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Monday, June 27, 2016
Is the Second Circuit Becoming More "Rehearing-Friendly"? A Look At Ganias And Its Possible Implications for Deflategate

It has been a little more than one month since Tom Brady and the NFLPA filed their petition for rehearing en banc with the Second Circuit U.S. Court of Appeals. Most Deflategate observers, including yours truly, expected the Second Circuit to have issued some type of order by now, either by denying the petition outright or (as I predicted) ordering the NFL Management Council to file a response to the petition and various amicus curiae briefs. Perhaps this is the week when one or the other will occur.

While we wait for the Second Circuit to act (and I pause from obsessively refreshing PACER), a noteworthy development occurred in the Court last month that could be somewhat instructive on Brady's chances for success and the possible timeline. I recently discovered that the Second Circuit is not as "gun-shy" on granting rehearing as originally thought. On May 27, 2016, the Second Circuit issued an en banc opinion in a criminal case entitled United States v. Ganias. In that opinion, the Second Circuit disagreed with an earlier opinion by Judge Denny Chin (who was also part of the two-judge majority which ruled against Brady) which had reversed the district court's opinion. As a result of the Ganias en banc opinion, the district court opinion was affirmed (instead of being reversed, as Judge Chin's original panel opinion had accomplished before being vacated due to the rehearing grant).

While the Ganias opinion obviously involved an unrelated controversy (and in a criminal setting, perhaps signaling the type of case that warrants the "en banc" treatment) and is just ONE case, it nonetheless provides some measure of hope to fans of Tom Brady and due process that rehearing en banc is more than just a "Haley's Comet" type of occurrence. Ganias provides somewhat of a counterweight to the grim statistics that have previously been reported. For example, in a recent ESPN article, noted sports legal analyst Lester Munson pointed out that the Second Circuit had denied ALL 280 petitions for rehearing en banc that had been filed in 2014. He must have missed this one! I'm somewhat guilty too, having cited a 2000-2010 study which revealed that the Second Circuit reheard only 8 cases(!) during that 10-year period, an average of less than one per year. Perhaps the tide is turning.

A similar statistical turnabout recently occurred in the Third Circuit, where many legal experts following the New Jersey sports betting case were equally pessimistic about New Jersey's chances of securing rehearing en banc, noting that the Third Circuit had historically granted less than one rehearing en banc per year. In the face of such long odds, I correctly predicted (see herehere and here) that New Jersey would buck the statistical trend and secure rehearing based on the merits of the arguments raised in the state's petition and the fact that there was a dissenting opinion (incidentally, from the same judge who had earlier ruled against New Jersey in the Christie I case).

Rehearing en banc is not tantamount to a spin of the roulette wheel--it will ultimately turn on the merits of the arguments rather than on historical trends or past performance. The lesson to be drawn from Ganias and the New Jersey sports betting case is to focus on the merits of the petition and not be overly swayed by the results in unrelated cases. No case is quite like Brady. Think about it for a second: you have two former U.S. Solicitor Generals going head to head, one of the most celebrated professional athletes of all-time, perhaps the most unpopular sports commissioner ever (and this poll was taken in 2012, several years before Deflategate), a dissenting opinion by the chief judge, a change in the result from the lower court, five amici briefs, and a partridge in a pear tree. Show me one other petition for rehearing en banc that has all that.

And the merits of Brady's petition are quite strong. I believe that Brady's chances for securing rehearing hover somewhere in the 30%-50% range based on the broader issues of fundamental fairness and arbitral due process raised in the petition (which could potentially impact unionized labor in myriad settings), the existence of a dissenting opinion from the chief judge (Robert Katzmann), the changed result below (meaning that two judges have sided with Brady and two with the NFL), and, of course, the likely positive impact of the five amici briefs, including from such legal luminaries as Kenneth Feinberg. In my opinion, Brady's petition has an excellent chance of bucking the statistical trend, just as in the New Jersey case.

And even if he does not succeed in persuading the Second Circuit to rehear the case en banc, Brady still has two more points of entry to potentially stave off his four-game suspension this year: a petition for writ of certiorari to the U.S. Supreme Court (a long-shot) and a motion to stay the issuance of the Second Circuit's mandate (following an adverse decision) pending the outcome of the Supreme Court case. The "stay" motion presents a more likely avenue of success given the importance of the irreparable harm element--Brady can never recapture the four lost games were he to later win at the Supreme Court without a corresponding stay of the suspension--and the likelihood that Ruth Bader Ginsburg, perhaps the most liberal and pro-labor Supreme Court Justice, would ultimately decide the stay motion. In other words, Brady still has better than a puncher's chance of playing this year even if rehearing is denied.

The Ganias case, while not a large sample size, offers additional clues on the timing of a potential rehearing. In that case, the Second Circuit granted rehearing en banc nearly TEN MONTHS after the petition for rehearing was filed with the Court, a potentially favorable timeline for Brady (at least for the 2016 season). Of course, the Second Circuit ordered the United States Government (the respondent in that case) to submit a response brief a mere seven days after the petition for rehearing en banc was filed. We have long since passed that benchmark in NFL vs. Brady, but that is likely due to the numerous amici curiae briefs that were filed and which would presumably merit additional consideration and deliberation by the Court. By contrast, in the Granias case, the amicus briefs (six of them!) were filed AFTER rehearing was granted (as opposed to beforehand, as occurred in NFL vs. Brady), a plausible explanation for the dramatically different timelines in the two cases.

