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 Judges' Game" at Hard-Boiled Poker, by Short-Stacked Shamus.
• "Court Reverses DiCristina Decision, But Skill Issue Remains Unresolved" at Online Poker Report, by Chris Grove.
• "THE FIGHT: DiCristina, California and Reid Spell a Bad Week for Poker", at Bluff Magazine, by Dave Behr.
• "Online Poker May Be Considered Illegal Gambling Whether Based On Skill Or Not", at Forbes.com, by Darren Heitner.
• "U.S. Court of Appeals Reverses Weinstein Decision in DiCristina Case", at Diamond Flush Poker, by Diamond Flush.

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:

• Joker Club, LLC v. Hardin (North Carolina Ct. App. 2007)
• Commonwealth of Pennsylvania v. Dent (Pennsylvania Super. Ct. 2010) (my discussion)
• Three Kings Holdings, L.L.C. v. Six (Kansas Ct. App. 2011) (the "Kandu case")
• Town of Mt. Pleasant v. Chimento (South Carolina Supreme Ct. 2012) (my discussion) (much like the Second Circuit's decision in DiCristina, the South Carolina Supreme Court found that the "game of skill" argument was irrelevant to determining whether poker was included in the state's anti-gambling statute).

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.

Managing Expectations for DiCristina

This week, the Second Circuit Court of Appeals heard oral arguments in the DiCristina poker case. The DOJ is challenging a federal district court decision which found that the Illegal Gambling Business Act (IGBA) did not apply to poker because poker is a game of skill and the IGBA only applies to games of chance. Poker media guru "Diamond Flush" posted an excellent summary of the arguments, which by all accounts went very well for the pro-poker side.

PokerNews published highlights of a discussion with PPA litigation director Patrick "Skallagrim" Fleming, which is well worth a read. Unfortunately, PokerNews dropped the ball on a couple of major legal issues:

A Circuit Court ruling that IGBA doesn't include poker would be a big victory for the legality of poker. As it's already been determined that The Wire Act doesn't apply to poker, the IGBA is the last federal law the DOJ interprets as making poker illegal and was at the center of the Black Friday indictments. Other charges of money laundering and violating the Unlawful Internet Gambling Enforcement Act were dependent on operating a poker business being unlawful under the IGBA.

....

The case is sort of a freeroll for poker. If the DOJ wins, it will be able to continue interpreting the IGBA to include poker as it has been. If DiCristina wins, the DOJ won't have any legal standing against poker on a federal level. There also seems to be very little chance that the court would overrule Judge Weinstein's finding that poker is a game of skill since it doesn't affect the appeal.

There are two significant errors here, which are somewhat interrelated. First, the money laundering and UIGEA charges in the Black Friday indictments were not solely predicated on the IGBA violation. Instead, the indictments were based on violations of both federal law and New York state gambling laws. Certainly having the IGBA found inapplicable to online poker would undermine the Black Friday charges, but a pro-poker decision in DiCristina would not negate the UIGEA and money laundering charges.

Second, and more significantly, it is simply untrue that "the IGBA is the last federal law the DOJ interprets as making poker illegal" and that a victory in DiCristina means "the DOJ won't have any legal standing against poker on a federal level." Of course, the UIGEA still prevents the transmission of money to fund online poker sites operating in violation of state law, and most states have laws which classify poker as gambling for purposes of gaming regulations. More to the point, however, is that the Travel Act—a breathtakingly broad statute targeted at criminal enterprises—very much remains in play. As I wrote when analyzing the federal district court ruling in DiCistina:

The [DiCristina] decision only interpreted the IGBA. There are other federal statutes that could still be used by federal prosecutors against businesses offering poker, most notably the Travel Act. Unlike the IGBA which contained its own definition of "gambling", the Travel Act simply relies on a violation of a state gambling law to establish the predicate offense. Also, note that the Travel Act prohibits use of "the mail or any facility in interstate commerce" to "distribute the proceeds of any unlawful activity" or "otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity". This arguably could mean that merely mailing checks, promotional materials, or awards to players could be a violation of the Travel Act. So far federal prosecutors have not used the Travel Act in any poker-related prosecutions (at least not to my knowledge), but that might change if they lose the IGBA as a tool because of this decision.

