DOJ Reverses Course on the Wire Act

by Zach Lerner on January 16, 2019

In a surprisingly result-oriented analysis, the Department of Justice (“DOJ”) has reversed its view on the scope of the Wire Act, declaring that the Wire Act is not limited to sports gambling. The opinion authored by the Office of Legal Counsel, (dated November 2, 2018 and made public earlier this week) reverses the better-reasoned conclusion the DOJ previously reached in its 2011 op i nion, limiting the application of the Wire Act to sports betting.

The relevant portion of the Wire Act, 18 U.S.C. § 1084,
states:

(a) 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. (emphasis added)

In both the 2011 and 2018 opinions, the DOJ analyzed whether the term “on any sporting event or contest” modifies each instance of “bets or wagers” in subsection 1084(a) or only the second instance. Pointing to the ambiguity in the language, the 2011 opinion conducted a thorough examination of the Wire Act’s legislative and drafting history. The DOJ also considered which interpretation made more functional sense, finding that if some prohibitions apply solely to sports-related gambling while others apply to all gambling activities, it “would create a counterintuitive patchwork of prohibitions.”

The DOJ’s 2018 Opinion Gets It Wrong

In the 2018 opinion, the DOJ concludes that based on the
plain language of the statute, Congress intended to create this patchwork. The
DOJ now believes that the language in subsection 1084(a) is unambiguous; this despite
the fact that just seven years prior, attorneys in the same department interpreting
the exact same language reached the opposite conclusion. Finding that the
language lacks ambiguity also flies in the face of the only two federal circuit
courts to address the issue, both of which concluded that all four prohibitions
apply only to sports-related gambling. See
In re Mastercard Int’l, Inc., Internet
Gambling Litig., 313 F.3d 257 (5th Cir. 2001) (explicitly affirming the
district court’s interpretation that “a plain reading of the statutory language
clearly requires that the object of the gambling be a sporting event or contest”);
United States v. Lyons, 740 F.3d 702,
718 (1st Cir. 2014) (“The Wire Act applies only to ‘wagers on any sporting
event or contest,’ that is, sports betting.”).

Rather than acknowledge that reasonable minds could differ
in their interpretation of subsection 1084(a), the DOJ instead focuses on
traditional canons of statutory construction, such as the last-antecedent rule.
The DOJ argues that based upon its placement within the subsection, the lack of
commas, and the overall grammatical structure of statute, the phrase “on any
sporting event or contest” only modifies the item directly before it and does
not carry backward to the first prohibition or forward to the third or fourth
prohibitions.

Sponsorships Available

The 2018 opinion acknowledges that in its prior opinion, the DOJ classified its newly adopted conclusion as improbable and anomalous. It further recognizes that “the Wire Act is not a model artful drafting.” Yet, because of its conclusion that the text lacks ambiguity, the DOJ declares itself bound to apply the Wire Act pursuant to its new interpretation unless it would produce an obviously absurd result. Finding no such absurdity – even though it seems to acknowledges that the construction of the law ascribes an “improbable” intent to Congress – the DOJ ignores the well-researched analysis of the legislative history conducted in the 2011 opinion, and specific legislative colloquies from the Wire Act’s passage that show the intent to limit the Act to sports wagering.

What This Means For Industry Stakeholders

The DOJ’s change of opinion does not unilaterally dictate the
correct interpretation of the Wire Act. Rather, courts will ultimately
determine whether the four prohibitions in subsection 1084(a) apply only to
sports-related gambling. As noted, district courts in the First and Fifth
Circuits are already bound by precedent holding that the Wire Act applies only
to sports-related activities.

Whether or not this interpretation holds up in court, the
shift likely signals that the DOJ is putting itself in position to threaten (if
not bring) Wire Act charges against online gambling and lottery operators
following a 90-day implementation period for the new interpretation. Accordingly,
the DOJ’s 2018 opinion should give pause to companies offering non-sports
related online gambling services. Those companies should consider whether their
operations and technical infrastructure put them in the DOJ’s cross-hairs and
evaluate ways to minimize their risk.

For operators of online sports-gambling services, the DOJ’s
opinion on the application of the Wire Act to non-sports related gambling is
likely irrelevant. The DOJ has always held that each of the Wire Act’s
prohibitions applies to sports-related gambling. But one part of the 2018
opinion—related to Congress’ enactment of the Unlawful Internet Gambling
Enforcement Act (“UIGEA”)—may be touted by some as impactful. The 2018 opinion analyzes
whether, in excluding certain activities from UIGEA’s definition of “unlawful
Internet gambling,” UIGEA excludes those same activities from the prohibitions
under other federal gambling laws, like the Wire Act.

The 2018 opinion disposes of that question summarily, citing UIGEA’s provision that says it shall not be construed as altering, limiting, or extending any other law. Thus, DOJ suggests that the provision of UIGEA that “excludes from coverage certain bets or wagers that are ‘initiated and received or otherwise made exclusively within a single State’ and done so in accordance with the laws of such State,” does not on its face apply to the Wire Act. Opn. at 18. However, similar caveats are found in other federal statutes as incorporated within the understanding of interstate or foreign commerce. See 18 USC § 921(a)(2) (“such term does not include commerce between places within the same State but through any place outside of that State.”). Thus, the same carve-out may apply to the Wire Act nonetheless.

Conclusion

Whether federal prosecutors bring charges against operators or industry players go to court first to seek a declaratory judgment, the DOJ’s new position will likely be tested in the courts fairly quickly. The 2018 opinion’s contrived arguments are clearly ripe for legal challenge, but, in the meantime, companies should understand the memo as a statement of DOJ’s newly aggressive position.

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