Garnishing a Turd (Part III): Will SCOTUS Grant Certiorari in DiCristina?

We could know as early as this afternoon, and certainly by early next week, whether the U.S. Supreme Court (SCOTUS) will grant certiorari ("cert") in the DiCristina poker case. After reviewing DiCristina's Petition and the Department of Justice's Brief in Opposition, the big question remains: What will SCOTUS do?

My prediction:  SCOTUS denies cert without comment.

Now, I may well be wrong. In fact, as a poker player, I actually hope I am wrong. But as a lawyer whose day job requires me to monitor appellate cases, I just think the deck is stacked against DiCristina, and a grant of cert is a serious longshot.


I.  Why SCOTUS Will NOT Take DiCristina

A.  Pure numbers:  As I have noted previously, SCOTUS only takes 80 or so cases per Term. Even after weeding out cases with little or no chance whatsoever, SCOTUS still only takes roughly 4% of cases. The 4% grant rate is still somewhat misleading. There are in every Term a certain number of high profile cases which SCOTUS will almost certainly take. That means the number of open slots is reduced for the remaining set of cases from which the Court will select its remaining docket. And the Court has four additional conferences this Term, as well as several conferences early next Term from which to select the cases to fill its docket for the 2014-2015 Term.

B.  Subject matter:  Take a look at just a few of the notable cases to be considered today in the judicial conference. DiCristina will be competing against cases raising issues involving the Confrontation Clause of the Constitution, police use of force, Fourth Amendment search and seizure, ERISA plan litigation, anti-trust law, the Federal Rules of Evidence, immigration law, securities law, Second Amendment gun rights issues, class action litigation issues, administrative agency law, and death penalty appeals. Cases in which SCOTUS recently granted cert raise issues related to copyright and patent law, international law, environmental law, First Amendment law in the context of elections, and federal tax law. These topics are the bread and butter of SCOTUS' docket.

Certainly interpretation of a federal criminal statute such as the issue raised in DiCristina would fit within SCOTUS' normal range of cases. But to get the Court's attention, such a case generally has to present a pressing concern that requires the Court's intervention. After all, a grant of cert to DiCristina makes it less likely the SCOTUS will take other potentially important cases. So, SCOTUS usually selects cases where there is a split in how the lower federal courts are interpreting the relevant statute, which is a sign that SCOTUS needs to resolve the split in interpretation. Or the case needs to present a pressing federal concern that requires immediate resolution by SCOTUS. Neither of these factors are present in DiCristina.

To be blunt, the Illegal Gambling Business Act (IGBA) has been around a long time. It has been previously applied to poker operations. The arguments raised in DiCristina are novel, but the Second Circuit's decision does not break with any established interpretation of the IGBA. There simply do not appear to be many IGBA cases in general being litigated, and few of them concern poker. Even if SCOTUS thinks the Second Circuit was wrong, or was right for the wrong reasons, nothing about the case really requires the Court to take the case and resolve the issue immediately, as opposed to waiting for further challenges to percolate their way through the system to see if other appellate courts agree or disagree with the Second Circuit.

C.  Procedural issues:  As noted in my prior discussion of the parties' SCOTUS filings, there are potential procedural issues related to whether DiCristina preserved error on his main issue—whether the Second Circuit erred in failing to follow the Nardello line of cases. DiCristina did not cite to or argue this line of cases in the District Court or before the Second Circuit. DiCristina argues the DOJ waived the issue, though the Second Circuit disagreed with that contention. SCOTUS is less likely to take a case where the underlying appellate court decision did not even analyze the main issue raised in the Petition for Certiorari. Further, SCOTUS does not like to take cases with significant procedural issues, because those issues may prevent the Court from reaching the merits of the case. Although SCOTUS could look past these procedural issues, the case is certainly far from "clean".

D.  The facts are not compelling:  Although many Americans play and enjoy poker, poker simply lacks a certain gravitas that is typically associated with SCOTUS cases. Also, DiCristina is not about small stakes home games, it's about a for-profit poker room, complete with armed guards and video surveillance, taking in thousands of dollars, and admittedly operating illegally under state law. Although SCOTUS focuses on the legal issues rather than factual issues in making cert decisions, DiCristina does not present a compelling story of grave injustice to catch the Court's eyes.


II.  Why SCOTUS Might Take DiCristina

A.  Government overreach:  SCOTUS has shown an interest in recent years in reining in the scope of the federal government in a number of areas. Here, where the DOJ is arguing in favor of a broad interpretation of a federal criminal statute, and where a federal criminal statute is being used to prosecute a fairly small scale gambling operation, some of the Justices might want to consider the case.

B.  DiCristina's counsel:  DiCristina is represented by Neal Katyal, a former U.S. Solicitor General, and a federal appellate court judge nominee. Counsel for the supporting amicus curiae include other legal heavyweights, such as Paul Clement (another former U.S. Solicitor General), and Thomas Goldstein (founder of SCOTUSblog). Given this array of attorneys, the DiCristina Petition will certainly garner more attention among the Justices than a typical case. In law as in life, it pays to travel in the right company.


III.  Conclusion

We will know fairly soon whether SCOTUS will grant cert in DiCristina. Whether cert is granted or denied, however, what the Court's cert decision means is a topic for another post. Just a rule of thumb: Never believe the hype from either side to litigation. Oh, and manage your expectations.

Garnishing a Turd (Part II): The DOJ Yawns at DiCristina

As most in the poker world know, the DiCristina petition for writ of certiorari ("cert") will be considered by the United State Supreme Court (SCOTUS) in its regular conference tomorrow. As a reminder, the conference is only a vote on whether to accept the appeal. If SCOTUS does grant cert, then additional briefing will occur, and the case would likely be set for oral argument early in the Court's 2014-2015 Term (each Term runs from early October through late June). A decision would likely not be entered until late 2014 or early 2015.

But before we get too far ahead of ourselves, there is still the formidable hurdle of the conference vote tomorrow. Previously, I took a look at DiCristina's Petition and several supporting amicus curiae briefs. Since then, the Department of Justice (DOJ) has filed a Brief in Opposition ("Resistance"), and DiCristina has filed a Reply Brief. Neither document really breaks any significant new ground, and both documents mostly rehash well-worn points and counterpoints. But to SCOTUS, these documents will be the primary exposition of the DOJ's position and DiCristina's rebuttal. For the sake of completeness then, let's take a quick look at both documents.


I.  The DOJ Does Not Seem to View the Case as Particularly Significant

There is a noticeable contrast between the tone of the DOJ's Resistance and the Petition and amicus briefs to which it responds. The Petition and amicus briefs were notably passionate, filled with rhetorical flourishes suggesting the case is about more than a poker game. The DOJ's Resistance, however, is notably dull and workmanlike. Although the DOJ's Resistance hits all the main expected points in its legal analysis, the style and tone of the Resistance give the impression it is just another brief coming off the DOJ's mass production line.

Look, the DOJ has a team of sharp appellate attorneys. But the DOJ has to file hundreds of SCOTUS briefs each Term, not to mention handling thousands of appeals in the lower courts. The DOJ generally has a pretty good idea which appeals are more likely to catch SCOTUS' attention, and any filings in those cases simply get a greater degree of rhetorical polish. Here, it seems the DOJ views DiCristina as a run-of-the-mill cert petition unlikely to be on SCOTUS' radar. Thus, DiCristina is unworthy of the DOJ's A-game.


II.  The DOJ's Arguments & DiCristina's Rebuttals

A.  Statement of the Case

As expected, the DOJ chose to highlight some rather inconvenient facts which take a bit of the shine off DiCristina's argument:

Petitioner [DiCristina] employed paid security, including an armed guard, and used a video surveillance system to decide who would be admitted to the warehouse. Games often lasted all night, and "[p]layers were plied with free food and drinks by a waitress to induce them to stay and play longer."

Total wagers at the poker club amounted to tens of thousands of dollars per night. Dealers collected a five percent "rake" from each pot, keeping 25% as payment. "The remaining funds from the rake were used for expenses relating to the operation of the business and for profits."
(Resistance, p. 2 (record citations omitted))

The DOJ's recitation of these facts serves two purposes. First, it places the focus of the legal analysis on the gambling business requirement of the Illegal Gambling Business Act (IGBA), a nod to the Second Circuit's analytical distinction between whether poker is gambling and whether running a for-profit poker room is an illegal gambling business (see Decision, p. 11, n. 6). Second, it undercuts the notion suggested by DiCristina and his supporting amici that poker itself is under attack by the government. Here, the DOJ gets a two-fer, distinguishing the DiCristina game from a casual home game, while simultaneously suggesting there was some sort of nefarious conduct involved. After all, armed guards! Surveillance! It's far short of a Casino-style crime syndicate, but the DOJ certainly wants the idea of organized crime floating out there in SCOTUS' chambers.


B.  Interlocutory Posture of the Case

The DOJ begins with an argument that the Petition is premature ("not ripe for review") because the current ruling is interlocutory in nature (Resistance, p. 9). Essentially, the DOJ argues that the lower courts have not yet completed all action on the case because the Second Circuit ruling requires a remand to the District Court for entry of a judgment of guilt and official sentencing before there is a final ruling for SCOTUS to review. This argument rests on the standard legal principle that appeals are generally not permitted prior to entry of final judgment by the trial court.

