United States: Sports Wagering In New Jersey Suffers Another Setback

Gaming

A three-judge Third Circuit panel has affirmed an earlier District Court ruling that struck down New Jersey's Sports Wagering Law as in conflict with the federal Professional and Amateur Sports Protection Act ("PASPA"). The Sports Wagering Law permitted New Jersey authorities to license casinos and racetracks to conduct sports wagering. In contrast, PASPA prohibits states (except for Nevada, and lotteries in Delaware and Oregon) from licensing or authorizing sports wagering.

Major League Baseball, the NBA, NCAA, NFL, and NHL ("Leagues") initiated proceedings before the District Court by filing a lawsuit against various New Jersey state officials and entities, arguing that the Sports Wagering Law illegally conflicted with PASPA. The District Court agreed, and entered judgment invalidating the Sports Wagering Law. The New Jersey defendants appealed to the Third Circuit.

On appeal, the Third Circuit held that "the Sports Wagering Law is precisely what PASPA says the states may not do—a purported authorization of sports wagering. It is therefore invalidated by PASPA." The Court continued that the Sports Wagering Law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress, and accordingly conflicts with PASPA and is preempted." Finally, the Court stated that it is up to Congress to either amend PASPA to permit New Jersey to authorize sports wagering or to "undo PASPA altogether," but absent such Congressional action, "it is not our place to usurp Congress' role simply because PASPA may have become an unpopular law."

One judge in the panel dissented, stating that PASPA's sports wagering ban is an impermissible requirement upon the states because PASPA was not enacted pursuant to any regulatory or deregulatory scheme.

The Third Circuit's Rulings

A. The Leagues Proved Actual Harm

As an initial matter, the Third Circuit held that the Leagues had standing (i.e., the right) to bring the case. The issue turned on whether the Sports Wagering Law causes the Leagues an actual injury. The Court held that the Leagues established injury because "the reputational harm that results from increasingly associating the Leagues' games with gambling is fairly intuitive," pointing to findings of fact made by Congress, fan and public polling, and instances of "game-rigging."

B. PASPA is within Congress' Authority

The Third Circuit then turned to the issue of whether PASPA's ban on sports wagering is within Congress authority under the Commerce Clause. The Commerce Clause provides Congress with the ability to pass laws on issues that substantially affect interstate commerce. Relying upon economic evidence presented by the parties, the Court held that sports wagering would substantially affect interstate commerce, because wagering and sports—both multibillion dollar pursuits—are national economic activities that "plainly transcend state boundaries and affect a fundamentally national industry." The Court then held that PASPA did not unconstitutionally regulate purely local activities (a wager between family members on a local football game), because PASPA concerns only "schemes" carried out "pursuant to law or compact," which would not include private, small-scale wagering.

The Court noted that this case presents a scenario different than where the Supreme Court held that the Affordable Care Act's mandate violated the Commerce Clause, in National Federation of Independent Businesses v. Sebelius, 132 S. Ct. 2566 (2012), because in Sebelius the method chosen to regulate was beyond Congress' power. Here, the Court held that PASPA's method of regulation, banning an activity altogether, "is neither novel nor problematic." Therefore, the Court held that PASPA is within Congress power to regulate matters, such as sports wagering, that substantially affect interstate commerce.

C. PASPA Does Not Impermissibly Commandeer the States

After deciding that Congress has the authority to regulate sports wagering, the Third Circuit turned to whether PASPA's language prohibiting states from authorizing sports wagering violates the "anti-commandeering principle", which bars Congress from requiring states to enact and enforce a federal regulatory system. In holding that PASPA did not violate anti-commandeering principles, the Court noted that PASPA "simply operated to invalidate contrary state laws." The Court stated that to accept the position that New Jersey's sovereignty is violated when it is precluded from enacting a policy different than that set forth by federal law, "would be revolutionary."

The Court likened this situation to two cases where the Supreme Court upheld prohibitions on state action that effectively invalidated the states' laws, in South Carolina v. Baker, 485 U.S. 505 (1988) and Reno v. Condon, 528 U.S. 141 (2000). Thus, here the Court held that because PASPA merely prohibits states from authorizing sports wagering, as opposed to requiring state action, PASPA does not run afoul of anti-commandeering principles, stating that "it is hard to see how Congress can 'commandeer' a state, or how it can be found to regulate how a state regulates, if it does not require it to do anything at all."

The Court held that this case was unlike the only two cases where the Supreme Court has struck down laws as being commandeering, New York v. U.S., 505 U.S. 144 (1992) and Printz v. U.S., 521 U.S. 898 (1997), because in each of those cases the challenged laws impermissibly "required" or "coerced" the states to take affirmative acts. The Court further noted that PASPA does not prohibit states from repealing existing bans on sports wagering, but instead only prohibits states from enacting laws authorizing sports wagering.¹

D. Nevada Exception Does Not Violate Equal Sovereignty of the States

Finally, the Third Circuit addressed whether PASPA violates the equal sovereignty of the states by permitting Nevada to maintain state-sponsored sports wagering. In holding that the Nevada exception does not violate equal sovereignty, the Court stated that "matters of national concern and finding national solutions will necessarily affect states differently." The Court stated that this case is dissimilar to the two cases relied upon by the New Jersey Defendants, Northwest Austin Municipal Utility District Number One v. Holder, 557 U.S. 193 (2009) and Shelby County, Alabama v. Holder, 133 S. Ct. 2612 (2013), both of which sought to invalidate Section 5 of the Voting Rights Act, because there is nothing in those cases "to indicate that the equal sovereignty principle is meant to apply with the same force outside the context of 'sensitive areas of state and local policymaking,'" such as voting rights. The Court further noted that PAPSA's purpose is not to entirely eliminate sports wagering, but to stop the spread of state-sanctioned sports wagering, and therefore, regulating states in which sports-wagering already existed (Nevada) would have been irrational.

