August 15, 2013

DiCristina—Midnight Strikes for Poker's Cinderella Case

Last week, the Second Circuit Court of Appeals issued its much-anticipated appeal decision in United States v. DiCristina. Although sharply disappointing to poker players, the Second Circuit's reversal of Judge Weinstein's pro-poker decision was predictable and straightforward. Excellent coverage and analysis of the appeal decision can be found at these poker media sites:
The above sources provide a thorough discussion of the appeal decision. For what it's worth, and in the interest of closing the circle on my prior analysis of the DiCristina district court decision and appeal, here are my thoughts on the Second Circuit's decision.


A.  State law defines gambling for IGBA violations.

The essence of the Second Circuit's ruling is that state law defines "illegal gambling" for purposes of establishing a violation of the federal Illegal Gambling Business Act (IGBA). The crux of DiCristina's argument was that the IGBA had an independent definition of gambling (based on a "predominate factor" analysis), and thus not all gambling illegal under state law was illegal gambling under the IGBA. This was an essential premise for Judge Weinstein's analysis of the "game of skill" argument because everyone involved in the case—DiCristina, the U.S. attorneys, Judge Weinstein, and the Second Circuit—agreed that poker is illegal gambling under New York state law. Thus, for the court to even reach the "game of skill" argument, the court first had to find that the IGBA's definition of "illegal gambling" was both different from and narrower than the definition used in New York state law. In other words, Di Cristina could only win if it were possible for certain kinds of gambling, including poker, to be illegal under state law but outside the scope of the IGBA.

In a relatively brief and workmanlike analysis, the Second Circuit concluded that the plain language of the IGBA did not support DiCristina's argument. The court determined that the IGBA has only three elements:  a) a gambling business operating in violation of state law; b) five or more people involved in the business; and c) substantially continuous operation for more than 30 days or gross receipt in excess of $2,000 in any single day. There was no dispute DiCristina's poker operation violated the latter two points. Further, as noted above, DiCristina had also conceded poker was illegal under New York law, a concession both Judge Weinstein and the Second Circuit noted was well-established by New York state appellate case law.

The Second Circuit found that DiCristina and Judge Weinstein erred in attempting to add a fourth element to the mix by requiring the predicate gambling act to also meet a specific definition found in the IGBA:

(2) “gambling” includes but is not limited to pool-selling, bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling chances therein.

The Second Circuit found that this subsection was not a definition of "gambling", but rather was merely an illustration of the types of gambling businesses covered by the IGBA. The court noted that this subsection (2), unlike subsections (1) and (3), did not use the phrase "'gambling means", even though an earlier draft of the statute considered but rejected by Congress used the word "means" in subsection (2). Also, the court observed that subsection (2) was not defining gambling but rather was focused on gambling businesses. Looking at subsection (2), it does not actually list illegal games, but rather lists types of activities—e.g., "bookmaking" or "conducting lotteries"—that profit from illegal gambling. Given the plain language of the statute, the court concluded that operating a poker room was clearly an illegal "gambling business" under New York state law and thus was illegal under the IGBA so long as the IGBA's size and scope requirements were met.

The Second Circuit also made a significant observation that undercut Judge Weinstein's finding of ambiguity in the IGBA definition of "gambling":

We note that the District Court’s analysis, which turned on the question of whether skill predominates in a particular game, would, as the District Court acknowledged, “require ‘an ad hoc analysis of how similar or dissimilar the game was to those listed in IGBA’s list of examples,’ creating an ‘extraordinarily complex and unpredictable approach to the statute.’”

In other words, the analytical approach advocated by DiCristina and adopted by Judge Weinstein—requiring an independent analysis of the predicate gambling offense under the IGBA—actually would inject a significant element of ambiguity into the IGBA. Relying on state law alone to define illegal gambling for purposes of the IGBA is less complicated and provides individuals with more clarity as to whether their business activities are covered by the statute. By finding that the IGBA had only three elements, and by rejecting Judge Weinstein's determination that "gambling" was an additional element to be analyzed under the IGBA, the Second Circuit found there was no ambiguity as to whether operating an illegal poker room was a violation of the IGBA.

Finally, the Second Circuit rejected DiCristina's argument that whether poker was "gambling" under the IGBA was an issue for the jury to decide. Generally speaking, issues of law are for the court to determine, while issues of fact are decided by the jury. DiCristina argued that whether poker is gambling under the IGBA was a mixed question of law and fact, and thus should have been submitted to the jury rather than decided by the court. The Second Circuit rejected this argument, finding that the issue of whether poker is gambling under the IGBA is a pure issue of statutory construction which would not vary based on the facts of a particular case. This argument was a long shot by DiCristina, but the court's conclusion is still important because in future cases defendants will not be able to request that the issue of whether poker is gambling be submitted to a jury (which would presumably be more sympathetic to the "game of skill" argument). Instead, whether poker is illegal gambling will continue to be determined by the courts, where poker players and the "game of skill" argument have not had the best track record.


