Monday, February 16, 2015

"Deja Vu Again" for NJ Sports Betting Appeal

As the professional sports leagues are slowly warming up to the "inevitability" of expanded legal sports betting and have openly embraced the daily fantasy sports phenomenon (which many liken to sports betting), they continue to vehemently oppose New Jersey's efforts to legalize sports wagering. (This interesting dynamic has led many to accuse the leagues of "hypocrisy" and for New Jersey to assert that the leagues have "unclean hands.") The current battleground is the United States Court of Appeals for the Third Circuit, which is set to hear oral argument on New Jersey's latest appeal on Tuesday, March 17, 2015, in Philadelphia. The issue on appeal is whether New Jersey's partial repeal of its state-law prohibition against sports betting is "preempted" by the Professional and Amateur Sports Protection Act of 1992 ("PASPA"), as the leagues argue and as the lower court specifically held, or whether New Jersey's partial repeal--which allows such activity to take place only at state-licensed and state-regulated casinos and racetracks -- is permitted by the Third Circuit's prior opinion in National Collegiate Athletic Ass'n v. Christie, 730 F.3d 208 (3d Cir 2013) (hereinafter "Christie I")

In Christie I, the Third Circuit upheld the constitutionally of PASPA, dealing a temporary setback to New Jersey's efforts to license and regulate sports betting. But, in rejecting New Jersey's constitutional challenge (which was grounded in Tenth Amendment and equal sovereignty principles), the Third Circuit may have inadvertently provided a pathway for states to legalize sports betting without running afoul of PASPA. That "path," based on language in the Third Circuit majority opinion (as interpreted by New Jersey), would allow states to "decriminalize" sports betting. The majority explained that a "repeal" of state-law prohibitions against sports betting would not violate PASPA because:
[PASPA] . . . leaves much room for states to make their own policy. Thus, under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.
Id. at 233 (emphasis added)

The meaning of this "exact contours" language is at the heart of Christie II (the current appeal) and has been given vastly different interpretations by the parties. Employing a "plain-language" interpretation, New Jersey maintains that the phrase "the exact contours of the prohibition" can only logically mean that New Jersey is free to decide just how much of a prohibition against sports betting it wants to maintain on its books, and that a partial repeal (like the one here) would be permissible. For their part, the leagues interpret the "exact contours" language much more narrowly: as referring only to the range of criminal penalties for a violation of the complete ban on sports wagering--i.e., whether it will enforced civilly or criminally, what penalties will attach, etc. Thus, the leagues (backed by U.S. District Judge Michael Shipp) maintain that anything short of a complete repeal would conflict with PASPA. In siding with the sports leagues, Judge Shipp also expressed concern that limiting the repeal to state-licensed casinos and racetracks (the intended beneficiaries of New Jersey's prior unsuccessful attempt to legalize sports betting) would allow New Jersey to accomplish indirectly what it cannot do directly and lead to other states implementing New Jersey's approach, thereby undermining PASPA.

These arguments were revisited in the Answer Brief filed by the sports leagues on Friday night. (Note -- New Jersey filed their opening brief some four weeks earlier, and the entire appeal has been "expedited"). Calling this "a case of deja vu all over again," the leagues described the issue on appeal as follows: "Whether the District Court correctly concluded that New Jersey's attempt to 'partially repeal' its otherwise-blanket sports gambling prohibitions solely at state-licensed gambling venues, and solely if those venues confine sports gambling to the persons and sporting events of the state's choosing, violates PASPA's prohibitions against authorizing or licensing sports gambling."

Some other highlights and noteworthy soundbites from the leagues' brief:

  • "The 2014 Law is no more consistent with PASPA than the invalidated 2012 Law was. Just as before, New Jersey has enacted a law that ensures that sports gambling will occur only under the conditions of the state's choosing. It has dictated where sports gambling may occur, by whom, and even which sporting events will be excluded. Worse still, New Jersey has dictated that sports gambling must be only at state-licensed gambling venues, thereby ensuring that the sports gambling it has authorized will occur only under the auspices of a state license. In a sea of prohibitions on sports (and other) gambling, New Jersey has dictated that sports (and other) gambling is permitted only at these islands of state-authorized gambling. No matter what New Jersey tries to label those actions, those cosmetic efforts cannot hide the reality that the 2014 Law is yet another attempt to authorize state-licensed sports gambling in violation of PASPA. " 
  • "[T]his Court explicitly considered and explicitly rejected the very same argument that the [New Jersey] defendants repeat anew here--namely, that if PASPA forces states to choose between prohibiting sports gambling entirely or not at all, then it unconstitutionally commanders the states. The defendants' continued disagreement with the Court's conclusion does not entitle them to another bite at the constitutional apple." 
  • "At bottom, no amount of clever labeling or parsing of this Court's opinion can save [New Jersey] from the conclusion that the District Court correctly reached: Like the 2012 Law before it, the 2014 Law authorizes state-licensed sports gambling in violation of PASPA.
  • "Notwithstanding the state's deliberate effort to style the 2014 Sports Wagering Law as a 'repeal' rather than as an 'authorization, there is no escaping the reality that New Jersey has enacted a law that dictates where sports gambling may occur, by whom, and on what sporting events. The notion that this does not amount to an authorization of sports gambling on the state's chosen terms blinks reality. "
  • "And to make matters worse, New Jersey has made sports gambling legal only if it takes place at a state-licensed venue for state-authorized gambling. In other words, New Jersey has made obtaining a license or permit to operate a commercial gambling establishment a condition of operating sports gambling. Like its 2012 predecessor, the 2014 Law thus violates PASPA twice over: It not only authorizes sports gambling, but also ensures that it will take place only under the auspices of a state license--and a state license to operate a commercial, state-sanctioned gambling establishment, no less. That the 2014 achieves this end indirectly, rather than by establishing a distinct 'sports gambling licensing regime is no matter. Either way, the ultimate result is the same."
  • "The defendants' principal response to all this is to insist that this Court's decision in Christie I somehow entitles states to make any sports gambling policies they choose, so long as they do so under the guise of 'repealing' existing sports gambling prohibitions, rather than expressly 'authorizing,' 'licensing,' or 'regulating' the sports gambling that they permit."
  • The notion that [the 2014 Law] does not "authorize" sports gambling defies reality. The state has not deregulated all sports gambling in New Jersey or taken an agnostic position on whether or how sports gambling will occur. Instead, the state has decided on the narrow conditions under which it approves of sports gambling, and then codified those conditions as an exception to its otherwise-blanket sports gambling prohibitions. New Jersey has maintained a statewide prohibition on sports gambling with the exception of the 'islands" of state-authorized gambling called casinos and racetracks, and even there dictates who can bet on what. That cannot rationally be understood as anything other than an effort to permit sports gambling 'under the auspices of state approval and authorization,' Christie I, 730 F.3d at 232--i.e., under the very circumstances that PASPA prohibits."
The leagues then zero in on the meaning of the phrase "the exact contours of the prohibition." They maintain that this language requires nothing short of a "complete repeal," arguing that the opinion in Christie I makes this the only plausible interpretation:
The "exact contours" language on which the defendants reply so heavily in making that argument [i.e., that a partial repeal would not offend PASPA] comes in a sentence identifying what a state may do if it "choose[s] to keep a complete ban on sports gambling." In that sentence, the court observed, "it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be."
As explained by the leagues, "what the Court plainly was contemplating in that passage were changes to the 'exact contours' of a state's scheme for enforcing its complete ban--i.e., whether it will be enforced civilly or criminally, what penalties will attach, and so on." That much, according to the leagues' brief, "is clear from the fact that the 'exact contours' language is preceded immediately by a reference to 'how much of a law enforcement priority [the state] wants to make of sports gambling' if it maintains its complete ban." The leagues also point to Judge Vanaskie's dissenting opinion in Christie I to support its "all-or-nothing" interpretation of the majority's "exact contours" language: in his dissent, Judge Vanaskie viewed the majority opinion as "essentially giv[ing] the states the choice of allowing totally unregulated betting on sporting events or prohibiting all such gambling."