DiCristina replies that he has in fact been sentenced, and will not be taking a separate appeal from that sentence. (Reply, p. 10). DiCristina further notes that there was, in fact, a final judgment entered by the trial court, albeit a judgment of acquittal. Although an unusual procedural situation, SCOTUS has previously permitted cert petitions under such circumstances. Further, declining to consider the pending cert petition on this technicality is a waste of judicial resources, as the parties will inevitably wind back at the same position even if a second appeal to the Second Circuit is required.

Here, DiCristina clearly has the better of the argument. In fact, it seems a bit silly for the DOJ to have even raised this technicality. In any event, even if the procedural posture of the case is unusual, it will not prevent SCOTUS from taking the case if it is inclined to consider the merits of the argument.


C.  Preservation of Error

One of the two main issues raised by DiCristina's Petition is that the Second Circuit failed to consider the Nardello line of cases in which SCOTUS has previously interpreted other federal statutes which have a state law violation element. Predictably, the DOJ argues that DiCristina failed to preserve error on this point by not citing the Nardello line of cases in the Second Circuit, and failing to file a motion for reconsideration to bring this alleged error to the Second Circuit's attention. (Resistance, p. 16). DiCristina replies with a version of his prior complaint that the DOJ waived the issue by conceding in the Second Circuit that the IGBA required a federal definition of gambling, and the Second Circuit improperly decided the issue without giving the parties an opportunity for further briefing of the point. (Reply, pp. 5-7). In any event, DiCristina asserts, SCOTUS can take up the case even if the Second Circuit passed on that issue.

As discussed previously, it appears DiCristina is on the wrong side of the error preservation issue. The Second Circuit found that the DOJ had not waived the federal definition issue (Decision, p. 11, n. 9), and SCOTUS is likely to accept the Second Circuit's view on such a procedural issue. It is also clear DiCristina failed to argue the Nardello line of cases at all in the Second Circuit (nor in the District Court for that matter).

But more to the point, DiCristina faces twin hurdles with his Nardello argument. First, because DiCristina failed to argue the Nardello line of cases in the Second Circuit, the Second Circuit has not ruled on the merits of that argument. Although SCOTUS could nonetheless consider the Nardello argument on its own initiative, it would be highly unusual for the Court to do so. Second, and perhaps most important, SCOTUS looks for cases where the merits issues (here, the proper interpretation of the IGBA with respect to poker) are clear and unencumbered by procedural issues. With a severely constrained docket of only 80 or so cases per Term, the Court does not like to waste a valuable cert grant on a case where they may decide that a procedural issue prevents them from deciding the merits issues. The more the parties bicker about procedural issues like waiver of arguments and preservation of error, the less likely SCOTUS is to grant cert.


D.  Nardello and the Federal Definition of Gambling

The real issue lurking in all of the SCOTUS briefing is whether the IGBA has an independent definition of "gambling" that is a separate element apart from the requirement of a state gambling law offense. Recall that the Second Circuit found there was no federal definition of gambling in the IGBA, and that whether the predicate gambling offense had occurred was determined purely as a matter of state law. Instead of a full-throated defense of the Second Circuit's decision, however, the DOJ's Resistance takes a slippery approach. Essentially, the DOJ—likely concerned by DiCristina's Nardello argument—makes the curious argument that the Second Circuit merely held that the IGBA did not define "gambling" in the manner proposed by DiCristina, while backing away from the Second Circuit's suggestion that state law provided the sole definition of "gambling". (Resistance, p. 14). DiCristina's Reply properly and prominently calls out the DOJ's shifty argument. (Reply, pp. 1-4). However, this likely will not factor much in SCOTUS' consideration of the Petition—the Court rarely takes a case merely because the underlying appellate court was wrong in its result or its reasoning.

The DOJ's Resistance does address the Nardello line of cases on their merits. (Resistance, p. 15). The DOJ begins by arguing that none of the Nardello line of cases addresses the IGBA, which is undeniably true. Of course, DiCristina's Reply points out that the cases arise from a range of similar statutes in which a federal crime has a state law offense as an element.

Turning to the policy reason behind the Nardello line of cases—the idea that a state "label" for a crime should not determine, by itself, whether that crime qualifies as a predicate offense for a federal criminal statute—the DOJ essentially argues that all that matters is whether the state gambling offense is consistent with the general concept of "gambling" as it is understood throughout the United States.

Assuming that the approach of [the Nardello line of] cases applies to [IGBA] Section 1955's reference to "gambling," state law would not necessarily be irrelevant to ascertaining the meaning of that word. For example, in Taylor, this Court explained that, in ascertaining the ordinary meaning of the term "burglary," it would look to "the generic sense in which the term is now used in the criminal codes of most States." Under that analysis, the [Second Circuit] court of appeals would have gone astray only if New York law differed significantly from the law of other States, such that it was not an appropriate exemplar of the States' understanding of "gambling." But New York law is not, in fact, distinct in that regard. Rather, the law of many States defines gambling as wagering on an uncertain result or specifically characterizes poker as a form of gambling. (Resistance, pp. 15-16 (citations omitted)).

Essentially, the DOJ is attempting two maneuvers with this section of argument. First, the DOJ is trying to harmonize the Second Circuit's decision with the Nardello line of cases so as to suggest to SCOTUS that the DiCristina case does not signal some radical departure from established federal criminal law requiring intervention by the Court. Second, the DOJ is also responding to the criticism by DiCristina and his supporting amici that the Second Circuit's decision would permit IGBA prosecutions for a wide range of activities—e.g., bridge or Scrabble—not widely considered to be traditional gambling. The DOJ's resistance suggests that, since poker is and has long been widely considered "gambling" under many state laws, SCOTUS need not take this case to prevent potential federal overreach with respect to other games. In other words, the DOJ is arguing that SCOTUS need not waste its time on this case because regarding poker as gambling is entirely reasonable; let the Scrabble folks petition if and when they are ever actually prosecuted under the IGBA.


E.  Alleged Circuit Split on Including-But-Not-Limited-To Clauses

Perhaps sensing how weak the argument is, the DOJ spends little time responding the DiCristina's contention that cert should be granted to resolve a split among lower appellate courts as to the interpretation of "including but not limited to" clauses in statutes and contracts. (Resistance, pp. 19-25). The DOJ primarily argues that the alleged "split" in authority is overstated, with most courts taking a much more nuanced and case-specific approach to such clauses than asserted by DiCristina's Petition. The DOJ also argues that application of a narrow construction of the "including but not limited to" clause in the IGBA would not change the outcome of the case. (Resistance, pp. 24-25). In construing the IGBA's list of prohibited gambling business activities, the DOJ argues that the natural analysis of the underlying games is based on a common characteristic of "wagering of money on an uncertain outcome" rather than an analysis of whether skill or chance predominates in each game.

Frankly, this entire issue continues to strike me as contrived, a desperate effort to gin up a circuit split to catch SCOTUS' attention. But I just don't see how this issue makes any difference to SCOTUS' cert decision. If SCOTUS wants to decide if poker is covered by the IGBA, that is a viable federal question which the Court could choose to review even in the absence of a circuit split (though review is much less likely in the absence of such a split). And if SCOTUS does not want to address the IGBA-poker issue, the Court certainly won't take the case merely to resolve a perceived circuit split over a rule of statutory construction. The entire issue simply distracts SCOTUS from the entire point of the cert Petition, which is to highlight the need for the Court to provide guidance on the scope of a federal criminal statute.


III.  Conclusion

At this point, the legal arguments are fairly well hashed out. Despite a few questionable tactical decisions, DiCristina's legal team has easily out-classed the DOJ in terms of the quality of their briefs. But the DOJ has three built-in advantages: a) defending a government-favorable Circuit Court of Appeals decision related to a federal criminal statute; b) the absence of a real circuit split as to the interpretation of the IGBA; and c) the inherent advantage of SCOTUS' highly selective and limited docket.

So, what will SCOTUS decide to do? Stay tuned for my (presumably predictable) prediction sometime tomorrow ....

Truth & Consequences: Reflections on the Grantland Controversy

I am probably the reason a woman killed herself.

This is an uncomfortable truth I thought I had left buried deep in my memory. But it crawled back to the surface last weekend as my Twitter stream exploded with references to a controversial article over on the ESPN-sponsored sports and pop culture journalism website Grantland. [FN1].

You probably know the basic background. Caleb Hannan wrote a lengthy piece titled "Dr. V's Magical Putter", ostensibly about a revolutionary new golf putter and its designer. Except Hannan took the story in a different direction. When the putter's designer—a woman nicknamed "Dr. V"—put her personal life off-limits to Hannan's questions, Hannan chose to dig deeper into Dr. V's background. Soon, it became apparent that many of Dr. V's professional claims either could not be verified (her past work on top secret military projects) or were false (her educational credentials). Hannan's nice little "woman designs golf club" story was morphing into a bigger, badass "con artist hawks golf club to suckers" piece.

