N.H. Lottery Comm'n v. Barr, Consolidated Case No. 19-cv-163-PB

• Citation: 386 F.Supp.3d 132
• Decision Date: 03 June 2019
• Docket Number: Consolidated Case No. 19-cv-163-PB
• Parties: NEW HAMPSHIRE LOTTERY COMMISSION, et al. v. William BARR, in his official capacity as Attorney General of the United States of America, et al.
• Court: U.S. District Court — District of New Hampshire

386 F.Supp.3d 132

NEW HAMPSHIRE LOTTERY COMMISSION, et al.

v.William BARR, in his official capacity as Attorney General of the United States of America, et al.

Consolidated Case No. 19-cv-163-PB

United States District Court, D. New Hampshire.

Signed June 3, 2019

Francis Charles Fredericks, Anthony Galdieri (NHAG), NH Attorney General's Office, Concord, NH, for New Hampshire Lottery Commission, et al.

Steven A. Myers, Matthew J. Glover, US Department of Justice, Washington, DC, for William Barr, in his official capacity as Attorney General of the United States of America, et al.

MEMORANDUM AND ORDER

Paul Barbadoro, United States District Judge The Wire Act of 1961 criminalizes certain gambling activities that use interstate wires. In 2011, the Justice Department's Office of Legal Counsel ("OLC") issued a formal opinion declaring that the Wire Act only punishes activities associated with sports gambling. Last year, the OLC changed its mind. It now asserts that the Act also covers lotteries and other forms of gambling that do not involve sports.

The New Hampshire Lottery Commission has long offered lottery games such as Powerball that necessarily use interstate wires. Fearing that these games, which produce substantial revenue for the State, will be deemed to be criminal activities under the OLC's current interpretation of the Wire Act, the Commission filed a complaint in this court seeking both a declaratory judgment that the Act is limited to sports gambling and an order under the Administrative Procedure Act setting aside the OLC's new interpretation. One of the Commission's vendors also filed a complaint that has been joined with the current action, seeking declaratory relief.

Before me are the Government's motion to dismiss for lack of standing and the parties' cross-motions for summary judgment. As I explain below, I agree with the plaintiffs that they have standing to sue. Based on the text, context, and structure of the Wire Act, I also conclude that the Act is limited to sports gambling. Accordingly, I deny the Government's motions and grant the plaintiffs' motions for summary judgment.

I. BACKGROUND

A. The Wire Act

The relevant portion of the Wire Act provides:

Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers, shall be fined under this title or imprisoned not more than two years, or both.

18 U.S.C. § 1084(a).

Section 1084(a) consists of two clauses. The first clause makes it a crime for anyone engaged in the business of gambling to use a wire communication facility "for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest." Id. The second clause prohibits "the transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers." Id.

The key question this case presents is whether the limiting phrase "on any sporting event or contest" in § 1084(a)'s first clause modifies all references to "bets or wagers" in both clauses or only the single reference it directly follows in the first clause. If, as the OLC concluded in 2011, the sports-gambling modifier limits each reference to "bets or wagers," then both clauses apply only to sports gambling. On the other hand, if the OLC's current interpretation is correct, then § 1084(a)'s first clause prohibits the interstate transmission of both sports and non-sports bets or wagers but punishes the interstate transmission of information only if the information assists in the placing of bets or wagers on sports. It also follows from the OLC's current interpretation that § 1084(a)'s second clause is unconstrained by the sports-gambling modifier.

B. The OLC Opinions

The path that leads to both OLC opinions begins in 2009, when New York and Illinois asked the Department of Justice whether in-state sales of lottery tickets via the internet would violate the Wire Act if those sales caused information to be transmitted across state lines. The Department referred the matter to the OLC for a formal opinion. In 2011, the OLC responded by concluding that "interstate transmissions of wire communications that do not relate to ‘a sporting event or contest,’ 18 U.S.C. § 1084(a), fall outside of the reach of the Wire Act." See Virginia A. Seitz, Whether Proposals by Illinois and New York to Use the Internet and Out-of-State Transaction Processors to Sell Lottery Tickets to In-State Adults Violate the Wire Act, Memorandum Opinion for the Assistant Attorney General, Criminal Division , U.S. Dept. Just. 1 (Sept. 20, 2011) ("2011 OLC Opinion" or "2011 Opinion"), Doc. No. 2-4.