In a surprising twist, the leagues' interpretation of this critical language is not shared by the United States Department of Justice (the "DOJ"), the primary defender of PASPA. In an amicus curiae brief submitted one week earlier, the DOJ maintained that "[t]he district court erred in thinking that anything short of a global repeal is ipso facto 'authorization by law' of whatever falls within the scope of the repeal." The DOJ elaborated as follows:
While certain language in the Court's opinion might be read as having contemplated a binary choice between maintaining sports wagering prohibitions in whole and repealing the completely, other language in the opinion points in then opposite direction, suggesting greater room for state policy choices. See 730 F.3d at 233 ("it is left up to each state to decide . . . what the exact contours of the prohibition will be.")' id. ("both choices leave much room for the states to make their own policy." Given the lack of clarity on this point in the opinion, and given that the permissibility of partial repeals of sports gambling prohibitions was not actually before the court in Christie I, the Court's decision cannot fairly be taken to have resolved that issue.
So, what gives? Why would the DOJ (who is otherwise aligned with the leagues in their opposition to New Jersey's efforts to legalize sports betting) part company with the leagues and assert that the lower court "erred" in this one respect?  You may recall that in Christie I, the United States Solicitor General (Donald F. Verrilli Jr.) filed a brief filed with the United States Supreme Court in which he asserted that New Jersey was free to repeal its sports betting prohibitions "in whole or in part" without violating PASPA. Having made such a statement, the DOJ would be hard-pressed to completely disavow it barely one year later. Thus, the DOJ had to carefully thread the needle in Christie II: on the one hand, it could not deny what it had said earlier, but it also had to argue that New Jersey's partial repeal violated PASPA. And this is how the DOJ walked that fine line, arguing that:
It does not follow, however, that every partial repeal of a state's prior sports betting prohibitions will automatically satisfy PASPA, or that a state legislature is free to enact any laws that it wishes regarding sports gambling as long as it takes care to frame them as "partial repeals" of existing prohibitions. For example, if a state repeals its prohibitions on sports gambling only for chosen persons or entities, it may run afoul of PASPA's licensing prohibition, as New Jersey has done in this case. And other legislative efforts to encourage sports gambling may result in "authorization by law" even when cast in the form of a partial repeal. If the rule were otherwise, a state could circumvent the restrictions in [PASPA] at will simply by using the language of repeal to specify or leave intact only those sports gambling activities it wishes to sponsor and promote. In this case, the structure and scope of the 2014 [Law] suggest that New Jersey is engaged in precisely that: the authorization by law of sports gambling in the guise of repeal.
Another notable aspect of the leagues' brief is the treatment of the "fantasy sports" issue. In their opening brief, the New Jersey Thoroughbred Horsemen's Association ("NJTHA") accused the leagues of having "unclean hands" through their sponsorship of "the same activity they seek to enjoin, namely, betting money on their games and the performances of their players on their games." By hosting games in games in jurisdictions where sports betting is legal (e.g., Las Vegas, London, etc.) and by entering into sponsorships with daily fantasy sports operators, the leagues, the NJTHA argues, "are self-described hypocrites in this litigation and their unclean hands are rooted in there hypocrisy."

Calling this argument "barely deserving of [a] response," the leagues characterize the NJTHA's argument as "little more than a repackaging of the same fundamentally flawed standing arguments that this Court considered and rejected in the last round of litigation." The leagues defend their embrace of daily fantasy sports as "an activity that the Unlawful Internet Gaming Enforcement Act of 2006 explicitly states does no constitute gambling." (Note -- this is not an accurate statement. Fantasy sports are not automatically exempt under the UIGEA. It must satisfy three criteria, including that the value of the prizes is not determined by the number of participants or the amount of fees paid, and that the winning outcomes reflect the relative knowledge and skill of the participants). Finally, the leagues conclude by stating that "if anyone comes to this Court with unclean hands, it is the defendants, who all but invited this litigation by insisting upon enacting a law that the Governor himself previously recognized is a blatant effort 'to sidestep federal law."

Next up: New Jersey's reply brief, which is due on February 27th.

Sunday, January 11, 2015

5th Annual Duke Sports & Entertainment Law Symposium

If you're in the Raleigh-Durham area this Friday, January 16th, we encourage you to attend the Fifth Annual Sports & Entertainment Law Symposium, sponsored by Duke University School of Law. This one-day event offers panel discussions covering a wide range of topics in the world of sports and entertainment law (as well as the opportunity to meet professionals in these fields). Panelists include SLB contributor (and Duke Law grad) Gabe Feldman, Robert Raiola, Scott Andreson, and me. There will be panels on hot topics such as stadium financing, publicity rights of college athletes, personal conduct policies of leagues and schools (e.g., Adrian Peterson, Ray Rice, Jameis Winston), sports betting, and fantasy sports. The symposium concludes with a reception at 4:30 pm. Registration is FREE! For more information about the symposium, including how to register, click here. The conference schedule appears below. Hope to see you Friday.
Schedule of Events
8:30 Registration Breakfast – 3rd Floor Lobby, Duke Law School
9:00-10:00: Financing and Development of Professional Athletic Venues:
Understanding the legal issues and economic tradeoffs between the public and private sectors when determining how and when to build a new stadium are key to all sports development and growth strategies. Given the sky-rocketing cost of team operations, the need to build new revenue generating venues can motivate a team’s desire to relocate if local authorities are reluctant to subsidize construction costs or facilitate stadium development. New stadium construction involves many legal issues—real estate, tax, public zoning, permitting and environmental impact—all of which must be vetted, debated and resolved before a new facility can be built. This Interdisciplinary panel will discuss the complexities of facility development as well as highlight the potential economic benefits and problems that can emerge throughout the process.
  • Mark Conrad, Director, Sports Business Program, Fordham Gabelli School of Business
  • Victor Matheson, Professor of Economics, College of the Holy Cross
  • Irwin Raij, Co-Chair Sports Industry Team, Foley Lardner
10:00-11:00: Royalties in the Modern Music Industry
The Royalties Panel will address how the online and digital world has changed the way music is licensed, particularly how this change has affected songwriter, composer, and music publisher fees, and back-end royalties associated with music projects.​
  • Jennifer Jenkins, Duke Law (moderator)
  • Coe W. Ramsey, Brooks Pierce
  • Sean Peace, CEO & Co-founder of Royalty Exchange
  • Robert Monath, Robert Monath Law
  • David Oxenford, Wilkinson Barker Knauer
11:00-12:00: Misappropriation of College Athletes’ Rights
This Misappropriation of College Athletes’ Rights panel will discuss the publicity rights of student athletes and the recent tension with the NCAA, publishers, and other parties regarding the use of athletes’ name, image, or likeness.
  • Gabe Feldman, Director, Sports Law Program, Tulane University Law School
  • Robert Carey, Hagens Berman Sobol Shapiro, LLP
  • Stuart Paynter, The Paynter Law Firm
  • Mark Conrad, Director, Sports Business Program, Fordham Gabelli School of Business
 12:00-1:00: Lunch – Provided by Q Shack
 1:00-2:00: The Importance of Personal Conduct Policies for Schools, Teams, and Leagues
In 2014 the NFL faced significant controversy regarding its handling of a number of highly publicized cases, including Ray Rice and Adrian Peterson. Criticism of the NFL often focused on the importance of fair and sensible personal conduct policies and procedures to protect the league, and its teams and members; the powers of the commissioner; violations of the CBA and violations of due process. This panel will focus on the importance of personal conduct policies and procedures for both professional and collegiate athletic organizations.
  • Paul Haagen, Professor, Duke Law (moderator)
  • Scott Andresen, Andresen & Associates
  • Daniel Wallach, Becker & Poliakoff
  • John Hogan, The Law Offices of John V. Hogan
  • Todd Clark, Professor, North Carolina Central School of Law School
 2:00-3:00: Impacts of the Supreme Court’s Aereo Decision
A significant cord-cutting trend has been developing among television consumers, as audiences are increasingly viewing live or time-shifted television exclusively through the Internet rather than cable. Aereo offered just such a service, allowing customers to watch free, over-the-air broadcasts through their website. Specifically, customers accessed Aereo’s website to choose their desired programming — Aereo then tuned antennas to the relevant stations, and captured and retransmitted the signal to their customers. The Supreme Court ruled against Aereo — the services provided were too similar to that of a cable system.
This holding amounted to a clear victory for broadcasters; Aereo‘s impact on technology and innovation is more unclear. Which technologies are now infringing because they are also similar to a cable service? The court declined to discuss cloud storage and network DVR, yet they are increasingly ubiquitous in the lifestyles of the average media consumer. Join our panelists as they discuss the impact of the Aereo decision and where they see the future of media entertainment and technology heading. 
  • Julia Ambrose, Brooks Pierce
  • John Kivus, Wood Jackson
  • Harry Cole, Fletcher Heald & Hildreth
  • Brandon Huffman, Stevens Martin
 3:00-4:00: The Line Between Fantasy Sports and Gambling
In 2014, an estimated 41 million people played fantasy sports in North America. The recent growth of daily fantasy sports websites, such as FanDuel, has led to large financial investments from venture capital firms and partnerships with professional leagues and teams. Yet the leagues are currently fighting to prevent the legalization of sports betting in New Jersey, as they have in other states. This panel will discuss what separates fantasy sports from gambling and what the difference means for sports leagues.
  • Daniel Wallach, Becker & Poliakoff
  • Robert Raiola, O’Connor Davies, LLP
  • Gabe Feldman, Director, Sports Law Program, Tulane University Law School
4:30 Reception: Duke Law Star Commons Mezzanine

Sunday, November 16, 2014

Game-Changer or Trojan Horse? Making Sense of Adam Silver's Sports Betting Comments