It is also worth noting that the oral argument in the Ganias rehearing was held almost three months to the day after rehearing was granted in that case, and the ensuing en banc decision was issued nearly eight months following that oral argument. If a similar timeline is followed in NFL vs. Brady, assuming that a briefing order is issued AND rehearing is granted (which would vacate the original panel decision), in all likelihood Brady would end up playing for the entirety of the 2016 NFL season while the case remains under review. While the original panel "expedited" the appeal, rehearing is a different animal altogether. Try getting 12 judges (more on that in my next post!) in the same room during the summer vacation months during a tight several-week timeframe (at best) between a potential rehearing grant and the start of the 2016 NFL season. They won't even hear the case before the season opener, much less decide it on the merits by then.

But all this depends of course, on the Second Circuit ordering the NFL to formally respond to Brady's petition. We should find out this week (or next) whether the Second Circuit desires additional briefing on the issues, or, alternatively, just simply denies the petition outright (a possibility), which would then tee up the stay motion (likely to be filed within seven days after any denial of rehearing) and corresponding Supreme Court petition (which must be filed within 90 days of the denial of rehearing). For what it's worth, the Second Circuit recently agreed to stay the issuance of its mandate in Ganias pending Supreme Court review (but it bears emphasizing that the stay motion was unopposed in that case). Brady can only hope that his rehearing effort follows a similar timeline (and outcome) to Ganias. Were that to happen, win or lose, Brady would likely not miss any games during the 2016 NFL season. And for that, Patriots fans would gladly offer up a "gracias" to the Second Circuit.

Sunday, June 26, 2016
Does J.R. Smith Have A "Right-of-Publicity" In His Tattooed Upper Body? He Might Under Ohio Law

One of the most ingenuous marketing ideas to emerge in the aftermath of the Cleveland Cavaliers' stunning NBA Championship is a T-Shirt replicating J.R. Smith's heavily-tattooed upper body (featuring over 100 tattoos, including the logos of the New York Yankees and New Jersey Devils, and even one of him dunking). The controversial guard became something of a national cult figure when he began a long stretch of shirtlessness almost immediately following the final buzzer of the instant-classic Game 7 against the Golden State Warriors. From the celebratory visitors'  lockers room to Las Vegas nightclubs to the City of Cleveland's joyous victory parade, photos of a shirtless J.R. Smith galvanized the Internet, even prompting President Obama to implore Cavaliers' head coach Tyrone Lue to "tell J.R. Smith and everybody to put a shirt on."

You just knew that a T-Shirt endorsement deal was inevitable for the mercurial Smith. It would have been deliciously ironic for a traditional manufacturer to pursue the shirt-challenged Smith as a celerity endorser. Picture this: "Izod, the one shirt that J.R. Smith refuses to take off, under any circumstances." Well, one enterprising Ohio specialty shirt manufacturer, Fresh Brewed Tees (which "prints cool tees" and is licensed by the MLB Players Association) came up with an even better concept: a t-shirt replicating Smith's naked heavily-tattooed torso. The company's Twitter account has a pinned tweet featuring a mock-up of the Smith protoype t-shirt and urging visitors to "RETWEET if you want one." At last count, it has been "retweeted" over 6,000 times and "liked" nearly 4,000 times. But the shirt does not yet appear as an item for purchase on the company's website, so the cost (as well as the availability) of this soon-to-be collector's item remains a mystery (at least for now). Perhaps it's just a publicity stunt. If so, it's a brilliant way to publicize the company.

Assuming that Fresh Brewed Tees (a great name, by the way) is indeed serious about marketing a shirt that will undoubtedly become the must-have item of the summer, it begs the question: does the company have a marketing deal with J.R. Smith? If such a deal is in place, Smith may have found the perfect supplement to his undervalued NBA contract. While it is unlikely that a J.R. Smith body tattoo t-shirt will ascend to the stratospheric sales levels of the "George Foreman Grill," it is sure to be a hit (not only in Cleveland, but also at the popular beach-style nightclubs that line the Las Vegas Strip, a section of town that J.R. and his teammates have been known to occasionally frequent, especially after winning an NBA championship).

But if J.R. Smith has not consented to the use of his image or likeness, then, as Andrew Brandt is frequently fond of saying, "there will be lawyers" (Andrew should trademark that phrase, by the way). In that situation, Smith may have viable claims under Ohio's right-of-publicity statute (Chapter 2741 of the Ohio Revised Code) and federal trademark law (e.g., the Lanham Act), as well as claims under state law for "passing-off" (ironically, not one of J.R.'s basketball strong suits), unfair competition law and common-law right of publicity.

Ohio's right-of-publicity statute provides a strong disincentive for marketers to exploit a person's name, image or likeness for commercial use without his or her consent. Section 2741.02 prohibits the use of "any aspect of an individual's persona for a commercial purpose" both during the individual's lifetime and for sixty years after his or her death, unless that person "first obtains the written consent to use the individual's persona" from the person who owns the individual's right of publicity. Under the statute, "persona" means "an individual's name. voice, signature, photograph, image, likeness, or distinctive appearance, if any of these aspects have commercial value." The statute defines "commercial purpose" as the use of an individual's persona "in connection with a product, merchandise, goods, [or] services." Ohio Rev. Code s 2741.01(B).

