Today, in a closely watched case in Illinois, a federal court dismissed a lawsuit brought under the Illinois Loss Recovery Act (ILRA) against daily fantasy sports site FanDuel, Inc. and daily fantasy sports player Patrick Kaiser, finding that the plaintiff lacked subject matter jurisdiction to bring the suit. This is one of several lawsuits that have been brought in Illinois courts against daily fantasy sports companies and individual winners.
If a person has lost more than $50 gambling, the ILRA, like a number of state loss recovery acts, allows that person who lost money or something of value to sue the winner to recover the money that was lost. The ILRA also provides that if a suit is not brought by the loser within six months, “any person” may bring an action against the winner and is entitled to recover three times the amount of money lost gambling. The plaintiff in this case, Christopher Langone, is that “any person” who brought the suit against Patrick Kaiser and FanDuel.
The complaint alleged that Kaiser won several hundred thousand dollars playing on daily fantasy sports sites including FanDuel.
The court dismissed the complaint because it lacked subject matter jurisdiction due to insufficient allegations in the complaint. The court noted that there was not even a bare assertion that there was a sufficient amount of money lost for a federal court to have the jurisdiction to hear the case. The court also noted that the complaint failed to identify a specific loser who lost a certain amount and failed to bring a claim as required under the ILRA.
A very interesting point in the decision is that the court held that FanDuel was not a “winner” in the context of the Illinois Loss Recovery Act. The plaintiff had alleged that the defendants were winners because they take a commission from the entry fees paid by participants in the games, but the court rejected that argument. The court noted that, “FanDuel does not place any ‘wagers’ with particular participants by which it could lose money based on the happening of a future events (i.e., the performance of certain athletes), but merely provides a forum for the participants to engage each other in fantasy sports games.”
The plaintiff alleged in the complaint that daily fantasy sports games are not a game of skill, but instead “a form of ‘exotic’ sports wagering subject to change.” The court in this case did not address the issue because it did not have to after it found that there was a lack of subject matter jurisdiction.
Although the court did not address all of the issues relevant to the daily fantasy sports industry in the case, this decision is a huge win for the industry. Loss recovery act cases will be harder to bring against daily fantasy sports companies that are not assuming risk in their games. Daily fantasy sports continue to grow rapidly and today’s decision helps to partially remove one roadblock to its growth.
A lawsuit recently filed by Incredible Investments, LLC, owned by entrepreneur Consuelo Zapata, alleges that the language in a recently enacted Florida law that was intended to shut down Internet cafes and slot machines has actually outlawed all mobile devices that are capable of accessing the Internet. The complaint, which seeks to have the new law declared unconstitutional, alleges that in the process of hastily passing the bill, the legislators crafted language that could include any smartphone or computer in Florida. The complaint, a copy of which is available here, asks the court to throw out the law, which was purportedly passed “in a frenzy fueled by distorted judgment in the wake of a scandal that included the lieutenant governor’s resignation.”
The law in question was signed into law on April 10, 2012, by Florida Governor Rick Scott. Zapata, whose clientele is primarily migrant workers seeking to access the Internet, owns one of the approximately 1,000 internet cafés that was shut down as a result of the law.
The bill was introduced in the aftermath of a state investigation which found that a purported charity earned $290 million from an Internet gambling effort but donated only $5.8 million of those funds to charity. The investigation resulted in 57 arrests on racketeering and money laundering charges. Former Florida Lieutenant Governor Jennifer Carroll, who has ties to the charity but has not been accused of wrongdoing, resigned in the wake of the investigation.
The problem with the law that was noted in the lawsuit is that it amended the definition of a slot machine to include “any machine or device or system or network of devices” that can be used to play games of skill or chance, which can be activated by “money, coin, account number, code, or other object or information.” The lawsuit alleges that with such a broad definition of a slot machine, any smartphone or computer is effectively banned in Florida because it could be used to access the Internet to play an illegal game.
It is unclear what the result of the lawsuit will be. The court may agree with the plaintiff that this law has effectively banned mobile devices and should be struck down. However, courts often attempt to avoid constitutional issues when interpreting laws and could find that another reading of the statute in this case would be more appropriate.