NBA Commissioner Adam Silver caused a stir last week when he penned a New York Times op-ed piece that called for the legalization (and federal regulation) of sports betting. (For a great analysis of Commissioner Silver’s op-ed, I highly recommend Ryan Rodenberg’s SI.com article, co-authored with Jon Wertheim, as well as John Brennan’s fine work in the Bergen Record and Meadowlands Matters). Despite his clarion call for legalization, Mr. Silver’s comments (his most expansive to date on the subject) will likely have no impact on the current federal court case in which the four major professional sports leagues and the NCAA are suing to block New Jersey from implementing its latest sports betting law. As Professor Michael McCann told John Brennan of the Bergen Record:
I don’t think Commissioner Silver’s op-ed harms the NBA’s legal argument against New Jersey’s efforts to legalize sports betting, because Silver has merely encouraged Congress to consider new federal laws that would give states flexibility in legalizing it. The NBA’s case is built on the contention that New Jersey’s proposed sports betting law would violate existing federal law, specifically the Professional and Amateur Sports and Protection Act. Moreover, Judge Shipp, and any appellate judges who hear this case, would also evaluate the legal arguments based on the laws implicated in the case, not on hypothetical laws that don’t yet exist.
But what struck me about the op-ed more than anything else was its timing. Why now? Was it just an organic evolution of Commissioner Silver's progressive views on the subject, which are entirely consistent with his prior statements made at last year's Sloan Conference and this year's Bloomberg Sports Business Summit? Or was there some strategic reason to drop this bombshell now--just days away from the oral argument on the leagues' motion for a preliminary injunction? Call me a cynic, but I believe the timing of its publication was partly strategic: to diminish the New Jersey law and, more importantly, to influence the court prior to an important hearing. After all, this is the same brilliant lawyer who outmaneuvered the hyper-litigious Donald Sterling at every turn and whose successful legal strategy paved the way for the quick transfer of ownership of the LA Clippers to Steve Ballmer. Remember, throughout the Donald Sterling probate court trial, a number of "NBA-aligned" individuals made statements that were viewed (at least by me) as an attempt to influence then-ongoing court proceedings. Doc Rivers threatened to quit as head coach of the Clippers if Donald Sterling remained as the team owner; and Chris Paul said that a league-wide player boycott was a real possibility if Donald Sterling were still the Clippers owner when the regular season began. These statements were made during the midst of the probate court trial. So, maybe, this tactic is part of the NBA's playbook.

This strategy appears to have succeeded, as Commissioner’s Silver’s emphasis on the need for a “comprehensive federal solution” has already gained traction in the “court” of public opinion and made New Jersey’s law appear to be the problem (e.g., unregulated sports betting) rather than the solution (e.g., regulated sports betting). By offering up the olive branch of a federal solution in the not-too-distant future, Commissioner Silver has shifted the debate away from the current case, which no doubt was his intent.

As Michael McCann aptly observed, Commissioner Silver’s comments won’t help New Jersey on Thursday (or in its eventual appeal to the Third Circuit) because they address future legislative reform rather than any present legal issues before Judge Michael A. Shipp (the Trenton-based federal district judge who is assigned to the case). The issue presently before Judge Shipp is whether New Jersey’s "partial repeal" of its state-law ban on sports betting -- the sole beneficiaries of which are state-licensed casinos and state-licensed racetracks -- runs afoul of PASPA's ban against state-regulated sports betting. In Christie I, the Third Circuit declared that "we do not read PASPA to prohibit New Jersey from repealing its ban against sports wagering," adding that "it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be."

Judge Shipp (and, eventually, the Third Circuit) will have to determine just how far a “repeal” must go in order to fit within the contours of the Third Circuit majority opinion. New Jersey will, of course, zero in on the language in the Third Circuit majority opinion leaving it up to the states to decide "what the exact contours of the prohibition will be.” New Jersey maintains that its “partial repeal” reflects the “exact contours of the prohibition” that it has decided -- as a policy matter -- to enact in conformity with the Third Circuit majority opinion. The leagues, understandably, take a much more narrow view of the Third Circuit language, arguing that only a “complete repeal” will suffice and that what New Jersey has done here is not a true repeal at all, but, rather, a “back-door” authorization of sports betting.

Adam Silver’s op-ed article does not speak to any of these issues. To the contrary, Commissioner Silver’s statements are entirely consistent with the leagues’ present position – that New Jersey’s repeal law violates PASPA. Despite embracing legislative reform (at the federal level), Commissioner Silver continues to stick to the party line -- that “unregulated” sports betting (which is what New Jersey proposes) will negatively affect the integrity of the games and cause irreparable harm to the leagues. Thus, there is no inconsistency between his op-ed and the leagues’ present position on the issues in this case.

While some might argue that Commissioner Silver’s bombshell undermines the leagues’ argument that they will suffer “irreparable harm” (one of the requirements for a preliminary injunction), it is important to remember that the leagues do not need to make a factual showing of irreparable harm in order to prevail on Thursday (or before the Third Circuit). Rather, irreparable harm would be “presumed” based on a violation of the Supremacy Clause (e.g., the New Jersey repeal law contravenes federal law). Both the district court and Third Circuit invoked this presumption in Christie I, and will likely do so again in the current case if they determine that the New Jersey repeal law violates PASPA.

Notably absent from Commissioner’s Silver’s call for the legalization of sports betting is any reference to what the leagues would want in return – monetarily, that is. Previously, Silver was quoted as saying that expanded legal sports betting was “inevitable” and that the leagues would be willing to “participate” in it (presumably, for a price). Commissioner Silver’s op-ed skirts that issue entirely. However, expect the leagues to insist on a royalty or licensing fee (either in the form of a percentage of the total amounts wagered or a flat fee from licensed gaming operators) as a condition to acquiescing to any future federal legislative reform. But it remains to be seen whether the other sports leagues (e.g., the NFL, NHL, MLB and NCAA) share Commissioner Silver’s progressive views on sports gambling.

Nonetheless, Adam Silver’s bombshell is already seen in many corners as a “game-changer” in the sports betting legalization movement (both for New Jersey and other states). I would not be surprised to see something develop on that front by 2016. The biggest impediment to expanded legal sports betting – Senator Harry Reid (Nevada’s protector) – has been removed with the recent election results. With the Republican Party now holding a majority of U.S. Senate seats, Senator Reid may not be able to block new federal legislation to expand single-game sports wagering beyond Nevada. Perhaps, a Republican-controlled Congress would be willing to trade expanded sports betting for a tightening of the Wire Act (to eliminate or heavily restrict online gambling). It may be a bet worth placing.

Wednesday, October 29, 2014

Transcript Provides More Insights Into Judge Shipp's Reasoning for Granting TRO to Leagues

[This is an update of my prior post for the sole purpose of incorporating the latest developments in the case, such as the issuance of a scheduling order and the release of the transcript from last Friday's hearing]

Less than 48 hours before Monmouth Park Racetrack was scheduled to open the first legal sports book in New Jersey (and with crowds expected to top 10,000 people for this historic event), a federal court judge put a temporary halt to those plans. On Friday, U.S. District Judge Michael A. Shipp entered a temporary restraining order prohibiting the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park) and the New Jersey Sports and Exposition Authority (the owner of the land) “from conducting sports wagering at Monmouth Park.” Additionally, the order temporarily enjoins the New Jersey defendants (including Governor Christie and the New Jersey Legislature) from “sponsoring, operating, advertising, promoting, licensing or authorizing” sports wagering schemes or “implementing, enforcing, or taking any action pursuant to New Jersey Senate Bill 2460 (the law partially repealing the state law ban against sports wagering). The order further states that these restraints “shall remain in effect until this Court resolves [the pending] application for a preliminary injunction.”

The Judge’s Preliminary Findings

Although the written order does not contain any specific findings of fact or conclusions of law, the official transcript of last Friday’s court proceedings lays out the judge’s rationale for issuing the TRO. After evaluating the four factors which govern the TRO analysis (discussed below in greater detail), Judge Shipp concluded that the leagues “were entitled to a temporary restraining order to maintain the status quo pending full consideration of their application for a preliminary injunction.” The transcript is replete with statements by the judge to the effect that there was insufficient time to fully consider the merits of the motion since there were numerous briefs filed, with the last brief filed just one day earlier and sports betting due to begin at Monmouth Park that weekend.

Nonetheless, Judge Shipp said plenty on the record that should give proponents of expanded sports betting cause for concern. As to the first factor – “likelihood of success on the merits,” Judge Shipp acknowledged that the core issue was whether New Jersey’s “partial repeal” (exempting only state-licensed casinos and state-licensed racetracks from the state-law ban on sports betting) followed the path set out by the Third Circuit in the prior case involving the same parties. In National Collegiate Athletic Ass'n v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013) (“Christie I”), New Jersey had argued that the Professional and Amateur Sports Protection Act (“PASPA”), which prohibits “state-sponsored” sports betting, violated the Tenth Amendment because it "commandeered" New Jersey's legislative authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting.

In rejecting that argument, the Third Circuit stated “we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." The court explained that a “repeal” of state-law prohibitions against sports betting would not violate PASPA, explaining:

[PASPA] . . . leave[s] much room for states to make their own policy. Thus, under PASPA, on the one hand, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.”

Id. at 233 (emphasis added). In the current case, New Jersey is arguing that its new law, Senate Bill 2460 (the “2014 Law”) fits within the parameters of the Third Circuit majority opinion because it merely “repeals” state-law prohibitions and does not "authorize" or "sponsor" sports betting (which would be a violation of PASPA).