B.  "Game of skill" analysis found to be irrelevant.

Poker players were ecstatic about Judge Weinstein's ruling which found poker to be a "game of skill". On appeal, however, because the Second Circuit determined that state law governs whether poker is illegal gambling, and because New York state courts have held that under state law operating a poker room is illegal, the Second Circuit noted that Judge Weinstein's lengthy "game of skill" analysis was utterly irrelevant to determining whether the IGBA had been violated. In fact, the Second Circuit engaged in no analysis of the "game of skill" argument at all, other than noting that the argument had been raised, and then brushing it off by finding the argument was "inapposite" in the context of the IGBA. So, the vast majority of Judge Weinstein's 120 page decision was simply ignored by the Second Circuit.


C.  The Second Circuit's ruling was not a surprise.

Back in June, several members of the poker media attended the DiCristina oral argument before the Second Circuit, as did representatives affiliated with the PPA (Online Poker Report and Diamond Flush Poker both posted excellent summaries of the argument). Post-argument comments ranged from upbeat to gushing. A consensus narrative emerged that the pro-poker attorney had scored a solid knockout against the bumbling Assistant United States Attorney. Yet, less than two months later, the Second Circuit awarded the United States a decisive win. So what happened?

First, in modern appellate litigation, the importance of oral argument is wildly overestimated by the press and the public. In fact, most appellate cases at both the state and federal levels are submitted solely on written briefs, without argument. Further, even in cases where argument is granted, oral argument is rarely determinative of the outcome of the case. At best, oral argument offers attorneys an opportunity to respond to judges' concerns about policy implications of various rulings. But in most cases, oral argument is simply garnish on the main arguments raised in the parties' briefs. [FN1].

In DiCristina, the Second Circuit issued its decision less than two months after oral argument. This suggests that the court was predisposed to rule against DiCristina based on the briefs, and nothing was said at oral argument that caused any of the judges to reconsider that predisposition. To observers, the attorney for DiCristina may have handled the panel's questions better, but the judges weren't grading on style, they were looking for any issues that they might have overlooked in the briefs. Oral argument satisfied the judges that they understood the issues raised in the briefs, and thus ratified their pre-argument inclination as to how the case should be decided.

Several factors made the United States' position a heavy favorite on appeal. First, as I noted previously, Judge Weinstein is a judge with a history of being reversed for going outside the judicial mainstream in some criminal law cases. In a legal Catch-22, DiCristina needed to draw a trial judge like Judge Weinstein who would be open to his novel "game of skill" argument. Yet having such a judge rule in his favor immediately raised red flags at the appellate level. The fact Judge Weinstein needed 120 pages for his analysis of a simple statutory construction issue likely only waved those red flags harder.

The Second Circuit clearly had trouble accepting Judge Weinstein's analysis. In order to reach the "game of skill" argument, Judge Weinstein had to find a way around a significant amount of contrary precedent. The Second Circuit was simply unwilling to make the same analytical leap. The Second Circuit noted that prior case law in the Second Circuit (United States v. Gotti) established that poker—albeit video poker—could be a predicate offense under New York law, and further established that IGBA violations were based on state gambling law without further independent analysis of whether a particular activity was "gambling" under the IGBA; the court noted that the Ninth Circuit also interpreted the IGBA in the same manner. The Second Circuit further noted that the Third Circuit had ruled in United States v. Atiyeh that an IGBA violation could occur even without participation in the gambling activity, so long as the defendant participated in the gambling business. Finally, the Second Circuit noted that numerous federal Circuit Courts of Appeal had affirmed IGBA convictions predicated on gambling activities which were not specifically identified in the IGBA, but were violations of state law, including poker, video poker, blackjack, gin rummy, and bingo.

The Second Circuit also cited to an interesting federal district court decision from Guam, United States v. Hsieh, decided just two months prior to oral argument in the DiCristina appeal. The judge in Hsieh specifically analyzed and rejected Judge Weinstein's analysis of the IGBA in denying a motion to dismiss an indictment for running a poker business in violation of the IGBA. Although the Second Circuit only cited Hsieh once as part of a string cite of cases, even a cursory reading of Hsieh reveals its analysis had a profound influence on the Second Circuit's DiCristina decision. In fact, the influence of Hsieh on the Second Circuit's DiCristina opinion is so pronounced that in a non-judicial context one could argue that the Second Circuit effectively plagiarized the Hsieh decision. In any event, Hsieh is an excellent example of mainstream judicial analysis of the IGBA which highlights how far out of the mainstream Judge Weinstein's decision rested, and how difficult a task DiCristina's attorneys faced in attempting to defend Judge Weinstein's ruling on appeal.