Whichever way the court does decide on the law, this lawsuit shows the dangers of a swift reaction from a legislature after a high profile incident occurs. The unintended consequences of legislation can be quite serious, as is alleged to be the case here, and a thorough examination of the problems and the best way to address them could have avoided the confusion that has resulted from this law.
More than two years after “Black Friday” – the day on which federal prosecutors shut down the U.S. operations of Full Tilt Poker and other major online poker providers and seized billions of dollars in assets – it appears that the final chapter in that enforcement action may soon be written.
The Garden City Group, the entity responsible for claims administration for repayment of Full Tilt Poker players, announced on August 1 that it would soon begin that remission process. Remission of funds to Full Tilt Poker’s U.S. players was made possible because of PokerStars’ payments pursuant to its settlement of civil forfeiture claims with the government. And, due at least in part to advocacy by the Poker Players Alliance (PPA), the calculation formula to be used for the process will be based on players’ final balances as of April 15, 2011, and not on the amount that they originally deposited into their Full Tilt Poker accounts.
Following the Black Friday asset seizures, PokerStars reached a settlement with the United States under which it forfeited $547 million to the U.S. government and agreed to repay approximately $184 million to former customers of Full Tilt Poker outside the United States. One of the valuable aspects of this settlement, from the perspective of former Full Tilt Poker players in the United States, was that it created a fund of money for repayment of players that would not otherwise have existed due to Full Tilt Poker’s financial status at the time of the seizure.
The settlement provided that the United States would oversee a remission process pursuant to which it would return funds to Full Tilt Poker players, but the law governing those processes vests the government with enormous discretion in, among other things, the manner in which the government calculates the amount to be distributed to each recipient. In the case of Full Tilt Poker’s U.S. players, the government was considering an approach that would have based the payment to each player on the amount he or she had deposited into a Full Tilt Poker account, regardless of the wins or losses in that account thereafter.
An alternative approach was to base the payment on the balance remaining in the account on April 15, 2011 – the last day on which the player could have accessed his or her account. The PPA and other advocates of this approach point out that this was a truer measure of the “loss” that each player suffered; to the extent that a player’s balance was lower on that date than his or her initial deposit, it was not due to any wrongdoing but rather a result of poker play. A player who received his or her initial deposit that was greater than the balance on that date would receive an unjustified windfall by recouping money lost fairly in playing online poker. Thus, to use deposit amounts as the basis for remission would effectively redistribute funds among players in a way that was unrelated to the purpose of the seizure and remission. This would have been inconsistent with applicable regulations’ definition of the “victim” to receive remission in terms of the loss suffered “as a direct result of the commission of the offense underlying a forfeiture.” (See 28 C.F.R. § 9.2(v)).
Advocates also expressed concerns that a “deposit”-based refund process would be unduly complicated, and would create inequities between foreign Full Tilt Poker players and U.S. PokerStars players, who received refunds based upon account balances.
It remains to be seen whether Full Tilt Poker’s U.S. players will receive the full amount of their account balances or a proportionally smaller amount – a decision that will be based on whether the amount available for remission is equal to or greater than the aggregate amount of claims filed for such refunds. But the decision to base remission on account balances and the indication that the long-delayed process will start soon are both positive signs that Full Tilt Poker’s U.S. players may soon be made whole from their Black Friday losses.
Very lively oral arguments were held today, June 26, in the U.S. Court of Appeals for the Third Circuit on the New Jersey sports betting law, in a case that will have an enormous impact on the future of sports betting in the United States.
At issue in the case is the federal Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits any state from offering sports betting unless that state had a sports betting scheme in place between 1976 and 1990. Last year, New Jersey Governor Chris Christie signed into law a bill authorizing single-game sports betting in the state. In August, the four major professional sports leagues and the National Collegiate Athletic Association (NCAA) filed suit arguing that the state’s sports gambling law was in violation of federal law.