Judge Shipp did not appear to be persuaded by this argument. While acknowledging that the 2014 Law “is styled as a ‘repeal,’ and at first blush, it appears to be an attempt to comply with the Third Circuit’s interpretation of PASPA in Christie I,” Judge Shipp pointed out that the new law “repeals prohibitions on sports wagering in the state only so much, so that the state may keep some restrictions over the activity.” He noted that the 2014 Law contains “several exclusions,” most notably, an exemption for “Atlantic City casinos or current or former horse racetracks.” This statement reveals that Judge Shipp may have been troubled by the fact that the partial repeal was limited to state-licensed casinos and state-licensed racetracks. While not saying it in so many words, Judge Shipp seemed concerned that New Jersey would be able to “regulate” sports betting (forbidden by PASPA) through its extensive regulatory oversight over casinos and racetracks generally. He may have been skeptical that a “Chinese Wall” could realistically be constructed between a casino’s regular gaming operations and its sports book (which, by law, would have to be housed in the same facility). But, as New Jersey countered in its court filing, the same “background regulation” over casinos and racetracks would exist even under a complete repeal of the law.

As to the second factor – whether the leagues would suffer “irreparable harm” – Judge Shipp focused specified three distinct types of harm. First, he noted that since it appeared that New Jersey is violating a federal law (PASPA), irreparable harm is presumed because “[c]onstitutional and statutory violations often cannot be adequately remedied through damages and therefore generally constitute irreparable harm.”

The second type of irreparable harm that Judge Shipp found (at least preliminarily) was “reputational harm” to the leagues. The leagues had argued that they would sustain irreparable harm to their “reputation” because sports betting on their own games “will result in a negative effect on the perception of their games and relationship with their fans.” Calling this “a very real harm,” Judge Shipp observed that “the Third Circuit, and this Court, have already found ‘a link between legalizing sports betting and a harm to the integrity of [plaintiffs’] games,’ and a resulting increase in a negative perception or reputation associated with the plaintiffs.”

Judge Shipp also found irreparable harm to exist at this early stage based on the increased incentive for “game-rigging” due to expanded sports betting. Quoting from the Third Circuit’s opinion, Judge Shipp stated that “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.” Thus, he reasoned, this spread of sports betting “would engender the very ills that PASPA sought to combat.” He agreed with the leagues that the 2014 Law’s “carve-out” for collegiate games occurring in the state or involving New Jersey colleges “belies any argument that plaintiffs are not injured by gambling on their games.”

On the “balancing of the harms” – the third factor in a TRO analysis – Judge Shipp held that any potential harm to the New Jersey defendants was “self-inflicted” because New Jersey “should have anticipated potential hurdles towards implementing sports betting at casinos and racetracks.” Rather than spend significant sums in money in preparation for sports betting, Judge Shipp reasoned that the owners of the Monmouth Park Racetrack “could have easily waited this Court’s decision on the validity of the 2014 Law prior to taking such steps.”

As to the final factor – whether issuance of the TRO “would serve the public interest” – Judge Shipp alluded to the fact that the case had been filed only a few days earlier and that the briefing on the motion – which raised questions of “utmost public importance” -- had concluded only the day before. In view of this limited time-frame, Judge Shipp held that “the public interest is [best] served by preserving the status quo until the merits of a serious controversy can be fully considered by the court.”

New Jersey Nearly Secured the Right to Offer Wagering on Other Sports

Despite ruling against New Jersey at this stage, Judge Shipp nearly opened the door for legal sports betting on soccer, tennis, golf, boxing, and mixed martial arts. Towards the end of the hearing, Ronald Riccio, the lawyer representing the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park Racetrack), asked for clarification on whether the scope of the TRO was “limited to the plaintiffs’ games and not other sporting contests that the plaintiffs have no interest in.” Judge Shipp responded by saying “right now – the scope is limited to the application  that’s been put before the Court which is limited to the plaintiffs’ games.” That statement provided some hope (at least temporarily) for Monmouth Park, which was poised to offer sports wagering on everything but NBA, NFL, MLB, NHL and NCAA contests. This would have been a huge victory for New Jersey, as it would have opened the door to limited sports betting. And once that door opens, it would be hard to close.

Within a couple of hours, Judge Shipp had a change of heart.  Late in the day Friday, he issued a written order stating that the New Jersey Thoroughbred Horsemen’s Association and the New Jersey Sports and Exposition Authority “are restrained from conducting sports wagering at Monmouth Park.” The words “sports wagering” are not specific to a particular league or sport – it encompasses all sporting events. Judge Shipp explained his action in an addendum to the transcript, stating that:

Upon further consideration of the question posed by counsel . . . . as to the scope of the temporary restraining order, this court finds that the temporary restraining order restrains the implementation, enforcing, or taking any action pursuant to [the 2014 Law], and would apply to any lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly, on one or more competitive games in which amateur or professional athletes compete, or are intended to participate, or on one or more performances of such athletes in such games.

To avoid any confusion, Judge Shipp then clarified that “[t]he scope of [the] restraints is NOT limited to the games sponsored by the plaintiffs’ leagues."

This aspect of the ruling appears problematic in several respects. First, the sports federations governing soccer, golf, tennis, boxing and mixed martial arts are not parties in this case, and certainly did not ask for such relief. Second, and more fundamentally, how can the four major professional sports leagues and the NCAA claim that their leagues and games would be irreparably harmed if a small New Jersey racetrack accepted wagers on tennis matches? The answer is they can’t. While PASPA is certainly broad enough to encompass all professional sporting events, it may have been premature for the judge to enjoin betting on other sporting events, especially at the TRO stage (where a showing of irreparable harm must be made).

The Leagues Will Likely Prevail at the Preliminary Injunction Hearing

Friday’s court order decided only the motion for a temporary restraining order filed by the four professional sports leagues and the NCAA on Tuesday.  Left unresolved – for now – was the leagues’ request for a preliminary injunction (included within the same set of motion papers). A temporary restraining order preserves the status quo (e.g., no sports betting) only until a hearing on the motion for preliminary injunction can be held. By contrast, a preliminary injunction preserves the status quo for the balance of the case (through and including the trial and any possible appeals).

The TRO remains in place until November 21. It was originally set to expire on November 7 under Federal Rule of Civil Procedure 65(b)(2), but Judge Shipp extended the TRO “for good cause and by the consent of the parties” in order to afford the parties an opportunity for supplemental briefing in advance of oral argument on the leagues’ pending application for a preliminary injunction.

Judge Shipp has scheduled oral argument on the leagues’ application for a preliminary injunction for November 20th. Can we expect a different outcome?  Don’t bet on it. The leagues are undefeated before Judge Shipp, having prevailed in three consecutive significant motions: the motion to dismiss and the motion for summary judgment in Christie I, and the motion for a temporary restraining order in Christie II (the current case). Further, by virtue of granting the motion for temporary restraining order, Judge Shipp has already telegraphed how he will likely rule on the motion for preliminary injunction since they are governed by the same standard.  While many believe that the TRO was just a “place-holder” until he could resolve the motion following a hearing (and Judge Shipp did hint at this in his oral ruling), the fact remains that a TRO does not issue unless the moving party can demonstrate a reasonable probability of success on the merits, irreparable harm, greater harm than the other side, and a showing that a TRO will serve the public interest. Having already satisfied each of these elements for purposes of the TRO, the leagues remain the odds-on favorite to obtain a preliminary injunction that is governed by the exact same legal standard in front of a federal judge before whom they have never lost.

Friday’s Ruling Was Foreshadowed by Judge Shipp’s Prior Decision

Judge Shipp’s prior rulings also shed light on why he granted the temporary restraining order. In his February 28, 2013 Order granting summary judgment to the leagues in Christie I, Judge Shipp made plain that a repeal or amendment of PASPA was the only pathway for legal sports betting in New Jersey. He wrote that “[t]o the extent that the people of New Jersey disagree with PASPA, their remedy is not through passage of a state law, but through the repeal or amendment of PASPA in Congress.” (italics added). Taken literally, these words would seem to be the death knell for any state legislative “work-around" (which arguably is what New Jersey has done here, although it does appear to satisfy the Third Circuit language.).

In his earlier order, Judge Shipp also made a specific finding of “irreparable harm” to justify the granting of a permanent injunction in that case. On that point, he wrote that the spread of state-sponsored sports betting "would engender the very ills that PASPA sought to combat.” This foreshadowed his statement on Friday, in ruling from the bench, that the leagues would be irreparably harmed by a partial repeal of the law because “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.”  Judge Shipp is unlikely to do a 180-degree on the issue of irreparable harm in just a few short weeks. He has already made his position (read: ruling) on this issue clear in his TRO ruling.

