U.S. v. Bala

• Decision Date: 06 March 2007
• Docket Number: No. 05-3691.,No. 05-3688.,No. 05-3690.,05-3688.,05-3690.,05-3691.
• Parties: UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant, v. Susan BALA, Defendant-Appellant/Cross-Appellee. United States of America, Plaintiff-Appellee, v. Racing Services, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

489 F.3d 334

UNITED STATES of America, Plaintiff-Appellee/Cross-Appellant, v. Susan BALA, Defendant-Appellant/Cross-Appellee.

United States of America, Plaintiff-Appellee, v. Racing Services, Inc., Defendant-Appellant.

No. 05-3688.

No. 05-3690.

No. 05-3691.

United States Court of Appeals, Eighth Circuit.

Submitted: September 28, 2006.

Filed: March 6, 2007.

Counsel who presented argument on behalf of the appellant Bala was Lisabeth A. McKibben, of Wayzata, MN.

Counsel who presented argument on behalf of the appellee and cross-appellant USA was David L. Peterson, AUSA, of Bismark, ND. Keith W. Reisenauer and Nicholas W. Chase, AUSAs of Fargo, ND appeared on the brief.

Counsel who presented argument on behalf of appellant and cross-appellee Racing Services was Gene W. Doeling of Fargo, ND.

Before LOKEN, Chief Judge, SMITH and GRUENDER, Circuit Judges.

LOKEN, Chief Judge.

After a lengthy trial, the jury convicted Racing Services, Inc. (RSI), and its president and sole shareholder, Susan Bala, of conducting and conspiring to conduct an illegal gambling business in violation of 18 U.S.C. §§ 1955 and 371; illegal transmission of wagering information in violation of 18 U.S.C. § 1084(a); and eight counts of money laundering and conspiracy to commit money laundering in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i), 1956(a)(1)(B)(i), and 1956(h). For forfeiture purposes, the jury subsequently found the amounts involved in each defendant's illegal gambling and money laundering offenses — $99,013,200 as to RSI and $19,719,186.06 as to Bala. The district court sentenced Bala to 27 months in prison, ordered her to forfeit $19,719,186.06, and held her jointly and severally liable for RSI's forfeiture of $99,013,200. Bala appeals, arguing that the evidence was insufficient and a number of other issues. RSI, now represented by its bankruptcy trustee, joins in these contentions. Both defendants also challenge the forfeiture orders. Concluding the evidence was insufficient on all counts, we reverse.

I. Background.

In 1989, the State of North Dakota legalized parimutuel wagering on horse races conducted outside the State and simulcast (simultaneously broadcast) to licensed off-track betting ("OTB") operators in North Dakota. The North Dakota Racing Commission (the "Commission") administers this heavily regulated regime. Only charities and other "public-spirited organizations" may be licensed to conduct simulcast parimutuel wagering. See N.D. Cent.Code § 53-06.2-06.

In 1993, RSI became the sole entity licensed by the Commission to provide simulcast services to the charities licensed as OTB operators. RSI as simulcast service provider contracted with out-of-state race tracks to provide satellite broadcast signals of live racing events to licensed OTB locations in North Dakota. RSI also established and maintained the combined parimutuel pools of North Dakota wagers and performed many record-keeping functions.

In 2001, Bala, the Commission, and interested North Dakota constituents such as horse breeders and the racing industry persuaded the North Dakota Legislature to amend its parimutuel wagering statutes to permit parimutuel "account wagering." Before account wagering, parimutuel bettors placed bets with OTB operators before the simulcast horse race, usually appearing in person and paying the OTB operator's teller in cash. The various wagers were combined into a parimutuel pool. After the race, approximately 80% of the pool was paid to winning bettors. The remaining 20% was divided between the race track, the OTB operator, North Dakota taxes and fees, and RSI, the simulcast service provider. With account wagering, bettors may establish accounts and place simulcast parimutuel wagers electronically, eliminating the need for cash-handling tellers. Rather than authorize multiple OTB operators to establish bettor accounts and receive account wagers, the account wagering statute provided that account wagers "may only be made through the licensed simulcast service provider," RSI. N.D. Cent.Code § 53-06.2-10.1. The way RSI conducted account wagering resulted in this prosecution.

