New Hampshire prevails in Wire Act challenge

4 June 2019

A New Hampshire District Court Judge has ruled in favour of the state in its legal challenge against the US Department of Justice’s (DoJ) revised Wire Act opinion, stating that the 1961 act only applies to sports betting.

Judge Paul Barbadoro granted the state a summary judgement in which he rejected the DoJ Office of Legal Counsel’s 2018 opinion that claimed the legislation covers all forms of gambling.

He rejected the DoJ’s argument that New Hampshire had no grounds to file the case, as the revised opinion had not yet been enforced. He noted that the through the state lottery, it had “openly engaged for many years in conduct that the 2018 OLC Opinion now brands as criminal”.

“Second, the risk of prosecution is substantial,” Barbadoro said. “After operating for years in reliance on OLC guidance that their conduct was not subject to the Wire Act, the plaintiffs have had to confront a sudden about-face by the Department of Justice. 

“Even worse, they face a directive from the Deputy Attorney General to his prosecutors that they should begin enforcing the OLC’s new interpretation of the Act after the expiration of a specified grace period.”

“In sum, this is no hypothetical case: The plaintiffs have demonstrated with specific record evidence that they had standing when they filed suit because a sufficiently imminent threat of enforcement loomed,” Barbadoro explained. “The plaintiffs faced the choice between risking criminal prosecution, winding down their operations, or taking significant and costly compliance measures that may not even eliminate the threat.”

Barbadoro added: “Before the 2018 Opinion, federal law enforcement could not invoke the Wire Act to disconnect the Lottery Commission from the internet.  Now it can.”

As such, he said, the opinion would have “a direct and immediate impact on the Commission’s operations”, justifying the state’s legal challenge.

The DoJ’s claim that the New Hampshire Lottery Commission would not be affected by the revised opinion as it was a state entity was also given short shrift. The judge noted that the 2011 opinion, which stated that the Wire Act only applied to sports betting, was issued following a request from two states, on behalf of their lotteries.

“Had the OLC believed that states were excluded from the Act’s coverage, it could have responded to the states’ request by simply informing them that they were not subject to the Act,” Barbadoro explained. “To infer from the OLC’s silence on this point that it might conclude in the future that state actors are not subject to the Wire Act requires an unwarranted speculative leap.”

He also noted that the federal government had “failed to identify any alternative legal theory as to why state actors might be exempt”.

The judge also highlighted the fact that in justifying the revised opinion, the OLC noted that state lotteries had begun to sell tickets online in the wake of the 2011 opinion. In addition, he said, the 90-day non-prosecution window put in place to allow companies to ensure their systems were compliant further suggested that lotteries would indeed face prosecution under the revised opinion.

However, he also rejected New Hampshire’s argument that a 2012 criminal prosecution had set a legal precedent for only applying the Wire Act to sports betting. This, he said, had no bearing on the ultimate conviction handed down, which relied almost entirely on the guilty parties transferring sports wagering data across state lines.

On the issue of the Wire Act’s wording in clause § 1084(a), the key point of contention that has allowed for different interpretations, Barbadoro said that the Act’s language made it hard to definitively come down in favour of the DoJ’s, or New Hampshire’s reading. As a result, he said, it was necessary to look at the context, structure and coherence of the Wire Act.

He said that the 2018 opinion effectively permits information to facilitate non-sports gambling in one clause, then criminalises transmissions that allow an individual to receive payment for the same transmissions in the second.

However, he noted, DoJ “does not explain why a rational legislator would have designed a statute that prevents a lawful gambling business from sending or receiving payment for a business
activity that the statute does not prohibit. 

“It is bizarre to authorise an activity but prohibit getting paid for doing it.”

“Consider a vendor who contracts with an online casino to solicit players. The contract guarantees the vendor payment for every new player who bets $100 at the site,” Barbadoro said. “The Wire Act permits the vendor to send emails to players enticing them and explaining the site’s games.

“But, under the OLC’s current interpretation, the Act prohibits the vendor from receiving (and the casino from sending) money transfers for supplying that information. That makes little sense.”

He also rejected an argument, filed by one of the DoJ’s amici, that the Act’s punctuation was changed to ensure it applied to all forms of gambling was “too speculative to carry any weight”.

Barbadoro also highlighted a clarification issued by Deputy Attorney General Byron White when the Wire Act was under consideration by the House Judiciary Committee.

White explained: “[The Wire Act] is aimed now at those who use the wire communication facility for the transmission of bets or wagers in connection with a sporting event and also who use the facility for the transmission of the winnings […]”

Therefore Barbadoro ruled: “In sum, while the syntax employed by the Wire Act’s drafters does not suffice to answer whether [it] is limited to sports gambling, a careful contextual reading of the Wire Act as a whole reveals that the narrower construction proposed by the 2011 OLC Opinion represents the better reading. 

“The Act’s legislative history, if anything, confirms this conclusion. Accordingly, I construe all four prohibitions in § 1084(a) to apply only to bets or wagers on a sporting event or contest.”

As such, he set aside the DoJ’s 2018 opinion, representing a major victory for New Hampshire and its amici in the case.

The New Jersey, Pennsylvania and the Michigan Bureau of State Lottery filed amicus briefs in support of the plaintiffs. Michigan’s amicus brief is co-signed by a number of states and state lotteries: Kentucky Lottery, the Tennessee Education Lottery, the Virginia Lottery, the Rhode Island Lottery, the Colorado State Lottery Division, the North Carolina Education Lottery.

In addition, Delaware, Idaho, Vermont, Mississippi, Alaska and the District of Columbia supported its brief. These states will be able to consider themselves not bound by the opinion, though as Barbadoro did not issue a nationwide injunction, other states will still be expected to comply with the DoJ’s opinion once the non-prosecution period ends on June 14.

The DoJ may also appeal against the New Hampshire District Court ruling, which would see the case progress to the First Circuit Court of Appeals.