September 24, 2010

Down Goes Rousso!
Washington Supreme Court KOs Constitutional Challenge to Online Gambling Ban

The Washington supreme court today handed down its decision in the Rousso appeal, affirming the constitutionality of the state's outright ban of all internet gambling (.pdf version).  As my faithful crAAKKer readers will recall, this is the outcome I predicted earlier this year after watching oral arguments.  Although the court's ruling was not surprising to me, I was somewhat surprised both by the author of the opinion, and by the fact the opinion was unanimous.  While following the Rousso and Betcha.com gambling law appeals the past few months, I signed up for the court's online notifications for when new decisions are issued.  The Washington supreme court has a notably high rate of concurring and dissenting opinions for a state appellate court, indicating the justices are not shy about voicing their analytical disagreements.  The fact that the Rousso decision was unanimous indicates a strong rejection of Rousso's constitutional arguments.  The strength of the rejection is even more evident when one considers that the justice authoring the opinion, Justice Richard Sanders, was one of the three justices at oral argument who seemed most skeptical of the state's justifications for the gambling ban, and most open to Rousso's arguments in favor of striking down the ban.

Before digging into the court's decision, let's take a minute to consider the questions most on poker players' minds:  a) Can this decision be appealed? and b) What does the decision mean for online poker legalization efforts?  The first question is easy—because a federal constitutional issue is at issue, Rousso has the right to file a petition for writ of certiorari ("cert") to the United States Supreme Court.  The U.S. Supreme Court rarely grants cert in more than 1-2% of the cases where petitions are filed, so the odds are rather long against Rousso.  However, this case does present an interesting issue of Commerce Clause jurisprudence in the realm of online commerce, so the case might at least stand out and get a little closer review from the Court.  But even in the unlikely event cert is granted, I'm not certain the present court will be all that interested in striking down Washington's online gambling ban.  The Justices on the Court's conservative side tend to favor state control over "police power" regulations, and gambling regulation is a quintessential exercise of state police power.  Plus, gambling is not a particularly attractive or compelling economic activity, and once you throw in the money laundering and teen addict memes, it's tough to see the Court leaping at the chance to take the case.  Finally, with Congress at least making some attempt to impose a federal system for legalized gambling, the Court may decide it is simply premature to wade into a dispute that seems likely to end up being rendered moot by federal preemption, if not this year, then within the relatively near future.

Turning to the second question, the Rousso decision is, without question or qualification, "bad for poker".  Online gambling of any kind, including online poker, is now unambiguously and inarguably illegal within the State of Washington.  Period.  So, any online poker site which permits individuals located within the Washington state borders to play poker for money is violating Washington law.  Now, those poker sites might be difficult for Washington to prosecute because of jurisdictional issues, but there is no longer any gray area or wiggle room to assert that online poker is legal in Washington.  The Rousso ruling may be the biggest nail in the PokerStars and Full Tilt coffins if a federal online poker regulatory system is enacted which bans "bad actors" from federal licensing—under the language of the current version of HR2267, those sites no longer have any basis to claim they have not been violating Washington's gambling laws if they have taken any wagers from or paid winning wagers to any person located in Washington state since the ban was enacted. 

As far as online poker legalization efforts in general, the Rousso litigation attacked an outright state ban on internet gambling, and failed to have the statute stricken on constitutional grounds.  Similar attacks on less restrictive laws merely regulating online gambling in other states would seem equally immune to court challenge, and the Rousso decision would be available for other courts to cite.  Of course, other state or federal courts examining laws from other states might reach a different conclusion than the Washington supreme court, but the Rousso decision is fairly standard Commerce Clause analysis, so expecting a different result in another case requires quite the leap of faith.

Turning back to the Rousso decision, the court's analysis was actually rather succinct for a constitutional law decision, suggesting the court found the analysis rather straightforward.  The court began by determining whether Congress had explicitly granted states the right to regulate internet gambling.  Not surprisingly, the court determined that neither the Wire Act nor the UIGEA gave states such authority (pp. 4-6).

The court then turned to the Dormant Commerce Clause analysis, which examines first whether a state law discriminates in favor of in-state businesses to the detriment of out-of-state businesses, and then analyzes whether the law's effect on interstate commerce is justified in light of the state's police power interests.