Finally, both the facts of the case and the policy implications of Judge Weinstein's analysis likely heavily influenced the Second Circuit's ruling. At the end of the day, DiCristina was not some local businessman who had inadvertently run afoul of an obscure federal regulation in between attending Chamber of Commerce meetings and sponsoring high school athletic teams. DiCristina admitted he had run an illicit, unlicensed, untaxed poker room for a profit, complete with security cameras and guards, knowing it was illegal under state law—hardly the portrait of a sympathetic defendant, and certainly far removed from a simple home game (which the court specifically noted would not trigger the IGBA). Further, if the Second Circuit ruled in favor of DiCristina, the door would be opened to underground poker rooms across the country operating free from fear of prosecution under the IGBA, and with the potential additional evils of racketeering, corruption, and money laundering (remember, the IGBA was enacted in response to gambling run by organized crime groups). Although these considerations did not dictate the Second Circuit's analysis, judges are always sensitive to the potential impact of their rulings when considering novel legal arguments.

In the end, the Second Circuit's DiCristina decision followed the easiest analytical path. Asking the Second Circuit to follow Judge Weinstein's tortured analysis in finding a poker loophole in the IGBA was simply too ambitious a goal, too heavy a lift for poker advocates.


D.  DiCristina has no chance at prevailing on further appeal.

When a party is deeply dedicated to a case, it is common to hear them rehtorically claim they will "take it all the way to the Supreme Court!" if necessary to get justice. Many poker players have suggested DiCristina should appeal, and the PPA has declared itself ready to support DiCristina in a further appeal. The only problem? DiCristina is plum out of viable appellate options.

Technically, DiCristina has two avenues of further appeal available. The first is to file a petition for en banc review by the full panel of active judges sitting on the Second Circuit (roughly 13 judges total, depending on retirements, recusals, and other vacancies). The second is to file a petition for writ of certiorari with the U.S. Supreme Court. The critical and insurmountable obstacle facing DiCristina is that both of these appellate options are discretionary with the courts, not a matter of right.

Looking first at the U.S. Supreme Court, the Court receives in excess of 7,000 petitions for writs of certiorari every year, yet takes fewer than 100 cases. Even after adjusting for the in forma pauperis petitions filed by indigent criminal defendants and prisoners which are much less likely to be granted cert, the Supreme Court still grants cert in less than 4% of cases. The Supreme Court is not interested in merely correcting legal errors—that is the role of the Circuit Courts of Appeal and state appellate courts. Instead, the Supreme Court's task is to select cases which either pose important questions of federal law or which resolve significant conflicts between lower appellate courts. In this case, the Second Circuit ruling in DiCristina is consistent with the other Circuits in looking to state law to establish a predicate IGBA offense, and thus the Supreme Court would likely see no reason to step in to review the decision. Ironically, had the Second Circuit affirmed Judge Weinstein's decision, the resulting Circuit split would have made DiCristina a much more likely candidate for Supreme Court review. But as it stands, DiCristina will not be the case where the Supreme Court wrestles with the finer points of variance and expected value.

Turning back to en banc review by the full Second Circuit, DiCristina's chances are actually worse than with the Supreme Court. Again, en banc review is discretionary with the Second Circuit. By rule, en banc review is disfavored and limited to cases where a panel decision either addresses an issue of "exceptional importance" or which conflicts with prior decisions of the Circuit or the Supreme Court. Statistics kept by the federal courts demonstrate that en banc review is exceedingly rare (p. 4); from 2000 through 2010, the federal Circuit Courts decided over 325,000 appeals, and issued en banc decisions in only 667 (0.21%) of those cases. Over that same time period, the Second Circuit issued en banc decisions in only 8 out of 27,856 of its appeals (0.03%). The recent trend is even less favorable; in the twelve month period ending in September 2012, the Circuit Courts granted en banc review in only 59 of 35,095 appeals (0.17%). During that same period, the Second Circuit decided 3,448 appeals and never granted en banc review.

Stick a fork in DiCristina. This case is done.


E.  DiCristina has only symbolic value for poker legalization.

Many in the poker community, including the PPA, were quick to point out that, because the Second Circuit did not reach the "game of skill" argument, the portion of Judge Weinstein's ruling declaring poker to be a game of skill when analyzed under the "predominate factor" test for gambling remained good law that can be cited in future cases in support of a "game of skill" argument. In technical legal terms, the case could be cited to another court as having been "reversed on other grounds"; i.e., that the appellate court did not reverse the trial court's decision on the "game of skill" issue. [FN2].