The damages recoverable in a civil lawsuit for a violation of Section 2741.02 include "actual damages, including any profits derived from and attributable to the unauthorized use of an individual's persona for a commercial purpose." O.R.C. 2741.07. Additionally, the court could award treble damages (for a willful and knowing violation of Section 2741.02), attorneys' fees (should the plaintiff prevail), temporary or permanent injunctive relief, and, additionally, order impoundment or seizure of the goods. Id. Further, the statute makes clear that "this statutory cause of action [does] not supplant the Ohio common law claim for right-of-publicity." James v. Bob Ross Buick, Inc., 167 Ohio App. 3d 338, 342, 855 N.E. 119, 122 (Ct. App. 2006)

Under this framework, if Fresh Brewed Tees failed to obtain Smith's consent to depict his tattooed torso on a t-shirt, Smith could have a viable claim for a violation of his statutory right-to-publicity under Ohio law, as well as other similar claims under state and federal law. There is little question that Smith's heavily tattooed upper body (is there even a sliver of epidermis that is not covered in ink?) has achieved a level of notoriety in the aftermath of the Cavalier's historic championship. More importantly, it appears to satisfy the statutory threshold for "distinctiveness" even by NBA player standards (sorry, Allen Iverson!). A "Google" search for "J.R. Smith" and "tattoos" yielded over 193,000 results, and numerous articles refer to Smith's tattoos. Since the company appears to be marketing the specialty shirt for a "commercial purpose" (i.e., to make money), the elements under the statute would appear at first blush to be satisfied. Of course, it is quite possible that Fresh Brewed Tees already has a marketing deal in place with Smith. But if it does not, a right-of-publicity suit by Smith to recover the actual profits (and potentially treble damages) on the sales of this novelty t-shirt item could end up making his championship playoff share look like per diem meal money by comparison.

But would such a lawsuit succeed? Unfortunately, there are not a lot of tattoo right-of-publicity cases in Ohio. But even non-tattoo cases are rare. As one Ohio court acknowledged, "[t]here is a paucity of precedent in Ohio regarding the application of this tort." Roe v., 2016 WL 1028265, at *3 (S.D. Ohio Mar. 15, 2016). Nonetheless, there is some precedent involving another famous Ohio sports figure, Urban Meyer, that may lend some weight to Smith's potential claims. In Ohio State University v. Skreened Ltd., 16 F. Supp. 3d 905 (S.D. Ohio 2014), an Ohio federal court held that a print-on-demand t-shirt seller's use of Meyer's name and likeness without the permission of the state university (which owned his right of publicity and persona for purposes of licensing t-shirts) violated Ohio's right-of-publicity statute (O.R.C. 2741.02), and entered summary judgment in favor of the state university. Id. at 916-20. Although the court did not address the issue of damages in that decision (and the case later settled, presumably with a significant payment made by the t-shirt seller to Ohio State University), the Skreened case illustrates the sizable risk that a marketer undertakes in Ohio when it attempts to cash in on the publicity rights associated with a well-known sports figure.

Friday, June 24, 2016
A Sure Bet? The Legal Status of Daily Fantasy Sports

This past year, many law schools throughout the country held sports law symposiums on the legal status of "daily fantasy sports."  While most of these panels were unfortunately not transcribed, the Pace Intellectual Property, Sports & Entertainment Law Forum requested to publish my March 16, 2016 keynote address.  Here is a link to the keynote address, available for free download on SSRN.

In addition to this keynote address, here are some other law professor perspectives on the legal status of daily fantasy sports that I strongly recommend:

3.  My "Regulating Fantasy Sports" (To be published in Indiana L. J. later this year)

4.  Dean Jeffrey Standen's "The Special Exemption for Fantasy Sports" (Northern Kentucky University Law Review, 2015)

Monday, June 20, 2016
New York's Fantasy Sports Legislation May Face Constitutional Roadblock

The months-long legislative battle to legalize daily fantasy sports in New York mercifully ended last week with the passage of NY Senate Bill 8153 nearly 12 hours after the New York Assembly passed an identical version of the DFS bill. But while the legislative battle may be over (with New York Governor Andrew Cuomo expected to sign the measure into law within a matter of days), that does not necessarily mean that DFS has cleared its final legal hurdle in New York. A constitutional showdown may be on the horizon.

Like many states (such as New Jersey and Delaware, for example), New York has a constitutional prohibition against gambling (and, hence, any expansion of gambling) unless the constitution is “amended” to permit such activity. This prohibition is set forth in Article I, Section 9 of the New York State Constitution, which provides in relevant part:

[E]xcept as hereinafter provided, no lottery or the sale of lottery tickets, pool-selling, bookmaking, or any other kind of gambling, except lotteries operated by the state . . ., except pari-mutuel betting on horse races . . . , and except casino
gambling at no more than seven facilities. . . shall hereafter be authorized or allowed within this state; and the legislature shall pass appropriate laws to prevent offenses against any of the provisions of this section.

By its express terms, Article I, Section 9 prohibits any lottery or the sale of lottery tickets, pool-sellingbookmaking, or any other kind of gambling, except lotteries operated by the state, pari-mutuel betting on horse races, and casino gambling at no more than seven facilities. The provisions of Article I, Section 9 reflect the public policy of the State of New York against commercialized gambling.  New York Racing Ass’n, Inc. v. Holbrook, 270 A.D.2d 31, 33-34, 704 N.Y.S.2d 52, 55 (1st Dep’t 2000) (citing International Hotels Corp. v. Golden, 18 A.D.2d 45, 49, 238 N.Y.S.2d 33, rev’s on other grounds, 15 N.Y.2d 9, 254 N.Y.S.2d 527 (1964) [stating that “[t]he unqualified command” of Article I, Section 9 “expresses a clear and deep-rooted policy against gambling.”])