In December 2012, Judge Michael Shipp of the U.S. District Court for the District of New Jersey held oral arguments to determine whether the sports leagues had standing to bring the lawsuit and determined that they did have standing. The U.S. Department of Justice (DOJ) later intervened in the case to defend the constitutionality of the statute. Oral arguments were held in February, and Judge Shipp held that the New Jersey law was invalid as conflicting with PASPA, which he found to be a valid exercise of congressional power. In March, New Jersey filed an appeal with the Third Circuit, appealing both the standing and constitutionality rulings.
Today in the Third Circuit, the judges dictated the path that the oral arguments took for both sides. Ted Olson, a former United States Solicitor General arguing on behalf of New Jersey, began the arguments by stating that PASPA is “plainly unconstitutional.” Olson also argued that the sports leagues did not have standing to bring the lawsuit because they did not meet the Article III requirement that they actually suffered harm from the New Jersey wagering law.
On the issue of anti-commandeering, which could be crucial to the court’s decision on the constitutionality of PASPA, the judges peppered Olson with questions regarding precedent on the issue and whether “commandeering” is limited to instances in which the federal government forces a state to take affirmative steps. There seemed to be some skepticism from the judges that PASPA should be considered an instance of commandeering because New Jersey did not have to do anything to comply with the statute. Olson argued that PASPA is a federal initiative and the responsibility for enforcing it is on the states, thus making this an instance of commandeering.
The issue of state sovereignty was not an issue that New Jersey focused on in the district court or in their briefs in the Third Circuit, but today Olson focused more on the issue by citing Supreme Court decisions that were issued yesterday and today, arguing that those cases support the position that PASPA is a violation of state sovereignty. Olson took contention with the argument made by their opponents in the briefs that the issue of state sovereignty only applies to states that are newly admitted to the Union.
Paul Clement, also a former United States Solicitor General, argued for the sports leagues. He pointed to the Third Circuit’s previous decision in Office of the Commissioner of Baseball v. Markell, a case that he conceded did not directly address standing, to support his position that the leagues have standing in the case. Clement also pointed to other cases, such as copyright cases, that show that the leagues are entitled to protect their product, and in sports wagering, it is their product, the games, that is at issue.
Clement was questioned about the recent Supreme Court decisions and was asked why PASPA was not a violation of state sovereignty. Clement attempted to distinguish the cases by arguing that they did not apply to PASPA because it was passed under the Commerce Clause, which affords the federal government broad powers to regulate interstate commerce. The U.S. Attorney for the District of New Jersey, Paul Fishman, argued on behalf of the federal government and agreed with Clement’s stance that PASPA is distinguishable from those cases.
There is no definitive timetable for a decision in the case, but it may take several months before an opinion is issued. Regardless of the decision reached by the Third Circuit, the losing party will have the option of seeking a rehearing en banc in that court or filing for a writ of certiorari to the United States Supreme Court. However, both these steps are subject to court discretion.
The ruling from the Third Circuit in this case will have far-reaching implications. A decision in New Jersey’s favor would remove the primary hurdle preventing states from offering sports betting within their borders. The panel today left no clear impression about which way they are leaning in their decision. and ultimately it may take a Supreme Court ruling before there is a definitive answer on PASPA.
April 30 was an historic day for online poker players in the United States. Just a bit more than two years after the indictment and civil cases that were termed “Black Friday” shut down the industry, Ultimate Poker became the first live real-money online poker site in the United States after Black Friday.
Nevada became the first state to legalize online poker in June 2011, and the regulations governing online gaming were issued in December 2011. Nevada gaming authorities granted Ultimate Poker a license in October and last week signed off last week on Ultimate Poker’s technology, which allowed them to launch.
Ultimate Gaming, a majority-owned subsidiary of Station Casinos, LLC, is operating UltimatePoker.com. Station Casinos owns sixteen casinos in Las Vegas. Ultimate Poker is the exclusive online gaming partner of the Ultimate Fighting Championship.
Right now, Ultimate Poker is only available to people who are over the age of 21 and are located in Nevada, though you do not have to be a Nevada resident to participate. Players can register and deposit money into their accounts from anywhere in the world, but can only play when they are physically in Nevada. Players can also make deposits and withdrawals at any of Station Casinos’ locations in Las Vegas.