Looking at the discrimination issue, the court easily concluded that the statute applied equally to in-state and out-of-state internet gambling sites, banning all such sites on the same terms (pp. 7-8).  However, Rousso had argued that the effect of the otherwise neutral statute was to favor in-state brick and mortar ("B&M") casinos at the expense of online gambling sites, most of which were based out-of-state.  The court rejected this contention, concluding that online and B&M gambling are different types of activities, and the online gambling ban would not necessarily directly lead to the effect of people gambling in Washington B&M casinos (pp. 8-11).  In other words, people in Washington who are unable to gamble online might well gamble in B&M casinos, but they might just as easily spend their online gambling dollars on any number of non-gambling activities.  Absent some direct economic link between the statute and in-state businesses (the B&M casinos), the online gambling ban was not a prohibited protectionistic statute, but instead was a neutral law with some potentially indirect, constitutionally permissible economic benefits for in-state B&M casinos.

Having found the statute was not unfairly discriminatory, the court next had to weigh the benefits of the online gambling ban against the degree to which the ban burdens interstate commerce.  Now these types of balancing tests are notoriously difficult to apply with any precision, which the Rousso court acknowledged in a footnote (pp. 13-14, n. 7).  Nonetheless, the court readily accepted the state's morality and welfare justifications for the statute (pp. 12-13):
The State wields police power to protect its citizens' health, welfare, safety, and morals.  On account of ties to organized crime, money laundering, gambling addiction, underage gambling, and other societal ills, "[t]he regulation of gambling enterprises lies at the heart of the state's police power." [cites].

Internet gambling introduces new ways to exacerbate these same threats to health, welfare, safety, and morals.  Gambling addicts and underage gamblers have greater accessibility to on-line gambling -- able to gamble from their homes immediately and on demand, at any time, on any day, unhindered by in-person regulatory measures.  Concerns over ties to organized crime and money laundering are exacerbated where on-line gambling operations are not physically present in-state to be inspected for regulatory compliance.  Washington has a legitimate and substantial state interest in addressing the effects of Internet gambling.

Rousso and the Poker Players Alliance (PPA) had argued that Washington could just as easily achieve its objective of protecting its citizens from this parade of gambling horribles by legalizing and regulating online poker, rather than banning it outright.  The court rejected this argument, concluding that online gambling regulation was not inherently superior to Washington's outright ban (p. 15):
Internet gambling has its own unique dangers and pitfalls.  A regulatory system to monitor and address concerns unique to Internet gambling would take significant time and resources to develop and maintain.  Even so, no regulatory system is perfect.  Some concerns will not be fully addressed, while loopholes may permit others to slip through the cracks.  The legislature decided to avoid the shortcomings and ongoing process of regulation by banning Internet gambling altogether.  The legislature could have decided to step out in the rain with an umbrella, but instead it decided to stay home, dry, and without the possibility that its umbrella would break a mile from home.  The judiciary has no authority to second-guess that decision, rebalancing public policy concerns to determine whether it would have arrived at a different result.  Under the dormant commerce clause, we observe only that it is not clear that regulation of Internet gambling could protect state interests as fully as, or at least in a comparable way to, a complete ban.

While still evaluating the possibility of imposing a regulatory scheme in lieu of an outright internet gambling ban, the court also found that any attempt by Washington to regulate foreign-based gambling sites might in itself impermissibly interfere with interstate commerce, as foreign commerce is generally subject to federal laws and treaties which would trump Washington state law (p. 17).  Also, attempts by Washington to regulate out-of-state gaming sites would effectively export Washington's regulatory standards and impose them on other states, which would likely be an impermissible burden on interstate commerce (p. 18).

Rousso also had argued that Washington could legalize online gambling with the regulation of online gambling sites handled by authorities in the licensing country.  The court rejected this suggestion, noting that the legislature could have determined that such foreign-based regulatory action would be insufficient to protect Washington residents from "social ills" such as "permitting its citizens to be exploited, scammed, or made unwilling participants of money laundering schemes" (p. 19).

The court also rejected the PPA's alternative argument that Washington in fact had the ability to regulate online poker, and in fact could effectively regulate online poker much as has been accomplished in other jurisdictions.  The court rejected the PPA's argument (pp. 19-20), reasoning:
Amicus Curiae The Poker Players Alliance champions the position that Washington can regulate Internet gambling itself, encouraging remand to the trial court for further proceedings to show that since other jurisdictions have had "success" with regulating Internet poker, Washington can too.  But what constitutes "success" is a fundamental public policy determination, reserved to the legislature.  Even if on remand Rousso were able to produce reports or studies stating some jurisdictions regulate Internet gambling in a manner that addresses gambling addiction, underage gambling, money laundering, and organized crime issues with success comparable to Washington brick and mortar regulation, the trial court would then need to determine (a) whether the findings from those reports and studies were reliable and outweighed contrary findings; (b) whether and to what extent such regulation could be budgeted for and implemented by Washington; and (c) whether gambling would increase due to the ready availability of gambling on a home computer, whether that increase would exacerbate current concerns -- e.g., causing individuals to go into debt, and increasing gambling addictions, underage gambling, and the prevalence of gambling in society, and whether such increases were "acceptable."  These purely public policy determinations demonstrate why the legislature, and not the judiciary, must make that call.