Following passage of the account wagering statute, RSI established a call center where RSI employees received bets from callers with wagering accounts. After receiving a bet, the employee would charge the customer's account and enter the bet into a "tote machine," the same equipment used to transmit bets placed with OTB operators to the race track and to calculate the combined parimutuel pool for that race. RSI moved this operation from its Fargo headquarters, where charities licensed as OTB operators were already conducting simulcast parimutuel wagering, to a building at 1318 23rd Avenue South in Fargo (referred to by the parties as "1318"). The indictment charged and the government's evidence at trial tended to prove that, between October 1, 2002, and April 28, 2003, $99,013,200 was wagered through the 1318 call center, yet RSI paid no part of these wagering proceeds to the State in the form of incremental fees or taxes or to the charity OTB operators. When a disgruntled employee complained to the Commission that RSI was conducting "rogue" activities at the 1318 site, the FBI investigated and this prosecution followed.

II. Sufficiency of the Evidence.

Defendants argue that the evidence was insufficient to sustain their convictions on all counts because it established that RSI's account wagering operation at 1318 was a legal parimutuel wagering business that at worst violated the Commission's licensing regulations. This contention raises difficult and complex issues, both factually and legally.

Counts 1 and 2. These counts charged RSI and Bala with conspiring to conduct and conducting an "illegal gambling business" within the meaning of 18 U.S.C. § 1955. This statute provides in relevant part:

(a) Whoever conducts, finances, manages, [etc.] all or part of an illegal gambling business shall be fined under this title or imprisoned not more than five years, or both.

(b) As used in this section —

(1) "illegal gambling business" means a gambling business which —

(i) is a violation of the law of a State or political subdivision in which it is conducted....

First enacted as part of Title VIII of the Organized Crime Control Act of 1970, § 1955 extended federal criminal jurisdiction to illicit gambling businesses of "major proportions," thereby giving the federal government "a new substantive weapon [to] strike at organized crime's principal source of revenue: illegal gambling." Iannelli v. United States, 420 U.S. 770, 788-90, 95 S.Ct. 1284, 43 L.Ed.2d 616 (1975) (quotation omitted). The statute does not broadly prohibit individual acts of gambling that are prohibited by state law. "It is participation in the gambling business that is a federal offense, and it is only the gambling business that must violate state law." Sanabria v. United States, 437 U.S. 54, 70, 98 S.Ct. 2170, 57 L.Ed.2d 43 (1978). The issue is whether Bala, and the former RSI officers who pleaded guilty and testified against her, caused North Dakota simulcast service provider RSI to conduct an "illegal gambling business" within the meaning of § 1955.

1. A violation of § 1955 requires proof that the gambling business "is a violation" of state law. The government's lengthy indictment interpreted this element broadly, alleging that RSI's account wagering operations knowingly violated administrative regulations adopted by the Commission. In ruling on pretrial motions to dismiss, the district court rejected this broad interpretation of § 1955, correctly ruling that § 1955 only prohibits gambling businesses that are "in violation of state penal laws," not state administrative regulations. United States v. Gordon, 464 F.2d 357, 357-58 (9th Cir.1972), followed by this court in People ex rel. Small v. Harrah's-N. Kan. City Corp., No. 99-1551, 2000 WL 227889, at *1, 2000 U.S.App. LEXIS 2022, at *3 (8th Cir. Feb. 15, 2000) (unpublished). Thus, weighing the sufficiency of the evidence on these counts requires a close look at North Dakota criminal laws relating to gambling.

A review of North Dakota's gaming laws must begin with Article XI, Section 25, of the North Dakota Constitution:

The legislative assembly shall not authorize any game of chance . . . for any purpose whatever. However . . . the legislative assembly may authorize by law bona fide nonprofit veterans', charitable, educational, religious, or fraternal organizations, civic and service clubs, or such other public-spirited organizations as it may recognize, to conduct games of chance when the entire net proceeds of such games of chance are to be devoted to educational, charitable, patriotic, fraternal, religious, or other public-spirited uses.

(Emphasis added.) Consistent with this provision, the North Dakota criminal laws include a broad gambling prohibition: "Except as permitted by law . . . [a] person is guilty of a class C felony if that person engages or participates in the business of gambling." N.D. Cent.Code § 12.1-28-02(3).

The statutes authorizing simulcast parimutuel wagering create a limited exception to this broad prohibition: "Civic and service clubs; charitable, fraternal, religious, and veterans' organizations; and other public-spirited organizations may be licensed to conduct racing and simulcast parimutuel wagering as authorized by this chapter." N.D. Cent.Code § 53-06.2-06. The government argues on appeal, as it did to the district court, that RSI and Bala violated § 12.1-28-02(3), and therefore were properly convicted of violating § 1955, because neither was a charitable organization eligible to be licensed to conduct simulcast parimutuel wagering.

The district court rejected this theory and so do we. As the court recognized, the 2001 statute that authorized account wagering expanded the exception for simulcast parimutuel wagering:

[P]arimutuel wagering [may] be conducted through account wagering.... An...