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Jessica Feil quoted by Law360 in DOJ Wire Act Opinion Article

In Reversal, DOJ Says Wire Act Applies To All Online Gaming

By Mike Curly

Law360 (January 15, 2019, 4:46 PM EST) — The Department of Justice on Monday broadened restrictions on online gaming, saying the Wire Act’s prohibitions against interstate gambling apply to non-sports betting, in a decision that is likely to see pushback from states and online gambling companies, according to legal experts.

Reversing its 2011 opinion that found the act only applied to sports-related bets, the DOJ‘s Nov. 2 opinion, released Monday, found that the language of the Wire Act was clear enough to show that all but one of its prohibitions applies beyond sports betting. The opinion also acknowledged that the department expects legal action to be taken against the interpretation.

Attorney David Klein, managing partner at Klein Moynihan Turco LLP, agreed that is how the Wire Act is written, but he said the new opinion’s impact on the industry depends on how it’s enforced.

“It’s a very significant development from the perspective of any online gaming, because invariably the gambling information and wagers, to the extent they’re legal in that jurisdiction, go through interstate lines” because of how the phone and Internet lines are wired, Klein said.

The Wire Act, enacted in 1961, prohibits using wire communications to transmit foreign or interstate bets, information assisting in placing bets and transmissions that allow the recipient to receive money or credit from those bets. In 2011, when a question arose about how the Wire Act interacted with the Unlawful Internet Gambling Enforcement Act regarding lottery transactions, the DOJ found that the Wire Act only applied to sports-related bets.

The new opinion, however, finds that the phrase “on any sporting event or contest” applies to only one clause, for transmitting “information assisting in the placing of bets or wagers” of those events. The rest of the section applies more broadly, the DOJ wrote.

Klein suggested location gating — technology to prevent a signal from crossing state lines in transit from user to site — will become crucial to companies and states in the wake of the decision. Another possible solution, Klein said, would be for exemptions in the case where the user and the end-point of the gambling transaction are in the same state, so that the signal crossing state lines would not run afoul of the law.

As a result of the opinion, the poker compact between New Jersey, Nevada and Delaware, which allows players in the three states to play against one another, would be illegal, Klein said.

Eric G. Fikry, partner in the business litigation practice at Blank Rome LLP, agreed the New Jersey-Nevada-Delaware compact would be affected, and that legal challenges are expected if the DOJ takes the opinion to mean intrastate gambling is restricted.

Daniel L. Wallach of Wallach Legal LLC, co-founding director of the University of New Hampshire School of Law’s Sports Wagering and Integrity Program, said the most vulnerable stakeholders will be online lotteries, poker and casinos with interstate compacts. Wallach said the law shouldn’t affect in-state gambling, such as mobile sports betting that was already allowed under the previous interpretation of the Wire Act.

He added the fantasy sports industry should also be unaffected, as courts have already ruled that the entry fees for fantasy sports sites aren’t considered bets or wagers.

However, he said, the decision will undoubtedly create some uncertainty for gambling businesses, with federal lawsuits sure to follow.

“The opinion acknowledges that the decision will likely be tested judicially,” Wallach said. “I think we could be headed toward the next big gambling case that reaches the Supreme Court, or at the very minimum, the U.S. Court of Appeals.”

In some courts, the mere act of using the Internet has been held to constitute going across state or foreign lines, making any online gambling illegal, Greenberg Traurig LLP shareholder Mark Hichar said, rendering how the act will be enforced going forward unclear.

Hichar said he expects significant pushback, with injunctions sought to enjoin enforcement of the law, mainly by states that rely on gambling revenue for their operating budgets.

“There’s a number of states that are operating gaming and they depend on gaming revenue for a number of good causes, depending on the state, and also to meet their state budgets,” Hichar said. “To the extent that the Wire Act applies — and I think that the extent of this opinion is just being fleshed out — I would anticipate that there will be significant pushback and that you’ll see it promptly.”

He added there are reports that Deputy Attorney General Rod Rosenstein may put a 90-day moratorium on enforcement to give states and companies time to adjust.

Jessica Feil of Ifrah Law PLLC said the opinion could have “far-reaching impacts,” and that its full reach remains to be seen.

“This opinion may have a chilling effect on state lawmakers that were otherwise looking to follow in the footsteps of New Jersey and Pennsylvania by legalizing online gaming,” she told Law360. “Further, many lotteries have been incorporating online and mobile products and now those plans may be cast into doubt. However, as we have seen with online sports betting — which has always been subject to the Wire Act — there are viable, fully intra-state solutions for online gaming.”

In December, Sens. Orrin Hatch, R-Utah, and Chuck Schumer, D-N.Y., introduced the Sports Wagering Market Integrity Act of 2018 after months of talk about a new law following the U.S. Supreme Court‘s May ruling allowing sports betting, which includes proposals to update the Wire Act to allow certain kinds of interstate sports bets.

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–Additional reporting by Zachary Zagger. Editing by Michael Watanabe.