As anyone who frequents a racetrack or buys a lottery ticket knows full well, there are exceptions to this supposedly “deep-rooted” public policy. But these exceptions—most notably, those for pari-mutuel wagering, the state lottery, and casino gambling limited to seven sites—were accomplished through a constitutional amendment rather than as a straight-up legislative enactment. 
In order to amend the New York Constitution, two successive sessions of the state legislature are required to approve the proposed amendment before it can be placed on the ballot. (N.Y. Const., Art. 19, § 1). The proposed amendment must then be passed at a referendum by a majority of New York voters to become a part of the state constitution. (Id.). This process takes a minimum of two years to accomplish, as two “separately-elected” legislatures (separated by a general election) must vote to place the constitutional amendment on the ballot before it is submitted to voters.  (Id.).  Moreover, the voter referendum (which can take place in a general or special election) would not take effect until January 1 of the year following the referendum.
Under this procedure, the earliest date that a constitutional amendment to legalize DFS could have taken effect is January 1, 2018, because it would have required (1) legislative approval during this year’s legislative session (which has since ended), (2) a second approval during next year’s legislative session, and, finally, (3) a majority of New York voters approving the measure in a referendum held in 2017.

Labels Are Not Controlling

While the current New York bills to legalize DFS attempt to skirt this framework by declaring that daily fantasy sports is a “game of skill,” and, therefore, not “gambling” under New York law, the labels selected by legislators would not be controlling. Rather, a court would look at what the law seeks to accomplish, rather than being straightjacketed by the particular labels selected by the legislative body. See, e.g.Meegan v. Brown, 16 N.Y.3d 395, 403 (2011) (“While examining the specific language of statutory provisions is part of our inquiry, we must also look to the underlying purpose and the statute's history as we are mindful that in “'the interpretation of statutes, the spirit and purpose of the act and the objects to be accomplished must be considered. The legislative intent is the great and controlling principle.’”] (internal citations omitted)People v. Ryan, 274 N.Y. 149, 152 (1937) (“In the interpretation of statutes, the spirit and purpose of the act and the objects to be accomplished must be considered. The legislative intent is the great and controlling principle. Literal meanings of words are not to be adhered to or suffered to defeat the general purpose and manifest policy intended to be promoted.”)

A recent example of this principle in play can be found in the litigation surrounding New Jersey’s efforts to legalize sports betting at the state’s racetracks and casinos. If you recall, New Jersey tried to navigate around the federal ban on state-sponsored sports betting by partially repealing its own state-law prohibitions criminalizing that activity, a legislative approach that was arguably endorsed in an earlier federal court ruling and in statements made by the four major professional sports leagues, the NCAA, and the U.S. Department of Justice (which have long been opposed to New Jersey’s efforts to legalize sports betting). Notwithstanding the fact that New Jersey claimed to be acting in reliance on these prior statements, the U.S. Court of Appeals for the Third Circuit concluded that the New Jersey Legislature’s partial “repeal” of its state law prohibitions against sports betting was tantamount to an “authorization” of same (and therefore a violation of the federal PASPA law).[1] The Court explained:

The presence of the word “repeal” does not prevent us from examining what the provision actually does, and the Legislature’s use of the term does not change the fact that the 2014 Law [partially repealing the state-law prohibitions on sports betting] selectively grants permission to certain entities to engage in sports gambling. . . . While artfully couched in terms of a repealer, the 2014 Law essentially provides that, notwithstanding any other prohibition by law, casinos and racetracks shall hereafter be permitted to have sports gambling. This is not a repeal; it is an authorization.

(Opinion, at p. 18). Although this August 25, 2015 panel opinion was vacated as a result of the Third Circuit subsequently deciding to rehear the appeal in an “en banc” setting (no decision has been reached as of the date of this post), the principle of statutory interpretation articulated by the Third Circuit is a common one, applicable anytime a state legislature tries to use artful drafting to describe a proposed law in a way that is belied by the practical effect or true intent of the law.

So too here, a New York court could disregard the “game of skill” label strategically placed into the DFS bills by state legislators and look instead at what the law seeks to accomplish. The DFS bill might not fare well under such an analysis since it may be seen as an attempt to nullify a core principle of the state constitution.

Factors That A Court May Consider

What factors might a court consider?  For one thing, the new law provides for oversight and regulation by a state gambling commission, and mandates that all fantasy sports operators (whether of the daily or season-long variety) “register” with the New York State Gaming Commission, which would then “review” the application and decide whether to approve to deny it. The new law also gives the state gaming commission the authority to promulgate regulations governing fantasy sports. It is worth noting that the state gaming commission oversees only gambling activities, such as the lottery, casino gambling, tribal gaming, horse racing and charitable gaming, and has never before been charged with regulating a “non-gambling” activity. Until now, that is. It seems somewhat incongruous for legislators to assert that DFS is not gambling when the new law provides for oversight by a gambling commission and seeks to amend the state’s “racing, pari-mutuel wagering and breeding law” to accomplish that objective.

