permits and have been operating in New York since August—this lawsuit has the potential to unwind all of these efforts. No word yet on whether the plaintiffs are seeking a more immediate preliminary injunction—which could jeopardize fantasy sports in New York during the current NFL season (depending on how quickly such a motion could be heard)—or will be pursuing only a permanent injunction following a trial (or as part of a summary judgment motion). While this lawsuit has not yet been served, I would expect it to heat up pretty quickly, with both FanDuel and DraftKings likely “intervening” in the case to protect their interests, and motions for a preliminary injunction and/or summary judgment being filed before the end of the year.

So who are these plaintiffs? According to the complaint, the plaintiffs (Jennifer White, Katherine West, Charlotte Wellins, and Anne Remington) “are citizens who are residents and taxpayers of New York who either have gambling disorders or are relatives and family members of such persons.” The complaint explains that “[t]heir heartbreaking stories include a litany of suffering marked by child neglect, bankruptcy, divorce, loss of homes, and the agony of rehabilitation and relapse, all directly caused and threatened to continue to be caused by DFS gambling.” The complaint describes the various ways that each plaintiff has personally been harmed by gambling, an important point for purposes of establishing “standing” to sue. However, New York law recognizes liberalized taxpayer standing to challenge legislative enactments as contrary to the state constitution. Thus, these four plaintiffs should be able to withstand any legal challenges to their standing and legal capacity to bring this lawsuit, although that will not stop the State, (and eventually DraftKings and FanDuel) from trying to dismiss the lawsuit on that basis.

The lawsuit was filed by O’Connell and Aronowitz, the Albany-based law firm known for having previously challenged the New York Legislature’s approval of video lottery terminals more than a decade ago. So this type of lawsuit is definitely in their wheelhouse. And the complaint is painstakingly detailed and compelling. I’ve always believed that with the right plaintiffs and the right law firm—and both categories appear to be satisfied in spades here—a lawsuit challenging the New York DFS law on constitutional grounds always stood an excellent chance of success. This one definitely has a chance, and, as such, the future of DFS in New York may be in serious jeopardy.


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