Judge's injunction deals major blow to New Jersey's sports betting plan

In a decisive legal victory for the NCAA and the four major U.S. pro sports leagues, U.S. District Judge Michael Shipp late Friday issued a permanent injunction

In a decisive legal victory for the NCAA and the four major U.S. pro sports leagues, U.S. District Judge Michael Shipp late Friday issued a permanent injunction against New Jersey’s latest effort to legalize sports betting. The injunction prevents New Jersey from implementing a law that would have repealed the state’s ban against sports betting and permitted casinos and racetracks to offer sports wagering. While New Jersey has already filed a notice that it will appeal the injunction to the U.S. Court of Appeals for the Third Circuit, the ruling is a major setback for the state's leading advocate of sports betting: Governor Chris Christie.

The turbulent path of New Jersey’s attempt to legalize sports betting

Since 1992, the odds have been stacked against New Jersey legalizing sports betting. In that year, President George H.W. Bush signed the Professional and Amateur Sports Protection Act (“PASPA”) into law. PASPA enjoyed bipartisan support due to concerns about the influence of gambling on sports and the danger of athletes and coaches “throwing” games. These worries ostensibly distinguish sports betting from other types of betting such as slot machines, poker games, lotteries and other “bets” that are regulated and in some cases prohibited by states’ laws. 

PASPA is often described as a federal ban on sports betting but is more technically a ban on states' ability to license, sponsor or authorize sports betting. This slight distinction is significant because advocates for states’ rights contend that PASPA, by taking away states’ autonomy on sports betting, violates the U.S. Constitution. Also, while PASPA is a “federal law,” it doesn’t apply equally across the country. PASPA exempts four states -- Nevada, Delaware, Oregon and Montana -- that had already adopted sports betting by 1992. As a result of this exemption, you can legally bet on any NFL game this Sunday​ in Nevada. But in New Jersey you can’t.

Attitudes about sports betting have become more permissive since 1992. Even NBA commissioner Adam Silver recently opined that Congress should allow states to legalize sports betting under certain conditions. But PASPA remains the law of the land.

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In 2011, Christie took on the federal government and signed the New Jersey Sports Wagering Law. This law created a limited regulatory scheme where casinos and racetracks could apply for sports betting licenses. Other types of betting providers, as well as bets on college games played in New Jersey and games played by New Jersey colleges, would remain illegal. New Jersey hoped to generate millions of dollars in tax revenue by taxing sports bets.

The pro leagues and the NCAA then told New Jersey, in so many words, don’t bet on it. They filed a lawsuit against New Jersey in federal court, contending that New Jersey’s law violated PASPA. The U.S. Department of Justice soon joined them in a crusade against sports betting in the Garden State.

The plaintiffs charged that Christie’s law would jeopardize “the public’s faith and confidence” in team sports. They also highlighted that sports betting substantially impacts “interstate commerce,” since big-time pro and college sports constitute national industries. This is a crucial legal point. Under the U.S. Constitution’s Commerce Clause, a federal law can usually restrict states’ decision making so long as the law regulates an economic activity that crosses state lines. Much to the chagrin of states rights’ advocates and those who read the Constitution literally, courts today broadly read the Commerce Clause to uphold federal laws that merely impact an interstate industry. So even if the actual activity -- a person places sports bets at a New Jersey casino -- occurs in just one state, the games subject to the bet might be played in other states, or rivals of those teams might play in other states, thus violating federal law in the broad interpretation.

New Jersey fired back at the lawsuit with a two-pronged argument against PASPA. The first argument was that PASPA unlawfully treats Nevada favorably compared to other states. This argument is grounded in the equal sovereignty doctrine, a controversial principle holding that states are owed equal treatment by the federal government. Some jurists, including John Roberts, the Chief Justice of the U.S. Supreme Court, embrace the equal sovereignty doctrine. Critics, however, stress that it is nowhere to be found in the actual Constitution. Second, New Jersey maintained that PASPA unlawfully barred New Jersey from exercising its authority under the 10th Amendment. The anti-commandeering principle forbids Congress from ordering states to govern or regulate in a particular way where there is no related federal regulatory scheme.