The court concluded its analysis by reemphasizing that, where there is a legitimate state purpose, it is for the legislature to weigh alternative policies and determine the best course of action:
This is not to imply the dormant commerce clause can be satisfied any time the State invokes the magic words: "public policy determination."  But here there is a legitimate public interest.  The ban on Internet gambling is a public policy balance that effectively promotes that interest.  A reasonable person may argue the legislature can balance concerns for personal freedom and choice, state finance, and the protection of Washington citizens in a "better" way -- but he or she must do so to the legislature. [p. 21]

... Rousso fails to show a ban on Internet gambling is useless to address legitimate state interests, including reducing underage gambling, compulsive gambling, and Washingtonians' unintentional support of organized crime and money-laundering operations.  [p.23]

Here, the legislature balanced public policy concerns and determined the interests of Washington are best served by banning Internet gambling.  The legislature chose the advantages and disadvantages of a ban over the advantages and disadvantages of regulation.  The evidence is not conclusive.  Many may disagree with the outcome.  But the court has no authority to replace the legislature's choice with its own.  Under the dormant commerce clause, the burden on interstate commerce is not "clearly excessive" in light of the state interests. RCW 9.46.240 does not violate the dormant commerce clause.  [p. 26].

Although I hate to say "I told you so" ... wait, who am I kidding?  Of course I love to be proven right!  In any event, the Rousso court's reasoning tracked closely with what I predicted in my initial analysis of the appeal:
  • The court would show great deference to the legislature's policy decisions.
  • The court would take into account the ongoing efforts to impose a federal regulatory scheme.
  • The court would find online gambling to be different in kind from brick and mortar gambling, and thus would reject the idea that an online gambling ban was a protectionistic effort to benefit in-state brick and mortar casinos.
  • The court would defer to the state's contention that online gambling would lead to a host of social ills, including underage gambling, pathological gambling, crooked games ("scamming" in the court's words), and organized crime and terrorism (money laundering).
Reading the court's decision, it seems the only issue I missed was the impact of federal legalization efforts, which were not cited in the court's decision.  Otherwise, though, the court's decision hit all the points I predicted months ago after merely reading the parties' appellate briefs.  Now, I have to admit that my prediction was really not all that impressive.  It's sort of like having the table rock check-raise all-in preflop; putting him on Aces or Kings is fairly easy.  But my point is that the court's decision should have been predictable for all the attorneys on the pro-poker side of the case.  What, then, was the point in pursuing this dog of a case, which resulted in a state supreme court going on record saying a state can not only regulate online poker, but ban it outright? 

Because of the PPA's hubris in pursuing this appeal, the Rousso decision will now be available to be cited and relied upon by other courts when they are confronted with the issue of state regulation of online gambling.  Much like the ill-conceived "poker is a game of skill and not gambling" line of litigation, the PPA has taken an area of law which was gray and ambiguous, and forced a state appellate court to clarify the law with a definitive decision adverse to the interests of online poker players.*  The PPA's attorneys are from a well-respected national law firm, and clearly are not idiots.  Absent any better explanation, the cynic in me wonders whether the PPA's litigation efforts are merely a stalking horse litigation strategy testing the legal waters for the PPA's puppetmasters at Full Tilt and PokerStars. 

In any event, with this latest appellate court defeat, it's high time for the PPA to throw in the towel on their failed poker "legalization by litigation" strategy, and refocus their resources on lobbying Congress and state legislatures for statutory changes.

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* For the record, the PPA is "extremely disappointed" by the Rousso decision, and Rousso plans to appeal to the U.S. Supreme Court.  For my part, I'm extremely disappointed when my suited connectors fail to flop a straight flush, but I'm willing to lay odds that I will flop at least a dozen straight flushes before the PPA wins a pro-poker final decision from any appellate court.

3 comments:

  1. I see by the date/time that you aren't getting enough sleep.

    My response was too long for a comment so it is over in my blog. And I'm not getting enough sleep either.

    Thanks for the time and effort you provided here!

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  2. Good post. I have followed this case with interest, and likewise was not at all surprised at the court's decision here.

    -PL

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  3. Not surprised either, but perhaps less not surprised than yourself.

    ...

    I should really stop following these cases so I can plead ignorance when the authorities eventually find my online gambling records.

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