It is not often that a gambling case reaches the United States Supreme Court, but that is precisely what happened this year, with New Jersey’s challenge to the Professional and Amateur Sports Protection Act of 1992 (PASPA) (28 USC section 3702). PASPA purported to prohibit states from authorising betting on sporting events, while including three ‘grandfathering’ clauses. These clauses authorised continued sports betting in those states in which it was already legalised and operated, or that enacted permissive legislation within one year of PASPA (28 USC section 3704(a)). Four states qualified for the exception: Delaware, Montana, Nevada and Oregon. Nevada was the only state to fully take advantage of the exception; the other three states’ exemptions were more limited.
New Jersey’s first attempt to invalidate PASPA was a 2012 statute that confronted PASPA’s sports wagering ban head on by affirmatively authorising state regulators to license casinos and racetracks to conduct sports betting. The state’s position was that PASPA was unconstitutional. The courts disagreed, invalidating New Jersey’s law (National Collegiate Athletic Association et al v Christie, 730 F3d 208 (3rd Circuit 2013)). Smarting from that defeat, New Jersey’s second attempt was less direct. Rather than affirmatively authorising sports betting, New Jersey simply repealed its criminal prohibition against sports betting so that engaging in such activity would no longer be considered unlawful, but only if the betting took place at a licensed casino venue. That ‘partial repeal’ was also challenged and invalidated, a decision affirmed by the Third Circuit en banc. New Jersey sought US Supreme Court review, and the Court (somewhat surprisingly to most observers) agreed to hear the case.
On 14 May 2018, the Court issued its decision on Murphy v NCAA (584 U.S. ___ (2018)). By a 7-2 majority, the Court held that PASPA’s bar on states’ enactment of legislation authorising sports betting unconstitutionally ‘commandeered’ state legislatures into enforcing federal policy. A principle of US constitutional law known as the ‘anti-commandeering’ principle imposes limitations on the ability of the federal government to impose such obligations. As Justice Alito, the author of the opinion, colourfully put it:
It is as if federal officers were installed in state legislative chambers and were armed with the authority to stop legislators from voting on any offending proposals. A more direct affront to state sovereignty is not easy to imagine.
The Court, by a somewhat narrower 6:3 vote, also invalidated a separate provision of the statute that applied its prohibitions to private actors. The Court’s rationale in doing so was potentially significant. The Court noted the ‘general federal approach to gambling’, whereby conduct violates federal law ‘only if the underlying gambling is illegal under state law’. As the Court stated, ‘These provisions implement a coherent federal policy: They respect the policy choices of the people of each State on the controversial issue of gambling.’ Among the statutes cited in support of that statement was the Wire Act (18 USC section 1084).
The Wire Act has been understood as a potential barrier to online and mobile sports betting even if PASPA were invalidated. The Court’s characterisation, if understood seriously, would seem to indicate that the Wire Act should be construed narrowly not to interfere with states’ prerogatives to regulate sports betting within their borders, however they choose to do so. Whether the Court’s observation on this point will be seen by states as a green light to embrace mobile or online sports betting remains to be seen, but several states have already passed laws or are considering legislation to legalise sports betting in the wake of the decision. Some of those states have already indicated that their plans include mobile activity.
For quasi-gambling, other than the issues surrounding the legality of DFS discussed above, social casino games have seen a litany of litigation over the past few years. Each game challenged relies on the freemium model, whereby players can play for free or opt to spend real money to play more quickly or for other in-game perks, but not one of the games offers monetary or other ‘real-world’ prizes. The suits have all been predicated upon plaintiffs’ purported ‘losses’ stemming from amounts voluntarily spent to play the games. Claims have typically been brought under gambling loss recovery statutes, for common law unjust enrichment, and sometimes under the auspices of consumer protection or unfair trade practices laws.
Five have been dismissed. See Mason v Machine Zone, 140 F.Supp.3d 457 (D Md, 20 October 2015), aff’d 851F.3d 325 (4th Cir 2017); Ristic v Machine Zone, Case No. 15-cv-8996, 2016 WL 4987943 (ND Ill, 19 September 2016); Phillips v Double Down Interactive LLC, 173 F.Supp.3d 731 (ND Ill, 25 March 2016); Dupee v Playtika Santa Monica, Case No. 1:15-cv-01021-CAB, 2016 WL 795857 (ND Ohio, 1 March 2016); Soto v Sky Union LLC, 159 F.Supp.3d 871 (ND Ill, 29 January 2016). A sixth raising similar issues remains in early, procedural stages: Fleet v Trion Worlds Inc, Case No. C 15-04721 WHA, 2016 WL 122855 (ND Cal 12 January 2016).
Nevertheless, against that unbroken track record of dismissal, one contrary decision stands out - Kater v Churchill Downs Inc, which found that because virtual chips extend the ‘privilege of playing the game without charge’, they are a ‘thing of value’ under Washington state law. Because the virtual chips were a ‘thing of value’, the court found that the Big Fish social casino game fell within the state’s definition of gambling (Kater v Churchill Downs Inc, No. 16-35010, 2018 US App LEXIS 7739 (9th Cir 29 March 2018).
The court’s analysis appears to have rested on the erroneous premise that users of Big Fish must purchase additional chips if they exhaust their initial supply and wish to continue playing. In fact, players receive periodic allotments of free chips with which to play, rendering any purchase unnecessary so long as the player is willing to wait the designated interval to resume play. The court noted the defendant’s assertion to that end but refused to consider it given the procedural posture of the case. (The case was before the court on defendant’s motion to dismiss. Typically, in considering such a motion, a court must accept the well-plead allegations of the plaintiff’s complaint as true.) The court remanded the case for further proceedings in the trial court. It is too early to tell how the Ninth Circuit’s decision will reverberate, if at all, with other courts, or, for that matter, whether the trial court, once a proper factual record is made, will rely on that full record to reach a different conclusion. How this plays out remains to be seen, but, for the moment, the Ninth Circuit’s unprecedented ruling appears to have created a new sense of uncertainty concerning the status of these games. In fact, in the wake of the decision, several additional suits have been filed against other social casino game operators, alleging that their games violate Washington state law.
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