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​​Judge Shipp was assigned the case and in February 2013 held for the leagues and the NCAA. In September 2013, two of the three judges on a U.S. Court of Appeals for the Third Circuit panel also sided with the leagues and the NCAA. In affirming the constitutionality of PASPA, the majority rejected the equal sovereignty doctrine as unrelated to an issue like sports betting. The majority also reasoned that PASPA only prohibited New Jersey from legalizing sports betting, but did not compel New Jersey to maintain its state-law prohibitions against sports betting. This distinction may sound immaterial -- no matter how it is read, PASPA blocks New Jersey from legalizing sports betting -- but it is important for the purposes of the anti-commandeering doctrine. This doctrine only helps New Jersey if the federal government compels it to act, not prevent the state from acting.

The dissenting voice on the Third Circuit saw the law quite differently. Judge Thomas Vanaskie reasoned that the distinction between prohibiting New Jersey from legalizing sports betting and compelling New Jersey to ban sports betting was “illusory.” He stressed that no matter how it is read, PASPA unlawfully prevented New Jersey from pursuing a right that it enjoys through the anti-commandeering doctrine: the right to legalize sports betting. While Christie hoped the U.S. Supreme Court would consider Vanaskie’s argument, the Court declined to grant certiorari.

But a dedicated gambler is often undeterred by a loss here and there. Enter Christie’s Plan B to legalize sports betting in New Jersey: In September 2014, Christie joined New Jersey Acting Attorney General John Jay Hoffman in filing a motion with Judge Shipp. Christie and Hoffman asked Shipp to hold that the state was not required to criminalize sports betting. They stressed that while the majority of the Third Circuit held against New Jersey, it also held that a “state may repeal its sports wagering ban” without violating PASPA, and that each state is free “to decide what the exact contours of the prohibition [on sports betting] will be.” According to Daniel Wallach, a partner at Becker & Poliakoff, P.A., and a leading expert on gaming law, this language indicated that New Jersey could partially ban sports betting and thus partially legalize it: “In my view, the phrase the ‘exact contours of the prohibition’ suggests that New Jersey is free to decide just how much of a prohibition on sports gambling it wants to maintain on its books.”

Contemporaneously, Hoffman issued a formal opinion that under his office’s interpretation of New Jersey law, privately owned casinos and racetracks could accept sports bets without violating criminal law. With momentum on his side, Christie on Oct. 20 signed New Jersey Senate Bill 2460 into law. The bill partially repealed the state’s ban against sports betting and would have allowed casinos and racetracks to offer sports wagering beginning Oct. 26. The wheels were set in motion for New Jersey to partially legalize sports betting by decriminalizing it.

In October, Judge Shipp delivered disappointing news to Christie and Hoffman when he entered a temporary restraining order barring Monmouth Park from conducting sports wagering and prohibiting the state from implementing Senate Bill 2460. The order lasted until Friday, when Shipp issued a permanent injunction against New Jersey and granted final summary judgment in favor of the leagues.

Was Judge Shipp right to issue a permanent injunction?

Judge Shipp ruled for the NCAA and leagues despite the Third Circuit’s observation that states can repeal their prohibition on sports betting and are permitted to “decide the exact contours” of how they prohibit sports betting. Wallach, for one, takes issue with Shipp’s reasoning. “For Judge Shipp to read the Third Circuit’s language in the manner suggested by the leagues,” Wallach contends, “ignores the plain language and obvious meaning of the words employed by the Third Circuit.” Wallach adds that New Jersey’s repeal law "comports with prior statements made by United States Solicitor General Donald M. Verrilli, Jr., who asserted in a brief filed with the U.S. Supreme Court that New Jersey was free to repeal its ban against sports wagering 'in whole or in part' without violating PASPA."

​New Jersey’s law, Wallach emphasizes, "is precisely the kind of law that the Solicitor General said would not be a violation of PASPA." Wallach, who attended Thursday’s oral argument, said that famed lawyer Ted Olson (New Jersey’s legal counsel) stressed that the federal government and the leagues (who were aligned with the federal government in the prior case) "were engaging in a classic 'bait-and-switch' by backtracking from the DOJ’s prior acknowledgment." Wallach expects this to be a key issue on appeal.

For at least two reasons, however, Shipp seemed troubled by the public policy implications of making sports betting lawful in New Jersey. First, Shipp signaled concern that New Jersey would, in violation of PASPA, inevitably regulate sports betting at casinos and racetracks. This is because those casinos and racetracks are already regulated by New Jersey, meaning it may be difficult for New Jersey to avoid also regulating sports books at those same casinos and racetracks.