But that’s not all. The new law also provides for many “gambling-style” regulations. Among other things, the DFS bill (1) establishes an age minimum for players, (2) limits users to a single account, (3) requires operators to enable players to exclude themselves from contests (so-called “self-exclusion”) and take reasonable steps to prevent such players from entering a contest from which they have excluded themselves, and (4) mandates that DFS operators provide information concerning assistance for “compulsive play” (euphemism alert!) reminiscent of compulsive gambling safeguards typically found in other state gambling laws.  To my knowledge, there is no other “non-gambling” regime in the United States (and certainly not in New York) that has a similar regulatory structure.

A court might also consider statements made by the legislators themselves. One, in particular, comes to mind. Remember when state lawmakers rejected efforts by casino industry lobbyists to link daily fantasy sports contests with the state’s “brick-and-mortar” gaming venues out of concern that it would be viewed as “gambling” activity, with Senator Bonacic pointedly stating that “it could be a violation of betting on sports activity and it would create serious problems.” Does that problem (or, rather, perception) go away based simply on the identity of the operator? After all, the character of the fantasy sports contests would remain the same no matter who administers them. If it’s a “game of skill” when operated by DraftKings and FanDuel, it is no less skill-based when offered by a land-based racetrack or casino. Senator Bonacic’s comments about the “gambling” perception created by the involvement of brick-and-mortar casinos in DFS would seem to undercut that characterization.

Earlier statements by New York Assemblyman Dean Murray (one of the chief proponents of the DFS bill) also evince a belief that an amendment to the New York Constitution is required before the state could legalize daily fantasy sports. On December 2, 2015, Assemblyman Murray introduced a bill that would amend the New York Constitution to allow the state to authorize (as his bill coined it) “fantasy sports wagering.” The constitutional amendment bill (A08587) sought to add the following language to Article I, Section 9 of the New York State Constitution:

. . . and except for fantasy sports wagering on professional sports which may be authorized by the legislature, in a manner prescribed by the legislature for offering and conducting gaming and wagering, provided, however, that such authorizations shall be preceded by the elimination of the federal an on professional sports wagering. . . . 

Notably, Assemblyman Murray’s earlier bill contemplated two critical steps before DFS could be legalized in New York: the elimination of the federal ban on state-sponsored sports betting (in other words, the repeal or striking down of PASPA), followed by a state constitutional amendment that (if approved by New York voters) that would “authorize” the New York Legislature to legalize daily fantasy sports “wagering.” This mandated process—championed only a few months ago by Assemblyman Murray--is a quantum leap from the final approved bill, which bypasses the constitutional amendment process and ignores PASPA altogether. 

In a press release accompanying that earlier bill, Assemblyman Murray explained that “if the courts rule that [the DFS] sites constitute gambling, this measure serves as the first step in a constitutional amendment process in granting fantasy sports sites like FanDuel and DraftKings exemptions.”[2] Murray’s earlier bill was proposed against the backdrop of a New York State Supreme Court decision barring FanDuel and DraftKings from offering paid contests to New York State consumers. That decision, which is now on appeal, preliminarily concluded that DFS is gambling in contravention of the New York Penal Law and Article I, Section 9 of the New York State Constitution. A decision by the New York Appellate Division, First Department, is expected later this year. If the First Department affirms the lower court decision, a high likelihood in my view, then two courts will have ruled—at least preliminarily—that DFS constitutes gambling under the New York Penal Law and state constitution.   

Regardless, Assemblyman Murray’s earlier bill signaled his belief—only a few months ago—that a constitutional amendment (preceded by a voter referendum) would be required to legalize daily fantasy sports, particularly if the courts ruled that DFS is gambling. And so far the only court to speak on that issue has ruled—at least preliminarily—that DFS is gambling, with an appellate ruling expected later this year. 

But, perhaps, the most problematic factor for proponents of the DFS bill is the legal position advanced by the New York Attorney General in his still-pending lawsuit against FanDuel and DraftKings. In a series of court filings, the New York AG has consistently and unwaveringly maintained that daily fantasy sports is a form of gambling, and violates both the New York Penal Law and the state constitutional ban against gambling, bookmaking and pool-selling. He made these statements in the cease-and-desist notices[3] sent to DraftKings and FanDuel, in the original and amended complaints filed in the New York court action, in the briefing on the motion for a preliminary injunction,[4] and, finally, in opposing FanDuel’s and DraftKing’s request for a stay of the injunction pending the outcome of the appeal.

To be sure, in virtually every court filing made by Mr. Schneiderman in the New York court case, he unequivocally characterized DFS as “gambling” under state law and in contravention of Article I, Section 9 of the New York Constitution. Notably, AG Schneiderman did not retract or withdraw those statements as part of his office’s recent settlement with DraftKings and FanDuel. Do these prior statements lose any and all import simply because a state legislative body legalized DFS several months later? That may ultimately be for a New York court to decide. A court evaluating whether the DFS bill violates Article I, Section 9 of the New York State Constitution would likely accord significant weight to AG Schneiderman’s prior characterization of DFS as gambling, particularly since he is the highest-ranking law enforcement official in New York State and a New York state judge has already agreed with him.

