he US First Circuit handed a major victory to online gambling businesses Wednesday, rejecting the US Justice Department’s 2018 reinterpretation of the Wire Act.
Online gambling surged in America a decade ago when the Department of Justice (DoJ) announced that the 1961 law criminalizing the use of wire transmissions for gambling was limited to sports betting. But the DoJ reversed course under the presidency of former casino magnate Donald Trump, saying that the 1961 law banned all online betting, not just sports betting. Although the department hasn’t prosecuted anyone under the new paradigm — and it said in April 2019 that its ruling might or might not apply to state lotteries — the 2018 announcement cast a huge cloud over the industry and largely brought it to a standstill.
“The lack of coherence in the government’s proposed reading” of the 1961 law “strains common sense,” U.S. Circuit Judge William Kayatta wrote for the Boston-based court, as reported by Courthouse News Service.
American Gaming Association President and CEO Bill Miller welcomed the new ruling. “Today’s ruling by the First Circuit provides important certainty for those who wish to innovate and invest in mobile gaming products," he said in a statement. "Across the country, state and local economies rely on valuable tax revenue from gaming operators, which remains critical as our nation recovers from the economic impact of the pandemic. The gaming industry is one of the most regulated in the country, and our members remain committed to operating within the confines of the legal, regulated market, as they do on a daily basis.”
Kayatta noted that the 1961 law wasn’t perfectly clear because it sometimes specified that its provisions applied only to sports betting and other times left that part out. Concluding that Congress didn’t always spell that out because it was using “shorthand,” the panel called it the most natural reading, that the whole law applies just to sports betting.
New Hampshire’s Lottery Commission and a private contractor that handles the state’s online “iLottery” brought the underlying suit, which drew support from 19 other states, the District of Columbia and several gambling trade associations.
A federal judge ruled against the Justice Department in 2019, and the First Circuit upheld that verdict Wednesday after a June 2020 hearing. The court could have issued a narrow decision holding that the 1961 law didn’t apply to state lotteries, but instead it interpreted the law broadly to provide protection to private gambling companies as well.
Even a narrower ruling would have had a huge financial impact. Some 48 states and territories operate lotteries that generated more than $80 billion in revenue in 2017, the year before the Justice Department’s ruling. A growing portion of that revenue is attributable to internet wagering.
A big question in the First Circuit case was whether the court could issue a decision at all given that the Justice Department announced in 2019 that its ruling didn’t necessarily apply to state lotteries. The department said that it would eventually rule on that question and if it found that state lotteries were affected, they would have 90 days to comply. But Kayatta wrote that the threat was serious enough that the court had to step in now.
“A statewide operation integrating over a thousand retailers and multi-state relationships to produce almost $100 million in net revenue does not strike us as an operation that can be easily wound up in 90 days,” he wrote. “Nor can a state legislature plan sensibly if such a relied-upon revenue stream finds itself suddenly subject to a three-month closure notice.”
Kayatta’s decision was joined by U.S. Circuit Judge Sandra Lynch. U.S. Circuit Judge Juan Torruella, a Reagan appointee, participated in the oral argument but died in October.