Irreparable Harm May Still Be In Play

Although Judge Shipp siding with the leagues following a preliminary injunction hearing appears to be a fait accompli, New Jersey still needs to make a record for its eventual appeal to the Third Circuit.  In countering the leagues’ claim of irreparable harm, New Jersey will highlight events occurring subsequent to Christie I. They will point to NBA Commissioner Adam Silver’s recent statement that expanded legal sports betting is "inevitable" and that the NBA is open to "participating" in it (suggesting that the NBA’s acquiescence on sports betting is available for "the right price"). New Jersey will also emphasize the leagues' recent embrace of daily fantasy sports leagues (which many have characterized as akin to sports betting), as evidenced by lucrative team sponsorship deals with FanDuel and Draft Kings (the two largest daily fantasy sports operators). These recent events post-date Christie I and may be key to New Jersey's efforts to rebut irreparable harm. Although raised previously without much success, New Jersey will again note that the leagues host games in jurisdictions (e.g., Las Vegas, London, and Canada) where sports betting is legal, and that extensive gambling has occurred on sporting events for many years without injuring the leagues or their reputations. Additionally, New Jersey could point to the astronomical growth of the leagues while sports wagering (both legal and illegal) has increased ten-fold (from $50 billion to approximately $500 billion) since the early 1990’s. While this is not likely to sway Judge Shipp, it may persuade the Third Circuit (which has not previously considered the issue of irreparable harm in this context). 

New Jersey’s lawyers will also attempt to show that any harm to the leagues through expanded sports betting is greatly “outweighed” by the real, tangible harm that would be suffered by Monmouth Park Racetrack (and other New Jersey casinos and racetracks) if a preliminary injunction were entered. This is a critical element on a motion for a preliminary injunction. “Irreparable harm” by itself is not enough; the leagues also need to show that the harm they would suffer from sports betting occurring is worse than the losses that would be sustained by New Jersey without sports betting. While the leagues would point to a “reputational injury” through the "negative perceptions" on the part of fans that the leagues' games might be fixed, the fact remains that the leagues have thrived financially while sports betting has increased exponentially. By contrast, the harm suffered by New Jersey would appear to be more real and tangible: casinos closing their doors, the loss of thousands of jobs, adverse economic impact (e.g., decline in tourism), and lost tax revenue (due to shuttered casinos and racetracks). Sports wagering is widely seen as a lifeline for New Jersey’s struggling casinos and racetracks, and an injunction could sound the death knell for these businesses. The “balancing of the harms” would thus appear to heavily favor New Jersey and militate against the granting of a preliminary injunction. But not according to Judge Shipp, who summarily dispatched with this inquiry by saying that "much of this harm is self-inflicted" because Monmouth Park spent "great sums of money" without waiting for a court ruling. Such a statement, lifted directly from the leagues' reply brief, ignores all of the prospective or future harm that would likely be sustained by Monmouth Park if it were prevented from offering sports betting. Expect this to be a key issue in any Third Circuit appeal.

The Absence of the DOJ was a Strategic Decision to Avoid Judicial Estoppel

Conspicuous by its absence from last week’s court filing was the Department of Justice, which has standing to enforce PASPA in federal court. Indeed, the DOJ was an active participant in Christie I. Many have wondered why the DOJ was not added to last week's complaint or motion. While the leagues have publicly stated that nothing should be read into the DOJ’s absence, I suspect that the DOJ’s exclusion from this lawsuit was by design: to distance the leagues from prior statements made by United States Attorney Paul Fishman and United States Solicitor General Donald Verrilli, Jr. that a “repeal” of the state-law prohibition against sports betting would not violate PASPA and to avoid the preclusive effect of such statements. In his Third Circuit brief, Mr. Fishman wrote that “nothing in [PASPA] requires New Jersey to maintain or enforce its sports wagering prohibitions.” Later, when asked at the June 26, 2013 oral argument whether New Jersey could “repeal” its ban against sports wagering, Mr. Fishman responded "as a matter of law, it could." When further pressed by the Third Circuit panel if such a repeal would violate PASPA, Mr. Fishman responded by saying "no." The U.S. Solicitor General reaffirmed this position ten months later in a filing with the Supreme Court when he stated that "PASPA does not even obligate New Jersey to leave in place state-law prohibitions against sports gambling that it had chosen to adopt prior to PASPA's enactment. To the contrary, New Jersey is free to repeal those prohibitions in whole or in part." (United States Brief to the Supreme Court in Opposition to Petitions for Writ of Certiorari (Nos. 13-967, 13-979 & 13-980), dated May 14, 2014, at p. 11)

The Third Circuit appeared to adopt Mr. Fishman's concession in its written decision. In rejecting New Jersey's contention that PASPA violated the United States Constitution because it "commandeered" New Jersey's authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting, the Third Circuit observed that "we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." National Collegiate Athletic Ass'n v. Christie, 730 F.3d 208, 232 (3d Cir. 2013). Echoing Mr. Fishman's comments at oral argument, the Third Circuit stated that "under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.” Id. at 233.

Under the doctrine of judicial estoppel, parties are precluded from advancing a position in litigation that is inconsistent with one previously asserted in another judicial proceeding. Judicial estoppel generally prevents a party from prevailing in one phase of a case on a particular argument and then relying on a contrary argument to prevail in another phase against the same party. The purpose of the doctrine is to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment.

Thus, the DOJ's inclusion in the new lawsuit would be extremely problematic for the leagues. If the DOJ were joined as a co-plaintiff in the new lawsuit, New Jersey would have a much better chance of prevailing on a judicial estoppel argument. Although the leagues made similar statements in Christie I, none approach the explicitness of the DOJ’s concession that a “repeal” (even one that is partial) would not violate PASPA. Thus, it appears that the leagues made a strategic decision to distance themselves from the DOJ’s prior statements by filing the latest lawsuit without the joinder of the DOJ in order to avoid the application of the doctrine of judicial estoppel. That strategy has already borne fruit. In his ruling from the bench on Friday, Judge Shipp dismissed New Jersey's arguments centered on the DOJ's prior statements, observing that since the DOJ is not a party to the lawsuit, "the leagues are not bound to those conclusions." Expect this issue to resurface several ways. First, New Jersey could argue that the leagues made similar concessions in Christie I and were aligned with the DOJ's position in any event. Alternatively, New Jersey could move to dismiss the leagues' latest lawsuit for failure to join an indispensable party (the DOJ), or it could assert a third-party complaint against the DOJ in the same action seeking a declaratory judgment that the 2014 Law does not violate PASPA. In the end, the DOJ’s prior statements likely play a major role in the case.

This Dispute is Headed to the Third Circuit (but not until December)

Judge Shipp will not be the final word on this controversy. Just like its predecessor, this case is ultimately going to be decided by the Third Circuit. If (read: when) Judge Shipp issues a preliminary injunction following the November hearing, New Jersey will appeal that ruling. It is in this for the long haul. Although the filing of a notice of appeal ordinarily divests the district court of jurisdiction, in an appeal from an order granting a preliminary injunction, the district court may nevertheless proceed to determine the action on the merits. Thus, while the appeal of the preliminary injunction is before the Third Circuit, Judge Shipp would retain jurisdiction over the lawsuit and entertain the leagues' expected motion for summary judgment (which he would likely grant). Look for the notice of appeal (on the preliminary injunction) to be filed in December (assuming that Judge Shipp enters his written order before the end of November). New Jersey will then ask the Third Circuit to expedite the appeal based on the harm that would be suffered by its casinos and racetracks through any delay. If the appeal is expedited (as I would expect), all briefing would likely be concluded in March, setting the stage for an oral argument before the Third Circuit in the Spring of 2015. Of course, by that point, Judge Shipp will likely have already granted the leagues' motion for summary judgment, and New Jersey will appeal that ruling as well and ask that it be consolidated with the appeal of the preliminary injunction. That may delay the ruling by the Third Circuit since there would be additional briefing on the appeal of the final summary judgment. At this rate, a decision by the Third Circuit would likely not be made until the late Spring or early Summer, but certainly before the start of the 2015 NFL season. Thus, as a practical matter, you should not expect to see any legal sports betting in New Jersey for at least six more months (maybe longer) and that would depend, of course, on New Jersey ultimately prevailing on its appeal before the Third Circuit.

Sunday, October 26, 2014

Federal Judge Blocks NJ Sports Betting: What's Next?

Less than 48 hours before Monmouth Park Racetrack was scheduled to open the first legal sports book in New Jersey (and with crowds expected to top 10,000 people for this historic event), a federal court judge put a temporary halt to those plans. On Friday, U.S. District Judge Michael A. Shipp entered a temporary restraining order prohibiting the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park) and the New Jersey Sports and Exposition Authority (the owner of the land) “from conducting sports wagering at Monmouth Park.” Additionally, the order temporarily enjoins the New Jersey defendants (including Governor Christie and the New Jersey Legislature) from “sponsoring, operating, advertising, promoting, licensing or authorizing” sports wagering schemes or “implementing, enforcing, or taking any action pursuant to New Jersey Senate Bill 2460 (the law partially repealing the state law ban against sports wagering). The order further states that these restraints “shall remain in effect until this Court resolves [the pending] application for a preliminary injunction.”