Speaking of which, Justice Manuel Mendez’s written decision in early December would be another factor for a court to consider (particularly, if it is upheld on appeal). In his December 11, 2015 decision preliminarily enjoining FanDuel and DraftKings from offering paid DFS contests to New York consumers (which was later stayed by an appellate court pending the outcome of the appeal), Justice Mendez concluded that the New York Attorney General “has a greater likelihood of success on the merits [of his claim that the paid DFS contests offered by FanDuel and DraftKings are prohibited] under New York State Constitution Article I, § 9, and the definitions of gambling and ‘contest of chance’ as currently stated in [New York] Penal Law § 225.00(1)(2).” As SI’s Michael McCann and Will Green observed in their analysis of the ruling, Justice Mendez placed significance in the fact that Article I, Section 9 [of the Constitution] reflects—in Mendez’s words—“the public policy of the State of New York against commercialized gambling.” (Decision, at p. 4)

Who Has “Standing” to Challenge the DFS Law on Constitutional Grounds?

Since New York’s Attorney General has already declared that daily fantasy sports is illegal gambling and violates the state constitution, and a New York State trial court has preliminarily sided with the Attorney General’s interpretation, a constitutional challenge to a New York DFS law could succeed. The bigger question, however, is who exactly would bring such a lawsuit? There are several categories of potential plaintiffs, as reflected by the vigorous and well-coordinated (albeit, unsuccessful) opposition to the New York DFS bill. Opponents to the bill included, among others, the New York Gaming Association (which represents racetracks with video lottery terminal operations as well as other casino companies from upstate New York), the New York Conservative Party, the New York Independence Party, and the Coalition Against Gambling in New York (which generally opposes any expansion of legalized gambling in New York), as well as Roger Goodell’s first cousin (a New York State Assemblyman) and a host of other lawmakers, including Assemblyman Thomas Abinanti (D-Greenburgh), who raised the constitutional issue during the vigorous floor debate preceding the passage of the bill.[5]

A lawsuit backed or financed by New York’s casino industry, a vocal opponent of the DFS bill, seems like an obvious starting point. Lobbyists for New York’s casino industry have argued that the legalization of DFS—which they contend is an expansion of online gambling—will “cannibalize” their existing customer base and cause licensed “brick-and-mortar” gaming facilities to lose significant revenues. 

Another potential category of challengers, ironically, would be fantasy sports operators that offer only longer-duration contests (such as season-long fantasy leagues). Although earlier versions of the DFS bill had contained an exemption for season-long operators, the approved version (purportedly at the behest of New York Governor Andrew Cuomo) subjects such operators to the same tax rate (15%) on in-state revenues (after payouts to customers), registration fees, mandatory consumer protections, and regulatory compliance that apply to daily fantasy sports operators. This may be seen as objectionable to season-long operators, who would argue that their contests were previously declared “legal” by the New York Attorney General in the court case against FanDuel and DraftKings, thereby obviating the need for a new law specifically authorizing season-long fantasy sports contests. Thus, as a result of the new legislation, season-long operators (many of which are smaller companies than FanDuel and DraftKings) would be incurring a substantial increased cost via tax payments, registration fees and regulatory compliance that would not otherwise exist—or even be needed—in the absence of new legislation.

In addition, New York law recognizes broad ‘taxpayer’ standing to challenge state legislative enactments as contrary to New York’s constitution. In Boryszewski v. Brydges, 37 N.Y.2d 361(1975), the New York Court of Appeal liberalized taxpayer standing, holding that “[a] taxpayer has standing to challenge enactments of our State Legislature as contrary to the mandates of our State Constitution.” Id. at 362. That avenue exists to permit “‘taxpayers to challenge important governmental actions, despite such parties being otherwise insufficiently interested for [traditional] standing purposes, when ‘the failure to accord such standing would be in effect to erect an impenetrable barrier to any judicial scrutiny of legislative action.’” Matter of Colella v. Board of Assessors of County of Nassau, 95 N.Y. 401, 410, 718 N.Y.S.2d 268 (2000) (quoting Boryszewski, 37 N.Y.2d at 364).

The enactment of a statewide DFS law—affecting potentially hundreds of thousands of players (although the industry claims it has more than three million customers in New York)—would seem to rise to the level of an “important government action” sufficient to allow taxpayer standing to challenge the legislation on constitutional grounds, particularly where the proposed law would involve the expenditure of state funds and state regulatory personnel to regulate the fantasy sports industry in New York. To deny taxpayer standing under these circumstances might cause an important governmental issue to be effectively insulated from judicial review, something that the New York Court of Appeal cautioned against in Boryszewski. In such cases, where the denial of standing would pose an “impenetrable barrier” to judicial scrutiny of legislative action, the New York courts, to quote the state’s highest court, have a duty to “open rather than close the door to the courthouse.” Saratoga Cty. Chamber of Commerce, Inc. v. Pataki, 100 N.Y.2d 801, 814-815 (2003). 

Under New York’s liberalized taxpayer standing framework, a taxpayer-citizen (e.g., basically any New York resident) could potentially bring a lawsuit challenging the New York DFS law as contrary to Article I, Section 9 of the New York State Constitution (even if they are not personally aggrieved in any tangible or economic way), although their legal standing would surely be challenged by the state.

But Can’t Legislators Decide What Is And What Isn’t “Gambling”?

In response to any legal challenge on this basis, proponents of the New York DFS law would likely counter that it is the prerogative of the state legislature to determine what is and what it not “gambling” under New York law. Along those lines, New York Assemblyman J. Gary Pretlow, who sponsored one of the two DFS bills, told lawmakers during last Friday’s floor vote that the state legislature has the authority to define what activities are legal in New York as defined by the state constitution, humorously remarking to one yellow-tie-wearing opponent of the DFS bill that “[w]e as a legislature can today say that wearing a yellow tie is illegal.” 