Hannan and his story, however, veered wildly off course when Hannan dug up the most salacious bit of gossip: Dr. V was transgender. Now this fact had absolutely nothing to do with the golf club or even Dr. V's suspect claims about her credentials. But in keeping with the Grantland frat house / guys' locker room culture of sports writing, Hannan chose to make this fact the focus of his story. She used to be a dude, dude!

Hannan followed his out-of-whack moral compass straight to tabloid town. Hoping for a sizzling quote, Hannan outed Dr. V to one of her business investors. Dr. V threatened, cajoled, and ultimately pleaded with Hannan to have her history kept private. After the fact, Grantland's editor-in-chief Bill Simmons assures us Hannan did not "badger" Dr. V, never threatened to out her, and his story would never have been run with the transgender angle.

Still, Dr. V committed suicide.

Still, Hannan wrote his story about Dr. V, the transgender con artist.

Still, Grantland's editors published it.

* * * * *

Like a lot of guys my age, I'm a big Bill "the Sportsguy" Simmons fan. Have been since he joined ESPN.com as a special columnist in 2001. Simmons' genius is capturing in writing how guys really talk about sports—veering from analyzing games and player transactions, to relating the emotional rollercoaster ride of supporting a team through wins and losses, to cracking snarky jokes at the expense of friends or opposing teams, all seasoned with a hearty helping of personal anecdotes, movie quotes, and pop culture references. The relatively new Grantland site reflects Simmons' influence: the current home page features articles on the NFL playoffs, a significant MLB player signing, a discussion of the NBA rivalry between the Celtics and the Lakers, a history of the movie Swingers, and a diary from the Sundance film festival. 

Following the outcry over Hannan's Dr. V story, Simmons posted a heartfelt apology, taking responsibility for the decision to publish the article. I have no doubt Simmons sincerely regretted that mistakes had occurred. But in a few places, his apology turned defensive, undercutting his message. For example, Simmons wrote:

Before we officially decided to post Caleb’s piece, we tried to stick as many trained eyeballs on it as possible. Somewhere between 13 and 15 people read the piece in all, including every senior editor but one, our two lead copy desk editors, our publisher and even ESPN.com’s editor-in-chief. All of them were blown away by the piece. Everyone thought we should run it. ...

Anyway, we posted the piece on Wednesday morning. People loved it. People were enthralled by it. People shared it. People tweeted it and retweeted it. A steady stream of respected writers and journalists passed along their praise. By Thursday, as the approval kept pouring in, we had already moved on to other stories and projects.

There's more than a whiff of rationalization in this passage. Call it the "Cool story, bro" defense: If a dozen editors and a bunch of early readers liked the piece, it couldn't be unreasonable for Grantland to run the piece, right? But the problem here is that these editors and readers are essentially Grantland insiders, acolytes for the peculiar Grantland vibe, raised on the Simmons style. In fact, I'm willing to wager at least one Grantland editor threw out an Austin Powers line, "She's a man, man!" to appreciative chuckles. It's hard to hear a contrarian voice in an echo chamber.

To his credit, Simmons did acknowledge in his apology post that he and his editors had all viewed the piece through the same flawed "lens". But this fact does not justify or excuse the errors made. More troubling is that Simmons seems oblivious to the possibility that this particular flawed lens, this blind spot as to serious issues not commonly encountered when breaking down the NBA playoffs or cracking jokes about The Bachelor, might be an inherent fault built into the Grantland model.

Simmons' lack of introspection also showed up in this passage:

But even now, it’s hard for me to accept that Dr. V’s transgender status wasn’t part of this story. Caleb couldn’t find out anything about her pre-2001 background for a very specific reason. Let’s say we omitted that reason or wrote around it, then that reason emerged after we posted the piece. What then?

First off, Hannan didn't make Dr. V's transgender status "part" of the story; he structured the article so that the the transgender reveal was the story's big Crying Game payoff. Second, if the story were truly about Dr. V, her putter, and her questionable (even fraudulent) claims related to the putter, what difference does it make why Dr. V's background has a specific gap prior to 2001? Let's say Hannan had discovered Dr. V changed her name (maybe even illicitly assumed a new identity) in 2001 in order to escape an abusive husband—would that information be fair game for publication? Once Hannan and Grantland knew that Dr. V had a legitimate reason for the gap in her personal history, there was no legitimate reason to report that information. The mere fact that someone else might subsequently discover that information is irrelevant to any analysis of whether it was proper for Grantland to publish it in that particular Hannan piece.

* * * * *

The final point where I thought Simmons' apology missed the mark is in connection with the circumstances leading to Dr. V's suicide. Here, however, my views are much more complicated, and colored by my personal experience.

It was more than 15 years ago. I was a young associate attorney, just a few years out of law school. Sexual harassment suits were the new big thing, and one landed on my desk. A professional was being sued by a former administrative assistant over allegations of a series of improper physical encounters. My assignment was to defend the professional. Without question it was a big case for me at that point in my career.

During the course of discovery, I learned that the plaintiff had a long history of mental health issues, including two hospitalizations for attempted suicide—one before and one after the events in question in the lawsuit. The deposition of plaintiff was difficult. It was a classic she-said-he-said case, and it would rise or fall with the credibility of the two primary parties. So, I had to pin down the plaintiff on the details of over a dozen events she alleged had happened, which my client denied entirely. Although I tried to keep the deposition as matter-of-fact as possible, the plaintiff repeatedly broke down in tears as she recounted her version of events. It was a grueling day for everyone involved.

Two weeks later, I received a large packet of new psychiatric records from the plaintiff's attorney. The  plaintiff had been hospitalized again for another week of in-patient mental health treatment. The emergency room intake note, dated the day after the plaintiff's deposition, read something like:

Patient brought to ER by husband. Patient was deposed in a lawsuit yesterday, was grilled very hard by an attorney about her pending sexual harassment case. Husband states patient has been highly emotional and depressed, has mentioned suicide. Patient states she just wants to get in her car, drive ... and end it all.

I was shocked and horrified. I didn't recall being confrontational in the deposition, but I did have to press plaintiff for details she was reluctant to provide, to enable me to determine whether her claims were credible and could be discounted or corroborated in any manner. I called her attorney who assured me he didn't think I had done anything improper (and he had not raised any objections or voiced any concerns about my line of questions during the deposition). Still, it was an uncomfortable fact that I had actually played a role in triggering plaintiff's suicidal thoughts.

Less than a week later, I got a call from plaintiff's attorney; plaintiff had passed away. The atorney faxed over a copy of the news article. As Caleb Hannan might say, a chill went down my spine. Plaintiff was the victim of a one-car accident on a rural road ... and it was almost exactly identical to the suicide scenario she had reported to the ER physician following her deposition. [FN2].

To my knowledge, plaintiff's death was ruled an accident. Nobody had reason to challenge that conclusion or press for an investigation. But to my mind, the coincidence is just too much to ignore. It was most likely a suicide.

It's easy to rationalize the situation. Plaintiff had a history of mental health issues, including suicide attempts. The legal process can be a terrifying and hostile environment for many folks, particularly when it involves claims which intrude deep into sensitive personal matters. Plaintiff put the details of the alleged harassment directly at issue by bringing the suit. My client was entitled to a defense of those claims, and if it weren't me taking that deposition, it would have been another lawyer, likely one with a more aggressive, confrontational style.

Problem is, it was me who took that deposition. Me who made plaintiff recount the details of multiple instances of alleged sexual harassment. Me who plaintiff pointed to as the reason for her thoughts of suicide following the deposition. Me.

I have often reflected on that experience. The past cannot be changed, but it is possible to grow from a tragic situation. I have tried to be more concerned with the experience of people brought into the legal system, and more aware of possible extra-legal consequences for those people. I know I have no legal or moral responsibility for that plaintiff's apparent suicide. I know there were many factors that contributed to her death. Yet I also know I was likely one of the prime factors, and that knowledge still haunts me.

* * * * *

Simmons's apology addresses the connection between Hannan's article and Dr. V's suicide:

To our dismay, a few outlets pushed some version of the Grantland writer bullies someone into committing suicide! narrative, either because they wanted to sensationalize the story, or they simply didn’t read the piece carefully. It’s a false conclusion that doubles as being recklessly unfair. Caleb reported a story about a public figure that slowly spun out of control. He never antagonized or badgered anyone. 

Let's set aside the "bullying into suicide" bit for a moment. Simmons' account of events is a bit of a whitewash. Dr. V wasn't a public figure, or to be a little more precise, her public status, such as it was, was clearly limited to the golf putter business. Dr. V's transgender status was a private matter unconnected to her public business activities. Further, the story did not "spin out of control". Events took an unexpected turn during the course of Hannan's research, but the story was always Hannan's to frame, Hannan's to write, and Grantland's to publish. Nobody forced Hannan or Grantland to move forward with the piece after Dr. V died.

Where things get morally complicated is the claim that Hannan "never antagonized or badgered anyone." I think that's correct in a narrow sense. But Hannan isn't quite so innocent as Simmons would suggest. Hannan, after all, outed Dr. V to an important business partner without any apparent regard for the consequences.

