Abstract
On Appeal from the United States District Court for the District of New Hampshire
STATEMENT OF THE ISSUES
In 2011, the United States Department of Justice's (“USDOJ”) Criminal Division asked the USDOJ's Office of Legal Counsel (“OLC”) whether proposals by New York and Illinois to use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults violated 18 U.S.C. § 1084(a). On September 20, 2011, the OLC issued an opinion explaining that § 1084(a) did not prohibit these proposals because § 1084(a) applied solely to betting or wagering on sports events or contests (the “2011 Opinion”).
The OLC subsequently issued an opinion dated November 2, 2018 (the “2018 Opinion”) reversing the 2011 Opinion. The 2018 Opinion explained that § 1084(a) reaches all betting or wagering activity that uses the interstate wires. On January 15, 2019, the Deputy Attorney General issued a memorandum (a) announcing the publication of the 2018 Opinion, (b) adopting the 2018 Opinion as the USDOJ's “position on the meaning of the Wire Act,” (c) instructing all USDOJ attorneys to “adhere to” the 2018 Opinion, and (d) giving persons and entities “who relied on the 2011 OLC opinion,” like the States, 90 days to bring their business operations into conformance with the 2018 Opinion or risk criminal and/or civil prosecution (the “January 15, 2019 Directive”).
The issues presented are:
Whether the New Hampshire Lottery Commission (“NHLC”), which operates a multi-million dollar lottery business using the interstate wires, has Article III standing to challenge the legality of the 2018 Opinion and the January 15, 2019 Directive. Whether the district court correctly held that all of the offenses contained in 18 U.S.C. § 1084(a) are limited to gambling on sporting events or contests, consistent with the 2011 Opinion. Whether the district court properly set aside the 2018 Opinion under the Administrative Procedure Act.
STATEMENT OF THE CASE
I. New Hampshire Lottery System
The New Hampshire Lottery Commission (“NHLC”) operates the New Hampshire Lottery System. N.H. Rev. Stat. §§ 284:21-a-:21-jj. Under Part II, Article 6-b of the New Hampshire Constitution and N.H. Rev. Stat. § 284:21-j, all NHLC revenues, less monies required to fund the operations of NHLC itself, are credited to the state's Education Trust Fund. Joint Appendix (“J.A.”) 45, ¶¶5–6. Since its inception in 1964, the NHLC has deposited over $2 billion in that fund. Id. ¶7. For the 2018 Fiscal Year (July 1, 2017–June 30, 2018), the NHLC recorded operating revenue of $337.8 million and deposited $87.2 million into the Education Trust Fund. Id. ¶8.
The NHLC offers multiple types of lottery games, the vast majority of which are sold through the NHLC's network of over 1,400 retailers. Id. ¶9. In order to operate the lottery games and support its retailer network, the NHLC contracts with a lottery services vendor, Intralot, Inc., to provide a computer gaming system (“CGS”) that manages the games and a back office system (“BOS”) that manages inventory and sales data. Id. ¶10. Pursuant to industry regulation and best practice, lotteries are required to have duplicate CGS locations so that they can continue to operate if one system fails. J.A.46, ¶11. Frequently, these duplicate systems are sited in different states to create sufficient geographical diversity to continue operations in the event of a natural disaster. Id. Lotteries are required through industry regulation to operate out of their disaster recovery site at least twice per year. Id. NHLC's CGS servers for traditional retailer based lottery products are currently located in Barre, Vermont with a disaster recovery location in Strongsville, Ohio. Id.
Each of NHLC's retailers is provided at least one lottery terminal, a computer device that connects the retailer to the vendor's CGS and BOS systems through the internet, a cellular network, or a satellite connection. Id. ¶12. Based on the type of game being played, the terminal sends and receives different types of data from the CGS and BOS. Id.
Instant Ticket Games. The most common lottery game is an “instant” or “scratch” game, where a player purchases pre- printed tickets and scratches a film off the ticket to reveal the result. Id. ¶13. Generally, these tickets may only be purchased with cash and the purchaser is physically present in the retail location. Id. Though the ticket is pre-printed with an outcome, the result of the ticket is stored in the CGS. Id. ¶14. Activation of a ticket for sale and eligibility of prizes to be claimed are also controlled through the CGS. Id. A retailer will use the lottery terminal to activate the ticket book, validate the ticket results, and record the sale and payment of prizes paid. Id. This data is transferred from the individual sale location in New Hampshire to the CGS and BOS servers in Vermont with a replication of the data sent to the vendor's disaster recovery data center in Ohio. Id. NHLC has relied on transmitting data from its retailers to its vendors via some form of wire communication since at least the 1980's. J.A.47, ¶15.1
Draw-Based Games. The NHLC also sells “draw based” games. Id. ¶17. In a draw game, a player purchases a wager in the form of a set of numbers for a draw conducted in the future. Id. At a designated time and place, numbers are drawn either physically or through a random number generator. Id. The player matches their wager against the draw results to reveal the result. Id. With the exception of iLottery purchases, discussed infra., draw games are purchased from a lottery retailer using the retailer terminal. Id. ¶18. The retailer terminal will request a wager transaction from the CGS based on the type of bet the player makes. Id. The CGS will then generate a wager in the system and send the information about the transaction to the terminal. Id. The terminal prints a record of the wager which is given to the player. Id. This data travels via the Internet, cellular network, or satellite between the CGS in Vermont, a duplicate CGS system in Ohio, and the retailer terminal in New Hampshire. Id. NHLC sells a New Hampshire draw-based game, Keno 603, in which draws occur every five minutes between 11:00 a.m. and 1:00 a.m. each day. J.A.48, ¶19.
Multi-Jurisdictional Games. In 1985, the New Hampshire Legislature adopted N.H. Rev. Stat. § 287-F, creating the Tri-State Lotto Compact with Maine and Vermont. Id. ¶20. Tri-State Lotto offers a variety of instant and draw-based games that are sold and are legal in all three states. Id. This includes multiple daily draw-based games. Id. The NHLC is also a member of the Multi-State Lottery Association, which permits the NHLC the ability to sell the Powerball and Mega Millions. Id. ¶21. Each of these draw-based games are played twice a week. Id. New Hampshire has also joined a consortium of 25 states and the District of Columbia in selling the draw-based game Lucky for Life. Id.
In New Hampshire, the sales of multi-jurisdictional games occur through the communications of the lottery terminal and the CGS. Id. ¶22. Multi-jurisdictional games, however, require additional actions to ensure the game's successful operation. Id. First, prior to the draw, the bet transactions must be sent from the CGS to an independent control system (“ICS”) under the NHLC's control. Id. This is done to ensure the integrity of the wagering information. Id. This bet data is transferred from Vermont or Ohio to two ICS servers in New Hampshire over the Internet. Id. Additionally, general sales and total transactions must be shared with the member states so that the jackpot amount can be accurately calculated and to reconcile the number of wagers and monies wagered. Id. Currently, this information is also transferred over the Internet to the multi-jurisdictional association running the game. J.A.48–49, ¶22. Finally, once a jackpot is won, the participating lotteries transfer their portion of the jackpot to the jurisdiction that sold the winning ticket, either directly or through the association that runs the game. J.A.49, ¶22. This is typically accomplished through a wire transfer of funds or an automated clearing house (“ACH”) process. Id. These multi-jurisdictional draw games have operated on the interstate transfer of data and prize money through the telephone, internet, and wire transactions for over thirty years. Id. ¶23.
iLottery Games. In 2017, the New Hampshire Legislature authorized the sale of lottery tickets “through the use of mobile applications by mobile devices or over the Internet.” Id. ¶24; N.H. Rev. Stat. § 284:21-h, II (e). On September 4, 2018, the NHLC launched its “iLottery” platform, which allows players to purchase e-instant and draw-based tickets over the Internet. J.A.49, ¶25. The iLottery platform is operated through one retailer, NeoPollard Interactive (“NPI”); NPI operates a separate CGS with server sites located within New Hampshire. Id. ¶26. Prior to placing a bet on the Internet platform, a player must provide personal data which is vetted to ensure that the person is an eligible player. Id. The system uses geo-location data from the player's computer or mobile device to ensure the player can only make a wager when physically present within New Hampshire. Id.
iLottery instant and draw games can be played on the Internet platform in the same manner as traditional instant ticket games. J.A.50 at ¶27. E-instant tickets have pre-determined outcomes that are revealed when a player “scratches” the virtual ticket. Id. Draw games request that the CGS create a transaction, which is sent to the player as a virtual ticket. Id. In all other respects, the games operate in the same manner. Id. Players pay for the game through a digital wallet funded through debit cards, ACH, or PayPal; however, players may only make deposits when present within the State. Id. ¶28. Accordingly, all financial transactions and bets must begin and end in New Hampshire. Id. Given the nature of the Internet, however, the NHLC cannot guarantee that intermediate routing of data or information ancillary to the transaction does not cross state lines. Id. The NHLC anticipates revenues from these sales to be approximately $4–6 million for Fiscal Year 2020, and $6–8 million for Fiscal Year 2021. Id. ¶29.