But while the legislature can enact “appropriate laws” in furtherance of the constitutional prohibition against gambling as a valid exercise of its police power, see Harris v. Econ. Opportunity Comm’n of Nassau Cty., 171 A.D.2d 223, 227, 575 N.Y.S.2d 672, 674-75 (2d Dep’t 1991), holding modified by Dalton v. Pataki, 11 A.D.2d 62, 780 N.Y.S.2d 47 (2d Dep’t 2004), it is another thing entirely to legalize a game or contest that has been determined by New York’s highest-ranking law enforcement official (and preliminary by one lower court) to constitute illegal gambling under New York’s Penal Law,  thereby expanding legal gambling in New York State without a constitutional amendment. In other words, while the legislature can certainly expand the definition of “gambling” to bring a game, device or contest within the statutory prohibition, that does not, a fortiori, mean that the legislature is also free to expand legal gambling outside of the mandatory constitutional amendment process.

Despite Assemblyman Pretlow’s colorful yellow-tie analogy, the state legislature did not change the definition of “gambling” under New York Penal Law 225.00 when it approved the two DFS bills. This is a critical point. While the legislature can certainly declare that “wearing a yellow tie” is illegal, the legislature in this instance did not criminalize an activity; it approved it., a particularly risky endeavor when it comes to gambling (which, subject to certain exceptions, is banned under the state constitution). For example, the legislature could have changed the statutory definition of “gambling” under Section 225.00 to require a “predominance” of luck or chance, which is the lower threshold used in many other states. Instead, the legislature kept the existing statutory definition of gambling (e.g., the “material degree/future contingent event” test) intact and simply removed “interactive fantasy sports contests” from its reach, a decision that legislators may soon come to regret if a lawsuit challenging the new law on constitutional grounds is brought. 

Final Thoughts and a Look Ahead

By legalizing DFS during the waning hours of the 2016 legislative session, did state lawmakers fumble the snap? If a constitutional amendment was required, opponents of the DFS bill (such as New York’s casino/racino industry, anti-gambling forces, or even ordinary taxpayer-citizens) could seize upon that failure and challenge the DFS law in court. Any such challenge would likely be joined with a request for a preliminary injunction, which, if granted, could sideline daily fantasy sports in New York for the foreseeable future while the court battle plays out. 

In my view, the New York Legislature chose the riskiest of three options. The safest play would have been to authorize a constitutional amendment (a process that could have taken up to two years longer) or change the New York penal law definition of “gambling” in a manner that would have definitionally excluded fantasy sports contests through a lowering of the statutory threshold for gambling. For example, under the predominant factor test employed in many other jurisdictions (such as Massachusetts), fantasy sports contests (whether of the daily or season-long variety) would probably not be considered gambling since it is generally recognized that success at such contests requires more skill than luck or chance. Having chosen the most expedient route—and one which is constitutionally risky—the Legislature may have opened the door to a potential legal challenge by one or more adversely affected parties or even by a taxpayer-citizen (or several of them).

If such a challenge were to emerge (and succeed), it could delay the effectiveness of the DFS law by several years, since an amendment to the state constitution via a voter referendum preceded by two consecutive sessions of legislative approval (a multi-year process) would then be required to legalize DFS. Were that scenario to play out in this fashion, legislators (and DFS lobbyists) might ultimately come to regret choosing the most expedient, albeit risky, path to legalization over fidelity and adherence to the state constitution.

-- Daniel Wallach

[1]  A more extreme example of such wordsmithing, as recalled by Yancey Roy (Newsday’s Albany Bureau Chief), is when Louisiana once excluded chickens from the definition of “animal” to allow cockfighting.
[2]   Along the same lines, New York Assemblyman J. Gary Pretlow  (the sponsor of the Assembly’s DFS bill which passed on Friday night) told GamblingCompliance (an online publication covering the global gaming industry) back in December 2015 that he would be willing to sponsor a constitutional amendment bill to legalize DFS.
[3]   In his original cease-and-desist notices sent to DraftKings and FanDuel on November 10, 2015, Attorney General Schneiderman wrote that “[t]he illegality of DFS is clear from any reasonable interpretation of our laws, beginning with the New York State Constitution,” (Notice, at p. 2). Earlier in the same notices, he stated that his office had “conclude[d]” that DraftKing’s and FanDuel’s operations “constitute illegal gambling under New York law because their customers “are clearly placing bets on events outside of their control or influence, specifically on the real-game performance of professional athletes. Further, each [DraftKings and FanDuel] wager represents a wager on a “contest of chance” where winning or losing depends on numerous elements of chance to a ‘material degree.’” (Id. at p. 1)
[4]  In his memorandum of law in support of the motion for a preliminary injunction (which was later granted by New York State Supreme Court Justice Manuel Mendez), Mr. Schneiderman wrote that DFS contests “fit squarely” within the definition of “gambling” under the New York Penal Law and the New York State Constitution, and “is nothing more than a rebranding of sports betting. It is plainly illegal.” He also opined in the same document that FanDuel and DraftKings “run afoul of [the New York Constitutional] prohibition [against] bookmaking, which is defined as the “acceptance of bets on a professional basis . . . upon the result of any trial or contest of skill, speed or power of endurance of man or beast.”  He described this as the “precise business” of both DFS operators and thus concluded that FanDuel and DraftKings are “in direct violation” of the state constitution. 
[5] During the floor debate, Assemblyman Abinanti insisted that “[t]hose who want to make fantasy sports legal in New York should be presenting to us a constitutional amendment.” He said that “[y]ou’ve got to tie yourself into a pretzel to somehow say this is not gambling. Just because some skill is involved doesn’t remove it from the category of gambling.”