To verify location, Ultimate Poker will triangulate a customers’ cell phone signal, though some cell phone carriers are not participating in the plan yet. Some players reported difficulty when they tried to play on Ultimate Poker on the first day, including issues with the geo-location services and players being unaware that their cell phone carrier was not participating.
Nevada recently passed a bill that would authorize the state to enter into interstate gaming compacts with other states, a reality that became possible after the U.S. Department of Justice released an opinion in December 2011 stating that the Wire Act applied only to sports betting. Liquidity could become an issue for a state with a relatively small population such as Nevada, so interstate compacts could become vital to the long term success of the state’s online gaming industry.
Online gaming is legal in both New Jersey and Delaware, though those states have yet to go live. Nearly a dozen other states have at least considered some form of online gaming legislation in the past year.
We are very happy to see online poker back online again. Some hurdles remain for companies to assure that their products operate smoothly and efficiently, but it is a good day for the industry and players that real money poker is back online.
On March 19, 2013, the New Jersey Office of the Attorney General, Division of Gaming Enforcement (DGE), announced that it has adopted temporary regulations authorizing the state’s casinos to offer fantasy sports tournaments to their patrons. The regulations permit casinos, on their own or in partnership with fantasy sports providers, to offer fantasy sports tournaments or contests.
The temporary regulations will remain in effect for a period of 270 days. During that time, the DGE will propose the regulations for final adoption. The text of the regulations could change from their current form to the form that is eventually adopted. The regulations will become effective on April 22, 2013. The minimum age for participation in fantasy sports tournaments at casinos is 21. Full text of the temporary regulations is available here.
A fantasy sports tournament is a simulated game in which a player manages an imaginary sports team and competes for a monetary prize against teams managed by other players. Since fantasy sports involve considerable skill in the selection of teams and players, they are widely considered not to constitute gambling. Fantasy sports can involve season-long or single-day tournaments.
The New Jersey temporary regulations clearly define that all prizes and awards must be made known to all participants prior to the start of the tournament. The winning outcome of a fantasy sports tournament shall reflect the relative skill of the participants and the outcome cannot be determined solely on the performance of any individual athlete or on the score, point spread, or performance of any single real world team or combination of teams.
The temporary regulations authorize casinos to utilize the casino cage to accept entry fees and pay out winnings from fantasy sports tournaments in the casino. Under the temporary regulations, fantasy sports are not considered to be gambling under state law. Therefore, revenue generated from these games is not subject to the same taxes as revenue generated from table games and other games offered in casinos.
This announcement on fantasy sports is part of a flurry of activity in New Jersey dealing with the state’s gaming industry. Last month, New Jersey became the third state to legalize online gaming within its borders, and games could be online by the end of the year. Earlier this month, a federal judge in New Jersey struck down the state’s sports betting law and the decision has been appealed by the state to the U.S. Court of Appeals for the Third Circuit.
We are very happy to see New Jersey add fantasy sports offerings in its casinos. This will be a boost for the state as well as for patrons who will soon be able to play these games in casinos.
On February 28, 2013, the Virginia Supreme Court issued an opinion in which it declined to address the legality of playing poker in the state but left open the possibility for the issue to be decided in a future case. The full opinion in the case, Daniels v. Mobley, is available here.
Charles Daniels, a former poker hall operator who operated charitable bingo halls in Portsmouth, Virginia, for decades, filed suit in 2010 seeking a declaratory judgment that Texas Hold ‘em poker is legal under Virginia’s gambling statute.
Under Virginia law, “illegal gambling” is defined as:
“the making, placing or receipt of any bet or wager in the Commonwealth of money or other thing of value, made in exchange for a chance to win a prize, stake or other consideration or thing of value, dependent upon the result of any game, contest or any other event the outcome of which is uncertain or a matter of chance, whether such game, contest or event occurs or is to occur inside or outside the limits of the Commonwealth.”