II. Lottery statutes and related authorities
In 1895, Congress passed 18 U.S.C. § 1301, “which outlawed the transportation of lottery tickets in interstate or foreign commerce.” United States v. Edge Broadcasting Co., 509 U.S. 418, 422 (1993). In 1934, Congress extended the federal lottery control scheme by prohibiting the broadcast of lottery advertisements. Id. In 1975, “Congress amended the statutory scheme to allow newspapers and broadcasters to advertise state-run lotteries if the newspaper is published in or the broadcast station is licensed to a State which conducts a state-run lottery.” Id. “This exemption was enacted ‘to accommodate the operation of legally authorized State-run lotteries consistent with continued Federal protection to the policies of non-lottery States.’” Id. at 423 (quoting S. Rep. No. 93-1404, p. 2 (1974)).
In 1994, Congress passed the Interstate Wagering Amendment, which amended 18 U.S.C. § 1301 to close a loophole in the interstate transmission of lottery tickets and related information. Pic-A-State Pa., Inc. v. Reno, 76 F.3d 1294, 1297 (3d Cir. 1996). The loophole existed because 18 U.S.C. § 1301 did not contemplate the selling of lottery tickets via computer technology. Id. Thus, Congress amended 18 U.S.C. § 1301 to make clear that anyone who “knowingly transmits in interstate or foreign commerce information to be used for the purpose of procuring a chance, share or interest” would be in violation of the statute. Id. (emphasis added). Congress believed that this amendment preserved “state sovereignty in the regulation of lotteries” by “giving the states the sole right to regulate lottery sales within their borders” and “permit[ting] the sale of interests in out-of-state lottery tickets … by concluding an agreement for that purpose with other states.” Id. “The Interstate Wagering Amendment thus allows the various states to gauge the economic effects of their own lotteries without out-of-state interference, to form their own judgments about the propriety of lotteries, and to regulate the types of state-sponsored gambling they wish to allow within their borders.” Id.
III. The Wire Act (18 U.S.C. § 1084)
In 1961, Congress passed the Wire Act, amending Chapter 50 of Title 18 of the U.S. Code to add the definition of “wire communication facility” to 18 U.S.C. § 1081 and to add 18 U.S.C. § 1084 into the chapter. Pub. L. No. 87-216, § 2, 75 Stat. 491 (codified 18 U.S.C. §§ 1081; 1084). Section 1084(a) 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.
In 2005, Laura H. Parsky, a Deputy Assistant Attorney General within the USDOJ, issued a letter to Carolyn Adams, the Illinois Lottery Superintendent, asserting that a proposal, pending in the Illinois Senate, to permit lottery ticket sales online, would violate 18 U.S.C. § 1084. New Hampshire Lottery Commission Addendum (“NH.ADD.”) 004. The USDOJ agent stated,
Although the activity might be considered to be lawful in the State of Illinois, we believe that the acceptance of wagers through the use of a wire communication facility by a gambling business, including that operated by a component of the government of a state, from individuals located either outside a state or within the borders of the state (but where transmission is routed outside of the state) would violate federal law.
Id.
In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act (“UIGEA”). 31 U.S.C. §§ 5361–67. The UIGEA recognizes the legality of state-conduct intrastate gambling activity like state lotteries. 31 U.S.C. § 5362(10)(B). It therefore makes clear that the “intermediate routing of electronic data” does not transform a bet or wager initiated in a State and ultimately received in the same State into an unlawful, interstate transmission. 31 U.S.C. § 5362(10)(E).
In 2011, the USDOJ's Criminal Division asked the OLC whether proposals by New York and Illinois to use the Internet and out-of-state transaction processors to sell lottery tickets to in- state adults violated 18 U.S.C. § 1084(a). J.A.59. The Criminal Division held the view that the Wire Act prohibits the States from using the Internet to transact bets or wagers even if those bets or wagers originate from and terminate in the State. J.A.60. The Criminal Division acknowledged the tension between § 1084(a) and UIGEA and therefore requested a formal opinion. J.A.60–61. Following its review, the OLC concluded that § 1084(a) was limited to betting on sporting events or contests and therefore did not prohibit the New York and Illinois proposals (the “2011 Opinion”). J.A.59–60.
IV. The January 15, 2019 Directive and 2018 Opinion
On January 15, 2019, the Deputy Attorney General issued a memorandum that (a) announced the publication of the 2018 Opinion, (b) adopted the 2018 Opinion as the USDOJ's “position on the meaning of the Wire Act,” (c) instructed all USDOJ attorneys to “adhere to” the 2018 Opinion, and (d) gave persons and entities “who relied on the 2011 OLC opinion” 90 days to bring their business operations into conformance with the 2018 Opinion or risk criminal or civil prosecution (the “January 15, 2019 Directive”). Appellants' Addendum (“ADD.”) 90.
Dated November 2, 2018, the 2018 Opinion reversed the 2011 Opinion. ADD.67–89. The 2018 Opinion states that it “provides binding legal advice within the Executive Branch.” ADD.85. It also recognizes that States relied on the 2011 Opinion in order to begin selling lottery tickets online:
We acknowledge that some may have relied on the views expressed in our 2011 Opinion about what federal law permits. Some States, for example, began selling lottery tickets via the Internet after the issuance of our 2011 Opinion. But in light of our conclusion about the plain language of the statute, we do not believe that such reliance interests are sufficient to justify continued adherence to the 2011 opinion.
ADD.88–89. The 2018 Opinion suggests that “[a]n individual who reasonably relied upon our 2011 Opinion may have a defense for acts taken in violation of the Wire Act after publication of that opinion and prior to the publication of this one … The reliance interest implicit in any such defense, however, does not bear upon our reconsideration of the 2011 Opinion.” ADD.89, n. 19.
V. Consequences
The reversal of the 2011 Opinion potentially subjects the NHLC and its employees and agents to criminal liability and prosecution. J.A.53, ¶43. As a result, the NHLC is confronted with the uncertainty of whether or to what extent it needs to cease its operations because all of its lottery-related activities use the Internet or wires incidentally. Id. ¶¶44–48. The implication are immense: the broadest interpretation of the 2018 Opinion could require the suspension of all NHLC sales, resulting in an immediate annual loss of over $90 million to the State, as well as additional expenses the NHLC would incur to try to comply with the 2018 Opinion. J.A.54, ¶45.
To the extent the NHLC cannot utilize Internet communications for its operations, sales would likely be reduced to approximately 25% of their current level. Id. Less severe interpretations of the 2018 Opinion may still require suspension of multi-jurisdictional games and compacts that have operated with great success for the nation's lotteries since the 1980's. Id. ¶46. The sharing of bet information and money from wagers across state lines is essential to the operation of these games. Id. Loss of multi-jurisdictional games and compacts would deprive New Hampshire of approximately $80 million in annual revenue and $40 million in education funding. Id. The reversal of the 2011 Opinion, without any further action or explanation, is also likely to have a chilling effect on banks accepting and processing these iLottery transactions, which would effectively shut down this sales channel. Id. ¶48. This would result in a loss of approximately $6- 8 million in education funding for New Hampshire. Id.
VI. District court proceedings
With these dire operational, compliance, and criminal consequences looming over it, the NHLC filed suit on February 15, 2019, challenging the legality of the 2018 Opinion under the Declaratory Judgment Act, 28 U.S.C. § 2201, (“DJA”) and the Administrative Procedure Act, 5 U.S.C. § 702, (“APA”). J.A.8. NeoPollard Interactive, LLC and Pollard Banknote Limited filed suit the same day. Their suit was consolidated with the NHLC's action. J.A.9.
The NHLC claimed that § 1084(a) does not prohibit state- conducted lottery activity. J.A.39–40. The NHLC advanced two arguments in support of that claim. First, the NHLC argued that the States did not come within the term “whoever” as used in the Wire Act. ADD.23 n.6; see, e.g., Return Mail, Inc. v. United States Postal Serv., U.S. , 139 S. Ct. 1853, 1861–62 (2019). Therefore, state-conducted lottery activity was legal and assisting a State in carrying out that legal activity could not be deemed to violate the Wire Act. Second, the NHLC argued that 18 U.S.C. § 1084 is limited to sports gambling and does not extend to state- conducted lottery activity as a matter of statutory construction. ADD.28. The NHLC requested a declaration that 18 U.S.C. § 1084 does not apply to state-conducted lotteries and asked the district court to vacate and set aside the policy the January 15, 2019 Directive and 2018 Opinion advance. J.A.42.