E. The Dissent

The dissent disagreed with the majority on the issue of whether PASPA violates anti-commandeering principles. Relying upon the New York and Printz decisions that the majority found to be inapplicable, the dissent stated that by prohibiting states from authorizing sports wagering, PASPA impermissibly dictates the manner in which states must regulate interstate commerce, and that such regulation should instead be enacted through the federal government. Contrary the majority's distinction between requiring a state to act and merely prohibiting a state from acting, the dissent stated that whether "as a command to engage in specific action or as a prohibition against specific action, the federal government's interference with a state's sovereign autonomy is the same," and is impermissible. The dissent concluded that if the federal government wants to prohibit certain actions by the states, it must provide a federal solution or incentivize states to regulate or comply with federal standards. The problem here, the dissent said, is that there is no federal scheme regulating sports wagering, instead PASPA impermissibly requires states to do such regulating for the federal government.

F. The Remaining Options for the New Jersey Defendants

The New Jersey defendants could petition the Third Circuit for a rehearing en banc. According to the Third Circuit Bar Association's Practice Guide, petitions for reargument are "very rare" and granted only in "exceptional circumstances." Of all the cases decided by the Third Circuit in 2011, only three were granted a rehearing. The existence of a dissent in this case increases the chances of rehearing, as rehearing is very rarely granted absent a dissenting opinion. A petition for rehearing must specify: (a) points of law that the panel overlooked or misapprehended that affected the outcome of the appeal; (b) the effect a new precedential decision or statute; or (c) the issue of exceptional importance that calls out for en banc attention. Specifically in a petition for a hearing en banc, the filing party must certify that, to its best judgment, the panel's decision is contrary to Third Circuit or Supreme Court precedent, or involves a question of exceptional importance. Because the United States is a party to this matter, any petition for rehearing must be filed within 45 days of entry of judgment (where the United States is not a party, the petition must be filed within 14 days).

Alternatively, the New Jersey Defendants could petition the Supreme Court of the United States to hear an appeal of this decision, which petition must be filed within 90 days of entry of a final order in the Third Circuit. Appeal to the Supreme Court is not a right. Rather, a party must petition the Court for a writ of certiorari (the Court grants certiorari in less than 4% of petitions). Certiorari is granted only for "compelling reasons," which include: (a) the appeals court entered a decision that conflicts with the decision of another appeals court on the same important matter; has decided an important federal question in a way that conflicts with a decision by a state court of last resort; or has so far departed from the accepted and usual course of judicial proceedings as to call for an exercise of the Supreme Court's supervisory power; or (b) an appeals court has decided an important question of federal law that has not been, but should be settled, or has decided an important federal question in a way that conflicts with Supreme Court decisions.

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Although the Third Circuit's decision lengthens the odds against the Sports Wagering Law, the cause is by no means lost. With many states broadening the scope of permissible wagering within their boundaries, with the significant amount of money wagered on sporting events throughout the United States, and with significant public interest in this issue, this matter calls out for a final judicial determination by the Supreme Court. If certiorari is granted, recent Supreme Court precedent provides reason for cautious optimism that the Third Circuit's decision could be overturned.

Presented with the proper legal and factual situations, the Supreme Court has demonstrated that it is wiling to hold that laws or portions of laws violate the Commerce Clause (the Affordable Care Act in Sebelius) and the equal sovereignty of states (the Voting Rights Act in Shelby and Northwest Austin). Further, as discussed in the dissent, although New York and Printz are the only two cases where the Supreme Court has struck down laws as anti-commandeering, they are nevertheless Supreme Court precedent and a strong argument can be made here that PASPA impermissibly requires states to take action. New Jersey has every reason to seek an appeal before the Supreme Court.

Footnote

1 In discussing the anti-commandeering principal, the majority opinion did not address a similar, though distinct, argument which is uniquely applicable to the State of New Jersey: whether Congress, in expressly acknowledging in PASPA (28 U.S.C. § 3704(a)(3)) that the State of New Jersey had a legitimate interest in potentially authorizing sports wagering, nonetheless included an impermissible command to the New Jersey legislature; if New Jersey wants to authorize and regulate sports wagering, do so within one year and do so only in Atlantic City's casinos (not, for example, in race tracks as the Sports Wagering Law contemplates). Congress, thus, arguably not only directed New Jersey when to act, but specifically how to act in enforcing Congress' policy that the growth of sports wagering be limited. As the dissent pointed out, Congress did not enact a federal prohibition on sports wagering but, instead, directed the states to regulate sports wagering in a particular fashion and, in the case of New Jersey, specifically when and how New Jersey could regulate sports wagering, or forever lose the sovereign authority to do so. Unfortunately, the dissent also failed to address whether Congress exceeded its authority by commanding New Jersey to regulate sports wagering in a specific time and fashion rather than imposing a direct federal prohibition.

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