The law also states that:
“Nothing in this article shall be construed to prevent any contest of speed or skill . . . where participants may receive prizes or different percentages of a purse, stake or premium dependent upon whether they win or lose or dependent upon their position or score at the end of such contest.”
Daniels argued that the outcome of Texas Hold ‘em poker is determined by skill and not luck and therefore the game does not violate the Virginia statute. In the circuit court Daniels presented testimony of two math experts and a world champion poker player to support the skill argument.
The lower court ruled that poker was a game of chance, stating that “all the evidence indicates that the outcome of any one hand is uncertain.” Daniels then appealed the case to the Virginia Supreme Court.
The state Supreme Court declined to address the legality of poker, holding that the court could not rule on the case because the request for a declaratory judgment on the status of Texas Hold ‘em poker “failed to present a justiciable controversy over which the circuit court could exercise jurisdiction.” Since there was no justiciable controversy, the Supreme Court held that the circuit court did not have jurisdiction to rule on the claim.
The court did not directly address the argument that poker is a game of skill and not chance, an argument that has been accepted by other courts. It thus left the door open for the argument to be made in the future.
Daniels also argued that the state’s anti-gambling statute is unconstitutionally vague. The Supreme Court affirmed the ruling of the circuit court that the statute is not unconstitutionally vague because it gives fair notice and an individual of ordinary intelligence can discern its meaning.
In our view, poker is a game of skill and not chance and thus should not be considered gambling under the Virginia statute. The Virginia Supreme Court’s decision to rule on other grounds left poker supporters with a lost opportunity, but there will be other opportunities to make the argument in this and other courts.
Today, New Jersey became the third state in the country to legalize online gaming within its borders, as New Jersey Governor Chris Christie (R) signed into law a bill legalizing online gaming in the state.
Here is a video in which Jeff Ifrah, founding partner of Ifrah Law, discusses this exciting development.
Both houses of the state legislature had previously passed the bill by large margins and Gov. Christie had sent the bill back to the legislature requesting minor changes to the bill. The legislature made the changes requested by Gov. Christie, and on Tuesday the state General Assembly voted 68-5-1 to pass the bill with the Governor’s requested changes. The State Senate then voted to pass the bill by a margin of 35-1. Governor Christie signed the bill into law shortly thereafter.
The changes requested by the Governor included an enhanced level of funding for compulsive gambling treatment programs, a requirement that state employees and legislators disclose any representation past or present of entities seeking Internet gaming licenses, and an extension of a prohibition on any casino-related employment for state employees and legislators to include companies involved in Internet gaming.
New Jersey’s online gaming law would allow the state to participate in interstate gaming compacts with other states that have legalized online gaming within their borders, as long as this is consistent with federal law. Online gaming compacts would allow for the possibility of generating much larger player pools for the games as well as significant extra revenue for the state.
Under the law, casinos or their affiliates would be allowed to offer the same games that are currently offered on Atlantic City casino gaming floors. All players must be physically located in New Jersey, but do not need to be residents of New Jersey. There is no definitive word yet on when games will become operational, but it is quite possible that it could happen this year.
The law will help to stimulate the New Jersey economy and created needed jobs and revenue for the state.
“Internet gaming will provide a lifeline to New Jersey casinos by producing more jobs and additional revenue,” said bill sponsor New Jersey State Senator Raymond Lesniak (D). “At the same time, it will contribute to the state’s economic recovery and generate more revenue for state programs for seniors and the disabled.”
Under the law, all equipment used in Internet gaming is required to be located in Atlantic City. This will create a significant number of jobs in the region.
We are very happy to see New Jersey enact an online gaming law. This will be an enormous boost for the state as well as great news for gamers, who will soon be able to play online again.
A Nevada man now has a criminal record – simply because he placed a bet in a casino in Las Vegas and a casino employee didn’t ask him enough questions.
Robert Walker recently pleaded guilty in federal court to one misdemeanor count involving a record-keeping violation and was sentenced to one year of unsupervised probation. He was also ordered to pay a $250 fine and agreed to forfeit a $32,400 bet he made in March 2011.
