Implications from New Hampshire Lottery Commission v. Barr

Hogan Lovells

Hogan Lovells

In a recent decision that inures to the benefit of the online gambling industry, a federal district court in New Hampshire held that the “the text, context, and structure of the Wire Act” limit its applicability to sports gambling, and not to other types of gambling. On June 3, the court in New Hampshire Lottery Commission v. Barr, set aside a 2018 Department of Justice (DOJ) Office of Legal Counsel (OLC) opinion (the 2018 OLC opinion), which concluded that the Wire Act applied beyond sports gambling. The court’s order leaves in place a prior 2011 OLC opinion that reached the opposite conclusion—that the Wire Act criminalizes the use of interstate/foreign wires for sports gambling but not other forms of gambling. The DOJ may still appeal the court’s decision, but for now, this decision provides some clarity in the law regarding the Wire Act’s applicability to non-sport-related gambling.

The Wire Act (18 U.S.C. § 1084) prohibits anyone “engaged in the business of betting or wagering” from knowingly transmitting several types of wagering-related communications across state lines. In particular, section (a) of the Wire Act consists of two clauses. The first clause criminalizes the use of a wire communication “for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.” The second clause prohibits “the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers.”

In 2009, New York and Illinois asked the DOJ if in-state sales of lottery tickets would violate the Wire Act if such sales involved the use of interstate communication facilities. In response, the DOJ issued the 2011 OLC opinion, determining that such sales would not violate the Wire Act because the phrase “on any sporting event or contest” applies to both clauses of section 1084(a), meaning that the Wire Act only prohibited the use of interstate wires for the purpose of sports-related gambling. Prior to the 2011 OLC opinion, the case law on this issue was sparse and contradictory. In 2018, however, the DOJ reversed itself and concluded that “the prohibitions of 18 U.S.C. § 1084(a) are not uniformly limited to gambling on sporting events or contests.”

After the DOJ issued the 2018 OLC opinion, the New Hampshire Lottery Commission and a lottery vendor filed suit, seeking a ruling from the court that the 2018 OLC opinion was incorrect. The court agreed, setting aside the 2018 OLC opinion and reinstating the 2011 OLC opinion.
The court first held that the plaintiffs had standing to challenge the 2018 OLC opinion even though they had not been charged with any crime because a “sufficiently imminent threat of enforcement loomed.” The court then turned to the underlying merits of the argument—and thus the proper scope of section 1084(a).

The court analyzed the text of section 1084(a) and determined that the language was ambiguous. By looking to the context and legislative history of the Wire Act, the court then concluded that “the narrower construction proposed by the 2011 OLC opinion represents [a] better reading” of the statute than the 2018 OLC opinion, which the court said was “flawed.” The court found that under the 2018 OLC Opinion, the first clause of section 1084(a) of the Wire Act “prohibits transmissions of all bets or wagers but bars transmissions of information that assists the placement of only those bets or wagers that concerns sports.” It found this interpretation problematic because, as the 2011 OLC Opinion explained, “it is difficult to discern why Congress, having forbidden the transmission of all kinds of bets or wagers, would have wanted to prohibit only the transmission of information assisting in bets or wagers concerning sports.”

Last, the court determined that it would issue a declaratory judgment that applied to the parties in the case—not to non-parties. But the court recognized that its decision would necessarily extend beyond New Hampshire’s borders because the parties in the case utilize servers located across state lines and New Hampshire sells multi-jurisdictional games (e.g., Powerball and Mega Millions).

This decision clarifies the Wire Act’s scope and reach.. The 2018 OLC opinion jeopardized the operations of online non-sports-related gambling operators, which had set up interstate games. In addition, the decision effectively preserves the Uniform Internet Gambling Enforcement Act (31 U.S.C. § 5362) exemption for “fantasy sports games,” which states that such games are not “bets or wagers on any sporting event or contest” within the meaning of the Wire Act. Accordingly, under the 2011 OLC opinion, operators and participants in those games were not at risk of prosecution under the Wire Act. The 2018 OLC opinion had called the legality of such operations into doubt.

A few things remain to be seen, however. The decision did not disturb the Wire Act’s prohibition on the use of interstate wires for sports-related gambling. Thus, even in states like New Jersey that have fully legalized sports gambling, providers of sports-related gambling platforms and services must ensure that communications relating to those operations remain solely within state lines and that users of online gaming platforms are blocked from placing any wagers or bets on sporting events unless they remain intra-state. Further, given that the court limited its decision to the parties in the case, the DOJ could still prosecute a non-sports-related gambling participant in a state other than New Hampshire, or to any other party other than the litigants in that case. That said, the district court judge noted that “I have no reason to believe that the Government will fail to respect my ruling that the Wire Act is limited to sports gambling.” Armed with this decision, other states may file similar actions seeking judicial declarations that the 2018 OLC opinion is incorrect. In addition, it remains to be seen whether, in response to this decision, the DOJ will explicitly reverse the 2018 OLC opinion and revert to the 2011 OLC opinion. The more likely scenario is that the DOJ will appeal the decision. But whether the district court’s decision is the last word or simply one development in this evolving space, the opinion may have a dramatic impact for the online gaming industry.

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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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