The NHLC filed a motion for summary judgment and a motion for a speedy hearing with its complaint. J.A.8. The parties agreed to cross-summary judgment motions, and the district court scheduled oral argument for April 11, 2019. J.A.11. The defendants initially refused to brief the NHLC's claim that the States did not come within the term “whoever” as used in the Wire Act. ADD.23 n.6. Instead, on April 8, 2019, the USDOJ filed a reply memorandum, J.A.18, and attached to it a notice dated April 8, 2019, ADD.91. The April 8, 2019 notice attempted to narrow the breadth and scope of the 2018 Opinion by claiming that the 2018 Opinion “did not address whether the Wire Act applies to State lotteries and their vendors.” Id. Even though state-conducted lottery activity prompted the 2011 Opinion, the 2018 Opinion expressly applies to all non-sports “bets or wagers,” and state-conducted lottery activity and interests were expressly referenced in the 2018 Opinion, the USDOJ stated for the first time in the notice that it was “now reviewing th[e] question” of whether the Wire Act applies to State lotteries and their vendors. Id.
At oral argument, the district court invited defendants' counsel to take a position on whether the States come within the term “whoever” as used in the Wire Act and invited additional briefing. ADD.23 n.6. In that briefing, the defendants still refused to answer whether the States come within the term “whoever” as used in the Wire Act, while simultaneously rejecting all of the NHLC's arguments in favor of that result. ADD.20, 23 n.6. Over ten months later, the USDOJ has still not completed its review and committed to a position on that issue.
VII. District court's decision
On April 12, 2019, the district court denied the defendants' motion to dismiss for lack of jurisdiction “to the extent it relie[d] exclusively” on the April 8, 2019 notice. ADD.64. On June 3, 2019, the district court issued a comprehensive memorandum and order (ADD.1–60) granting the plaintiffs' motions for summary judgment, denying the defendants' motion to dismiss for lack of jurisdiction, and denying the defendants' cross-motions for summary judgment. ADD.60.
The district court concluded that: (1) the plaintiffs had satisfied Article III's injury-in-fact requirement, ADD.12–22; (2) the 2018 Opinion constituted final agency action under the APA, ADD.23–27; and (3) § 1084(a) of the Wire Act applies only to transmissions related to bets or wagers on a sporting event or contest, ADD.28–53. The district court therefore entered the following relief consistent with the NHLC's DJA and APA claims:
I hereby declare that § 1084(a) of the Wire Act, 18 U.S.C. § 1084(a), applies only to transmissions related to bets or wagers on a sporting event or contest. The 2018 OLC Opinion is set aside.
ADD.60. This appeal followed.
SUMMARY OF ARGUMENT
The NHLC has standing to maintain this action. This case was ripe when filed and the April 8, 2019 notice does not moot this case or otherwise render it unripe. The January 15, 2019 Directive and the 2018 Opinion put the NHLC in an untenable position: spend millions of dollars conforming the state lottery system to the 2018 Opinion's requirements within 90 days, including shutting down lottery games that cannot be conformed, or risk criminal and/or civil prosecution. This scenario posed an impending, credible, and substantial risk of harm to the NHLC, its lottery operations, the public education revenues of the state, and the state's budget of sufficient immediacy to create an Article III case or controversy. See, e.g., MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).
The April 8, 2019 notice does not render this case moot or unripe. Post-complaint statements like those contained in the April 8, 2019 notice do not present a question of standing or ripeness, but rather a question of mootness. R.I. Ass'n of Realtors, Inc. v. Whitehouse, 199 F.3d 26, 33 (1st Cir. 1999). The district court properly analyzed the effect of the April 8, 2019 notice under the mootness doctrine and correctly determined the April 8, 2019 notice did not moot the controversy.
The district court also correctly concluded that 18 U.S.C. § 1084(a) is limited to sports gambling. That interpretation is the only plausible interpretation of the statute. It is also the most natural interpretation of the statute and is the only interpretation supported by the statute's structure, purpose, and context. The interpretation contained in the 2018 Opinion is not plausible, does not read the statute as a coherent regulation, results in different parts of the same statutory sentence prohibiting different things, creates inconsistency between the criminal prohibition, 18 U.S.C. § 1084(a), and the statutory exemption, 18 U.S.C. § 1084(b), conflicts with the purpose of the Wire Act, and is inconsistent with the context in which the Wire Act exists. The district court therefore did not err in rejecting this interpretation.
The January 15, 2019 Directive and the 2018 Opinion also constitute final agency action. The USDOJ errs in attempting to divorce these documents and analyze them separately. They operate together and cannot be disentangled. The January 15, 2019 Directive, issued by the Deputy Attorney General, adopts the 2018 Opinion as the policy of the USDOJ and instructs USDOJ attorneys to “adhere” to it as the “Department's position” on the meaning of the Wire Act. It then directs persons and entities that relied on the 2011 Opinion, like the States, to conform their business operations to the 2018 Opinion's requirements or risk criminal and/or civil prosecution.
Final agency action exists in precisely this type of circumstance—where a person or entity is put to a grievous choice of either spending significant sums of money to conform its business operations to an agency pronouncement or risk criminal and/or civil penalties. See, e.g., U.S. Army Corps of Engineers v. Hawkes Co., Inc., U.S. , 136 S. Ct. 1807, 1813 (2016); Frozen Food Express v. United States, 351 U.S. 40, 76 (1956).
The fact that the district court set aside the 2018 Opinion and not also the January 15, 2019 Directive is inconsequential. The purpose of the 2018 Opinion is to support the January 15, 2019 Directive, and the purpose of the January 15, 2019 Directive is to direct compliance with the 2018 Opinion. Together, they form a binding policy which create rights and obligations and from which legal consequences flow. Setting aside one by declaring that § 1084(a) is limited solely to sports betting is the equivalent of setting aside the other.
Accordingly, the district court's order in this case should be affirmed.
STANDARD OF REVIEW
This Court reviews a district court's grant of summary judgment de novo. Trafalgar Captial Assocs., Inc. v. Cuomo, 159 F.3d 21, 26 (1st Cir. 1998). The APA serves as an overlay to this standard requiring the Court to determine whether the agency decision at issue is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. Sig Sauer, Inc. v. Brandon, 826 F.3d 598, 601 (1st Cir. 2016).
Within that overlay, this Court reviews jurisdictional issues of standing, ripeness, and mootness de novo. See, e.g., Anderson ex rel. Dowd v. City of Boston, 375 F.3d 71, 92 (1st Cir. 2004) (standing and mootness); Stern v. U.S. Dist. Court for Dist. of Mass., 214 F.3d 4, 10 (1st Cir. 2000) (ripeness). A determination that final agency action exists is also reviewed de novo.
Omnipoint Holdings, Inc. v. City of Cranston, 586 F.3d 38, 45 (1st Cir. 2009) (indicating that whether agency action was final constituted a question of law subject to de novo review).
In this case, the statutory interpretation question is also reviewed de novo, without Chevron deference, because the statute at issue in this case is a criminal statute that bears no delegation of authority to any agency to administer. See, e.g., United States v. Apel, 571 U.S. 359, 369 (2014) (explaining that the Supreme Court has “never held that the Government's reading of a criminal statute is entitled to any deference”); Abramski v. United States, 573 U.S. 169, 191 (2014) (“[C]riminal laws are for courts, not for the Government, to construe”); Nat'l Cable & Tele. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 980-81 (2005) (indicating Chevron deference applies where Congress has delegated to the agency the authority to interpret the statute).
Finally, this Court reviews a decision to grant declaratory relief “‘under a standard slightly more rigorous than abuse of discretion.’” Diaz-Fonseca v. Puerto Rico, 451 F.3d 13, 39 (1st Cir. 2006) (quoting Nat'l R.R. Passenger Corp. v. Providence & Worchester R.R. Co., 798 F.2d 8, 10 (1st Cir. 1986)). “‘This approach requires that [the Court] attentively digest the facts and the district court's stated reasons for granting … declaratory relief.’” Id. (quoting El Dia, Inc. v. Hernandez Colon, 963 F.2d 488, 492 (1st Cir. 1992)).
ARGUMENT
I. The NHLC has Article III standing because its claims were ripe when filed and have not been rendered moot by the April 8, 2019 notice
The defendants challenge the NHLC's standing solely on ripeness grounds. They assert that no justiciable controversy exists because the 2018 Opinion does not explicitly state that it applies to state lotteries. This argument is unpersuasive and contrary to the undisputed record.