Saturday, June 18, 2016
Why is the IOC punishing the innocent?

So let’s see if we understand this. Russian pole vaulter Yelena Isinbayeva, two time Olympic Gold Medal winner and current world record holder, is the greatest woman pole vaulter of all time. She has never tested positive for any banned substance.

Russian high jumper Anna Vladimirovna Chicherova has won the Gold Medal in the last two Olympics. She, too, has never tested positive for any banned substance, though a Russian track coach may have thrown her under the bus during the recent investigation.

Neither of these two high-flyng superb athletes can compete in the Rio Olympics because the IOC, historically one of the most corrupt entities in all of sports, has banned the entire Russian track team from the games because Russian coaches and administrators have been guilty of conspiring to evade the anti-doping regulations for years.

Of course, in my view, and that of 200 or so medical experts, no one should attend the games in Rio this summer because they should either be postponed or moved because of the Zika outbreak.

Still this action by the IOC seems especially broad-brushed. If an athlete tests positive for doping, or admits the transgression, the IOC is within its power to levy an appropriate sanction. But the innocent should not be punished for the crimes of his or her predecessors or higher-ups. If that were the case, the current members of the IOC should be dismissed because their predecessors were found to have taken bribes to award city selection sites.

It is not often I agree with Vladimir Putin but, Comrad, I feel your pain.

Sunday, June 05, 2016
Muhammad Ali and the Law

Some law-related thoughts following the death of Muhammad Ali.

Ali's direct contribution to U.S. law is the Supreme Court decision (in a case captioned Cassius Marsellus CLAY, Jr. also known as Muhammad Ali) reversing his conviction for refusing Army induction. It was a per curiam opinion, decided on fairly narrow grounds, so nothing that would become canon or significant precedent. Ali had sought a conscientious-objection exemption, which at the time required that the person have a sincere, religiously grounded objection to war in any form. Although a hearing officer found all three elements satisfied and recommended to the Appeal Board that his status be recognized, the Department of Justice wrote a letter to the Board recommending rejection of status, based on DOJ's purported findings that Ali failed to satisfy any of the three elements. The Appeal Board denied c/o status, disregarding the hearing officer's recommendation and without explanation, although the only other available basis was the DOJ letter. Before the Court, however, the government conceded that Ali's objection was sincere and religiously based. That brought the case within precedent holding that when the basis for a selection-service (or any other government) decision is uncertain but some possible bases are unlawful or erroneous, the entire decision must be vitiated. Rather than speculating whether the Board might have relied on the one remaining basis (the objection not being to war in any form), the Court rejected the Board's decision in toto. Justice Douglas concurred; he argued that the evidence showed Ali objected to all but Islamic war against nonbelievers, a "matter of conscience protected by the First Amendment which Congress has no power to qualify or dilute" by limiting c/o status only to those who object to all war in all forms. Justice Harlan concurred in the result, concluding that the DOJ letter could be read as claiming that Ali's assertion of C/O status was untimely, an error that called for reversal under the same line of cases as the majority relied on. The inside-the-Court workings leading to the decision were the subject of the otherwise-silly Muhammad Ali's Greatest Fight.

Ali is lionized for this stand, often through the modern laments about professional athletes refusing to take political stands or become politically involved the way Muhammad Ali did. But this has always seemed unfair. Ali was not lionized at the time. His actions were unpopular with the press and much of "mainstream" America (which did not like Ali to begin with, regarding him as an uppity loudmouth). The exception was African-Americans and young anti-war activists on college campuses. He was stripped of the heavyweight title and denied a license to fight in any state, most importantly New York (Madison Square Garden remained the center of the boxing world), costing him 3 1/2 years at the prime of his career. Although ultimately vindicated by SCOTUS, it came at tremendous cost to his career. Modern athletes asked to take political stands almost certainly do not face similar exile from their sports. But to normalize Ali* as the expectation for high-profile athletes seems unfair, a burden we do not place on other people, even other famous people, anywhere else in society.
[*] The other person forwarded as the aspiration is Jackie Robinson. But Robinson was somewhat forced to take a stand by circumstance--being the first African-American player in modern baseball made him inherently political. And the abuse Robinson took no doubt took a psychological and physical toll that contributed to him dying at age 53.
Case in point from the Daily News, extolling Ali for "offer[ing] a roadmap for today’s athlete to be an activist," while 1) eliding that in 1967, this columnist almost certainly would have been lining up to excoriate Ali for talking to much and dodging the draft, and 2) perpetuating the idea that the only true activist is the one who sacrifices millions of dollars and the prime of his career, something we ask of no one else.  The Big Lead provides a good critique. At the same time, it understates the point in saying "[t]here are few, if any, athletes who can match Ali’s legacy fighting for social issues. That’s what made him such an important figure." Ali's legacy is, in part, a unique product of circumstances and initially unlawful action by the United States. That is why no one can match it.

Update: This Slate piece goes into detail on a lot of these themes, including more background on DOJ's efforts to influence the Appeal Board and on the prosecution, which were influenced by congressional and administration pressure.