My words turned out to be prophetic (though my prophesy wasn't any more challenging than predicting that LeBron James would win multiple NBA titles). A mere three weeks after the district court decision in DiCristina was issued, the DOJ amended their Black Friday civil forfeiture complaint against PokerStars, Full Tilt Poker, Ultimate Bet, and various business entities and individuals associated with those sites to include a Travel Act violation as a basis for forfeiture of poker-related assets. So, although it's unclear where PokerNews was getting its legal information on this point, PokerNews' coverage was unquestionably inaccurate on a significant legal point.

Now, why does it matter if PokerNews got this legal point wrong? The biggest issue is that this kind of misinformation feeds into the poker community's collective misunderstanding of applicable law and raises unrealistic expectations, in particular an impression that a favorable appellate ruling will clear the way for legalized online poker on a national basis. If the Second Circuit affirms the district court's decision—and I certainly hope that it does so—the effect on online poker will almost certainly be rather modest. As I wrote in my previous analysis of the DiCristina district court decision:

Even if the [DiCristina] decision is affirmed on appeal, its impact on the poker legalization fight is likely to be minimal. In many states, whether poker is a game of skill is utterly irrelevant as poker is explicitly regulated as gambling. In other states where poker's status is not defined by statute, courts have already ruled that poker is gambling, and those courts are unlikely to reverse course after having decided the issue. The decision probably has little application to other federal gambling statutes because the decision is based on the IGBA's particular definition of "gambling". ... Most likely, the decision will ultimately have only symbolic value.

Now, I don't want to leave the impression that DiCristina is not important; it is unquestionably a significant case. In fact, if the Second Circuit affirms the district court's ruling, then the DiCristina case will have significance both in removing poker from the ambit of another federal statute, and in being the first appellate court decision finding poker to be a game of skill. Nonetheless, at the end of the day, even a win in DiCristina will have little discernible impact on the effort to legalize poker. [FN1]. That's a fight that will need to be waged on a state-by-state basis, at least for the time being.

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[FN1]  As I previously discussed, one potential major winner from a DiCristina win in the appellate court is PokerStars:

Because the decision is from a different court, it does not change the pending DOJ Back Friday criminal or civil forfeiture cases other than to make it marginally easier for the remaining defendants to leverage a better plea bargain or settlement because the DOJ's IGBA and associated money laundering charges are now in a somewhat weaker position. The Black Friday cases are ultimately more about the banking and financial shenanigans of those involved than the underlying poker businesses themselves. But the decision certainly strengthens the argument to be made by PokerStars to state gaming regulators that merely running an online poker business did not violate federal law. Even if the decision is reversed on appeal, PokerStars could still argue that if a respected federal judge thought that poker was not regulated by the IGBA, then they certainly had a good faith belief they were not violating the IGBA. Of course, there would still be the matter of PokerStars allegedly violating state gambling laws, the UIGEA, federal money laundering laws, and federal banking laws. But if the applicability of the IGBA and the Wire Act can now be called into question, it becomes easier to raise doubts about some of the other laws in the mix.

Unfortunately, appellate courts rarely move quickly. A decision will likely take three to six months to be issued. If so, then PokerStars will be denied an opportunity to rely on a potentially favorable appellate court decision as New Jersey considers PokerStars' application for a gaming license.

United States v. DiCristina—A Win for Poker Players (with an Asterisk)

"Well, let's not start sucking each other's dicks quite yet."

~ The Wolf (Harvey Keitel), in Pulp Fiction (1994)

As most poker players are aware, earlier this week a federal district court judge entered a ruling in United States v. DiCristina finding that poker is a "game of skill" and therefore is not "gambling" for purposes of the federal Illegal Gambling Business Act (IGBA). The lengthy decision by Senior Judge Weinstein is as thorough a discussion of the statistical evidence of the effect of skill in poker as one will likely ever see in a judicial decision. The opinion also contains an exhaustive review of practically every conceivable state or federal statute or appellate decision that addresses the regulation of poker in the context of gambling laws. Every poker player should read the decision to better understand the nature of the legal issues certain to arise as online poker continues down the path to inevitable legalization and regulation in some form.

