Federal Court Holds That DOJ Cannot Prosecute Company for Non-Sports Betting Under Wire Act

By Heidi McNeil Staudenmaier and Kate M. Pokorski

On September 15, 2022, the United States District Court for the District of Rhode Island (“Court” or “District Court”) entered a significant declaratory judgment addressing the Department of Justice’s (“DOJ”) historically inconsistent interpretation of the Federal Wire Act. In the District Court’s Memorandum and Order, the Court granted Plaintiff International Game Technology PLC’s (“IGT”) Motion for Summary Judgment, declaring that the DOJ may not prosecute IGT for non-sports betting under the Wire Act. The opinion was written by U.S. District Judge William E. Smith.¹

This case arose from both the DOJ’s shifting interpretation of the Wire Act and recent litigation stemming from such uncertainty on the Wire Act.

In 2011, the DOJ reversed its prior position, narrowing the scope of the Wire Act. The DOJ's Office of Legal Counsel ("OLC") issued an opinion in 2011 that expressly stated, "the Wire Act does not reach interstate transmissions of wire communications that do not relate to a ‘sporting event or contest.’” Under this new interpretation, IGT was able to scale its business in the United States by growing non-sporting offerings like land-based gaming machines, iGaming, iLottery, and traditional lotteries, which verify its transmissions through interstate wire transmissions.

Seven years later, the DOJ formally reversed course yet again. In reverting to its pre-2011 position, the OLC issued a new opinion in 2018 (“2018 Opinion”), concluding the Wire Act did in fact reach non-sports betting, including lotteries and internet-connected slot machines. In response, New Hampshire lottery officials and the state’s vendor sought two remedies:  

1. A declaratory judgment that the Wire Act applied only to sports betting.
2. An order to set aside the 2018 Opinion in the case. 

In N.H. Lottery Commission v. Rosen, 986 F.3d 38 (1st Cir. 2021) (“NHLC”), the First Circuit Court of Appeals (“First Circuit”) ultimately ruled in favor of the New Hampshire lottery officials on the first point. The First Circuit held that the prohibitions in the Wire Act “apply only to the interstate transmission of wire communications related to any ‘sporting event or contest.’”

However, on the second point, the First Circuit did not exercise its authority to set aside the 2018 Opinion. The First Circuit concluded that “declaratory relief was an adequate remedy under the circumstances.” Meaning, for states falling within the First Circuit’s purview, the “Wire Act’s proper scope has been definitively answered,” but the 2018 Opinion as a whole remains in effect.

The NHLC litigation further muddied the waters on the Wire Act’s scope. The DOJ responded by announcing two separate forbearance periods (“Forbearance Periods”):

1. The DOJ would not prosecute state lotteries and their vendors for a period of 90 days after the DOJ issues additional guidance on whether it believes the Wire Act should apply to state lotteries. As of October 2022, this guidance has not yet arrived.
2. The DOJ would not bring Wire Act prosecutions for non-lottery gambling under the 2018 Opinion until 60 days after the final judgment in the NHLC litigation.

Shortly after the First Circuit released this opinion for the NHLC case, IGT initiated its proceedings. IGT sought a declaratory judgment that the DOJ may not prosecute the company for non-sports betting under the Wire Act. This is the same relief that the New Hampshire lottery officials and their vendor received in NHLC.

In response, the DOJ argued that IGT could not bring suit because it did not face a credible threat of prosecution anywhere in the First Circuit. The DOJ maintained that there was no standing, “both because the DOJ has not brought like prosecutions after the non-lottery forbearance period ran out, and because [NHLC] makes a successful prosecution of IGT impossible in the First Circuit.” The District Court found neither argument persuasive.

The District Court first explained that there are circumstances under which the threat of prosecution is sufficient to bring suit. The Court explained that this is a fact-specific, sliding-scale inquiry. The decision noted that previously threatened prosecution and a history of like prosecutions is evidence that the threat of prosecution is realistic and credible. In denying the DOJ’s motion to dismiss, the Court had “little difficulty concluding IGT has standing.”  

The Court pointed out that the DOJ contested standing in NHLC on substantially the same grounds. Expressly tracking the First Circuit’s reasoning from NHLC, the District Court laid out its analysis about why IGT faced a credible threat of prosecution.

The Court observed that IGT is openly engaging in conduct branded as criminal in the 2018 Opinion and therefore, “broad swaths of IGT’s business run afoul of the DOJ’s latest interpretation of the Wire Act.” The Court then analyzed the DOJ’s likelihood and ability to prosecute IGT. The District Court pointed to the fact that the DOJ’s forbearance period for non-lottery enforcement expired. The Court also acknowledged IGT was on equal footing with the Plaintiffs in NHLC with respect to the lottery forbearance period; both could be prosecuted within 90 days of the DOJ announcing a new policy.

As part of denying the DOJ’s motion to dismiss, the District Court looked at the evidence in the record, just as the First Circuit did in NHLC. The Court acknowledged the DOJ had previously told New York and Illinois officials that using IGT-provided lottery systems would be criminal, stating: “These direct statements about IGT’s business, which align precisely with the formally adopted 2018 OLC Opinion, strongly support the conclusion that IGT faces a realistic and substantial threat of prosecution for its lottery business.” 

In making its determination on the DOJ’s motion to dismiss, the District Court had to address only one argument not made in NHLC. The DOJ argued that the holding in NHLC already “prevents any threat of IGT’s successful prosecution anywhere in the First Circuit, including in Rhode Island.” The Court disagreed and found this to be the wrong test as the analysis is “whether IGT faces a realistic threat of prosecution, not whether it faces the threat of successful prosecution here [in the First Circuit]." And, for the reasons above, the Court found a realistic threat.

After denying the DOJ’s motion to dismiss, the Court addressed IGT’s motion for summary judgment. The DOJ expressed concerns that entering into a declaratory judgment in favor of IGT meant that any entity meeting the jurisdictional requirements to seek a declaratory judgment in the First Circuit could obtain the benefit of First Circuit precedent outside of the First Circuit, as well.

To the DOJ, granting declaratory judgment in favor of IGT ultimately meant that any similarly situated business could pursue the same route and insulate itself from prosecution for any non-sports event in all jurisdictions.

In rejecting the DOJ’s concerns, the District Court explained that the fact “that both parties here operate nationwide does not turn a declaratory judgment between the parties into a nationwide injunction against the DOJ generally, prevent the DOJ from prosecuting any non-party, or necessarily arrest the development of the law in other circuits.” 

The Court sought to protect the broad swaths of IGT’s business developed through its reliance on the 2011 Opinion’s protections – which subsequently ran afoul of the 2018 Opinion. According to the Court, should the DOJ issue guidance ending its deferral period for state lotteries, IGT would “have 90 days to substantially revamp or end its state lotteries in 37 states.” The Court found it troubling that, if the DOJ issued a non-favorable opinion on lotteries, IGT would have only ninety days to wind-up operations that impact “some significant portion of the 25.3 billion dollars that state lotteries generate for state budgets annually.” This reasoning was used in NHLC, as well.

Given these concerns, the Court determined that the issuance of declaratory judgment in favor of IGT was warranted. The Court’s goal was to clarify and settle the legal relations at issue and afford IGT relief from the uncertainty created by the DOJ. Finally, the Court made it clear that the scope of the relief would bind the DOJ from prosecuting IGT everywhere IGT operates in the United States.