Full text of Lederer's motion to dismiss BF civil charges

[lawdude]

Originally Posted by tamiller866

Yes and no, the extraterritorial argument against the IGBA has a chance if Judge Sands doesn't take the position Judge Kaplan did - that laws evolve with technology, therefore Congress would have included foreign applicability had they envisioned internet gambling.

The motion makes an interesting argument against extraterritoriality, that when Congress debated the UIGEA they discussed the need for new law since those on the books didn't apply, and internet poker was thriving during those debates.

I'd expect the government to argue that new law was needed to curtail internet gambling before it started at the deposit button, while using the IGBA violation for actual prosecution/relief, because there is no forfeiture remedy in the UIGEA.

If the IGBA violations are struck, the civil penalties for money laundering would likely go away, but the UIGEA would still apply for the criminal charges (assuming they can prove a State law violation), so those continuing to offer poker would still be at some risk of criminal prosecution.

There's 2 problems with arguing the IGBA isn't extraterritorial:

a. Applying the law to FTP is not an extraterritorial application. They were operating a gaming business in the US under any definition.

b. With respect to legislative intent, is there any doubt that the IGBA, given its background as an organized crime statute, was intended to reach the conduct of the Sicilian Mafia in running a numbers racket in the United States?

[lawdude]

Originally Posted by tamiller866

http://www.scribd.com/doc/99724375/2...-Oldford-Group

This is the PokerStars motion to dismiss, after reading it I'm wondering if we should stop lobbying for new legislation; they make a very reasonable argument that their only business in the US is placing player funds into trust accounts on the Isle of Mann and returning player funds when a withdrawal request is submitted.

They argue and cite precedent that it can't be money laundering just because the money being transferred is disguised, the money itself would need to be dirty, therefore since all of their profits are made legally on the IoM, their money is at no point derived from unlawful activity.

Since they didn't make any revenue in the US, they argue that they didn't conduct any business in the US, so they can not be contrived as an illegal gambling business.

That argument is likely to be treated as too cute by half. No judge is going to find that a business that did billions of dollars in business in the US, advertised here, hired celebrity endorsers here, etc., wasn't actually doing business here.

I agree the money laundering charges are weak, because they are just bootstrapping off the UIGEA and IGBA. But "we didn't actually do business in the US" just doesn't pass the smell test.

[tamiller866]

Originally Posted by lawdude

That argument is likely to be treated as too cute by half. No judge is going to find that a business that did billions of dollars in business in the US, advertised here, hired celebrity endorsers here, etc., wasn't actually doing business here.

I agree the money laundering charges are weak, because they are just bootstrapping off the UIGEA and IGBA. But "we didn't actually do business in the US" just doesn't pass the smell test.

That's very good point, it's easy to get lost in reading a one sided motion that the law they are accused of violating in NY is promotion of gambling, which doesn't even require a profit to be made in NY, so the act of 'advancing' NYers to gamble (even accepting PokerStars theory that the gambling occurs 'out of State') alone may be enough to trigger an IGBA offense.

Edit: But then again, if what they are 'advancing' isn't any more illegal than taking a trip to Las Vegas would be, it might just be cute enough to work.

[lawdude]

Ta:

Here's the thing though. The law doesn't treat traveling to Las Vegas the same way it treats playing poker on your home computer with someone in Las Vegas, for the same reason the law doesn't consider opening a store in Las Vegas the same thing as selling mail order goods from Las Vegas to New York.

It's a bad analogy. There is certainly room for operations that have no connection to the US to argue that. If some poker room refused US players but some American citizen was able to access the site while on a foreign trip, that site would have a good extraterritoriality argumnt, it would seem to me. But Stars and Tilt clearly did business in the United States. They had US advertising, endorserrs, live internet connections, bank transactions, customer service, software downloads, and player pools. That's just not the same as an advertisement to leave your jurisdiction and come gamble somewhere else.

If the Sicilian operators of a Chicago numbers racket are covered by IGBA (and I think they are), FTP and Stars are covered.