Under both the DJA and APA, a plaintiff must have Article III standing to maintain suit. See, e.g., Dept. of Commerce v. N.Y., ___ U.S. ___, 139 S. Ct. 2551, 2565–66 (2019) (examining Article III standing to bring APA claim); MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (“[T]he phrase ‘case of actual controversy’ in the [DJA] refers to the type of ‘Cases' and ‘Controversies' that are justiciable under Article III.”).
When a litigant challenges a government policy through a declaratory judgment, Article III's “case or controversy” requirement is met so long as “the dispute … [is] ‘definite and concrete, touching the legal relations of the parties having adverse interests'; and … [is] ‘real and substantial’ and ‘admi[ts] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.’” Id. (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240–41 (1937)). “‘[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy to warrant the issuance of a declaratory judgment.’” Id. (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941)).
The doctrine of ripeness is part of this standard. See Stern, 214 F.3d 4, 10 (1st Cir. 2000) (analyzing ripeness in the context of DJA action). “Courts evaluate whether a case is ripe by assessing the fitness for adjudication of the issue presented and determining whether a refusal to adjudicate that issue will work a hardship on the party who seeks a remedy.” Gastronomical Workers Union Local 610 & Metropolitan Hotel Ass'n Pension Fund v. Dorado Beach Hotel Corp., 617 F.3d 54, 61 (1st Cir. 2010). “Fitness involves questions about whether the necessary factual predicate is sufficiently matured to allow a court to resolve the issue presented.” Id. “Hardship ‘typically turns upon whether the challenged action creates a direct and immediate dilemma for the parties.’” Id. (quoting Ernst & Young v. Depositors Econ. Prot.
Corp., 45 F.3d 530, 535 (1st Cir. 1995)).
This case was ripe for adjudication when filed. As to fitness, all of the events giving rise to this case are undisputed “matters of historical fact.” Id. The facts regarding the NHLC's operations are also undisputed. J.A.44–55. Moreover, the NHLC continues to engage in gambling conduct that arguably violates § 1084(a) according to the 2018 Opinion. J.A.52–55, ¶¶40–49. Those plans “give[] a precise shape to disobedience, posing a specific legal question fit for judicial review.” R.I. Ass'n of Realtors, Inc. v. Whitehouse, 199 F.3d 26, 33 (1st Cir. 1999). Thus, the NHLC sued for relief, advancing two purely legal questions that required no further factual development: (1) whether the term “whoever” in § 1084(a) includes the States and those who assist them in operating their lotteries; and (2) whether § 1084(a) is limited to sports gambling and therefore does not extend to state lottery activity. These issues were fit for review when the NHLC filed suit and remain fit for review today.
The hardship imposed is also substantial. The January 15, 2019 Directive adopts the 2018 Opinion as the USDOJ's official position on what the Wire Act means, directs all USDOJ attorneys to enforce and prosecute in accordance with it, and directs those operating non-conforming businesses to conform their business operations to the 2018 Opinion within 90 days or risk potential criminal and/or civil prosecution.
When the NHLC filed suit, this threat of prosecution was “not imaginary or wholly speculative,” Babbit v. United Farm Workers Nat'l Union, 442 U.S. 289, 302 (1979); it was “realistic,” unequivocal, and left no “reason to doubt the government's zeal in suppressing” all non-sports betting or wagering activity that uses the interstate wires. See N.H. Hemp Council, Inc. v. Marshall, 203 F.3d 1, 5 (1st Cir. 2000) (holding “threat of federal prosecution … is realistic” where the plaintiff proposed to grow “cannabis sativa plants,” the DEA made clear to the New Hampshire legislature and elsewhere its view that such activity was “unlawful” under federal law, and no reason existed to doubt the government's zeal in suppressing the activity).
The NHLC operates a multi-million dollar lottery business that uses the interstate wires to facilitate the placing and pay out of bets or wagers, including the sale and pay out of lottery tickets online. It relied on the 2011 Opinion to structure its operations. J.A.52, ¶39. The NHLC therefore filed suit shortly after the January 15, 2019 Directive issued because the consequences to it—spending millions of dollars conforming the state lottery system to the 2018 Opinion's requirements within 90 days, including shutting down lottery games that cannot be conformed, or risking criminal and/or civil prosecution—posed an impending, credible, and substantial risk of harm to it, its lottery operations, the public education revenues of the state, and the state's budget.
This scenario created “a direct and immediate dilemma” for the NHLC that it was the very purpose of the DJA to ameliorate. See MedImmune, Inc., 549 U.S. at 773 (“The dilemma posed by that coercion—putting the challenger to the choice between abandoning his rights or risking prosecution—is ‘a dilemma that it was the very purpose of the Declaratory Judgment Act to ameliorate.’”) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 152 (1967)); see also Clapper v. Amnesty Int'l USA, 568 U.S. 398, 414 n.5 (2013) (“we have found standing based on a ‘substantial risk’ that harm will occur, which may prompt plaintiffs to reasonably incur costs to mitigate or avoid that harm”); Virginia v. Am. Booksellers Ass'n, 484 U.S. 383, 392 (1988) (recognizing imminent threat where challenged statute would require plaintiffs “to take significant and costly compliance measures or risk criminal prosecution”).
Nonetheless, the defendants assert that this case was not ripe for adjudication when it was filed because the 2018 Opinion did not explicitly conclude that state agencies, state employees, and state vendors are subject to prosecution under § 1084(a). As a result, the defendants assert that the NHLC did not face a credible threat of prosecution. Appellant's Brief at 20–22. The district court correctly rejected this argument as contrary to the undisputed historical record.
In 2005, the USDOJ expressly warned the Illinois lottery that the contemplated online sale of lottery tickets by a state entity would violate the Wire Act. NH.ADD.004. In 2011, the USDOJ's Criminal Division took the position that § 1084(a) applied to state entities and therefore asked the OLC for an opinion regarding whether state-conducted online lottery ticket sales violated 18 U.S.C. § 1084(a). J.A.59–61. The 2011 Opinion concluded that § 1084(a) did not prohibit state-conducted online lottery ticket sales because § 1084(a) applied solely to betting or wagering on sports events or contests. J.A.56–60.
The 2018 Opinion reversed course. It specified that § 1084(a) prohibits: (1) the transmission of all “bets or wagers” in interstate or foreign commerce; and (2) the transmission of a wire communication in interstate or foreign commerce which entitles the recipient to receive money or credit as a result of all “bets or wagers.” ADD.72–80. The 2018 Opinion explained that the USDOJ had uniformly taken this position prior to the 2011 Opinion, citing in support the 2005 warning letter to the Illinois lottery. ADD.70-17 & n.7. The 2018 Opinion also made express reference to reliance by the States on the 2011 Opinion,
some may have relied on the views expressed in our 2011 Opinion about what federal law permits. Some States, for example, began selling lottery tickets via the Internet after the issuance of our 2011 Opinion. But in light of our conclusion … , we do not believe that such reliance interests are sufficient to justify continued adherence to the 2011 opinion.
ADD.88–89.
Neither the 2005 warning letter, the 2011 Opinion, nor the 2018 Opinion remotely suggested that § 1084(a) did not apply to the States or state-conducted lottery. Quite the opposite: they all uniformly focused on the effect of the Wire Act on state lotteries.
The January 15, 2019 Directive then informed federal prosecutors that prosecutions should be deferred for a 90-day grace period to give entities that had “relied on the 2011 OLC Opinion [like the States] time to bring their operations into compliance with federal law.” ADD.90. This directive did not suggest that State entities that had relied on the 2011 Opinion would be exempt from prosecution after the 90-day grace period ended. Thus, when the NHLC filed suit, it faced a “credible” threat of prosecution sufficient to give it Article III standing.
The defendants argue, however, that the April 8, 2019 notice renders this case unripe. The defendants also assert that the district court erred in analyzing the effect of this notice under the doctrine of mootness, as opposed to the doctrine of ripeness. Appellants' Brief at 22–28. The defendants are wrong on both counts.
“Mootness derives from the same constitutional and prudential concerns as standing and ripeness.” R.I. Ass'n of Realtors, Inc., 199 F.3d at 34. “What distinguishes mootness is its focus on ongoing events.” Id. “Even if a justiciable controversy exists when litigation beings, Article III requires a federal court to depart the field if the controversy later abates, that is, if ongoing events have wiped the slate clean or changed the topography so that the court's opinion would be purely advisory.” Id.
Thus, in Rhode Island Association of Realtors, Inc., this Court rejected the Rhode Island Attorney General's claim that his post-complaint statements made in a motion to dismiss and a summary judgment objection eliminated the plaintiff's standing, finding that “it is really an argument for mootness” because the statements were made after the plaintiff filed suit. Id. This Court therefore analyzed the challenge as one of mootness, not standing or ripeness. Id.