I skimmed the decision when it was issued and Tweeted some initial thoughts (one of the advantages of being a lawyer is learning how to find the legally significant spots in a 120-page decision) (for the record, those Tweets are here, here, here, here, and here). After a more leisurely perusal of the decision, my initial thoughts remain valid, but I did pick up a few additional points of interest. Now many poker players probably just care about the bottom line—a win is a win, right? In law, however, how one wins is often more important than the case specific outcome. [FN1]

So, in no particular order, here are what I found to be the key points and interesting nuggets from the opinion:

Big win for poker players and the PPA:  There is no question that this decision was a win for poker players. Having a federal judge give careful consideration to the "poker is a skill game" argument and then endorse it in a thoughtful opinion is a win, regardless of the ultimate outcome on any appeal, and regardless of whether the decision is adopted by other courts or remains a one-off outlier. The Poker Players Alliance (PPA) also deserves kudos for not merely rehashing its prior arguments, but for finding an expert economist and statistician, Dr. Randal Heeb, who provided critical analysis and testimony that formed the underpinning of the decision (more on Dr. Heeb later). This decision would not have been possible without the solid work of the PPA's attorneys, and the PPA rightfully should be proud of the decision. [FN2].

First meaningful win for poker: This decision is also important because it is the first court of consequence to issue a ruling that will have any precedential effect. To date, the handful of court "wins" for poker have all been issued by state district courts whose decisions have no binding or persuasive effect on other courts. Every appellate court to date has ruled against the "poker is a skill game" argument. But federal district courts occupy a unique spot in the legal authority realm. Federal district court decisions of consequence are "reported" (officially published) and can be cited as authority in other cases just like appellate court decisions. These district court decisions are not binding on other courts as an appellate decision would be, but they are often looked to as persuasive authority by appellate courts confronted with developing areas of the law. Having a thorough, well-crafted judicial opinion on the merits of the "poker is a skill game" argument on the books, so to speak, lends a certain gravitas to the argument which can bolster that argument if and when it is considered by other courts.

The decision has a shot at being affirmed on appeal:  The obvious question on most poker players' minds is whether the decision can survive if the government appeals. An appeal is not guaranteed, but given that the decision breaks new ground and cuts against precedents from other federal courts, and considering that the government invested a lot of resources fighting this issue rather than plea bargaining what otherwise looks to be a trivially routine gambling case, I would expect there to be an appeal. Now Judge Weinstein is known for a liberal slant, and has written groundbreaking criminal decisions that were later reversed on appeal. But the Second Circuit is less conservative than most federal courts of appeal, and Judge Weinstein is well-respected as a smart judge (and former law professor at Columbia). Also, the case involves a bread-and-butter interpretation of a federal statute rather than a hot button Constitutional issue, so ideological differences among the appellate judges will have very little impact on the outcome of any appeal.

The decision is going to generate a lot of attention among the appellate court judges for several reasons. First, the sheer length of the decision will signal that something significant is occurring. The reason for the length of the decision is that Judge Weinstein spends a great deal of time going over legislative history as well as an exhaustive analysis of poker-related statutes and decisions from around the country. That kind of effort simply is not put into a routine decision, and the appellate judges will certainly note that Judge Weinstein is setting up his argument for a novel interpretation of the IGBA. The weakest part of the decision is that it conflicts with: a) prior federal court decisions related to the IGBA in which state gambling law served as the sole determining factor as to whether a predicate offense had occurred, b) prior federal court decisions in which poker was the predicate gambling activity for an IGBA offense, and c) numerous state appellate decisions and several federal court decisions that have determined poker is "gambling", including some which have considered and rejected the "skill game" argument.

To be blunt, established case law weighs heavily against Judge Weinstein's decision, and it would be fairly easy for the appellate court to reverse the decision. But, many of the prior IGBA cases can be distinguished because they assumed that poker was within the scope of the IGBA rather than analyzing the issue. Also, this case has the best, most detailed factual record as to the "skill game" issue of any court challenge to date. In this regard, Judge Weinstein was a fortunate draw for poker players, as his decision does an excellent job of pointing out the flaws inherent in the legal and factual assumptions underlying the prior adverse decisions. Judge Weinstein has marked a clear legal analysis path for the appellate court, if it chooses to follow his lead.