[DonkeyQuixote]

Originally Posted by lawdude

Ta:

Here's the thing though. The law doesn't treat traveling to Las Vegas the same way it treats playing poker on your home computer with someone in Las Vegas, for the same reason the law doesn't consider opening a store in Las Vegas the same thing as selling mail order goods from Las Vegas to New York..... That's just not the same as an advertisement to leave your jurisdiction and come gamble somewhere else.

If the Sicilian operators of a Chicago numbers racket are covered by IGBA (and I think they are), FTP and Stars are covered.

1. I am curious, were the Sicilian operators, meaning folks actually still in Sicily, ever charged under the IGBA .... or were only local Chicago operations runners charged ? I don't know, which is why I am asking.

2. You brought up the difference between marketing into State A and operating gaming in State A. In another thread, I raised the consideration that, by getting licensed for real money in one State, a casino gains the internet marketing access it seeks into every State; while it cannot offer real money gaming in say Utah, it can offer play money games, with a heavy dose of Come to Caesars in Nevada advertising online, through the play money sites. Caesars attains national online marketing reach, simply by getting licensed in Nevada, and over time, expands real money rolling out on a State-by-State basis where it get its local B&M licensed for instate online as well.

[lawdude]

1. I don't know of any cases. But there are definitely statements in the legislative history that IGBA was aimed at the mafia.

2. One of the distinctions that I don't think holds water is dot net / dot com.

Here's a simple Nevada / Utah example. I agree that Caesar's Palace could create a dot net site offering free games as an advertisement for trips to Las Vegas. And I don't think such a site would either be prohibited by federal law or seen as anything other than that.

But if Caesar's created a dot com site that offered gaming to Utah residents, the same dot net site would very likely be held to be an advertisement for the dot com. And if endorsers of the dot com site made commercials that said they played on the dot net site, and if the dot net sites games were accessible to users of the dot com site, and if the dot net site succeeded in drumming up millions of dollars of business for the dot com site, there's just no way that any court could consider it a separate entitly.

3. If I can make a broader more philosophical point about extraterritoriality arguments. I don't think some people here recognize the political and legal implications of winning such an argument.

What I mean is, of all the concerns about online gaming, legitimate and illegitimate, the one that is probably almost universally shared by our political class is that the sites are offshore making it hard to tax or regulate or police them.

This is a background fact of all our discussions about poker legislation. Not only are the politicians who want to kill online poker concerned about offshore sites- the politicians who want to legaize it are as well.

The implications of this are that even if we did hypothetically get a court to rule that current American laws don't reach offshore sites, the reaction of Congress if such a decision were not reversed would be swift and certain-- the vote on a statute to extend IGBA and UIGEA to offshore sites would be 350 to 10 in the House and 85 to 5 in the Senate, if a recorded vote were even taken. I suspect even the Barney Franks of the world would vote for such a bill.

This is basically an extremely counterproductive road to travel on. The future is with regulated onshore internet poker. Legalizing the pre-BF status quo has no political viability.

[tamiller866]

Originally Posted by lawdude

Ta:

Here's the thing though. The law doesn't treat traveling to Las Vegas the same way it treats playing poker on your home computer with someone in Las Vegas, for the same reason the law doesn't consider opening a store in Las Vegas the same thing as selling mail order goods from Las Vegas to New York.

It's a bad analogy. There is certainly room for operations that have no connection to the US to argue that. If some poker room refused US players but some American citizen was able to access the site while on a foreign trip, that site would have a good extraterritoriality argumnt, it would seem to me. But Stars and Tilt clearly did business in the United States. They had US advertising, endorserrs, live internet connections, bank transactions, customer service, software downloads, and player pools. That's just not the same as an advertisement to leave your jurisdiction and come gamble somewhere else.

If the Sicilian operators of a Chicago numbers racket are covered by IGBA (and I think they are), FTP and Stars are covered.