The same analysis applies here. The April 8, 2019 notice contains post-complaint statements that the defendants assert abate the controversy between the parties, at least for now. This argument sounds in mootness, not ripeness, and, in order to succeed on it, the defendants bear a “heavy burden” to convince this Court that it is “absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 189 (2000).
The district court correctly concluded that the defendants failed to meet this heavy burden because: (1) the April 8, 2019 notice constituted nothing more than a temporary moratorium incapable of sustaining a mootness claim, City of Los Angeles v. Lyons, 461 U.S. 95, 101 (1983); and (2) the April 8, 2019 notice holds out only the speculative future possibility that the controversy will permanently abate. See R.I. Ass'n of Realtors, Inc., 199 F.3d at 35 (holding that the Rhode Island Attorney General “must proffer more than a conclusory assertion of inapplicability [of the alleged unconstitutional statute] to convince us that the Association no longer faces a credible threat of prosecution”).
Notably, the April 8, 2019 notice did not withdraw the 2018 Opinion or state conclusively that § 1084(a) does not apply to State lotteries, their employees, and their vendors. Instead, the notice treats the 2018 Opinion as an operative baseline, puts a temporary moratorium in place with respect to state-conducted lottery activity, and indicates that the USDOJ will further consider whether the 2018 Opinion extends to all gambling, as it says, or only to all non-state-conducted-lottery gambling. The district court asked the defendants to commit to a position on this very issue, but they refused. Meanwhile, the 2018 Opinion continues to loom large over the NHLC, casting a shadow of criminality over its ongoing lottery operations and rendering uncertain its future revenues, business relationships, and ability to expand its operations.
These circumstances amply meet Article III's “case or controversy” requirement. See, e.g., MedImmune, Inc., 549 U.S. at 129 (emphasis added) (“‘[T]he declaratory judgment procedure is an alternative to pursuit of … arguably illegal activity.’”) (quoting Steffel v. Thompson, 415 U.S. 452, 480 (1974) (Rehnquist, J., concurring)); Super Tire Engineering Co. v. McCorkie, 416 U.S. 115, 122 (1974) (holding Article III's and the DJA's “case or controversy” requirement to be met where “the challenged government activity … is not contingent, has not evaporated or disappeared, and, by its continuing and brooding presence, casts what may well be a substantial adverse effect on the interests of the petitioning parties”); SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007) (“Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do.”); N. Shore Gas Co. v. Salomon, Inc., 896 F. Supp. 786, 789–90 (N.D. Ill. 1995) (finding declaratory judgment jurisdiction where plaintiff, “rather than wait an indefinite time to be sued,” filed suit after settlement discussions came to an impasse).
Accordingly, the NHLC's claims were ripe when filed. The April 8, 2019 notice does not moot or otherwise render them unripe. The district court's conclusions on these points were correct and its decision to exercise its discretion to afford declaratory relief should be affirmed.
II. The District court correctly concluded that § 1084(a) applies solely to sports gambling
The district court determined that 18 U.S.C. § 1084(a) applies “only to transmissions related to bets or wagers on a sporting event or contest.” ADD.60. The district court reached this conclusion after finding § 1084(a) ambiguous and analyzing the statute's structure, coherence, and context. After doing so, the district court correctly rejected the 2018 Opinion as erroneous.
The 2018 Opinion's interpretation of the Wire Act is tortured, unnatural, and unpersuasive. It relies on an incorrect application of the last-antecedent rule and follows an approach to statutory interpretation inconsistent with United States Supreme Court precedent. ADD.40. It is a results-oriented analysis designed to reach a specific conclusion (i.e., that § 1084(a) reaches all gambling activity, not just sports gambling). It does not endorse the most natural, coherent reading of the statute that is consistent with the statute's structure, purpose, and context. The defendants' position should therefore be rejected.
A. General structure of § 1084(a)
The defendants take the position that § 1084(a) contains two clauses, each containing two separate offenses. Appellants' Brief at 4. The NHLC took the position below that § 1084(a) contains three clauses, the first clause containing two separate offenses and the remaining two clauses containing a single offense each. ADD.32–33 n.8. The district court disagreed with the NHLC's three-clause construction. Id. While the NHLC maintains that § 1084(a) does contain three separate clauses that perform three separate functions (two prohibiting certain transmissions and one prohibiting a specific use), the NHLC does not contest the district court's rejection of that position because it is immaterial to the more specific legal question presented: whether the offenses within § 1084(a) are limited to sports gambling. For purposes of this appeal, the NHLC therefore assumes that § 1084(a) contains two clauses, each containing two separate offenses.
“It is a ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’” Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809 (1989)). “A court must therefore interpret the statute ‘as a symmetrical and coherent regulatory scheme,’ Gustafson v. Alloyd Co., 513 U.S. 561, 569 … (1995), and ‘fit, if possible, all parts into an harmonious whole,’ FTC v. Mandel Brothers, Inc., 359 U.S. 385, 389 … (1959).” Food & Drug Admin., 529 U.S. at 133.
1. The phrase “on any sporting event or contest” applies to both offenses in the first clause of § 1084(a).
The first clause of § 1084(a) provides in full as follows:
Whoever being engaged in the business of betting or wagering knowingly uses a wire communication facility … for the transmission in interstate or foreign commerce
(emphasis added).
In the above sentence, the bolded “of” is a function word that indicates the object of the action denoted by the word “transmission.” The phrase “bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest” is the compound object of the phrase “transmission of.” Within this compound object, one naturally reads the term “bets or wagers,” which appears twice, to refer to the same type of “bets or wagers.” The phrase “on any sporting event or contest” tells the reader what types of “bets or wagers” are being referenced. See Paroline v. United States, 572 U.S. 434, 447 (2014) (“‘When several words are followed by a clause which is applicable as much to the first and other words as to the last, the natural construction of the language demands that the clause be read as applicable to all.’”) (quoting Porto Rico Railway, Light & Power Co. v. Mor, 253 U.S. 345, 348 (1920)).
Thus, when the first clause of § 1084(a) is read naturally, one understands the phrase “on any sporting event or contest” to apply to the term “bets or wagers” in both places where it appears. See Republic of Sudan v. Harrison, U.S. , 139 S. Ct. 1048, 1056 (2019) (adopting “most natural reading” of the statute).
The defendants reject this natural interpretation in favor of a rigid application of the “last-antecedent rule.” Appellants' Brief at 30–33.2 The last-antecedent rule states that a limiting clause or phrase “should ordinarily be read as modifying only the noun or phrase that it immediately follows.” Barnhart v. Thomas, 540 U.S. 20, 26 (2003). However, like all canons of statutory construction, the last-antecedent rule is “not an absolute.” Id. The rule does not apply where the “modifying clause appear[s] … at the end of a single, integrated list,” Jama v. Immigration & Customs Enforcement, 543 U.S. 335, 344 n.4 (2005), or where the rule's application “would require accepting ‘unlikely premises,’” Paroline, 572 U.S. at 447 (quoting United States v. Hayes, 555 U.S. 415, 425 (2009)).
In this case, the first clause of § 1084(a) presents a modifying phrase (“on any sporting event or contest”) at the end of a single, integrated list (“bets or wagers or information assisting in the placing of bets or wagers”). The same term appears in this list twice (“bets or wagers”). The way in which the term “bets or wagers” is used in this list suggests that it means the same thing in both instances. This circumstance counsels against application of the last-antecedent rule. See Lockhart v. United States, ___ U.S. ___, 136 S. Ct. 958, 963 (2016) (explaining that where the listed items are simple and parallel, without internal modifiers or structure, the rule of the last-antecedent typically does not apply).
Additionally, applying the last-antecedent rule to the modifying clause “on any sporting event or contest” would require this Court to accept the unlikely premise that Congress, while choosing to prohibit the transmission of bets or wagers generally, simultaneously sought only to outlaw the transmission of information assisting in the placing of bets or wagers on any sporting event or contest. That result seems unlikely and, thus, counsels against application of the last-antecedent rule and the defendants' interpretation.
More notably, however, the application of the last- antecedent rule has been rejected when analyzing statutory passages similar to those presented in this case, particularly where the rule's application would conflict with the Tenth Amendment's plain statement rule. Specifically, in United States v. Bass, 404 U.S. 336, 337 (1971), the United States Supreme Court rejected the last-antecedent rule in interpreting the phrase “who receives, possesses, or transports in commerce or affecting commerce” in the following statute:
Any person who— (1) has been convicted by a court of the United States or of a State or any political subdivision thereof of a felony … and who receives, possesses, or transports in commerce or affecting commerce … any firearm shall be fined not more than $10,000 or imprisoned for not more than two years, or both.