Nonetheless, I think the deck remains stacked against poker players if there is an appeal. Despite Judge Weinstein's adept "skill game" analysis, poker is still regarded as gambling both under New York law and in the public eye. Poker's reputation in front of the appellate court will certainly not be enhanced by the highly publicized Black Friday prosecutions (and the DOJ's "Ponzi scheme" commentary), particularly given the context of the IGBA's anti-organized crime history and purpose. As I have discussed previously, poker's reputation is a tough hurdle to overcome. Poker's considerable historical and cultural baggage might well overwhelm Judge Weinstein's legal analysis. And if the Second Circuit decides it doesn't want to endorse legalized poker, existing precedents will make it easy for the appellate court to reverse the decision. The easiest and most likely analysis to be used by the appellate court to reverse the decision is to follow those federal courts which defer to state law to define "gambling", and to find that New York state law governs the issue of whether poker is "gambling".

Interestingly, if the decision is reversed on appeal, the portion of the decision analyzing the "skill game" argument would potentially still have precedential value. If the Second Circuit decides that state law controls the "illegal gambling" question and that no further analysis is required under the IGBA, then the Second Circuit would never reach the "skill game" analysis. In that situation, although the case would have been reversed, Judge Weinstein's analysis of the "skill game" argument would remain fair game for citation to other courts (lawyers refer to this by the phrase "reversed on other grounds").

If I were a betting man, I would wager that the decision is ultimately reversed on appeal. But the odds against poker players are not nearly as long as they have been in past cases, and with a favorable panel of judges the decision has at least a puncher's chance of surviving on appeal. [FN3]

The decision is limited in scope:  The decision only addresses the narrow question of whether poker is "gambling" for purposes of the federal Illegal Gambling Business Act (IGBA). As I have discussed in prior posts, when it comes to statutes, definitions are critical. "Gambling" for purposes of one statute may not be "gambling" for purposes of another statute. So the mere fact that poker is regulated as gambling under New York law (or another federal or state statute) is not necessarily dispositive of whether poker was gambling for purposes of the IGBA. Likewise, merely because the court ultimately found that poker was not gambling for purposes of the IGBA does not mean that poker is no longer illegal gambling under most state laws and possibly other federal laws. Still, if the decision holds up, it would remove one weapon from federal prosecutor's anti-poker arsenal.

Poker is illegal under New York state law:  Although the defense team abandoned its argument that poker is not gambling under New York state law, the court nonetheless found that the argument had no merit. The decision explicitly noted that, "New York courts have long considered that poker contains a sufficient element of chance to constitute gambling under that state's laws." Another defendant could always raise a challenge to New York's state law on poker, but it seems doubtful that such a challenge would be successful.

Poker is still illegal under most states' laws: The decision contains an exhaustive listing of state laws and appellate decisions which consider poker to be gambling subject to ban or regulation (see Section II(5), pp. 47-51). The list is pretty bleak from a pro-poker perspective. Most states either explicitly define poker as gambling, or have found poker to be within the definition of gambling, regardless of the amount of skill involved. Again, poker players must keep in mind that, even if skill predominates chance in poker, states can still define "gambling" in such a manner as to encompass poker. The decision doesn't change how any state gambling laws view poker. So if poker was illegal gambling in your state prior to the decision, it is still illegal today.

Poker may still be illegal under federal law:  The decision only interpreted the IGBA. There are other federal statutes that could still be used by federal prosecutors against businesses offering poker, most notably the Travel Act. Unlike the IGBA which contained its own definition of "gambling", the Travel Act simply relies on a violation of a state gambling law to establish the predicate offense. Also, note that the Travel Act prohibits use of "the mail or any facility in interstate commerce" to "distribute the proceeds of any unlawful activity" or "otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity". This arguably could mean that merely mailing checks, promotional materials, or awards to players could be a violation of the Travel Act. So far federal prosecutors have not used the Travel Act in any poker-related prosecutions (at least not to my knowledge), but that might change if they lose the IGBA as a tool because of this decision.

House-banked game defense was rejected:  The PPA and many poker players have argued that the fact that poker is not a house-banked game (like blackjack, or three-card poker) is a significant distinction in determining whether poker should be considered "gambling". Even Judge Weinstein rejected that argument, rather summarily (p. 109). This argument is one of those situations where an important factual distinction winds up having no legal significance. So legally, if money gets wagered, it's probably gambling, regardless of how the house makes it profitable.