The OLC arrived at this conclusion by first determining that the phrase "on any sporting event or contest" in the first clause of § 1084(a) applies to the transmissions of both "bets or wagers" and "information assisting in the placing of bets or wagers." 2011 OLC Opinion at 5. Noting that the statutory text could be read either way, the OLC explained that it was "difficult to discern" why Congress would forbid the interstate transmission of all types of bets or wagers but only prohibit the transmission of information assisting in the placing of bets or wagers that concern sports. Id. The more reasonable inference, according to the OLC, was that Congress intended that the prohibitions "be parallel in scope." Id.

Next, the OLC concluded that the phrase "on any sporting event or contest" also modifies the references to "bets or wagers" in § 1084(a)'s second clause. Id. at 7. The OLC explained that the references to "bets or wagers" in the second clause are best understood as shorthand references to "bets or wagers on any sporting event or contest" as described in the first clause. Id. The 2011 Opinion also relied heavily on the Act's legislative history to confirm its interpretation of the section's limited scope. See id. at 6-10.

In 2018, the OLC reversed course and released a new opinion concluding that "the prohibitions of 18 U.S.C. § 1084(a) are not uniformly limited to gambling on sporting events or contests." See Steven A. Engel, Reconsidering Whether the Wire Act Applies to Non-Sports Gambling, Memorandum Opinion for the Acting Assistant Attorney General, Criminal Division , U.S. Dept. Just. 23 (Nov. 2, 2018) ("2018 OLC Opinion" or "2018 Opinion"), Doc. No. 2-5. The OLC now reasoned that the plain text of § 1084(a) unambiguously requires that all but one of the section's prohibitions apply to gambling generally. See id. at 7, 11.

The OLC based its new reading on the syntactic structure of § 1084(a). Relying heavily on a canon of statutory construction commonly referred to as the "rule of the last antecedent," the OLC concluded that the use of the sports-gambling modifier in the section's first clause applies only to the prohibition on the interstate transmission of "information assisting in the placing of bets or wagers" and not the transmission of "bets or wagers" themselves. Id. at 7-8.

The OLC then concluded that the use of the sports-gambling modifier in § 1084(a)'s first clause should not be carried forward into the section's second clause. Id. at 11. The two clauses are distinct "[a]s a matter of basic grammar" and "[i]t would take a considerable leap for the reader to carry that modifier both backward to the first prohibition of the first clause, then forward across the entire second clause," the OLC reasoned. Id.

The OLC acknowledged its earlier concern that this reading of § 1084(a) would produce anomalous results. Id. at 14-15. It concluded, however, that it was obligated to give the section the meaning suggested by its syntactic structure because the anomalies identified in the 2011 Opinion did not rise to the level of "patent absurdity." Id.

On January 15, 2019, the Deputy Attorney General instructed federal prosecutors to adhere to the OLC's 2018 Opinion. See Applicability of the Wire Act, 18 U.S.C. § 1084, to Non-Sports Gambling , U.S. Dept. Just. (Jan. 15, 2019) ("Enforcement Directive"), Doc. No. 2-6. As an exercise of prosecutorial discretion, however, they "should refrain from applying Section 1084(a) in criminal or civil actions to persons who engaged in conduct violating the Wire Act in reliance on the 2011 OLC Opinion prior to the date of this memorandum, and for 90 days thereafter." Id. The grace period was intended to allow time for businesses "to bring their operations into compliance with federal law." Id. On February 28, the Deputy Attorney General extended that window through June 14, 2019. See Additional Directive Regarding the Applicability of the Wire Act, 18 U.S.C. § 1084, to Non-Sports Gambling , U.S. Dept. Just. (Feb. 28, 2019), Doc. No. 23-1.

C. New Hampshire Lottery System

The Lottery Commission offers multiple types of lottery games. Those games include instant ticket and draw games that offer tickets for sale at brick-and-mortar retailers, multi-jurisdictional games such as Powerball and Mega Millions that permit tickets to be purchased either in stores or through the internet, and "iLottery" games that sell tickets exclusively through the internet. Each game involves the use of interstate wire transmissions.

The Lottery Commission contracts with a vendor, Intralot, Inc., to provide a computer gaming system ("CGS") to manage the games and a back-office system ("BOS") to manage inventory and sales data. Its CGS and BOS servers for traditional retailer-based lottery games are located in Barre, Vermont, with a disaster recovery location in Strongsville,...