Here's Simmons' take on the outing issue, as he lists the lessons he thinks should be learned:

6. Caleb never should have outed Dr. V to one of her investors; you need to address that mistake either within the piece, as a footnote, or in a separate piece entirely.
(And maybe even ... )
7. There’s a chance that Caleb’s reporting, even if it wasn’t threatening or malicious in any way, invariably affected Dr. V in ways that you never anticipated or understood. (Read Christina Kahrl’s thoughtful piece about Dr. V and our errors in judgment for more on that angle.)

Address the improper outing of a transgender person in a footnote? Good grief. How about not publishing the piece in which a journalist's ethical lapse is the foundation of the entire story? At the very least, Hannan's decision to out Dr. V deserves more consideration from Simmons than merely lumping it in with a laundry list of errors, implying that outing a person is a mistake on par with using improper pronouns for a transgender person or crafting an inelegant sentence.

Frankly, though, the latter paragraph is much more troubling. To someone who is closeted, there is little more "threatening or malicious" than an intentional outing. Even if Hannan, Simmons, and the entire Grantland staff had a transgender blind spot, certainly in this day and age they have to be familiar with gays and lesbians; hopefully they don't need to resort to their GLAAD or AP handbooks to understand it is ethically wrong to out someone. Would Hannan and Simmons think it was acceptable to out a gay teen to his classmates, or a lesbian executive to her boss, just for the sake of getting a reaction quote? Would they be surprised if said teen or executive found such an outing to be "threatening and malicious"? Would they "anticipate or understand" that such an outing could lead to harmful consequences, such as the teen being bullied or the executive being fired?

Hannan deserves harsh criticism for his cavalier outing of Dr. V in pursuit of a minor sports story, certainly far more than Simmons' mild rebuke. But Hannan does not deserve to be blamed for Dr. V's suicide, and Hannan certainly does not deserve threats of physical harm. There seems no doubt that Hannan's actions were a significant factor in Dr. V's decision to commit suicide. But I do not think one can make the leap to from "significant factor" to "moral responsibility" in this case. Hannan outed Dr. V to one person. Dr. V might have feared Hannan would go public with the transgender story. But Dr. V might also have feared Hannan would reveal the questions surrounding her work, her education, and the scientific support for her golf putter. Those topics were all fair game for Hannan, and certainly a potential cause of mental stress for Dr. V. Also, Dr. V might have feared that, if Hannan discovered her secret so readily, it was only a matter of time before someone else found out, so it did not much matter whether Hannan outed her; Dr. V may have felt her outing was inevitable. Add in the fact Dr. V had prior issues with depression and attempted suicide, and it becomes difficult to pinpoint the root cause of her decision to commit suicide.

Caleb Hannan will always have to answer professional questions about his decision to out Dr. V. And, he will always have to live with the personal knowledge that, even if he wasn't morally responsible, he was certainly closely connected to Dr. V's suicide. That seems punishment enough.

As for Simmons and Grantland, even as I disagree with specific points in Simmons' apology post, I fully believe in the overall message Simmons was trying to convey—mistakes were made, and he feels horribly about the situation. But most important is Simmons' closing promise:

We will learn from what happened. We will remember what [Coach John] Wooden said — “If you’re not making mistakes, you’re not doing anything” — and we’re going to keep trying to get better. That’s all we can do.

The point of criticism, whether in sports or the arts, is to spur reflection and improvement. Hannan, Simmons, and Grantland all deserve a chance to move forward and show that they have grown from this controversy. And hopefully all of the discussion surrounding this article will help others reflect and grow as well.

---------------------------------------------------------

[FN1]  Many excellent writers have posted on-the-mark critiques of Hannan and Grantland, and their troubling journalistic ethics in publishing this story in this manner; in my estimation, these posts by Maria Dahvana Headley, "Iron Mike Gallego", Tim Marchman, and Ryan Glasspiegel provide particularly insightful commentary.

[FN2]  I have intentionally omitted details re the car accident as a matter of protecting the privacy of plaintiff and her surviving family in the highly unlikely event the accident details could be tied back to the identity of the plaintiff. The details of the car accident are not important, only that they match the specific suicide scenario described by plaintiff when she was admitted to the ER.

Garnishing a Turd (Part I): DiCristina Goes to SCOTUS

In early November, lawyers for Lawrence DiCristina filed a petition for writ of certiorari with the Supreme Court of the United States (SCOTUS), seeking review of the Second Circuit Court of Appeals decision which found that operating an unlicensed, for-profit poker game in violation of state law could also serve as a predicate offense for purposes of the federal Illegal Gambling Business Act (IGBA); my discussion of the Second Circuit's United States v. DiCristina decision can be found here. With the United States Department of Justice's (DOJ) brief in opposition ("resistance") due to be filed today (Monday, January 6, 2014), let's take a quick look at DiCristina's arguments to SCOTUS.


I.  Obstacles Facing DiCristina

At the outset, it must be remembered that SCOTUS has nearly complete discretion over its docket, allowing the Court to pick and choose which appeals to accept. In other words, DiCristina does not have a right to have his appeal heard by SCOTUS. At the present stage of proceedings, a petition for writ of certiorari is analogous to a cover letter and resume sent to a prospective employer—one is simply trying to catch the eye of the employer (Court) and make the cut for a formal interview (be granted review and an opportunity to brief and argue the case merits).

As discussed previously, the vast majority of cases are rejected by SCOTUS at the petition phase:

[SCOTUS] 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.

It is that last sentence which is particularly important in evaluating a petition for writ of certiorari. Even if several justices might disagree with the Second Circuit's decision, SCOTUS will only grant cert in cases which raise an important question of federal law, or which resolve a significant conflict between lower appellate courts, or both (a common occurrence where lower appellate courts have divergent interpretations of a federal statute or Constitutional provision).

So, has the petitioner (here, DiCristina) identified a compelling legal issue which SCOTUS (or at least four of the nine justices) will want to add to its very limited docket? Here, DiCristina's petition identifies two separate possible issues which he contends SCOTUS should resolve:

1.  Whether 18 U.S.C. § 1955 [the IGBA], which outlaws certain “gambling business[es]” and provides that 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,” makes it a federal felony to host poker games.

2.  Whether including-but-not-limited-to clauses merely provide examples without in any way limiting the term being defined (as five circuits have held) or whether they restrict the term being defined to things of the same general kind as those enumerated (as four circuits and many state courts of last resort have held).

The first question—regarding the interpretation of the IGBA—attempts to hook the Court on a federal question issue. The second question—regarding how statutes are interpreted—attempts to convince the Court to resolve a split among lower appellate courts. SCOTUS could choose to grant cert to review one or both issues, though in this case, SCOTUS would most likely be interested only in resolving the first issue.


II.  DiCristina's Arguments

A.  Statement of the Case

DiCristina's petition begins with an Introduction and Statement which sketch a summary of the district court and appellate proceedings below, along with key facts. Nothing particularly significant or novel pops up in this section, but DiCristina's attorneys do open the door for some rhetorical blowback. Although the petition acknowledges in passing that DiCristina took a rake from the game, the petition generally tries to suggest that the issue at hand is about whether playing poker is illegal under the IGBA rather than whether operating a for-profit poker room is the predicate illegal activity. The Second Circuit specifically called out this particular error in its decision (p. 11, n. 6):

We note that DiCristina's argument improperly conflates the important distinction between gambling, which is not prohibited by the IGBA, and operating a gambling business, which is prohibited by the IGBA.

Expect the DOJ's resistance to highlight the business nature of DiCristina's poker room, including focusing on the rake taken.


B.  Federal Definition of "Gambling" for the IGBA

DiCristina's primary argument for SCOTUS to grant cert is that the interpretation of the IGBA in the context of poker requires an analysis of the definition of "gambling" as used in the IGBA rather than merely relying on state laws to define what games are or are not gambling. (Petition, pp. 12-18). In other words, DiCristina argues that poker (or other games) must both be "gambling" as defined by the IGBA and also be illegal gambling under applicable state law in order to violate the IGBA.

The general contours of this argument are identical to the argument considered and rejected by the Second Circuit; that court found that the IGBA does not contain any special federal definition of "gambling" whatsoever, but rather merely includes a illustrative list of gambling businesses prohibited by the statute. The Petition, however, does raise an interesting new twist to the argument by asserting that the Second Circuit's decision is contrary to a line of Supreme Court decisions which have held that certain federal statutes—including the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Travel Act—which rely on violation of state law as a predicate offense nonetheless still impose an additional distinct federal definition requirement. DiCristina argues that violation of a federal statute, including the IGBA, should not depend on a state's "idiosyncratic" definition of "gambling". [FN1].

One problem with this argument is that it may well be considered an entirely new argument that has been waived (see Section D, below). Also, in the line of cases cited by DiCristina, the offenses at issue are broad crimes—extortion, bribery, etc.—which are often given different labels in the various state criminal codes. The line of cases relied upon by DiCristina actually act to broaden the scope of federal criminal statutes by recognizing that a particular act might be, say "extortion" as used by the federal statute, while violating a state criminal statute with a different label, such as "theft".