Revenge of the nerds:  As noted earlier, it is obvious that Judge Weinstein was impressed by Dr. Heeb's statistical and economic research. Although there have been a number of studies that purported to prove that poker was a "skill game", those studies merely demonstrated that skill had an effect on the game, and none of those studies really reached any meaningful conclusions as to the relative effects of skill and luck on the outcome of the game. Dr. Heeb did some really interesting and persuasive analysis directed to that specific issue. One analysis showed that the "long term" required to allow skill to overcome chance is not nearly as long as might be imagined, perhaps as low as 1,000-3,000 hands (rates that can be seen over the course of a long, deep-stacked tournament or a relatively short period of cash game sessions). Another analysis attempted to isolate the skill element of poker by cleverly demonstrating how winning and losing players showed significantly different win rates even when playing the same hand (the examples Dr. Heeb used were K9o and QJs). Any fan of Freakonomics-style analysis would enjoy the court's discussion of Dr. Heeb's testimony. I don't think it is an overstatement to conclude that Judge Weinstein's decision likely would have turned out differently without Dr. Heeb's analysis.

The court's discussion also noted that most online players in the large dataset used by Dr. Heeb were losing players, with 90-95% of players showing net -EV. This statistic was somewhat higher than I would have expected. This statistic could also be used on appeal to argue that, since most players are expected to lose, poker is no different than house-banked games. Judge Weinstein dismissed this argument as irrelevant to the issue of whether poker is a "skill game", and I agree that it is not relevant. But that fact still is one that might be of interest to an appellate court.

The decision is probably not a game-changer:  Even if the decision is affirmed on appeal, its impact on the poker legalization fight is likely to be minimal. In many states, whether poker is a game of skill is utterly irrelevant as poker is explicitly regulated as gambling. In other states where poker's status is not defined by statute, courts have already ruled that poker is gambling, and those courts are unlikely to reverse course after having decided the issue. The decision probably has little application to other federal gambling statutes because the decision is based on the IGBA's particular definition of "gambling". The decision is unlikely to affect federal or state poker legislation efforts as legislation is mostly a political issue which will not be swayed by one court's technical legal analysis of one federal law; poker simply isn't the kind of hot button legal-political issue like abortion or health care where a court ruling matters to legislators. It is possible that anti-gambling groups will use the decision to press for an explicit ban of online poker, but nothing I've read suggests that anti-gambling groups would have any better success passing a poker ban than pro-poker groups have had in passing poker legalization; those issues appear to be in stalemate at least through the upcoming elections. Most likely, the decision will ultimately have only symbolic value.

PokerStars may be the hidden winner:  Because the decision is from a different court, it does not change the pending DOJ Back Friday criminal or civil forfeiture cases other than to make it marginally easier for the remaining defendants to leverage a better plea bargain or settlement because the DOJ's IGBA and associated money laundering charges are now in a somewhat weaker position. The Black Friday cases are ultimately more about the banking and financial shenanigans of those involved than the underlying poker businesses themselves. But the decision certainly strengthens the argument to be made by PokerStars to state gaming regulators that merely running an online poker business did not violate federal law. Even if the decision is reversed on appeal, PokerStars could still argue that if a respected federal judge thought that poker was not regulated by the IGBA, then they certainly had a good faith belief they were not violating the IGBA. Of course, there would still be the matter of PokerStars allegedly violating state gambling laws, the UIGEA, federal money laundering laws, and federal banking laws. But if the applicability of the IGBA and the Wire Act can now be called into question, it becomes easier to raise doubts about some of the other laws in the mix.

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[FN1]  Think of the recent U.S. Supreme Court kerfuffle over the Affordable Care Act; although the Act was upheld, the legal reasoning in the decision placing limits on Congress' Commerce Clause authority may ultimately prove critical in decisions far removed in time and subject matter from the health care debate.

[FN2]  The PPA's success in this case, however, does not change my prior critiques of the PPA's "legalization by litigation" strategy. The discussion of whether the damage done by the PPA's earlier legal blundering is redeemed by this decision is better reserved for a separate post.

[FN3]  Thinking way down the road, if the Second Circuit affirms Judge Weinstein's decision, it could potentially set up a U.S. Supreme Court appeal to resolve a conflict among the various circuit courts of appeal as to how the IGBA is interpreted. This would be most likely if the Second Circuit finds that state law does not control the determination of what constitutes "illegal gambling". A lot of stars would need to align for poker to have a day in that Court, but these are the types of issues that are SCOTUS' bread-and-butter cases (i.e., interpretation of a federal statute, and resolving conflicts among the circuits).