The Supreme Court explained:
While the statute does not read well under either view, the ‘natural construction of the language’ suggests that the clause ‘in commerce or affecting commerce’ qualifies all three antecedents in the list. Porto Rico Railway, Light & Power Co. v. Mor, 253 U.S. 345, 348 (1920). Since ‘in commerce or affecting commerce’ undeniably applies to at least one antecedent, and since it makes sense with all three, the more plausible construction here is that it in fact applies to all three.
Id. at 339–40. Thus, because, under the statute, the “sanctions [were] criminal and because, under the Government's broader reading, the statute would mark a major inroad into a domain traditionally left to the States,” the United States Supreme Court “refuse[d] to adopt the broad reading in the absence of a clearer direction from Congress.” Id. at 339.
The same analysis and result applies to § 1084(a). The first clause of § 1084(a) presents a simple list of two terms (“bets or wagers” and “information assisting in the placing of bets or wagers”) followed by the phrase (“on any sports event or contest”). The most natural construction of this language is that the phrase “on any sporting event or contest” applies as much to the first “bets or wagers” as it does to the last “bets or wagers.” Moreover, because § 1084(a) imposes criminal sanctions and the defendants' broad interpretation of it would mark a major inroad into a domain traditionally left to the States (i.e., the operation of State lotteries to finance critical functions of state government), this Court should reject the defendants' interpretation, absent a clearer direction from Congress.
2. The phrase “on any sporting event or contest” also applies to both offenses within the second clause.
Having determined that both offenses in the first clause of § 1084(a) concern “bets or wagers” “on any sporting event or contest,” the question remains whether the term “bets or wagers” carries the same limitation the two additional times it is used in the second clause of § 1084(a). The Wire Act's text and structure reveal that it does.
Specifically, the third offense in the statute's second clause uses the phrase “as a result of bets or wagers.” One, however, does not place “bets or wagers” in a vacuum; one places “bets or wagers” on something. The fourth offense is left similarly open-ended. It uses the phrase “information assisting in the placing of bets or wagers,” which is identical to phrasing used in the first clause and leaves open the same question: “bets or wagers” on what?
A common-sense, natural reading of the statute, coupled with ordinary rules of statutory construction, confirms that the term “bets or wagers” means the same thing throughout § 1084(a) every time it is used, i.e., “bets or wagers on any sporting event or contest.” See, e.g., Envtl. Def. v. Duke Energy Corp., 549 U.S. 561, 574 (2006) (“[W]e presume that the same term has the same meaning when it occurs here and there in a single statute”). To hold otherwise would make no sense. An entity in the gambling business could legally transmit bets or wagers on non-sporting activities, but would be prohibited from receiving a wire communication entitling her to money or credits as a result of those bets or wagers. No coherent reason explains that result.
The defendants cannot escape the logic and cohesion of § 1084(a) when it is read holistically to apply solely to betting or wagering on any sporting event or contest. Read in the context of that subject matter (§ 1084(a) is, after all, a single sentence), the statute creates a regulatory lockbox around the specific conduct Congress sought to proscribe: the use of the interstate wires to facilitate illegal sports betting. To escape any portion of that lockbox, one would need an appropriate statutory exemption, which Congress provided in 18 U.S.C. § 1084(b).
The 2018 Opinion's interpretation of § 1084(a) is disjointed and illogical. It presumes that different parts of the same statutory sentence apply to different subject matter. It presumes that the same term “bets or wagers” means something different in one part of one clause of § 1084(a) than it means in the other parts of § 1084(a). It also picks and chooses what language to read into the statute's four offenses. For example, the first clause contains the phrase “in interstate or foreign commerce.” That phrase does not appear in second clause. If the second clause is not limited to activity occurring “in interstate or foreign commerce,” then purely intrastate activity falls within its prohibitions. That is not, however, how the United States Supreme Court has read the statute. See Barrett v. United States, 423 U.S. 212, 217 (1976) (identifying 18 U.S.C. § 1084 as a statute limited to the regulation of “only direct interstate commerce”).
Thus, the 2018 Opinion does not present a reasonable, or even a plausible, interpretation of § 1084(a). The 2011 Opinion advances the only reasonable, plausible interpretation of § 1084(a) and therefore controls. See, e.g., Gen. Motors Corp. v. Darling's, 444 F.3d 98, 108 (1st Cir. 2006) (“A statute is ambiguous only if it admits of more than one reasonable interpretation.”). This Court should therefore affirm the district court's order without finding § 1084(a) to be ambiguous.
3. Even if § 1084(a) is ambiguous, the statute's structure, purpose, and context confirm that § 1084(a) is limited sports betting.
As the district court correctly ruled, “[l]imiting the Wire Act to sports gambling … avoids significant coherence problems that result from the OLC's current interpretation . … ” ADD.41. It also construes the Wire Act (a) in accordance with its purpose, (b) in harmony with other gambling statutes, and (c) in a manner that avoids conflict with the Tenth Amendment's clear statement rule.
i. Structural coherence, purpose, and context
The district court correctly identified structural coherence as an important concern. The Wire Act is a criminal statute. It must afford persons fair notice of what it proscribes. See, e.g., United States v. Hussein, 351 F.3d 9, 13 (1st Cir. 2003) (“The criminal law should not be a series of traps for the unwary. To that end, the Due Process Clause demands that criminal statutes describe each particular offense with sufficient definiteness to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden.”).
The Wire Act's core prohibition, § 1084(a), is a single sentence. The defendants dissect this sentence, read its various parts in isolation, and conclude that one part of one clause of it deals with subject matter different from the remainder of the statute. Certain offenses concern all “bets or wagers,” without definition or limitation, raising the question of what that term means (does it include a contingency fee agreement, an insurance contract, a contest entry fee, etc.). One offense is limited to information assisting in the placing of bets or wagers “on any sporting event or contest,” without any explanation as to why Congress would so narrowly target only that type of information if the statute extends to all “bets or wagers.” Only the first clause contains the phrase “interstate or foreign commerce,” but that phrase extends to the second clause. The exemption, § 1084(b), is limited solely to sports betting activity. Thus, if two states have legalized a form of gambling other than sports betting, the Wire Act prohibits transmissions between those states of information assisting in the placing of those legal bets or wagers. That result is contrary to the purpose of the Wire Act, which “is to assist the states in enforcing their own laws against gambling,” United States v. Southard, 700 F.2d 1, 20 (1st Cir. 1983), not to defeat state gambling laws where the underlying gambling activity is legal in both states.
Carrying the sports gambling modifier throughout § 1084(a) avoids these fractured, unexplainable, and inconsistent results, providing instead a coherent set of criminal prohibitions designed to combat sports gambling, with an appropriate exemption to permit states that have legalized sports gambling activity to exchange information related to it. This construction furthers the purpose of the Wire Act and gives persons fair notice of what the Wire Act prohibits.
This construction is also consistent with the context in which the Wire Act exists. The Wire Act is one statute, grounded in the regulation of interstate commerce, that helps “implement a coherent federal policy” with respect to State choices on the issue of gambling. Murphy v. Nat'l Collegiate Athletic Ass'n, ___ U.S. ___, 138 S. Ct. 1461, 1483 (2018). Other statutes help implement that federal policy: the Interstate Transportation of Wagering Paraphernalia Act, 18 U.S.C. § 1953; the federal anti-lottery statutes, 18 U.S.C. §§ 1301–1308; and the UIGEA, 31 U.S.C. §§ 5361–67.
Passed on the same day Congress passed the Wire Act, the Paraphernalia Act prohibits carrying paraphernalia in interstate commerce that is to be used in “(a) bookmaking; or (b) wagering pools with respect to a sporting event; or (c) in a numbers, policy, bolita, or similar game.” 18 U.S.C. § 1953(a). Thus, on the same day Congress outlawed carrying equipment for use in a “numbers, policy, bolita or similar game,” Congress passed the Wire Act, 18 U.S.C. § 1084, with no such reference to lottery-style games.
The omission is notable because the Wire Act amended 18 U.S.C. § 1081 to add into that statute a definition for “wire communication facility.” At the time, 18 U.S.C. § 1081 had already expressly defined the term “gambling establishment” to include any establishment “operated for the purpose of gaming or gambling, including … carrying on a policy game or any other lottery . … ” 18 U.S.C. § 1081. Thus, when Congress passed the Wire Act, it knew how to reference and prohibit lottery-style games and made no such reference within 18 U.S.C. § 1084.