Finally, the biggest hurdle for DiCristina is that the IGBA has never been included in the federal statutes interpreted to require a predicate offense to meet both a state and a federal definition. SCOTUS has never ruled on the issue, and as the Second Circuit noted in its decision in this case, numerous federal Circuit Courts of Appeal have 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.  This lack of any other federal appellate decision interpreting the IGBA in the manner advocated by DiCristina severely undercuts the attractiveness of his argument as a possible candidate for a grant of cert.


C.  Preservation of Error—DiCristina's Argument

One issue raised by DiCristina in both the introductory segments of his petition as well as in a dedicated subsection of the main argument later in the petition is an assertion that the Second Circuit improperly ruled against DiCristina based on a legal theory which the government had not raised on appeal (Petition, pp. 11-12, 17-18). Essentially, DiCristina argues that the Second Circuit "sandbagged DiCristina by holding—over the Government's concession and without briefing on the issue—that the IGBA contains no federal definition of gambling." (Petition, p. 17).

What DiCristina is arguing here is that the government failed to preserve error on the argument relied upon by the Second Circuit in its decision. Error preservation is a critical aspect of both trial and appellate practice. Essentially, any argument that is not made before and ruled upon by the trial court may result in the waiver of that argument on appeal. In other words, if an attorney loses in front of the trial court, but thinks of a new, winning argument on appeal, the appellate court will generally refuse to consider the new argument absent extraordinary circumstances.

As with most legal principles, however, error preservation can be quite complicated in practice. DiCristina made some noise about the government coming up with a new argument on appeal during the oral argument before the Second Circuit, asserting that the government had "conceded" that the IGBA contained a definition of gambling distinct from any underlying state law definition. The Second Circuit, however, expressly rejected this argument in its decision, holding that the government had argued in its appellate brief that the IGBA does not contain an independent definition of gambling, and further noting that the proper interpretation of the IGBA was a matter properly before the court in any event. (Decision, p. 12, n. 9).

A review of the government's appellate brief demonstrates that the government has, in fact, preserved this argument. In its "Summary of the Argument" section of its brief (Brief, p. 13), the government stated:

The [district] court misinterpreted 18 U.S.C. § 1955(b)(2) as creating a definition of "gambling." In fact, the IGBA does not contain a definition of "gambling" and that term should therefore be defined based on its ordinary meaning; i.e., as wagering on an uncertain outcome.

Further, within the government's "Argument" section of the brief, an entire subsection is devoted to an argument that "§ 1955(b)(2) Does Not Define 'Gambling' for Purposes of the IGBA". (Brief, pp. 16-17). Given these references in its appellate brief, DiCristina's complaints about waiver of this issue seem rather strained, particularly when the Second Circuit itself has already indicated the issue was not waived.


D.  Preservation of Error—Did DiCristina Goof?

Interestingly, it is DiCristina who may well face an error preservation problem in front of SCOTUS. Recall that the major issue being argued by DiCristina is that the Second Circuit failed to consider a particular line of cases holding that federal statutes with state law violations as predicate offenses nonetheless still require a federal definition of any such predicate offenses. As DiCristina acknowledges in his Petition, the Second Circuit's decision contains no analysis of this line of cases. DiCristina argues this is the fault of the government and the Second Circuit (it's generally a sign of desperation when appellants resort to attacking a court with language like "sandbagging").

But a review of the table of authorities in DiCristina's appellate brief reveals that none of the line of cases cited by DiCristina in his Petition (Nardello, Scheidler, Wilkie, Taylor, and Perrin) were cited by him to the Second Circuit. Further, none of these cases were cited by Judge Weinstein in his otherwise exhaustive initial decision favorable to DiCristina (with the exception of a passing citation to Scheidler for the unrelated proposition that federal statutes can be interpreted broadly to cover situations not expressly contemplated by Congress; Opinion, p. 102). Finally, despite feeling "sandbagged" by the Second Circuit, DiCristina never availed himself of the option of filing a motion for rehearing by the court to permit briefing, argument, and consideration of this supposedly critical line of cases (Federal Rule of Appellate Procedure 40 permits parties to file a motion for rehearing when the appellate court has "overlooked or misapprehended" any point of law).

SCOTUS is careful, even when presented with cases raising important issues, to take cases which are procedurally clean. SCOTUS takes cases to decide the ultimate issue presented (here, whether poker is covered by the IGBA). With its limited docket, SCOTUS does not like to take a case which has a threshold procedural dispute which might prevent the Court from reaching the merits. Often, even a whiff of procedural dispute can be enough to cause the Court to pass on an otherwise cert-worthy case. Here, DiCristina's argument based on the Nardello line of cases seems like a new twist on his argument below, added to his Petition in an attempt to beef up his argument and catch the Court's attention. Whether this new twist is viewed as a new argument that has been waived or merely an augmentation of his prior argument is probably not the critical factor at this juncture. Rather, if the government makes a point of arguing that this is a new argument subject to waiver, the entire Petition falls under a procedural cloud. At a bare minimum, SCOTUS will likely be troubled by the fact the Court is being asked to consider a case where the petitioner himself is asserting the underlying Second Circuit decision has not even fully analyzed the major issue to be resolved. Look for the government to attack this weakness in its resistance.


E.  Circuit Split on Including-But-Not-Limited-To Clauses

The second major argument raised by DiCristina is that SCOTUS should take this case to resolve a split among the Federal Circuit Courts of Appeal as to the proper method of interpreting statutes (and contracts) which contain lists using the language "including but not limited to". (Petition, pp. 18-32). In this case, the Second Circuit found that the IGBA's list of illegal gambling businesses was illustrative and not exhaustive, and that running a for-profit poker room was the type of illegal gambling business encompassed by the IGBA. In reaching this conclusion, the Second Circuit declined to use the principle of statutory construction ejusdem generis to narrow or limit the scope of the IGBA's "including but not limited to" list of illegal gambling businesses to businesses connected to a game of chance.

DiCristina, however, argues that application of ejusdem generis is required, and if so applied, then poker falls outside the type of prohibited activities because it is a game of skill while the listed gambling activities are games of chance. Expect the government to hammer DiCristina with the Second Circuit's rebuke noted above (Section A) that "DiCristina's argument improperly conflates the important distinction between gambling, which is not prohibited by the IGBA, and operating a gambling business, which is prohibited by the IGBA." The government will also likely argue that the Second Circuit correctly determined ejusdem generis did not apply in this case because the language of the IGBA is clear without resort to rules of statutory interpretation. (Decision, p. 12, n. 9).

Perhaps more importantly, the government is likely to argue that this kind of circuit split is not worthy of the Court's attention. Rules of statutory construction are just ad hoc heuristics used to resolve ambiguities in statutes. Often, more than one rule of construction can apply to a given statute, and the choice of rule to follow can lead to significantly different analytical outcomes. Determining which version of a rule is "correct" is essentially meaningless absent the context of a statute to which the rule is to be applied—a "meta-dispute", if you will. But here, even though various courts have chosen to interpret "including but not limited to" clauses differently, they have not done so in the context of the IGBA; there is no circuit split as to whether running a for-profit poker room is a predicate offense under the IGBA.

Further, it is not even clear whether interpreting the IGBA's "including but not limited to" language narrowly would make any difference in this case. Assuming SCOTUS agrees with the Second Circuit that the analytical focus is on the gambling business (running a for-profit poker room) rather than the game (poker), then the Court might easily conclude that the "skill game" argument for poker is irrelevant under the IGBA even if ejusdem generis is applied. In other words, the Court could determine that taking a rake from an illegal poker game is sufficiently similar to running the enumerated gambling businesses that it violates the IGBA, even if poker is a game of skill.

Frankly, this argument for a circuit split feels contrived, and is easily the weakest part of the Petition. In the unlikely event SCOTUS grants cert, look for the Court to drop this issue from consideration.


F.  What of the Skill Game Argument?

Although the skill game argument is woven into the Petition, poker players will notice that it is not identified as an issue for SCOTUS to resolve. This is because the Second Circuit found the skill game argument irrelevant to analysis of the IGBA. Also, remember that the point of the Petition is to persuade SCOTUS to take the case, not to argue in depth the merits of the case. Here, the skill game argument simply is not a hook that can grab the Court's attention. If SCOTUS should happen to take the case, the merits briefing process will provide an additional opportunity to argue the skill game position. Still, the only way SCOTUS will ever definitively rule on poker as a skill game in the present case is if a lot of dominoes fall the right way:  a) cert is granted, b) the Court agrees there is an independent federal definition of gambling in the IGBA, and c) skill is relevant to that federal definition of gambling.

In any event, the skill game argument is actually well-positioned before the Court even at this stage. Judge Weinstein's lengthy decision is part of the record, as are amicus briefs filed in support of DiCristina's Petition. Poker players need to understand, however, that the skill game argument will have little influence on whether SCOTUS grants cert.