The Judge’s Preliminary Findings

Although the written order does not contain any specific findings of fact or conclusions of law, the official transcript of last Friday’s court proceedings lays out the judge’s rationale for issuing the TRO. After evaluating the four factors which govern the TRO analysis (discussed below in greater detail), Judge Shipp concluded that the leagues “were entitled to a temporary restraining order to maintain the status quo pending full consideration of their application for a preliminary injunction.” The transcript is replete with statements by the judge to the effect that there was insufficient time to fully consider the merits of the motion since there were numerous briefs filed, with the last brief filed just one day earlier and sports betting due to begin at Monmouth Park that weekend.

Nonetheless, Judge Shipp said plenty on the record that should give proponents of expanded sports betting cause for concern. As to the first factor – “likelihood of success on the merits,” Judge Shipp acknowledged that the core issue was whether New Jersey’s “partial repeal” (exempting only state-licensed casinos and state-licensed racetracks from the state-law ban on sports betting) followed the path set out by the Third Circuit in the prior case involving the same parties. In National Collegiate Athletic Ass'n v. Governor of New Jersey, 730 F.3d 208 (3d Cir. 2013) (“Christie I”), New Jersey had argued that the Professional and Amateur Sports Protection Act (“PASPA”), which prohibits “state-sponsored” sports betting, violated the Tenth Amendment because it "commandeered" New Jersey's legislative authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting.

In rejecting that argument, the Third Circuit stated “we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." The court explained that a “repeal” of state-law prohibitions against sports betting would not violate PASPA, explaining:

[PASPA] . . . leave[s] much room for states to make their own policy. Thus, under PASPA, on the one hand, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.”

Id. at 233 (emphasis added). In the current case, New Jersey is arguing that its new law, Senate Bill 2460 (the “2014 Law”) fits within the parameters of the Third Circuit majority opinion because it merely “repeals” state-law prohibitions and does not "authorize" or "sponsor" sports betting (which would be a violation of PASPA).

Judge Shipp did not appear to be persuaded by this argument. While acknowledging that the 2014 Law “is styled as a ‘repeal,’ and at first blush, it appears to be an attempt to comply with the Third Circuit’s interpretation of PASPA in Christie I,” Judge Shipp pointed out that the new law “repeals prohibitions on sports wagering in the state only so much, so that the state may keep some restrictions over the activity.” He noted that the 2014 Law contains “several exclusions,” most notably, an exemption for “Atlantic City casinos or current or former horse racetracks.” This statement reveals that Judge Shipp may have been troubled by the fact that the partial repeal was limited to state-licensed casinos and state-licensed racetracks. While not saying it in so many words, Judge Shipp seemed concerned that New Jersey would be able to “regulate” sports betting (forbidden by PASPA) through its extensive regulatory oversight over casinos and racetracks generally. He may have been skeptical that a “Chinese Wall” could realistically be constructed between a casino’s regular gaming operations and its sports book (which, by law, would have to be housed in the same facility). But, as New Jersey countered in its court filing, the same “background regulation” over casinos and racetracks would exist even under a complete repeal of the law.

As to the second factor – whether the leagues would suffer “irreparable harm” – Judge Shipp focused specified three distinct types of harm. First, he noted that since it appeared that New Jersey is violating a federal law (PASPA), irreparable harm is presumed because “[c]onstitutional and statutory violations often cannot be adequately remedied through damages and therefore generally constitute irreparable harm.”

The second type of irreparable harm that Judge Shipp found (at least preliminarily) was “reputational harm” to the leagues. The leagues had argued that they would sustain irreparable harm to their “reputation” because sports betting on their own games “will result in a negative effect on the perception of their games and relationship with their fans.” Calling this “a very real harm,” Judge Shipp observed that “the Third Circuit, and this Court, have already found ‘a link between legalizing sports betting and a harm to the integrity of [plaintiffs’] games,’ and a resulting increase in a negative perception or reputation associated with the plaintiffs.”

Judge Shipp also found irreparable harm to exist at this early stage based on the increased incentive for “game-rigging” due to expanded sports betting. Quoting from the Third Circuit’s opinion, Judge Shipp stated that “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.” Thus, he reasoned, this spread of sports betting “would engender the very ills that PASPA sought to combat.” He agreed with the leagues that the 2014 Law’s “carve-out” for collegiate games occurring in the state or involving New Jersey colleges “belies any argument that plaintiffs are not injured by gambling on their games.”

On the “balancing of the harms” – the third factor in a TRO analysis – Judge Shipp held that any potential harm to the New Jersey defendants was “self-inflicted” because New Jersey “should have anticipated potential hurdles towards implementing sports betting at casinos and racetracks.” Rather than spend significant sums in money in preparation for sports betting, Judge Shipp reasoned that the owners of the Monmouth Park Racetrack “could have easily waited this Court’s decision on the validity of the 2014 Law prior to taking such steps.”

As to the final factor – whether issuance of the TRO “would serve the public interest” – Judge Shipp alluded to the fact that the case had been filed only a few days earlier and that the briefing on the motion – which raised questions of “utmost public importance” -- had concluded only the day before. In view of this limited time-frame, Judge Shipp held that “the public interest is [best] served by preserving the status quo until the merits of a serious controversy can be fully considered by the court.”

New Jersey Nearly Secured the Right to Offer Wagering on Other Sports

Despite ruling against New Jersey at this stage, Judge Shipp nearly opened the door for legal sports betting on soccer, tennis, golf, boxing, and mixed martial arts. Towards the end of the hearing, Ronald Riccio, the lawyer representing the New Jersey Thoroughbred Horsemen’s Association (the operator of Monmouth Park Racetrack), asked for clarification on whether the scope of the TRO was “limited to the plaintiffs’ games and not other sporting contests that the plaintiffs have no interest in.” Judge Shipp responded by saying “right now – the scope is limited to the application  that’s been put before the Court which is limited to the plaintiffs’ games.” That statement provided some hope (at least temporarily) for Monmouth Park, which was poised to offer sports wagering on everything but NBA, NFL, MLB, NHL and NCAA contests. This would have been a huge victory for New Jersey, as it would have opened the door to limited sports betting. And once that door opens, it would be hard to close.

Within a couple of hours, Judge Shipp had a change of heart.  Late in the day Friday, he issued a written order stating that the New Jersey Thoroughbred Horsemen’s Association and the New Jersey Sports and Exposition Authority “are restrained from conducting sports wagering at Monmouth Park.” The words “sports wagering” are not specific to a particular league or sport – it encompasses all sporting events. Judge Shipp explained his action in an addendum to the transcript, stating that:

Upon further consideration of the question posed by counsel . . . . as to the scope of the temporary restraining order, this court finds that the temporary restraining order restrains the implementation, enforcing, or taking any action pursuant to [the 2014 Law], and would apply to any lottery, sweepstakes, or other betting, gambling, or wagering scheme based, directly or indirectly, on one or more competitive games in which amateur or professional athletes compete, or are intended to participate, or on one or more performances of such athletes in such games.

To avoid any confusion, Judge Shipp then clarified that “[t]he scope of [the] restraints is NOT limited to the games sponsored by the plaintiffs’ leagues."

This aspect of the ruling appears problematic in several respects. First, the sports federations governing soccer, golf, tennis, boxing and mixed martial arts are not parties in this case, and certainly did not ask for such relief. Second, and more fundamentally, how can the four major professional sports leagues and the NCAA claim that their leagues and games would be irreparably harmed if a small New Jersey racetrack accepted wagers on tennis matches? The answer is they can’t. While PASPA is certainly broad enough to encompass all professional sporting events, it may have been premature for the judge to enjoin betting on other sporting events, especially at the TRO stage (where a showing of irreparable harm must be made).

The Leagues Will Likely Prevail at the Preliminary Injunction Hearing

Friday’s court order decided only the motion for a temporary restraining order filed by the four professional sports leagues and the NCAA on Tuesday.  Left unresolved – for now – was the leagues’ request for a preliminary injunction (included within the same set of motion papers). A temporary restraining order preserves the status quo (e.g., no sports betting) only until a hearing on the motion for preliminary injunction can be held. By contrast, a preliminary injunction preserves the status quo for the balance of the case (through and including the trial and any possible appeals).

The TRO remains in place until November 21. It was originally set to expire on November 7 under Federal Rule of Civil Procedure 65(b)(2), but Judge Shipp extended the TRO “for good cause and by the consent of the parties” in order to afford the parties an opportunity for supplemental briefing in advance of oral argument on the leagues’ pending application for a preliminary injunction.

Judge Shipp has scheduled oral argument on the leagues’ application for a preliminary injunction for November 20th. Can we expect a different outcome?  Don’t bet on it. The leagues are undefeated before Judge Shipp, having prevailed in three consecutive significant motions: the motion to dismiss and the motion for summary judgment in Christie I, and the motion for a temporary restraining order in Christie II (the current case). Further, by virtue of granting the motion for temporary restraining order, Judge Shipp has already telegraphed how he will likely rule on the motion for preliminary injunction since they are governed by the same standard.  While many believe that the TRO was just a “place-holder” until he could resolve the motion following a hearing (and Judge Shipp did hint at this in his oral ruling), the fact remains that a TRO does not issue unless the moving party can demonstrate a reasonable probability of success on the merits, irreparable harm, greater harm than the other side, and a showing that a TRO will serve the public interest. Having already satisfied each of these elements for purposes of the TRO, the leagues remain the odds-on favorite to obtain a preliminary injunction that is governed by the exact same legal standard in front of a federal judge before whom they have never lost.

