Appeal Arguments In Internet-Gaming Statute Challenge

[Editor's Note: The growth of online video games, online gambling, virtual Second Life societies, content downloads and file sharing have required the entertainment and media industries to consider the international reach of laws ' such as the criminal provisions of the Digital Millennium Copyright Act ' that are related to these activities. And for the trade-association-heavy entertainment and media fields, there's the recurring issue as to what extent a trade organization may litigate statutory issues on behalf of its members.

The federal appeals court case reported on in this article involves both a statutory challenge and trade-group standing. The U.S. District Court for the District of New Jersey had upheld the constitutionality of the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), though the district court did initially find that the Interactive Media Entertainment & Gaming Association could properly pursue a claim on behalf of its members alleging violation of First Amendment associational rights. The district court noted of the latter point: "The plaintiff thus has shown that its members satisfy the [constitutional] Article III requirements for standing: the existence of an injury-in-fact, which is traceable to UIGEA and redressable by favorable judicial action. ' The action seeks to prevent a criminal statute prohibiting certain gambling transactions from allegedly infringing the First Amendment rights of Internet gambling businesses, and thus is relevant to the plaintiff's organizational goal to 'represent the interests of persons and companies which provide Internet interactive [gaming and gambling services.]'” Interactive Media Entertainment & Gaming Association Inc. v. Gonzales, 07-2625 (MLC) (D.N.J. 2008).]

In the high-stakes court battle over the constitutionality of a federal law that bans all Internet gambling transactions that would be illegal in the gambler's state, a trio of federal appeals judges in Philadelphia appeared unlikely to strike the law down. Instead, hearing recent oral arguments, all three judges on the Third U.S. Circuit Court of Appeals panel seemed inclined to uphold the Unlawful Internet Gambling Enforcement Act of 2006 and to reject arguments from two lawyers for a gambling trade association who complained that the wording of the law is so vague it cannot be understood.

The Act makes it a crime for gambling businesses to “knowingly accept” any funds “in connection with the participation of another person in unlawful Internet gambling.” Law professor Stephen A. Saltzburg of George Washington University, arguing for the Interactive Media Entertainment & Gaming Association, said the law is “so vague that reasonable people would have to guess” about its meaning. A typical Internet gambler, Saltzburg said, may visit a gambling Web site in Costa Rica, where gambling is perfectly legal, and that transaction would be conducted in Costa Rica. By virtue of the Internet, he said, that gambler did not need to get on a plane, but he nonetheless was visiting a site in Costa Rica.

But Third Circuit Judge Kent A. Jordan was unimpressed: “No matter how metaphysical you want to get, I'm not in Costa Rica ' I'm in Delaware.” Assuming that Delaware state law says Internet gambling is illegal, Jordan said, the federal law simply criminalizes the wire transfer of funds related to that illegal transaction. “I'm struggling with what's vague about that,” Jordan said.

Judge Dolores K. Sloviter said she, too, was having difficulty grasping the vagueness argument. “It may be difficult to prove where the bet was placed, but that doesn't make the law unconstitutionally vague ' that's a question of proof,” Sloviter said.

But Saltzburg said the vagueness lies in the statute's failure to define the term “unlawful Internet gambling.” “It's not at all clear that Delaware or any state can regulate international commerce,” Saltzburg said.

Jordan interjected and said Saltzburg's argument would “put the rabbit in the hat.” The issue, Jordan said, was not where else in the world a transaction was taking place, but only the conduct that was taking place in Delaware.

Saltzburg pressed his point, saying that if the hypothetical Delaware gambler “voluntarily accepts” to be fully bound by the laws of Costa Rica, where gambling is legal, the federal statute is vague because it fails to define such a transaction as illegal.

At that point, Judge Thomas L. Ambro joined his colleagues in rejecting the fundamental premise of Saltzburg's argument. “You know you're in Delaware,” Ambro said. “So it doesn't make any difference that you agreed to be bound by Costa Rica law.” Jordan said gamblers “could have a beef” with the way state laws were drafted, but “that doesn't mean this statute is vague.”

Attorney Eric M. Bernstein of Warren, NJ, took up the second half of the argument, urging the judges to hold that the statute violates the First Amendment and privacy rights of gamblers. Bernstein was soon fielding a fusillade of questions as the judges demanded to know how the trade association had standing to assert the rights of its members' customers as well as the nature of the First Amendment right.

“Are you asserting that you have a privacy right that trumps the police powers of the state?” Ambro asked.

Sloviter asked if gambling is “constitutionally protected intimate contact.” Bernstein argued that gambling is entitled to privacy protections and that a trade association should be recognized to have standing to assert those claims on behalf of its members' customers who face a daunting impediment to going to court on their own where they would be forced to confess to a crime as a prerequisite to waging any challenge.

But Justice Department attorney Nicholas J. Bagley argued that the plaintiff's void-for-vagueness arguments were fatally flawed because they cannot show that the statute would be vague in all its applications. In Utah, he said, where all gambling is illegal, there could be no doubt how the law should apply.

Bagley also argued that while courts have recognized “associational” standing for trade groups and third-party standing for asserting the rights of customers, no court has ever lumped the two together and allowed a trade organization to assert both.

Perhaps the strongest indicator of the likely winner came when Bagley stopped his own 20-minute argument about halfway through and said he would be happy to take a seat if the judges had no further questions. “I'm OK with that,” Sloviter said for the panel.