III.  Amicus Curiae Briefs

Five amicus curiae briefs have been filed in support of DiCristina's Petition, including briefs by: a) the PPA, b) a group of professional and amateur poker players from New York, c) noted poker player and author James McManus, d) Champion Scrabble and Bridge Players, and e) Robert C. Hannum, Ph.D.,  professor of Risk Analysis and Gaming at the University of Denver. [FN2]. All five amicus briefs can be accessed via the SCOTUS Blog page devoted to the DiCristina case.

First off, none of these amicus briefs has substantially changed since initially being filed with the Second Circuit, other than to update some discussion points to reference the Second Circuit's decision. The briefs by the PPA, the poker player group, the Scrabble and bridge players, and Dr. Hannum focus on fleshing out the skill game argument from several different yet complementary angles. The Hannum brief, in particular, does an exceptional job in presenting the technical basis for the poker "skill game" argument. McManus' brief takes a different tack, and discusses the historical and social context for poker in America.

All five briefs are well-written and informative. And, to be blunt, all five briefs are a waste of time. The thing about amicus briefs, particularly at the petition for certiorari stage, is that the Court pays little attention to them unless filed by one of a very limited number of influential groups (e.g., the U.S. Chamber of Commerce or the Cato Institute). With thousands of cases to review, the Court simply does not have the resources to review most amicus briefs at the certiorari stage. In this particular case, the amicus briefs focus mostly on the skill game part of the argument, rather than directly supporting either of the primary questions presented. With Judge Weinstein's exhaustive opinion already part of the papers submitted to the Court, none of these amicus briefs add a whit of meaningful substance to the Court's pending decision whether to grant cert.

The amicus briefs might have some marginal value at the merits stage of the briefing process if SCOTUS grants cert. But filing these merits-type briefs at the certiorari stage is a tacit admission that their authors believe the Court will likely deny cert. So, these amicus briefs get filed at the certiorari stage as a sort of vanity project so the authors can declare how they filed a Supreme Court brief in the case, even if doing so was essentially pointless.

Still, filing the amicus briefs is essentially harmless, at least for the four briefs dealing with the skill game argument. The McManus brief, however, gives the government a potential opening to score a few rhetorical points. McManus waxes poetic in his brief about poker as the All-American game. An enterprising DOJ attorney could easily go to McManus' excellent book on the history of poker, Cowboys Full, and pull out some pithy quotes about the prevalence of cardsharps, cheaters, and other unsavory folks in poker throughout its history. McManus also argues in his brief that poker is unlike traditional casino games in that it is generally not amenable to the same type and scale of corruption by organized crime as are traditional casino games. Of course, this provides a nice opening for the government to reference notable online poker events such as the UB/AP cheating scandals and the Back Friday indictments. The government might not make these arguments, or might have been prepared to make them regardless of whether McManus filed an amicus brief. Still, it seems poor strategy to open the door for such attacks when the brief otherwise does not advance the cause of having cert granted.


IV.  What Happens Next?

The government's resistance is due today, and DiCristina will have a short period in which to file any final reply. The various papers will then be sent to the Court's law clerks for initial screening, after which the Justices will vote on whether to grant or deny cert. SCOTUS Blog has excellent layperson-friendly summaries of Court procedures and the behind the scenes operations of the Court. A decision on whether cert is granted or denied could occur as early as February or could linger as late as June.

Poker players shouldn't get their hopes up. DiCristina's lead appellate attorney, Neal Katyal, is as experienced and highly respected an appellate attorney as can be found (and is also a possible future federal appellate judge). Katyal and his team did a solid job with the Petition. But when the underlying case is a steaming turd, even the best of attorneys can't hide it under a bunch of gourmet toppings.


--------------------------------------------------------------------------

[FN1]  In a bit of irony, DiCristina cites to past PPA litigation failure Town of Mt. Pleasant v. Chimento for the proposition that a state could classify bridge as "gambling" and create potential IGBA violations for bridge tournament operators. This hypothetical concern is somewhat afield from Mr. DiCristina's poker room. To paraphrase my earlier comments regarding Chimento, given that poker has long been considered gambling in most (if not all) states, this is an argument better raised by bridge players, if and when they ever get charged with illegal gambling.

[FN2]  UPDATE (12 JAN 2014): The original version of this post discussed three amici curiae briefs which were available via the PPA. SCOTUS Blog provided links to all five amici briefs on its page devoted to the DiCristina case. The amicus brief subsection has been revised to reflect the two additional amicus briefs not previously noted filed by: a) the Champion Scrabble and Bridge Players, and b) Robert C. Hannum, Ph.D.,  professor of Risk Analysis and Gaming at the University of Denver.

Online Gaming Tax Rates: Potential Hurdle for Poker Players?

A.  Introduction—Fairness in Tax Schemes for Online Gaming

Perhaps the major selling point for online gaming proponents is that states can realize a new stream of income via taxation of online gaming profits. Whether such tax revenues will materialize in the amounts projected, and whether online revenues will significantly cannibalize revenue streams from established brick and mortar casinos are open questions.

One of the most important questions facing states as they enter the online gaming fold is the proper tax rate for online gaming revenues. Striking a balance between maximizing tax revenues while encouraging reinvestment of corporate profits into expanded facilities and additional jobs can be difficult, and states will undoubtedly set different gaming tax rates, much as they already have for brick and mortar gaming. For example, Nevada taxes gaming revenues at 6.75% of gross gaming revenue ("GGR")—essentially gaming revenues less winnings paid to players, without adjustment for other expenses—while Pennsylvania imposes a staggering 55% GGR tax rate. Other states have sliding scale GGR tax rates, while many states (including Nevada) enhance GGR tax receipts with various licensing fees.

At the recent World Regulatory Briefing (summaries of Day 1 and Day 2 by Marco Valerio for Online Poker Report), one panel of attorneys spoke on the topic of taxation of online gaming. One gaming media member in attendance Tweeted an interesting assertion from one of the panel members:

Ben Blair is suggesting that the taxes for land based and online gaming have to match as a matter of law. #WrB13

— Casino City Vin (@casinocityvin) October 23, 2013

Ben Blair is a tax attorney with the large international law firm Faegre Baker Daniels. Although Blair's resume is impressive, it appears he erred in this assertion. Of course, in fairness to Blair, this solitary Tweet isolates his comment from the context of the panel discussion (NOTE: See new Update at end of this post for additional context for Blair's comment). However, this Tweet is a good jumping off point for consideration of a significant online gaming taxation issue—Must online gaming be taxed in the same manner and at the same rates as established brick and mortar gaming?

At first glance, the answer seems obvious. An online slot machine or poker game is essentially just a virtual version of a brick and mortar slot machine or poker game. So of course online gaming must be taxed in the same manner as brick and mortar gaming. Right?

Tax law, however, is much more complicated. Congress and state legislatures generally have wide latitude in setting tax policy. [FN1]. Obviously a tax law cannot discriminate based on a protected class—a law taxing women, Hispanics, or Rastafarians at a higher rate would be unconstitutional. Nor can a tax law favor in-state residents over similarly situated out-of-state residents. [FN2].

When a tax law draws distinctions between groups of people to further purely economic policies, however, courts usually show legislatures substantial deference. For example, Congress encourages home ownership through a law permitting deduction of mortgage interest and property taxes while not permitting deduction of rental expenses. Similarly, Congress encourages capital investment through lower tax rates for income from capital gains than income from employment. At a state legislative level, important local industries are often given preferential tax treatment, and specific companies are often granted favorable tax breaks to encourage those companies to move to or remain in a state, or to expand operations within a state. The U.S. Supreme Court has long permitted legislatures broad discretion in using tax laws to advance the legislatures' preferred economic policies, even if the result is a taxation scheme which plays favorites among individuals and companies, so long as the tax policy is not wholly arbitrary:

"The [Equal Protection Clause] imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. The State may impose different specific taxes upon different trades and professions and may vary the rate of excise upon various products. It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value."

Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 526-27 (1959). [FN3].


B.  Riverboats v. Racetracks—Establishing the Contours for Permissible Taxation of Gaming

Turning back to online gaming, could a legislature draw a permissible distinction between online gaming revenue and brick and mortar gaming revenue such that the two types of revenue could be taxed at different rates? Interestingly, the U.S. Supreme Court has already addressed a strikingly similar issue in the context of differential tax treatment for various types of traditional gaming facilities.

Back in 1994, Iowa's gaming industry was in significant economic distress. The state's racetracks were hemorrhaging money, while its riverboat casinos which offered traditional slot machines and table games were facing unexpected competition from newly authorized Illinois riverboats which did not have the same betting and loss limits and excursion requirements as were imposed on Iowa's riverboats. [FN4]. In response, the Iowa legislature enacted sweeping revisions to Iowa's gaming laws, permitting racetracks to offer slot machines while eliminating bet and loss limits for riverboat casinos.

An interesting provision in Iowa's gaming expansion laws related to taxation of gaming revenues. The legislature imposed a different tax rate on slot machine revenues depending on whether the revenue came from a racetrack (36% maximum tax rate) or a riverboat (20% maximum tax rate). The state's racetracks predictably filed suit, claiming the different tax rates for slot machine revenues violated constitutional equal protection guarantees, and placed them at an unfair economic disadvantage to the riverboats.

