NJ Joins Suit Opposing Trump Administration Take on Online Gaming

John Reitmeyer | March 14, 2019 | Politics
With hundreds of millions in potential tax revenue at stake, Garden State isn’t gambling on feds’ restrictive reading of Wire Act, which could even shut down interstate lotteries

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New Jersey is stepping up its defense of the state’s online gambling industry, joining a federal lawsuit that was launched by New Hampshire’s lottery system to challenge a restrictive regulatory opinion issued by the Trump administration.

In an amicus brief filed in federal court earlier this month, New Jersey Attorney General Gurbir Grewal took aim at the U.S. Department of Justice’s new policy, which seeks to rein in online gambling and interstate lotteries based on its strict interpretation of a 1960’s-era federal law.

Grewal’s brief argues that the DOJ’s position runs contrary to prior legal precedent and has the potential to constrain burgeoning online gambling businesses that have developed in New Jersey and other states in recent years. At stake is some $60 million in annual tax revenue from online gambling and millions more from licensing fees, the brief says.

Critical of Trump policy

The attorney general — who previously sent the Trump administration a letter that strongly criticized the new policy — is seeking a ruling from the federal court in New Hampshire that would go beyond that state’s lottery to provide “nationwide relief” for New Jersey and other parties.

“It is no overstatement to describe this case as one of great nationwide significance,” the brief says.

At issue in the case is a legal opinion that was first issued by the U.S. Department of Justice in 2011, during the Obama administration that helped pave the way for states to authorize online gambling. New Jersey passed a law in early 2013 that permitted such wagering, in part as a way to help boost the revitalization of Atlantic City.

Although it got off to a slow start, the industry has since gained traction in New Jersey, with an estimated 3,374 direct and indirect jobs tied to online gambling. The industry is also getting a boost from sports wagering, which was legalized last year.

$1 billion jackpot

Grewal’s brief estimates online gambling activities generated nearly $1 billion in gross sales in New Jersey between 2013 and 2016, producing an estimated $124.4 million in state and local tax revenues. The state has also collected another $35 million from licensing fees since 2013.

The key issue that was resolved in the 2011 DOJ opinion was how to interpret the federal Wire Act in the age of the internet. The act was written decades earlier, at a time when prosecutors were fighting illegal sports-betting rings. The Obama administration’s 2011 policy determined that the act generally would not cover online gambling legalized by the states.

But the Trump administration’s new policy — which could be enforced as early as next month based on a warning issued earlier this year — takes a more restrictive approach that would apply the Wire Act to all interstate gambling activities.

That threatens to impede online poker games that have been set up under agreements between officials in New Jersey, Delaware, and Nevada, according to Grewal’s legal brief. It could also make all instate online gambling illegal due to the nature of internet technology and the likelihood that “transactions may travel through channels that cross state lines,” the brief said. Also threatened are multistate lotteries and online lotteries, which in New Jersey are now funneling revenue to the grossly underfunded public-employee pension system under a law enacted in 2017.

A billionaire backer?

Grewal’s legal brief raises the idea that the DOJ’s more restrictive interpretation of the Wire Act has links to lobbying done on behalf of billionaire casino mogul Sheldon Adelson, a top Trump donor who has previously pushed for a strict interpretation of the federal law. In fact, Adelson reportedly backed a failed legislative effort in Congress several years ago that sought to pass a bill that was called the “Restoration of America’s Wire Act.” While sponsors cited concerns about gambling addiction and protecting children from online gambling, the effort was also viewed by many as a way for Adelson to preserve more of the gambling market for his brick-and-mortar casinos in Nevada and other locations.

“It is against this backdrop that the present controversy arises,” Grewal’s brief says.

Among the legal arguments the state makes is that reversing the 2011 ruling by the DOJ cannot happen under the federal Administrative Procedure Act without taking into consideration “reasonable reliance issues” that have arisen in the wake of the 2011 opinion. For example, in New Jersey, the state has “budgeted and planned for a continuing return on its investment, as have operators, vendors, and new employees,” the brief says. If the DOJ’s new policy is allowed to stand, New Jersey could “suffer a devastating setback,” it goes on to say.

Grewal also cites a case in Oregon involving attempted federal interference with that state’s assisted-suicide law as providing significant legal precedent.

While Grewal’s brief was filed earlier this month, oral arguments aren’t scheduled to occur in the case until April 15, according to Lee Moore, a spokesman for the attorney general’s office. Moore also declined to comment on why the state decided to join the lawsuit filed by the New Hampshire Lottery Commission instead of challenging the DOJ policy directly in federal court in New Jersey, citing general office policy that prohibits discussing litigation strategy.

Meanwhile, former state Sen. Ray Lesniak — an attorney who sponsored New Jersey’s original online gambling law and has been tasked with responding to the DOJ policy on behalf of the state Senate — said yesterday that he is monitoring the New Hampshire case but hasn’t ruled out the option of filing a lawsuit in federal court in New Jersey.