18 U.S.C. § 1301 also reveals that the Wire Act plays no role in regulating lottery activity. That statute specifically governs the interstate transmission of lottery tickets and related-lottery information and permits States to engage in interstate lottery activity by agreement. Indeed, in 1994, The 2018 Opinion would nullify these expressly authorized interstate arrangements because they conflict with 18 U.S.C. § 1084(a)'s broad prohibitions. See 18 U.S.C. § 1301 (prohibiting the interstate transfer of lottery tickets by transmission in interstate commerce “unless that business is permitted under an agreement between the States in question or appropriate authorities of those States”).
Interpreting § 1084(a) in this way runs afoul of the well- settled proposition that “‘[w]here there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment.’” Radzanower v. Touche Ross & Co., 426 U.S. 148, 153 (1976) (quoting Morton v. Mancari, 417 U.S. 535, 550–51 (1974)).
The UIGEA also stands in tension with the 2018 Opinion's interpretation of § 1084(a). Passed in 2006, the UIGEA recognizes the legality of state-conduct intrastate gambling activity like state lotteries. 31 U.S.C. § 5362(10)(B). It therefore makes clear that the “intermediate routing of electronic data” does not transform a bet or wager initiated in a State and received in the same State into an unlawful interstate transmission. 31 U.S.C. § 5362(10)(E). According to the defendants, Congress's attempt to permit the intermediate routing of data was futile because of § 1084(a). That type of reasoning is unpersuasive. Congress regulates interstate commerce. It is therefore far more likely that when Congress amended 18 U.S.C. § 1301 in 1994 to address lottery-specific wire transmissions and passed UIGEA in 2006, it intended those statutes to be controlling and did not understand or intend § 1084(a) to nullify them.
Accordingly, the structure, purpose, and context of the Wire Act all buttress the most coherent construction of the statute: that the types of “bets or wagers” referenced throughout 18 U.S.C. § 1084(a) are “bets or wagers on any sporting event or contest.”
III. The district court correctly set aside the 2018 Opinion under the APA as final agency action
Under the APA, an aggrieved party may seek judicial review of final agency action for which there is no other adequate remedy in a court. 5 U.S.C. §§ 702, 704.
Except as otherwise expressly required by statute, agency action otherwise final is final for the purposes of this section whether or not there has been presented or determined an application for a declaratory order, for any form of reconsideration, or, unless the agency otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency authority.
Id. § 704.
Agency action is final if two conditions are met: (1) the action marks the consummation of the agency's decision-making process, meaning it is not tentative or interlocutory; and (2) the action is one by which rights or obligations have been determined, or from which legal consequences will flow. See, e.g., U.S. Army Corps of Engineers v. Hawkes Co., Inc., ___ U.S. ___, 136 S. Ct. 1807, 1813 (2016); Bennett v. Spear, 520 U.S. 154, 177–78 (1997).
A. The USDOJ waived any argument that the 2018 Opinion and/or the January 15, 2019 Directive did not mark the consummation of its decision-making process
The defendants failed to raise below the argument that the 2018 Opinion and/or the January 15, 2019 Directive did not mark the consummation of the USDOJ's decision-making process with respect to § 1084(a). Appellant's Brief at 45, 47. The district court recognized as much:
The Government does not challenge the Lottery Commission's contentions that the 2018 OLC Opinion represents the culmination of the Justice Department's review of the Wire Act and is a ‘definitive statement of [the agency's] position.’
ADD.24 (emphasis added). Accordingly, the defendants have waived this argument. See, e.g., Kaufman v. C.I.R., 784 F.3d 56, 71 (1st Cir. 2015); Anderson v. Hannaford Bros. Co., 659 F.3d 151, 158 n.5 (1st Cir. 2011); Lamex Foods, Inc. v. Audeliz Lebron Corp., 646 F.3d 100, 112 n.15 (1st Cir. 2011).
However, even if this argument had been preserved, the undisputed record indicates that the 2018 Opinion and the January 15, 2019 Directive marked the consummation of the agency's decision-making process. The January 15, 2019 Directive announces the publication of the 2018 Opinion, adopts it as the USDOJ's operating policy, instructs all USDOJ attorneys to adhere to it, and directs those persons and entities who may have relied on the 2011 Opinion to confirm to it or risk criminal and/or civil prosecution.
Both the 2018 Opinion and the January 15, 2019 Directive are “devoid of any suggestion that [they] might be subject to subsequent revision or further agency consideration or possible modification.” Fairbanks North Star Borough v. U.S. Army Corps of Engineers, 543 F.3d 586, 592 (9th Cir. 2008) (internal quotations omitted). Rather, the text of the 2018 Opinion, including its discussion of stare decisis, and the fact that the 2018 Opinion was finalized on November 2, 2018, but not published until January 15, 2019, reveal a non-tentative, considered final agency position. See Whitman v. Am. Trucking Assocs., 531 U.S. 457, 479 (2001) (finding that the agency's “own behavior … belies the claim that its interpretation is not final”).
The April 8, 2019 notice does not alter this finality determination. That notice identifies, at best, a point on which the USDOJ purports to be reconsidering the 2018 Opinion. The APA makes clear, however, that informal reconsideration does not alter the finality of agency action already taken and that remains in place. 5 U.S.C. § 704.
Accordingly, even if this Court finds that the defendants have not waived this argument, the 2018 Opinion and the January 15, 2019 Directive constitute decisive action that marks the consummation of the USDOJ's decision-making process with respect to § 1084(a).
B. The USDOJ waived any argument that OLC Opinions can never constitute final agency action
The defendants failed to raise below the argument that OLC Opinions generally do not constitute final agency action. That argument is therefore waived. See, e.g., Kaufman, 784 F.3d at 71; Anderson, 659 F.3d at 158 n.5; Lamex Foods, Inc., 646 F.3d at 112 n.15.
Regardless, even if the defendants had preserved this argument below, it fails on the merits. It does not appear that any court has held that an OLC Opinion can never constitute final agency action under the APA. Whether an OLC Opinion constitutes final agency action depends on how the agency uses it and the results of that use. The case law under the Freedom of Information Act (“FOIA”) is instructive in this regard.
Under FOIA, an agency must disclose “statements of policy and interpretations which have been adopted by the agency and are not published in the Federal Register.” 5 U.S.C. § 552(a)(2)(B). This category of records constitutes the “working law” of an agency because it has “the force and effect of law.” NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 153 (1975). “An OLC opinion … qualifies as the ‘working law’ of an agency only if the agency has ‘adopted’ the opinion as its own.” Citizens for Responsibility & Ethics in Washington v. United States Depart. of Justice, 922 F.3d 480, 486 (D.C. Cir. 2019) (quoting Electronic Frontier Foundation v. United States Dept. of Justice, 739 F.3d 1, 9 (D.C. Cir. 2014)).
The 2018 Opinion meets that standard and, thus, there is no reason why it could not also meet the final agency action test under the APA. By the January 15, 2019 Directive, the Deputy Attorney General (a) formally adopted the 2018 Opinion as the USDOJ's official position on the meaning of the Wire Act, (b) instructed all of its attorneys to “adhere” to it, and (c) directed regulated persons or entities who “relied on the 2011 OLC Opinion” like the NHLC to “bring their operations into compliance” with the 2018 Opinion within 90 days or risk criminal and/or civil prosecution. ADD.90. This USDOJ policy has the force and effect of law, determines the rights and obligations of regulated persons and entities, and visits upon those regulated persons and entities serious and substantial legal consequences.
Consequently, no compelling reason exists to fashion a separate rule of categorical exclusion for OLC Opinions to insulate them from APA review. OLC Opinions, as a general matter, are not exempt from APA review if they constitute final agency action.
C. The USDOJ has waived any argument that the January 15, 2019 Directive is an interpretive rule
The defendants failed to raise below the argument that the January 15, 2019 Directive does not constitute final agency action because it is an interpretive rule. Appellant's Brief at 48. When “a rule transitions from being interpretive to being legislative” is complex and nuanced, “‘enshrouded in considerable smog.’” N.H. Hosp. Ass'n v. Azar, 887 F.3d 62, 70 (1st Cir. 2018) (quoting La Casa Del Convaleciente v. Sullivan, 965 F.2d 1175, 1178 (1st Cir. 1992)). It is the type of argument that the district court should have had an opportunity to address after briefing by the parties: not the type that should be advanced for the first time on appeal in an analysis spanning less than a page. Accordingly, the defendants have waived this argument. See, e.g., Kaufman, 784 F.3d at 71; Anderson, 659 F.3d at 158 n.5; Lamex Foods, Inc., 646 F.3d at 112 n.15.