The legal challenge reached the Iowa supreme court in 2002. Racing Ass'n of Central Iowa v. Fitzgerald, 648 N.W.2d 555 (Iowa 2002) ("RACI-I"). The court noted that the state legislature was entitled to broad discretion in setting tax policy, but could not discriminate on an arbitrary basis. The court's analysis began with a consideration of whether racetracks and riverboats were "similarly situated" within the state's gaming economy; if not, then the legislature could set different tax rates for the different types of gaming businesses:

"[T]he heart of the tax statute is in its disparate treatment of the main activity taking place at both riverboats and racetracks. That is, the essence of the tax is that it treats racetrack slot machines differently than riverboat slot machines. Where the same activity is being taxed at significantly different rates, a mere difference in location is not sufficient to uphold the discriminatory tax.

Both facilities exist for the purpose of operating gambling games. The bulk of both entities' revenue is from slot machines.... If the bulk of their revenue was not based on slot machines, but rather we were called upon to determine whether horse revenue is different from gambling table revenue, our conclusion may be different. However, because most of the entities' revenue is derived from the same source, it is of little consequence that there are other different types of gambling games available at racetracks and riverboats. More importantly, both facilities are authorized to operate within the same gaming industry. Both operate slot machines that are the primary revenue-making vehicle for both facilities. Racetracks and riverboats serve gambling games to the same group of consumers. Both gaming facilities are equally important to the State in terms of revenue production. We conclude racetracks and riverboats are of the same class for purposes of this equal protection challenge. If the taxing statute treats them differently and there is no rational basis for such differential treatment, the statute violates equal protection."

RACI-I, 648 N.W.2d at 559.

The court then turned to the analysis of whether the legislature had a rational basis related to a legitimate policy purpose for taxing gaming revenues at different rates. This is a highly deferential standard of review, and courts almost never invalidate a law on such a "rational basis" review. Nonetheless, the RACI-I court (in a 4-3 split decision) found that "the effect of the tax is contrary to the legislative purpose of promoting agriculture and economic development" and the differential tax rate "frustrates the racetracks' ability to contribute to the overall economy of this state." The majority determined:

"[T]he inescapable conclusion is the differential tax is not rationally related to the main purpose of the legislation or to the intent behind authorizing racetracks to operate in this state. The stated purpose was allegedly to save the racetracks from economic distress. There can be no rational reason for this differential tax, unless the reason for it was to drive the racetracks out of business, thereby helping the riverboat industry. Unless we recognize the desire to discriminately tax one business for the purpose of supporting another similarly situated business as a legitimate government interest, we can find no other basis for upholding this law."

RACI-I, 648 N.W.2d at 561.

The State of Iowa appealed to the U.S. Supreme Court, which granted review. In a remarkably brief unanimous opinion, the Court reversed the Iowa supreme court, finding that the differential tax rate was constitutional under a rational basis review. Fitzgerald v. Racing Ass'n of Central Iowa, 539 U.S. 103 (2003) ("Fitzgerald"). The Court first observed that Iowa's legislature could have rationally enacted its gaming tax scheme to provide economic aid to riverboat casinos:

"[T]he 1994 legislation, seen as a whole, can rationally be understood to do what that court says it seeks to do, namely, advance the racetracks' economic interests. Its grant to the racetracks of authority to operate slot machines should help the racetracks economically to some degree—even if its simultaneous imposition of a tax on slot machine adjusted revenue means that the law provides less help than respondents might like. At least a rational legislator might so believe. And the Constitution grants legislators, not courts, broad authority (within the bounds of rationality) to decide whom they wish to help with their tax laws and how much help those laws ought to provide."

Fitzgerald, 538 U.S. at 108. Once the Court determined that the Iowa legislature may have intended to provide economic support to the riverboat casino industry, justifying the differential tax scheme was rather straightforward:

"Once one realizes that not every provision in a law must share a single objective, one has no difficulty finding the necessary rational support for the 20 percent/36 percent differential here at issue. That difference, harmful to the racetracks, is helpful to the riverboats, which, as respondents concede, were also facing financial peril. These two characterizations are but opposite sides of the same coin. Each reflects a rational way for a legislator to view the matter. And aside from simply aiding the financial position of the riverboats, the legislators may have wanted to encourage the economic development of river communities or to promote riverboat history, say, by providing incentives for riverboats to remain in the State, rather than relocate to other States. Alternatively, they may have wanted to protect the reliance interests of riverboat operators, whose adjusted slot machine revenue had previously been taxed at the 20 percent rate. All these objectives are rational ones, which lower riverboat tax rates could further and which suffice to uphold the different tax rates."

Fitzgerald, 538 U.S. at 109.

In an  incredibly rare turn of events, however, the U.S. Supreme Court did not get the last word on Iowa's gaming tax laws. On remand to the Iowa supreme court, attorneys for the racetrack asked the court to reevaluate the laws under the state constitution's equal protection clause. [FN5]. The court did so, holding that the Iowa state constitutional right to equal protection was broader than the federal right to equal protection (an increasingly common practice known as "judicial federalism"). Under this broader state equal protection right, the court applied an elevated level of scrutiny of the legislature's tax scheme, utilizing what is often referred to as "rational scrutiny with a bite" analysis.

As it did in its first review of the tax scheme, a divided Iowa supreme court found that the scheme of differential tax rates for gaming revenue from racetracks and riverboats was arbitrary and not in furtherance of any legitimate legislative interest. Racing Ass'n of Central Iowa v. Fitzgerald, 675 N.W.2d 1 (2004) ("RACI-II"). In analyzing the statute, the RACI-II court considered and rejected the three major justifications for the tax scheme suggested by the U.S. Supreme Court: a) economic development of river communities; b) reliance interests of established riverboat casinos; and c) assisting the financial position of riverboat casinos.

The RACI-II court spent most of its analysis on the third justification—the different economic positions of the racetracks and riverboats. The court noted that a legislative study had concluded that racetracks might be marginally more profitable than riverboats, and suggested a racetrack tax rate of 24%. Nothing in the record, however, established an economic basis to support a tax rate of 36% for racetracks, a rate 80% higher than for riverboats. "[T]here was no credible factual basis for the legislature to believe that the racetracks would be able to pay nearly twice the amount of taxes as the excursion boats on the same amount of revenue." RACI-II, 675 N.W.2d at 14. In the end, the majority concluded:

"[T]he item taxed—gambling revenue—is identical. The higher tax rate is triggered by the location where such revenues are earned. Yet there is no legitimate purpose supported by fact that justifies treating one gambling enterprise differently than another based on where the gambling takes place, other than an arbitrary decision to favor excursion boats."

RACI-II, 675 N.W.2d at 16.

Despite the RACI-II court's split decision (where the minority—including current Chief Justice Mark Cady—indicated they would defer to the judgment of the legislature in setting tax policy), it is notable that the court did not declare that preferential tax treatment for riverboats would always be unconstitutional. Rather, the legislature had merely failed to establish a record for why a differential tax scheme was appropriate as a matter of policy in that particular situation.


C.  Will Online Gaming Face Taxation Hurdles?

Based on the RACI v. Fitzgerald line of cases, it appears that legislatures wanting to tax online gaming revenues at a rate higher than brick and mortar casino revenues could likely do so with only minimal justification. Most state courts will not apply the more demanding analysis of the RACI-II court, and instead will follow the highly deferential approach of the Fitzgerald decision. But even for states where courts may take a deeper look, a few plausible justifications exist for imposing a higher tax rate on online gaming revenues:

1. Online gaming has lower overhead and higher profit margins than brick and mortar gaming;
2. Brick and mortar casinos create more jobs and have a greater economic and cultural impact than do online gaming sites, and thus should be given preferential tax treatment; 
3. Because online gaming is more readily accessible, it exacerbates the social costs of gambling substantially more than does brick and mortar gaming, and thus the online gaming industry should pay for ameliorating those social costs (the "click your mouse, lose your house" argument); and,
4. Online gaming poses unique law enforcement and compliance risks related to fraud, theft, money laundering, and underage gambling that results in regulatory costs that should be borne by the online gaming industry.

Now, this is not to say that a state legislature will or must impose a higher tax rate on online gaming revenues. In fact, Nevada taxes online gaming at the same rate as brick and mortar gaming. Rather, the point is merely that state legislatures, tempted with a windfall of online gaming tax revenues, can likely find a legally sufficient basis for justifying a higher tax rate on online gaming revenues.

New Jersey is a prime example, taxing online gaming revenues at 15% of GGR, nearly double the 8% of GGR tax rate for brick and mortar casino gaming revenues. However, the primary justification for the New Jersey legislation legalizing online gaming is that it will be a new source of revenue that will not only save the economically troubled Atlantic City casinos, but allow them to compete against new casinos opening in neighboring states. This justification certainly passes the rational basis test set forth by the U.S. Supreme Court in Fitzgerald, and most likely passes the enhanced review described by the Iowa supreme court in RACI-II.