The problem with grasping for this silver lining is that there are different weights given to "reversed on other grounds" citations. The stronger use of this type of citation is where the appellate court implicitly endorses a trial court decision on one issue, but reverses the trial court on another issue. For example, an appellate court might say something like, "Although we agree with the trial court's ruling on the admissibility of the expert testimony, we find that the trial court erred in the calculation of damages, and thus we must reverse and remand for a new trial as to damages only." In such a case, even if the appellate court confines its discussion to the damages issue, the appellate court has endorsed the trial court's evidentiary decision as being correct.

By contrast, a much weaker use of the "reversed on other grounds" citation occurs when, as in DiCristina, the appellate court is faced with several issues, but only analyzes one issue because it is dispositive of the case. The remaining issues are not analyzed by the appellate court, and there is no implication of endorsement of the trial court ruling as to those issues. In such a situation, any citation to the trial court decision is of limited value, carrying at best the same weight as any federal district court decision which has not been appealed, but with an asterisk because the cited decision was actually reversed on appeal.

It is hard to imagine a court case where Judge Weinstein's DiCristina decision will play a significant role in a "game of skill" challenge to any gambling law. Other anti-gambling federal laws such as UIGEA, RICO, and the Travel Act are like the IGBA in relying on a violation of state gambling law as an element of or predicate offense for a violation of federal law, rendering Judge Weinstein's ruling irrelevant. In many states, poker is explicitly defined as gambling by statute or regulation, or has been found to be gambling pursuant to case law, again rendering Judge Weinstein's ruling irrelevant. In those states where poker's status under state gambling laws has not yet been established, Judge Weinstein's DiCristina decision will be competing with a number of other recent state appellate court decisions which have considered and rejected the "game of skill" argument (all of which had technical evidence and expert testimony about the skill element of poker, and most of which involved the PPA as amicus curiae). [FN3]. Considering that gambling issues are generally a matter of state law, and given that state appellate court decisions are generally given more weight than federal district court decisions (particularly on issues of state law), state appellate courts confronted with pro-poker "game of skill" arguments in the future will likely give Judge Weinstein's DiCristina opinion little consideration. [FN4].

The legacy of Judge Weinstein's DiCristina decision will most likely be as the Baxter v. United States of the modern poker era. Baxter, decided in 1986, is another federal district court case which held that poker was a game of skill for purposes of federal law, albeit a federal tax statute. Within the poker community, Baxter has long been touted as a significant legal victory. The reality is that Baxter was actually an obscure decision of little or no consequence to the issue of poker's legal status. Like Baxter, Judge Weinstein's ruling in DiCristina is ultimately nothing more than a nice little vanity award, soothing the bruised egos of poker players who crave mainstream respect.

The course of the DiCristina litigation reminds me of the Cinderella fairy tale. Poker players feel like their game does not get the love, attention, and respect it deserves. Then, Judge Weinstein waved his magic wand and declared poker to be a game of skill. Suddenly, poker had attained its rightful place in the world. Happy days! But, the magic could only last so long. Cinderella's fun at the ball ended when the clock struck midnight, while the DiCristina poker celebration ended with the Second Circuit's decision.

The only problem with this analogy? There is no Prince Charming on the horizon looking to sweep poker players off to happily-ever-after.


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[FN1]  Appellate arguments are easily my favorite part of being a litigator. So it pains me to admit that in most cases my argument is unlikely to materially affect the outcome of the appeal. Still, that 15-20 minutes in front of a "hot bench" (a panel of appellate judges with numerous questions) is always a thrilling experience.

[FN2]. For those of you curious how this type of citation would look in a legal brief:
A federal court which analyzed extensive expert evidence about poker concluded that poker was a game of skill under a "predominate factor" test. United States v. DiCristina, 886 F. Supp. 2d 164 (E.D.N.Y. 2012), reversed on other grounds, --- F.3d ---, 2013 WL 3984970 (2d Cir. 2013).
Interestingly, there is also a legal citation form, "affirmed on other grounds", typically seen where a party may have two or more paths to victory on appeal, and the appellate court chooses a different analysis to reach the same conclusion as the trial court.

[FN3]. Recent state appellate court decisions which have rejected the "game of skill" argument for poker include:
Additionally, the PPA pressed a "game of skill" argument in Colorado. A district court ruled that poker was defined to be gambling under Colorado law and thus the "game of skill" argument was irrelevant. The Colorado supreme court declined to accept the PPA's appeal.

[FN4]. Whether the PPA should continue forward with its quixotic "legalization by litigation" strategy in light of the DiCristina appellate decision is a question for another post. However, my pre-DiCristina thoughts are HERE and HERE.

1 comment:

  1. was merely an illustration

    Now I understand, when the President ignores legislation, it is because it is merely illustration.

    ReplyDelete