Walker was a member of Acme Trading Group, a company whose members placed bets for several years at a number of casinos on Acme’s behalf. Acme is structured in a way that allows individuals to invest in the company, and bets are made on behalf of the company.
Messenger betting is a crime under Nevada law that occurs when wagers are placed at sports books by individuals on behalf of others. Thus far, Acme Trading Group has not been prosecuted for messenger betting, although Walker and others have clearly been subject to law enforcement scrutiny.
In November 2011, Walker was indicted on four felony counts under 31 U.S.C. 5313(a) for causing a domestic financial institution to fail to file an accurate currency transaction report. Walker faced a maximum of 20 years in prison and a $1 million fine if convicted of all charges.
The indictment alleged that on four occasions, Walker went to the Golden Nugget Casino Race & Sports Book and placed a bet of more than $10,000, and that when he was asked by the employee taking the bet if he was gambling on behalf of anyone else, he said that he was not.
Under federal law, all financial institutions, which include casinos, must file reports of any currency transactions over $10,000. The casino must also verify the name and the address of the individual placing the bet and the taxpayer identification information of the person on whose behalf the bet is being placed.
Walker’s attorneys contended in court filings that the burden is on the casinos, and not the individual bettor, to determine whether the individual is placing the bet on behalf of himself or a third party. Walker’s attorneys stated that Golden Nugget personnel never asked him if he was placing bets on behalf of someone else, and if they had asked him, he would have informed them that he was wagering on behalf of Acme. He had been instructed by his employer, he said, that if asked, he should reply to casino personnel that he was placing the bet on behalf of Acme.
Attorneys for Walker also stated in court papers that they hired an investigator who went to the Golden Nugget and engaged in at least seven transactions that required reporting under federal law. In none of those transactions did casino personnel ever ask the investigator if he was placing the wager for himself or on behalf of someone else.
This is a case that simply did not need to be prosecuted. Factually, there were very serious questions raised regarding the role that the casino played in trying to obtain the information necessary to file the reports and regarding the issue of who is responsible for making sure that information is reported.
Walker accepted a plea that would grant him a year of unsupervised probation; the indictment he was originally facing had a maximum sentence of 20 years in prison. Walker now has a criminal record as the result of very aggressive and unnecessary prosecution. Is this the type of case that the government’s limited prosecutorial resources should be focused on?
Federal Criminal (Other)
We have previously reported in this space about the use of domain name seizures by American law enforcement – for example, here and here. Recent media reports show that domain name seizure has become the go-to tactic for law enforcement for other countries as well.
Canadian police made a series of arrests during an invitation-only Super Bowl party attended by 2300 people as part of Project Amethyst. A Royal Canadian Mounted Police spokesperson says this was connected with the arrest of 21 individuals related to a separate online credit betting operation in November. The more recent arrests were connected with an online sports betting operation that used the website located at www.platinumsb.com. In addition to arresting six individuals, officers also seized $2.5 million in cash as a result of the execution of nine search warrants in and around Toronto.
Police also seized the domain name associated with a Costa Rica-based website, which is registered with Washington State-based Enom, Inc. Police obtained a Canadian court order for that purpose, and then submitted a request under the Mutual Legal Assistance Treaty (MLAT) between Canada and the United States. The domain name was then transferred to the control of Canadian law enforcement authorities who, in turn, redirected it to a new landing page. Visitors to the platinumsb.com website are now greeted by a notice stating that the web site has been “restrained by court order granted to the Attorney General of Ontario.”
Media reports indicate that the website was back online as www.platinumsb.tk within hours of the shutdown. The .tk top level domain belongs to Tokelau, a non-self-governing territory off the coast of New Zealand. The .tk version of the domain name was reportedly registered in 2004, suggesting that the group operating the sports book had set up contingency plans for a seizure of its .com website.
Whatever the merits of the Canadian prosecution against individuals affiliated with PlatinumSB, the seizure of the platinumsb.com domain name certainly shows that domain name seizure is by no means a tactic used only by U.S. law enforcement. As more and more businesses move largely or exclusively to the Internet, the global use of this law enforcement tactic is sure to grow.