Second, Shipp seemed worried that letting New Jersey decriminalize sports betting might open the door for other states to circumvent PASPA by decriminalizing sports betting as well. "This case has national implications," Wallace stresses. "It’s not just about New Jersey. If New Jersey prevails, we can expect other states such as Delaware, Pennsylvania and, perhaps, Florida to follow New Jersey’s 'blueprint' and enact similar partial repeal laws that likewise benefit only licensed gaming operators such as casinos and racetracks. Since casinos and racetracks are prevalent in many states, Judge Shipp may have been concerned about the impact that his ruling could have throughout the country and on the continued viability of PASPA." Wallach noted that during Thursday’s oral argument, Judge Shipp pointedly asked Ted Olson if other states could pass similar legislation if New Jersey prevails, which Wallach saw as a "harbinger" of this evening’s decision.

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Wallach also believes that Judge Shipp viewed New Jersey’s repeal law as a “work-around” of PASPA, as evidenced by the following question he asked of Ted Olson during oral argument: "Are the federal laws so easily evaded that we can cast a law in such a way to, in essence, get around and do indirectly that which you cannot do directly?" By asking this question, Wallach reasons that Judge Shipp "may have been looking to avoid a result that could have the effect of rendering a federal law (PASPA) meaningless, especially if other states were to implement New Jersey’s approach."

Lastly, during oral arguments on Thursday, Shipp asked numerous questions about the meaning of the dissent by Judge Vanaskie. In the dissent, Vanaskie viewed the choice for states as one where there is no regulation of sports betting or a complete ban of sports betting. Neither scenario fits New Jersey’s desire to partially legalize sports betting. Shipp emphasized that point in his opinion Friday night.

Does New Jersey have a chance on appeal?

Shipp's order grants final summary judgment, which, under federal law, means it is appealable to the appropriate appellate court (the U.S. Court of Appeals for the Third Circuit). SI has learned New Jersey has already appealed Shipp's ruling, and will probably move to expedite the appeal in order to present its case as early as possible. New Jersey employed a similar tactic (with the leagues' consent) in the first lawsuit, and it is expected that the Third Circuit will again grant expedited review. If that happens, all written briefs would be filed by the end of February, and oral argument likely scheduled for late March or early April. Based upon this anticipated timetable, look for the Third Circuit to issue a decision between May 2015 and July 2015. The losing side could then petition for "en banc" review where all of the judges on the Third Circuit would hear the case. The last step of an appeal would be to petition the U.S. Supreme Court to take the case.

New Jersey’s chances of success before the Third Circuit will undoubtedly be greater than they were before Judge Shipp, who most observers expected to rule in favor of the leagues. The outcome of the appeal will ultimately hinge on the Third Circuit’s interpretation of a single paragraph from its opinion in the first case -- that “a state may repeal its sports wagering ban” without violating PASPA, and each state is free “to decide what the exact contours of the prohibition will be.” While New Jersey believes this “exact contours” language allows it to partially repeal its state-law prohibition against sports betting -- especially in view of the U.S. Department of Justice's prior concession on that point -- Wallach is skeptical the Third Circuit intended for its “exact contours” language to be utilized as a pathway for states to avoid the strictures of PASPA. As Wallach explains, “this language was never intended to be a ‘loophole’ for states to exploit, but, rather, it was a rationale expressed by the Third Circuit majority as to why PASPA did not ‘commandeer’ states to maintain unwanted state-law prohibitions against sports betting on its books.”

Wallach expects the Third Circuit judges will shift their positions in this new case. While Judge Vanaskie previously sided with New Jersey in concluding PASPA violates the anti-commandeering doctrine, his dissenting opinion seemed to reject New Jersey’s partial repeal strategy. In a footnote, Vanaskie revealingly wrote that he “fails to discern” how the Third Circuit majority opinion “leaves much room for the states to make their own policy.” He made clear that “the only choice is to allow for completely unregulated sports wagering (a result that Congress did not intend to foster), or to ban sports wagering completely.” Thus, Judge Vanaskie appears to be aligned with Judge Shipp’s “all-or-nothing” approach on just how far a repeal must go to avoid running afoul of PASPA. This is not a good sign for New Jersey, which, ironically, will be looking to the judges who previously ruled against it to side with it this time around. Not a promising prospect according to Wallach, who believes New Jersey’s chances for success on appeal may be no greater than 25 percent in view of Vanaskie’s footnote and the public policy considerations associated with potentially opening the floodgates for nationwide sports gambling.

National politics lurk in the background of New Jersey’s plans. Christie is considered a likely candidate for the 2016 Republican presidential nomination. Will he fight as hard for his sports betting case if his focus is on running for president and if the odds of his case prevailing are low? Only time will tell.

Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.