Federal Judge Strikes Down N.J. Sports Betting Statute as Conflicting With Federal Law

by Ifrah PLLC

Last night, U.S. District Court Judge Michael Shipp released an opinion in the widely watched New Jersey sports betting case, stating that New Jersey’s sports betting law is invalid as conflicting with federal law. Now, the future of sports betting in the United States will be decided by the U.S. Court of Appeals for the Third Circuit.

The Professional and Amateur Sports Betting Act of 1992 (PASPA), prohibits any state from offering sports betting unless that state had a sports betting scheme in place between 1976 and 1990. Under the law Delaware, Oregon and Montana were granted limited sports betting schemes and Nevada is the only state authorized to offer single-game sports betting.

In 2011, New Jersey voters approved a referendum by a 2-1 margin to amend the state constitution to allow for sports betting in the state’s casinos and racetracks. The state legislature then passed a bill legalizing sports betting in the state and it was signed into law by New Jersey Governor Chris Christie (R). The New Jersey law would allow wagering on all major professional and collegiate sporting events, except collegiate sporting events involving New Jersey colleges, and all sporting events, professional or collegiate, taking place in the state.

In August, the four major professional sports leagues and the National Collegiate Athletic Association (NCAA) filed suit against New Jersey arguing that the state’s sports gambling law was in violation of federal law.

In December, the court heard oral arguments on the leagues’ standing to bring the suit and found that they did have standing. After that ruling, the U.S. Department of Justice (DOJ) announced its intention to intervene and join the four major sports leagues and the NCAA as plaintiffs in the case. The DOJ filed a brief on February 1 defending the constitutionality of PASPA.

Judge Shipp heard oral arguments on February 14, 2013, on the constitutionality of PASPA. The oral arguments focused on three main constitutional issues: Congress’s power to regulate sports betting under the Commerce Clause and the applicability of the uniformity and equal sovereignty principles under the Commerce Clause, due process and equal protection issues under the Fifth Amendment, and the contention that the law violates the anti-commandeering principle that prohibits the federal government from imposing duties on state legislators or executive officials to carry out a federal initiative.

After a very lengthy analysis, the court found that PASPA did not violate the anti-commandeering principle because it “neither compels nor commandeers New Jersey to take any action.” One point of contention during oral arguments was if the anti-commandeering principle applies only when a state is required to engage in affirmative activity. The court agreed with the leagues on this point, by stating that the case law makes it clear that, “Congress cannot, via the Commerce Clause, force States to engage in affirmative activity” and noted that the difference between forcing a state to affirmatively do something and being prohibited from doing something “is not merely academic or insubstantial.”

The court’s opinion also made it clear that it does not believe that PASPA violates any Tenth Amendment principles. The state has argued that Nevada was essentially granted a monopoly on single game sports betting through PASPA and that was a challenge to its state sovereignty. The court did not agree that PASPA usurps state sovereignty and noted that “the fact that gambling might be considered an area subject to the States’ traditional police powers does not change this conclusion.”

The court found that PASPA’s grandfathering clause that allows a few states to offer sports betting comports with the Commerce Clause. The court pointed to the legislative findings of PASPA stating that, “Congress has determined that the substantial reliance interests of the grandfathered states merit preservation and protection,” and therefore, the grandfather clause contained in PASPA passed the rational basis review.

This decision on the constitutionality of PASPA will almost inevitably be appealed to the U.S. Court of Appeals for the Third Circuit and the state will have 30 days to file its appeal. The Third Circuit has heard prior appeals regarding PASPA, but has never directly addressed the constitutionality of the statute, which it will need to in this case.

New Jersey could also appeal the decision by Judge Shipp granting the leagues standing to bring this lawsuit. The leagues have stated in court filings that “the impact of state-sponsored gambling on the public perception of their games and their relationships with their fans are sufficient to confer constitutional standing in this case.” The leagues also argue that Congress expressly recognized that they would suffer from the spread of state-sponsored gambling on their games and provided them with a cause of action under PASPA.

The two sides disagree on what precedent has been set by the Third Circuit on standing issues related to PASPA. In 2009, the Third Circuit ruled in Office of the Commissioner of Baseball v. Markell, that Delaware’s plan to expand its sports betting offerings violated PASPA. Standing was not discussed in the opinion in Markell and lawyers for the leagues argued that this was because the standing of the leagues was so obvious that the court did not need to address it. At oral arguments, Judge Shipp directly asked the state how it could reconcile its argument that the league lacked standing with the Third Circuit’s decision.

The Supreme Court has never addressed PASPA.

This decision is a minor setback for New Jersey, and the future of sports betting in America will be played out in the Third Circuit. It would have been a bold step for a federal district court judge to overturn a federal law that had been existence for two decades. Judge Shipp’s ruling shows that he was being conservative in deferring to Congress in this case, even noting that “judicial intervention is generally unwarranted no matter how unwise a court considers a policy decision of the legislative branch.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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