However, even if the defendants had not waived this argument, the assertion that the January 15, 2019 Directive, standing alone, constitutes, at most, an interpretive rule misses the mark. The January 15, 2019 Directive and the 2018 Opinion operate together to advance a binding agency policy that has the force and effect of law and constitutes a legislative rule. Together, they “impose obligations, the basic tenor of which [are] not already outlined in the law itself.” N.H. Hosp. Ass'n, 887 F.3d at 70 (quoting La Casa Del Convaleciente, 965 F.2d at 1178).
As explained in Section II above, the language of § 1084(a) is limited to sports gambling. That is the only plausible interpretation of the statute. The USDOJ previously reached that conclusion in the 2011 Opinion. The impact of suddenly changing course is substantial, negatively affects a broad range of business enterprises that relied on the 2011 Opinion, and imperils enormous sums of private and public money. The 2018 Opinion offers no enhanced justification for undercutting these serious reliance interests. See Perez v. Mortgage Bankers Ass'n, 575 U.S. 92, 106 (2015) (reiterating that “the APA requires an agency to provide more substantial justification when … its prior policy has engendered serious reliance interests that must be taken into account”). Moreover, the 2018 Opinion conflicts with 18 U.S.C. § 1301 and stands in considerable tension with UIGEA.
In short, the January 15, 2019 Directive and the 2018 Opinion “announce[] a new policy on a matter of some considerable import,” N.H. Hosp. Ass'n, 887 F.3d at 73-74, that changes how Congress intended the Wire Act to operate and therefore imposes new obligations on the NHLC, the basic tenor of which are not outlined in the statute. Id. at 70. Accordingly, the notion that the January 15, 2019 Directive is merely an interpretive rule is unpersuasive.
D. The 2018 Opinion and the January 15, 2019 Directive constitute final agency action because they determine “rights or obligations” and “legal consequences” flow from them
The defendants attempt to divide the 2018 Opinion from the January 15, 2019 Directive and analyze them separately, but that is not possible. Both documents are intertwined and, together, advance a binding agency policy that determines rights and obligations and from which legal consequences flow.
January 15, 2019 Directive announced the publication of the 2018 Opinion, adopted it as official USDOJ policy, directed all federal agents to investigate and prosecute based on it, and notified those persons and entities “who relied on the 2011 Opinion,” like the States, to conform their business operations to the requirements of the 2018 Opinion within 90 days or risk criminal prosecution.
These formal actions put the NHLC to a grievous choice—spend millions of dollars conforming the state lottery system to the 2018 Opinion's requirements within 90 days, including shutting down lottery games that cannot be conformed and losing millions of dollars, or risk criminal and/or civil prosecution. As explained in Section I above, this dilemma was, and remains, real, substantial, and immediate and, as the district court explained, satisfies the final agency action test on its own. See ADD.24–25 (“[t]he final agency action requirement has not been construed to require litigants in the Commission's position to choose between abandoning an otherwise lawful and productive activity and facing a credible threat of ‘serious criminal or civil penalties.’” (quoting Hawkes Co., 136 S. Ct. at 1815)).
Other legal consequences flow directly from the 2018 Opinion too. The 2011 Opinion gave businesses engaged in non-sports gambling a “reasonable reliance” defense to prosecution under § 1084(a). ADD.23 n. 19. That defense will no longer be available to the NHLC once the USDOJ begins enforcing the 2018 Opinion against entities engaged in non-sports gambling. Cf. Hawkes Co., 136 S. Ct. at 1815 (concluding final agency action existed in part because the agency action “deprive[d] respondents of a five-year safe harbor from liability under the [statute]”).
The 2018 Opinion also has an immediate, adverse impact on the NHLC because § 1084(d) of the Act permits federal, state, or local law enforcement to notify in writing a common carrier (such as an Internet service provider) that it is providing services “used for the purpose of transmitting or receiving gambling information” in violation of the Wire Act. Upon receipt of such notice, the common carrier would be compelled to “discontinue or refuse” that service to the NHLC.
The defendants have not represented that they will forebear from enforcing § 1084(d) and, even if they did, nothing prohibits state or local law enforcement from viewing the January 15, 2019 Directive and 2018 Opinion as authoritative and acting to enforce § 1084(d) against the NHLC. Before the 2018 Opinion, federal, state, and local law enforcement could not invoke the Wire Act to disconnect the NHLC from the internet. Now they can. That is a legal consequence.
The above circumstances are more than sufficient to create final agency action. For example, in Frozen Food Express v. United States, 351 U.S. 40, 76 (1956), the Supreme Court considered whether an order identifying which commodities the Interstate Commerce Commission believed were exempt by statute from regulation, and which it believed were not, constituted final agency action. Even though the order “had no authority except to give notice of how the Commission interpreted” the relevant statute, and “would have effect only if and when a particular action was brought against a particular carrier,” the Supreme Court held that the order was immediately reviewable under the APA. Id. at 44–45. The Supreme Court explained that the order “warns every carrier, who does not have authority from the Commission to transport those commodities, that it does so at the risk of incurring criminal penalties.” Id. at 44.
This case is different only in the sense that more legal consequences flow from the January 15, 2019 Directive and the 2018 Opinion than from the interpretive order in Frozen Food Express. By their plain terms, the January 15, 2019 Directive and 2018 Opinion announce a binding USDOJ policy that subjects the NHLC and its agents to potential criminal and civil penalties unless they forgo substantial lottery revenue and fundamentally alter how their business operates. It removes from the NHLC a reliance defense and exposes the NHLC to the statutory consequence of being disconnected from the wires by federal, state, or local law enforcement. Thus, the January 15, 2019 Directive and the 2018 Opinion constitute final agency action. See Hawkes, Co., 136 S. Ct. at 1815 (finding agency action final in part because it placed the respondents “at the risk of significant criminal and civil penalties”).
The defendants quibble with whether the district court treated the January 15, 2019 Directive and the 2018 Opinion together or separately for final agency action purposes because it set aside only the 2018 Opinion. That debate, however, is immaterial. The purpose of the 2018 Opinion is to support the January 15, 2019 Directive, and the purpose of the January 15, 2019 Directive is to direct compliance with the 2018 Opinion. If the district court declared any one of them to be not in accordance with law and set it aside, the other one would also be effectively set aside. Accordingly, the district court's decision to “set aside” the 2018 Opinion under the APA was correct and should be affirmed.
CONCLUSION
The NHLC has standing to maintain this suit. This case was ripe when filed and the April 8, 2019 notice does not moot the case. The Wire Act is also limited to sports gambling. The text, structure, context, and purpose of the Wire Act all support that construction. Finally, the January 15, 2019 Directive and the 2018 Opinion, together, constitute final agency action under the APA. Setting aside the 2018 Opinion and thereby rendering the January 15, 2019 Directive inoperative was therefore proper.
Accordingly, the district court's decision should be affirmed.
Respectfully submitted,
NEW HAMPSHIRE LOTTERY COMMISSION
By their attorney,
GORDON J. MACDONALD ATTORNEY GENERAL
Footnotes
NH LOTTERY COMMISSION ADDENDUM
NEW HAMPSHIRE LOTTERY COMMISSION, Plaintiff,
v.
WILLIAM BARR, in his official capacity as Attorney General, UNITED STATES DEPARTMENT OF JUSTICE, Defendants.
and
NEOPOLLARD INTERACTIVE LLC, POLLARD BANKNOTE LIMITED, Plaintiffs,
v.
WILLIAM P. BARR, in his official capacity as Attorney General of the United States of America, THE UNITED STATES DEPARTMENT OF JUSTICE, THE UNITED STATES OF AMERICA, Defendants.
United States District Court for the District of New Hampshire
Civil Action No. 1:19-cv-00163 and 1:19-cv-00170 (consolidated)
Filed March 29, 2019
DECLARATION OF MICHAEL A. DELANEY IN SUPPORT OF PLAINTIFFs' MEMORANDUM OF LAW IN FURTHER SUPPORT OF THEIR
MOTION FOR SUMMARY JUDGMENT AND IN OPPOSITION TO DEFENDANTs' CROSS-MOTION FOR SUMMARY JUDGMENT
1. I, Michael A. Delaney, am an attorney licensed by the State of New Hampshire and admitted to practice before this Court.
2. I make the following declaration upon my own personal knowledge.
3. Attached as Exhibit 1 is a true and correct copy of Letter from Laura H. Parsky, Deputy Assistant Attorney General, to Carolyn Adams, Illinois Lottery Superintendent (May 13, 2005).
4. Attached as Exhibit 2 is a true and correct copy of Letter from Michael Chertoff, Acting Assistant Attorney General, Criminal Division, to Dennis K. Neilander, Chairman, Nevada Gaming Control Board (Aug. 23, 2002).
I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct.
Dated: March 29, 2019
/s/ Michael A. Delaney