Friday’s Ruling Was Foreshadowed by Judge Shipp’s Prior Decision

Judge Shipp’s prior rulings also shed light on why he granted the temporary restraining order. In his February 28, 2013 Order granting summary judgment to the leagues in Christie I, Judge Shipp made plain that a repeal or amendment of PASPA was the only pathway for legal sports betting in New Jersey. He wrote that “[t]o the extent that the people of New Jersey disagree with PASPA, their remedy is not through passage of a state law, but through the repeal or amendment of PASPA in Congress.” (italics added). Taken literally, these words would seem to be the death knell for any state legislative “work-around" (which arguably is what New Jersey has done here, although it does appear to satisfy the Third Circuit language.).

In his earlier order, Judge Shipp also made a specific finding of “irreparable harm” to justify the granting of a permanent injunction in that case. On that point, he wrote that the spread of state-sponsored sports betting "would engender the very ills that PASPA sought to combat.” This foreshadowed his statement on Friday, in ruling from the bench, that the leagues would be irreparably harmed by a partial repeal of the law because “[m]ore legal gambling leads to more total gambling, which in turns leads to an increased incentive to fix plaintiffs’ matches.”  Judge Shipp is unlikely to do a 180-degree on the issue of irreparable harm in just a few short weeks. He has already made his position (read: ruling) on this issue clear in his TRO ruling.

Irreparable Harm May Still Be In Play

Although Judge Shipp siding with the leagues following a preliminary injunction hearing appears to be a fait accompli, New Jersey still needs to make a record for its eventual appeal to the Third Circuit.  In countering the leagues’ claim of irreparable harm, New Jersey will highlight events occurring subsequent to Christie I. They will point to NBA Commissioner Adam Silver’s recent statement that expanded legal sports betting is "inevitable" and that the NBA is open to "participating" in it (suggesting that the NBA’s acquiescence on sports betting is available for "the right price"). New Jersey will also emphasize the leagues' recent embrace of daily fantasy sports leagues (which many have characterized as akin to sports betting), as evidenced by lucrative team sponsorship deals with FanDuel and Draft Kings (the two largest daily fantasy sports operators). These recent events post-date Christie I and may be key to New Jersey's efforts to rebut irreparable harm. Although raised previously without much success, New Jersey will again note that the leagues host games in jurisdictions (e.g., Las Vegas, London, and Canada) where sports betting is legal, and that extensive gambling has occurred on sporting events for many years without injuring the leagues or their reputations. Additionally, New Jersey could point to the astronomical growth of the leagues while sports wagering (both legal and illegal) has increased ten-fold (from $50 billion to approximately $500 billion) since the early 1990’s. While this is not likely to sway Judge Shipp, it may persuade the Third Circuit (which has not previously considered the issue of irreparable harm in this context). 

New Jersey’s lawyers will also attempt to show that any harm to the leagues through expanded sports betting is greatly “outweighed” by the real, tangible harm that would be suffered by Monmouth Park Racetrack (and other New Jersey casinos and racetracks) if a preliminary injunction were entered. This is a critical element on a motion for a preliminary injunction. “Irreparable harm” by itself is not enough; the leagues also need to show that the harm they would suffer from sports betting occurring is worse than the losses that would be sustained by New Jersey without sports betting. While the leagues would point to a “reputational injury” through the "negative perceptions" on the part of fans that the leagues' games might be fixed, the fact remains that the leagues have thrived financially while sports betting has increased exponentially. By contrast, the harm suffered by New Jersey would appear to be more real and tangible: casinos closing their doors, the loss of thousands of jobs, adverse economic impact (e.g., decline in tourism), and lost tax revenue (due to shuttered casinos and racetracks). Sports wagering is widely seen as a lifeline for New Jersey’s struggling casinos and racetracks, and an injunction could sound the death knell for these businesses. The “balancing of the harms” would thus appear to heavily favor New Jersey and militate against the granting of a preliminary injunction. But not according to Judge Shipp, who summarily dispatched with this inquiry by saying that "much of this harm is self-inflicted" because Monmouth Park spent "great sums of money" without waiting for a court ruling. Such a statement, lifted directly from the leagues' reply brief, ignores all of the prospective or future harm that would likely be sustained by Monmouth Park if it were prevented from offering sports betting. Expect this to be a key issue in any Third Circuit appeal.

The Absence of the DOJ was a Strategic Decision to Avoid Judicial Estoppel

Conspicuous by its absence from last week’s court filing was the Department of Justice, which has standing to enforce PASPA in federal court. Indeed, the DOJ was an active participant in Christie I. Many have wondered why the DOJ was not added to last week's complaint or motion. While the leagues have publicly stated that nothing should be read into the DOJ’s absence, I suspect that the DOJ’s exclusion from this lawsuit was by design: to distance the leagues from prior statements made by United States Attorney Paul Fishman and United States Solicitor General Donald Verrilli, Jr. that a “repeal” of the state-law prohibition against sports betting would not violate PASPA and to avoid the preclusive effect of such statements. In his Third Circuit brief, Mr. Fishman wrote that “nothing in [PASPA] requires New Jersey to maintain or enforce its sports wagering prohibitions.” Later, when asked at the June 26, 2013 oral argument whether New Jersey could “repeal” its ban against sports wagering, Mr. Fishman responded "as a matter of law, it could." When further pressed by the Third Circuit panel if such a repeal would violate PASPA, Mr. Fishman responded by saying "no." The U.S. Solicitor General reaffirmed this position ten months later in a filing with the Supreme Court when he stated that "PASPA does not even obligate New Jersey to leave in place state-law prohibitions against sports gambling that it had chosen to adopt prior to PASPA's enactment. To the contrary, New Jersey is free to repeal those prohibitions in whole or in part." (United States Brief to the Supreme Court in Opposition to Petitions for Writ of Certiorari (Nos. 13-967, 13-979 & 13-980), dated May 14, 2014, at p. 11)

The Third Circuit appeared to adopt Mr. Fishman's concession in its written decision. In rejecting New Jersey's contention that PASPA violated the United States Constitution because it "commandeered" New Jersey's authority by effectively requiring it to maintain unwanted state-law prohibitions on sports betting, the Third Circuit observed that "we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering." National Collegiate Athletic Ass'n v. Christie, 730 F.3d 208, 232 (3d Cir. 2013). Echoing Mr. Fishman's comments at oral argument, the Third Circuit stated that "under PASPA, a state may repeal its sports wagering ban, a move that will result in the expenditure of no resources or effort by any state official. On the other hand, a state may choose to keep a complete ban on sports gambling, but it is left up to each state to decide how much of a law enforcement priority it wants to make of sports gambling, or what the exact contours of the prohibition will be.” Id. at 233.

Under the doctrine of judicial estoppel, parties are precluded from advancing a position in litigation that is inconsistent with one previously asserted in another judicial proceeding. Judicial estoppel generally prevents a party from prevailing in one phase of a case on a particular argument and then relying on a contrary argument to prevail in another phase against the same party. The purpose of the doctrine is to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment.

Thus, the DOJ's inclusion in the new lawsuit would be extremely problematic for the leagues. If the DOJ were joined as a co-plaintiff in the new lawsuit, New Jersey would have a much better chance of prevailing on a judicial estoppel argument. Although the leagues made similar statements in Christie I, none approach the explicitness of the DOJ’s concession that a “repeal” (even one that is partial) would not violate PASPA. Thus, it appears that the leagues made a strategic decision to distance themselves from the DOJ’s prior statements by filing the latest lawsuit without the joinder of the DOJ in order to avoid the application of the doctrine of judicial estoppel. That strategy has already borne fruit. In his ruling from the bench on Friday, Judge Shipp dismissed New Jersey's arguments centered on the DOJ's prior statements, observing that since the DOJ is not a party to the lawsuit, "the leagues are not bound to those conclusions." Expect this issue to resurface several ways. First, New Jersey could argue that the leagues made similar concessions in Christie I and were aligned with the DOJ's position in any event. Alternatively, New Jersey could move to dismiss the leagues' latest lawsuit for failure to join an indispensable party (the DOJ), or it could assert a third-party complaint against the DOJ in the same action seeking a declaratory judgment that the 2014 Law does not violate PASPA. In the end, the DOJ’s prior statements likely play a major role in the case.

