NJ Law Journal 8/27/07 -- Front Page Article on IMEGA Suit

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Link: http://www.law.com/jsp/nj/PubArticle...=1187859732103

but membership is required so here it is:

Internet Gambling Law Challenged as Restraint on 'Expressive Association'
By Mary Pat Gallagher

New Jersey Law Journal

August 23, 2007



A federal law that targets online gambling by making it illegal to make or receive payoffs violates the First Amendment, a federal suit charges.

A not-for-profit association of Internet gamers and gaming companies is asking a federal judge in Trenton to block enforcement of the Unlawful Internet Gambling Enforcement Act and to issue a temporary restraining order.

The suit alleges that the law, enacted last October, restricts a form of consensual private conduct that is legal in many states. The statute does not outlaw Internet gambling outright but cuts off its proceeds by criminalizing the transfer of funds by U.S. banks and credit card companies to entities that run online gambling sites. It provides immunity from civil liability for blocking a restricted transaction or one reasonably believed to be restricted.

The law makes it illegal for someone engaged in the business of betting or wagering to knowingly accept credit or the proceeds of credit, electronic fund transfers, checks, drafts or similar financial instruments or the proceeds of any other financial transaction in connection with unlawful Internet gambling.

Eric Bernstein, who represents the New Jersey-based Interactive Media and Gaming Association (iMEGA), says the law effectively shuts down Internet gambling. "The government is telling people that they can't, in the privacy of their own homes and using their own computers, wherever they are, engage in Internet gambling," says Bernstein, who heads a firm in Warren.

In his brief for injunctive relief, Bernstein argues the statute impermissibly chills expressive association among iMEGA members by subjecting them to criminal prosecution and possible incarceration and loss of property. Violations are punishable by a fine and/or a prison term of up to five years.

Bernstein argues that criminalizing financial transactions related to Internet gambling is not the least restrictive means of regulation. He says that filtering technology can block unwanted contact with an Internet casino and that parental controls are already built into the latest operating systems: Microsoft Windows Vista and Apple's Mac OS X Tiger.

Bernstein further argues that the law's exemptions for some forms of online gambling and its effect in even those states that do not outlaw it also render it unconstitutional.

The law covers games of chance and sporting events but expressly does not apply to horse racing, sports fantasy leagues or the stock market. It also does not apply to gambling on Indian tribal lands or to purely intrastate transactions, so long as gambling is legal in the state and the state has protections in place to keep minors from taking part.

The act also creates inconsistencies across international borders because online gambling is legal in countries like Antigua, Barbuda and Costa Rica, Bernstein argues. In response to a complaint by Antigua and Barbuda, the World Trade Organization criticized the law, in a March 30 report, for making an exception for domestic practices such as off-track betting on horse races.

On Tuesday, the government responded with a cross-motion to dismiss the suit, arguing in its brief that the law is not directed at speech but at the facilitation of illegal conduct.

The government also argues that the law does not interfere with states' Tenth Amendment rights but furthers existing gambling prohibitions and that congressional enactments trump WTO rulings. The brief also notes that after the WTO report, the U.S. government announced it would withdraw gambling from WTO jurisdiction.

The government also takes the position that iMEGA lacks standing and the claim is unripe because the government has not yet issued regulations implementing the law and no association members have been prosecuted under it.

The U.S. Department of Justice in Washington, D.C., declines comment.

The case, Interactive Media Entertainment and Gaming Association v. Gonzales, 07-2625, is pending before U.S. District Judge Mary Cooper in Trenton. The motions are scheduled for Sept. 4.

In another case, a federal judge has held that online fantasy sports leagues are allowable under New Jersey law and the federal statute. On June 19, U.S. District Judge Dennis Cavanaugh granted motions by ESPN, Sportsline and Vulcan Sports Media to dismiss the suit, Humphrey v. Viacom, 06-Civ.-2768, which alleged that pay-for-play fantasy sports Web sites violated the laws of New Jersey, Illinois, Massachusetts, Ohio and other states.

The plaintiff, Charles Humphrey Jr. of Colorado, claimed that the player registration fees, ranging from $9.95 to $499.95 per team, were essentially wagers or bets and sought to recover those amounts as gambling losses under the qui tam laws of states whose laws were supposedly violated.

But Cavanaugh found that where entry fees are unconditional and prizes are guaranteed, reasonable entry fees charged by the sponsor of a contest are not wagers or bets. He observed that spelling bees, track meets and beauty pageants would constitute gambling if all it took was the combination of an entry fee and a prize.

Cavanaugh noted that the Unlawful Internet Gambling Enforcement Act exempts fantasy sports leagues where winning depends on participants' relative knowledge and skill and is determined by statistical results of multiple real-world sporting events and not on the performance of a single real-world team or single performance of an individual athlete.

According to the Web site of the New Jersey Division of Gaming Enforcement, Internet gambling is not legal in New Jersey, even if the Web site is situated outside the state or the United States. The New Jersey Constitution allows the Legislature to authorize gambling in specific, limited forms, notably casino gambling in Atlantic City.