A complicating factor for states like New Jersey—where established brick and mortar casinos are also the leading online gaming vendors—is that even if a higher tax rate is imposed for online gaming revenues, there likely will not be any party with standing willing to challenge the differential tax rate in court. Unlike in the RACI v. Fitzgerald case where the racetracks and riverboats were competitors, all New Jersey online gaming must occur under the auspices of established and licensed brick and mortar casinos in Atlantic City. Considering all of these casinos will be subject to the same tax rates for online gaming revenues, it is hard to imagine any of these casinos proving some kind of discrimination sufficient to establish an equal protection violation in court. And more to the point, when every online gaming operator is also operating a brick and mortar casino (or partnered with one), what casino will want to file a court challenge in the first place?

Even an online gaming affiliate with no brick and mortar operation—say a Party Gaming or PokerStars—would not likely wish to incur the political and legal fallout of a court challenge to an online gaming tax scheme when their corporate goals are primarily focused on gaining access to the American online gaming market, increasing online gaming market share, and expanding into additional states. Rocking the boat with a lawsuit would likely be viewed as counterproductive, particularly when tax costs can be passed along to customers in a variety of ways.


D.  Conclusion—Online Poker Players Are Threatened by High Tax Rates for Legalized Online Gaming

There is no question that high tax rates for online gaming could easily destroy online poker as a viable profit-making activity for many winning poker players, most notably through increased rake and reduction or elimination of rakeback or similar promotions. With most courts giving significant deference—in some cases, a rubber stamp—to legislative tax policy decisions, it is clear that the time to fight for reasonable online gaming tax rates is when online gaming is first being considered for legalization in any state. Once tax rates are set and gaming revenues are being allocated by legislatures to other budget priorities, the odds of reducing online gaming tax rates diminishes significantly.

Further, the problem of tax rates for online gaming revenues will only become more acute as states begin to form interstate compacts to expand the liquidity pool for online gaming (a key consideration for poker players). [FN6]. Imagine what will happen when a state like Pennsylvania with a high brick and mortar gaming tax rate (55%) authorizes online gaming and looks to enter into interstate gaming compacts. If Pennsylvania imposes the same 55% tax rate—or an even higher tax rate—on online gaming revenues, it is not too big a leap to assume other states in the same online gaming compact will increase their online gaming tax rates, even if they do not go nearly as high as Pennsylvania.

Of course, it is theoretically possible that a legislature could implement a different, lower tax structure for online poker than for online gaming (this is significantly more likely in states which adopt poker-only online gaming as a first step to full online gaming legalization). Such a poker-specific tax structure likely would pass muster in any court challenge, given the different economic dynamics of poker. But legislatures are highly unlikely to be willing to draw such distinctions, so poker players are likely better off simply advocating for lower tax rates for online gaming in general than trying to carve out special tax treatment for poker (particularly considering poker's lobbying influence is dwarfed by that of gaming industry heavyweights like major corporate and tribal casino interests). [FN7].

Legalization and regulation of online poker is a key step in the development and maturation of the American poker industry. Yet legalization may come at too high a cost for many poker players if appropriate and reasonable taxation is not a priority in the legislative process. As more states look at legalizing online gaming, poker players would be wise to keep an eye on taxation issues.


UPDATE (4 Dec. 2013; 10:15 a.m. CT): Noted tax and gaming law attorney Brad Polizanno who was another panel member with Blair messaged me that the context for Blair's comment was a reference to the Internet Tax Freedom Act (ITFA). Passed by Congress in 1998, the ITFA bans states from imposing taxes on internet access, and also imposes a moratorium on "multiple or discriminatory taxes on electronic commerce". The imposition of differential tax rates on online gaming as compared to brick and mortar gaming may arguably run afoul of the ITFA, which defines a "discriminatory tax" as:

any tax imposed by a State or political subdivision thereof on electronic commerce that--

(a) is not generally imposed and legally collectible by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means; [or]

(b) is not generally imposed and legally collectible at the same rate by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means ...

To date, there have not been any significant cases deciding the issue of when goods or services are sufficiently "similar" to invoke the protection of the ITFA. Obviously a book or article of clothing purchased online is similar (if not identical) to the same book or article of clothing purchased in a shopping mall. But when online "goods and services" are merely a virtual representation of a tangible item, the issue of similarity gets legally murky. The analysis likely would turn on how the question is framed. If the issue is whether online slot machines operate the same as physical slot machines, they likely will be considered "similar" for purposes of the ITFA. (Of course, online poker could arguably be considered as a different sort of game than live poker in ways that would not apply to slot machines.) If, however, the issue is framed as whether the online gaming experience is a service "similar" to the brick and mortar gaming experience, then there are distinct differences which might preclude a finding of similarity. The Washington supreme court in its Rousso decision has already rejected an argument that online gaming is the virtual equivalent of brick and mortar casino gaming; the Rousso analysis, however, was in the context of a Dormant Commerce Clause argument, and the court did not consider the ITFA.

Four important points about the ITFA should be kept in mind by poker players as they watch further developments of online gaming legalization. First, New Jersey legislators clearly felt comfortable enacting a major piece of legislation with a differential tax rate for online gaming. Though the New Jersey legislature may not ultimately be correct on the point, the legislature's action suggests that its legal counsel saw no conflict with the ITFA. Second, as noted earlier, it might well be difficult to find a company willing to bring a challenge to the differential tax rate, whether based on an equal protection or an ITFA violation. Third, even if an ITFA challenge is brought and is successful, the legislature could cure the ITFA defect by merely imposing the same, higher tax rate on all gaming revenues. Fourth and finally, the ITFA tax moratorium is a creature of federal policy. Currently, the ITFA tax moratorium is set to expire in November 2014, though Congress is likely to extend the ITFA tax moratorium in some fashion. However, any bill to extend the ITFA tax moratorium would create openings for changes in the law. Given recent litigation by Amazon.com and other online retailers seeking clarity on collection of state sales taxes, and with state governments looking for new streams of revenue, the ITFA tax moratorium will likely generate significant debate by various interest groups. The advent of online gaming and the prospect of multi-state online gaming compacts also makes online gaming taxation a likely point of discussion during the ITFA extension debate. In short, even if the ITFA applies to online gaming in its current form, there is no guarantee it will apply after November 2014.


------------------------------------------------------------------------

[FN1]  The U.S. Supreme Court has described the broad deference owed by courts to legislatures in the area of tax policy:

"The broad discretion as to classification possessed by a legislature in the field of taxation has long been recognized․ [T]he passage of time has only served to underscore the wisdom of that recognition of the large area of discretion which is needed by a legislature in formulating sound tax policies․ It has been pointed out that in taxation, even more than in other fields, legislatures possess the greatest freedom in classification. Since the members of a legislature necessarily enjoy a familiarity with local conditions which this Court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes․

No scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under [an equal protection analysis]."

San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 40-41 (1973) (footnotes omitted) (quoting Madden v. Kentucky, 309 U.S. 83, 87-88 (1940)).

[FN2]  See, e.g., Metropolitan Life Ins. Co. v Ward, 470 U.S. 869 (1985) (holding that state law taxing domestic insurance companies at a lower rate than out-of-state insurers violated equal protection).

[FN3]  “Where the public interest is served one business may be left untaxed and another taxed, in order to promote the one, or to restrict or suppress the other.”  Carmichael v. S. Coal & Coke Co., 301 U.S. 495, 512 (1937). "[I]t has repeatedly been held and appears to be entirely settled that a statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, from its taxes is not arbitrary and does not violate [equal protection guarantees]." Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 528 (1959).

[FN4]  As a college student in Iowa in the early and mid-1990s, I remember the days of going to a casino to play blackjack (poker rooms were not permitted at that time) with betting ranges from $1 per hand up to the big bet of $5 per hand. Also, each gambler was given a punchcard which was used by the casino to track daily buy-ins, which were capped at $200 per person. Just an interesting reminder of how the gambling legalization fight is actually rather recent, and the anti-gambling moralists still remain a strong force to be reckoned with in the imminent online gaming political battles.

[FN5]  The lead appellate attorneys for the racetracks were Mark McCormick and Edward Mansfield. At the time of the RACI litigation, McCormick was a retired former justice of the Iowa supreme court. Mansfield was a prominent appellate attorney who was subsequently appointed to the Iowa supreme court. Both were members of a large Des Moines law firm started by David Belin, former legal counsel to the Warren Commission that investigated the assassination of President John F. Kennedy (Belin was renowned for his vigorous defense of the Commission's conclusion that Lee Harvey Oswald acted alone). When asking a state supreme court to sidestep an explicit ruling of the U.S. Supreme Court, it doesn't hurt to have a couple of heavyweight attorneys in your corner.

[FN6]  Noted tax and gaming law attorney Brad Polizanno recently presented an excellent paper discussing many of the key tax issues facing states looking to enter into online gaming compacts.

[FN7]  A good argument could be made that online gaming revenues should have a lower tax rate in that online gaming places less stress on the community (i.e., no traffic or "urban blight" issues, less demand on fire/police resources, and creation of higher skilled, higher compensated jobs) when compared to traditional casinos.