This Dispute is Headed to the Third Circuit (but not until December)

Judge Shipp will not be the final word on this controversy. Just like its predecessor, this case is ultimately going to be decided by the Third Circuit. If (read: when) Judge Shipp issues a preliminary injunction following the November hearing, New Jersey will appeal that ruling. It is in this for the long haul. Although the filing of a notice of appeal ordinarily divests the district court of jurisdiction, in an appeal from an order granting a preliminary injunction, the district court may nevertheless proceed to determine the action on the merits. Thus, while the appeal of the preliminary injunction is before the Third Circuit, Judge Shipp would retain jurisdiction over the lawsuit and entertain the leagues' expected motion for summary judgment (which he would likely grant). Look for the notice of appeal (on the preliminary injunction) to be filed in December (assuming that Judge Shipp enters his written order before the end of November). New Jersey will then ask the Third Circuit to expedite the appeal based on the harm that would be suffered by its casinos and racetracks through any delay. If the appeal is expedited (as I would expect), all briefing would likely be concluded in March, setting the stage for an oral argument before the Third Circuit in the Spring of 2015. Of course, by that point, Judge Shipp will likely have already granted the leagues' motion for summary judgment, and New Jersey will appeal that ruling as well and ask that it be consolidated with the appeal of the preliminary injunction. That may delay the ruling by the Third Circuit since there would be additional briefing on the appeal of the final summary judgment. At this rate, a decision by the Third Circuit would likely not be made until the late Spring or early Summer, but certainly before the start of the 2015 NFL season. Thus, as a practical matter, you should not expect to see any legal sports betting in New Jersey for at least six more months (maybe longer) and that would depend, of course, on New Jersey ultimately prevailing on its appeal before the Third Circuit.

Thursday, October 23, 2014

NJ Sports Betting Chances Boosted by Strong Response to TRO Motion; Oral Argument Likely

With an hourly rate of $1,800, Ted Olson may be the most expensive lawyer in the country. But, as his pedigree and track record prove (e.g., Bush v. Gore, Proposition 8, etc.), he is worth every penny. He demonstrated it again last evening with a masterful brief filed in opposition to the leagues' motion for a temporary restraining order and preliminary injunction. His persuasive and well-written brief (filed on behalf of Governor Christie) sets the stage for Judge Shipp to schedule oral argument tomorrow on whether a temporary restraining order should immediately issue against Monmouth Park Racetrack, which has announced plans to offer sports wagering to its patrons beginning this Sunday. Based on the strength of the response briefs (including those filed by the other New Jersey defendants), it also appears likely that Judge Shipp will also schedule a hearing for mid-November on the motion for preliminary injunction, which seeks an injunction of much longer duration than the temporary restraining order.

Here are the highlights of the New Jersey response (drawing mostly from Olson's brief) [to be updated periodically]:
  • Partial Repeal Expressly Permitted by Third Circuit Opinion 
In response to the leagues' argument that New Jersey's new legislation (a partial repeal of the sports betting ban, but limited to casinos and racetracks) is a "de facto authorization" of sports betting because casinos and racetracks remain subject to state licensing and regulation, Olson argues that New Jersey is doing precisely what the Third Circuit opinion allows. He writes that "[t]he 2014 Act's partial repeal of the State's prohibition on sports wagering tracks precisely what the Third Circuit held is permitted by PASPA. As the United States explained, under the Their Circuit's decision, PASPA permits States to repeal their prohibitions on sports wagering 'in whole or in part.' That is exactly what New Jersey has done." Olson adds that the Third Circuit opinion further specified that the New Jersey defendants "were permitted to specify what the exact contours of the prohibition [on sports wagering] will be." 
  •  Leagues & DOJ told Court in 2013 That Repeal Would be Legally Permissible
Olson also highlights prior statements made by United States Attorney Paul Fishman and league counsel Jeffrey Mishkin (at the Third Circuit oral argument) agreeing that a repeal would be permissible under ASPA. "In response to New Jersey's argument that PASPA violated the United States Constitution because it commandeered New Jersey's authority by effectively requiring it to maintain unwanted state-law prohibitions on sports wagering," Olson explained that "to save PASPA from that constitutional attack," the leagues and the DOJ "repeatedly conceded that PASPA does not require New Jersey to maintain its prohibitions on sports wagering." He notes that at oral argument before the Third Circuit, Mr. Fishman acknowledged that New Jersey "could" as a matter of law repeal its ban on sports wagering. Likewise, as Olson pointed out, league attorney Mishkin conceded that "nothing in PASPA requires states to enact, maintain, or enforce any prohibitions on sports gambling." Olson then adds this zinger (perhaps channeling judicial estoppel): "Having repeatedly urged this Court, and the Third Circuit, to adopt the view that PASPA does not prevent a State from repealing prohibitions against sports wagering, Plaintiffs cannot now be heard to complain when the New Jersey Legislature did exactly that."
  •  No "Equivalence" Between "Authorization" and "Repeal"
Addressing the leagues' argument that the partial repeal of the state-law ban on sports betting is a "de facto authorization," Olson points to language in the Third Circuit opinion holding that "there is no 'equivalence' between 'repeal and authorization' and that a repeal of prohibitions on sports wagering would not 'authorize by law' that activity." He adds that "Plaintiffs cannot have it both ways; either PASPA permits States to repeal their prohibitions against sports wagering in whole or in part, as does the 2014 Act, or PASPA unconstitutionally commandeers states authority by forcing States to maintain unwanted prohibitions."
  • Leagues' "All-or-Nothing" Approach Irreconcilable with Third Circuit Ruling
In response to the leagues' argument that the partial repeal is a "half-measure" (see, even Paul Clement quotes Breaking Bad) directed only at "state-authorized gambling venues," Olson writes that the league position is "flatly contradicted" by the Third Circuit's ruling, which explained that "States remain free to define the 'contours of the[ir] prohibition -- a holding that Plaintiffs tellingly fail to acknowledge." Olson maintains that "Plaintiffs' contrary contention that PASPA permits States only the choice of an absolute prohibition on all sports wagering or no prohibitions whatsoever on sports wagering is irreconcilable with the Third Circuit's ruling, the stated position of the United States, and common sense."
  • "Background Regulation" of Casinos & Racetracks Would Occur Under Full Repeal Too
Olson also takes aim at the leagues' argument that the partial repeal is a "de facto authorization"of sports betting because only state-licensed casinos and state-licensed racetracks are benefitted and they would remain subject to extensive state regulation, thereby enabling New Jersey to "regulate"sports betting, even if indirectly. Olson makes  two great points to counter that. First, he observes that this would still be true even under a "complete repeal" of the ban against sports wagering. Olson writes that "[i]f background regulation of other activities at casinos and racetracks constitutes an authorization of sports wagering, then even if a state were to take Plaintiffs' suggestion and repeal all laws against sports wagering, that background regulation, licensure and taxation of businesses still would violate PASPA (under Plaintiffs' interpretation). The choice between prohibiting sports betting and foregoing all regulation and taxation of businesses is not merely a 'hard' choice but is indeed 'no choice at all,' and therefore unconstitutional." Olson also challenges the leagues' assertion that only "state-licensed" venues are involved, pointing to language in the new law that also repeals prohibitions at 'former racetracks' which have been converted to other uses and are not regulated by the State Defendants at all." Those in the know speculate that one of the "former racetracks" that would house unregulated sports betting is Garden State Park, in Cherry Hill, NJ, right outside of Philadelphia).
  • Argument Under New Jersey Constitution Barred by Eleventh Amendment
The leagues had also argued that even if the New Jersey law is the "repeal" that it purports to be, then it would still violate Article IV, Section 7 of the New Jersey Constitution, which states that no gambling may be conducted in the State "unless it has been authorized by law by the Legislature." Olson counters by arguing that the Eleventh Amendment bars the bringing of state law claims against state officials in federal court "when--as here--the relief sought and ordered has impact directly on the State itself," and stating that "if the [leagues] want to advance such a claim, they will have to do so in state court." Alternatively, Olson adds, "nothing in the New Jersey Constitution prohibits the Legislature from repealing prohibitions on sports wagering."
  • No Irreparable Harm Because Only One Racetrack Involved + Daily Betting in Las Vegas
In their TRO motion, the leagues relied heavily on the prior finding of "irreparable harm" in Judge Shipp's 2013 order imposing a permanent injunction. But Olson argues that the prior finding of irreparable harm "does not resolve the irreparable harm question here" because that finding occurred in the context of a "violation of federal law" (PASPA) and the current New Jersey law, by contrast, "does not violate PASPA." (But what if Judge Shipp finds that the new law does violate PASPA? Did New Jersey just concede the irreparable harm issue?). Olson adds that "with no violation of federal law, Plaintiffs are left only with the argument that limited wagering at a single racetrack during the pendency of this litigation is going to cause 'immediate' irreparable harm. This argument fails the straight-face test, particularly given the volume of sports wagering that occurs daily under the auspices of Nevada law." Indeed, as Olson points out, "a judge in this Circuit previously denied a request by the NFL for a TRO on the basis that "extensive gambling in NFL games has existed for many years and [] this fact of common knowledge has not injured plaintiffs or their reputation." Nat'l Football League v. Gov. of Delaware, 435 F. Supp. 1372, 1378 (D. Del. 1977). But I would think that the 1977 decision is superseded by the more recent PASPA case-law, particularly last year's decision by Judge Shipp (as well as the Third Circuit opinion), in which New Jersey advanced the identical argument that legal sports betting in Nevada precluded a finding of irreparable harm, and lost on that issue.