Someone made a similar point in NVG, so I'll just cross post my response to him here:

Originally Posted by tamiller866

That isn't the argument that they are making.

Since the Statute of Anne, gambling has been considered unlawful in common law jurisdictions, with specific legislative authorization therefore required to make it legal.

This makes gambling somewhat unique, all the government has to establish is that you operate a gambling business without specific authorization (license), and it's therefore illegal even if there is no specific 'anti-dominoes' or whatever law violated.

What PokerStars is arguing is that they are indeed a specifically authorized (licensed) business, so the burden on the government to prove liability is therefore much higher than the standard "gambling is unlawful".

So for PokerStars to actually be illegal, the government need to cite a specific prohibition against internet gambling, and when asked to do so, they were only able to cite 10 states in which PokerStars provided poker.

The fact that NY, the State represented by the agency making the accusations, isn't among those ten could also work in PokerStars favor, but obviously they would prefer a clean settlement than risk prosecution in even one jurisdiction.

You're political point down below I disagree with, the President himself said this was a State issue, so a court making the same ruling shouldn't cause any shock waves through the halls of Congress, it might actually help get the ball rolling.

[lawdude]

"It's a state issue" does not mean the same thing as "offshore sites are legal because they may be licensed somewhere else".

The "it's a state issue" argument doesn't get you where you want to go. It gets you to the fact that states can authorize and license ipoker and if they do, the sites will not be covered by IGBA and UIGEA so long as they take players only from jurisdictions they are licensed in. Which I agree with.

Here's an imperfect analogy. Practicing law is a state issue. That doesn't mean lawyers can cross state lines and practice without getting relicensed in the new state. Indeed, if a court ruled they could, the reaction of legislatures would be quite swift.

[tamiller866]

Originally Posted by lawdude

"It's a state issue" does not mean the same thing as "offshore sites are legal because they may be licensed somewhere else".

The "it's a state issue" argument doesn't get you where you want to go. It gets you to the fact that states can authorize and license ipoker and if they do, the sites will not be covered by IGBA and UIGEA so long as they take players only from jurisdictions they are licensed in. Which I agree with.

Here's an imperfect analogy. Practicing law is a state issue. That doesn't mean lawyers can cross state lines and practice without getting relicensed in the new state. Indeed, if a court ruled they could, the reaction of legislatures would be quite swift.

I agree, but if (hypothetical) State had no law requiring an attorney to be licensed in it's State, it couldn't come back years later and demand that someone who practiced without a (hypothetical) State license forfeit all of his/her earnings.

The construction of the law PokerStars is forwarding is that the State actually needs to have an internet gambling prohibition on the books because the old "gambling is unlawful" is insufficient in the internet age.

A ruling favoring their construction of the law would likely only pressure the other 38 States who haven't done so to pass prohibition/regulation, much the way the OLC reversal got the ball rolling in Utah/Delaware.

[lawdude]

Stars' argument that there are no laws in most states prohibiting ipoker also seems wrong. For instance, here in California, it is clearly illegal to offer commercial poker games without a gaming license. That is very standard in many of the states that do not have specific igaming statutes. And, of course, in many states like New York, commercial poker games are flatly illegal.

I agree with Stars that there may be some states where there is no local law prohibiting an unlicensed poker site from operating. I have said in the past that if PPA wanted to bring a court challenge to UIGEA, those states would present the most attractive opportunity to do so. I still believe that.

But any state that requires a license to spread commercial poker games is likely to construe that statute to apply to internet poker.

[tamiller866]

Originally Posted by lawdude

Stars' argument that there are no laws in most states prohibiting ipoker also seems wrong. For instance, here in California, it is clearly illegal to offer commercial poker games without a gaming license. That is very standard in many of the states that do not have specific igaming statutes. And, of course, in many states like New York, commercial poker games are flatly illegal.

I agree with Stars that there may be some states where there is no local law prohibiting an unlicensed poker site from operating. I have said in the past that if PPA wanted to bring a court challenge to UIGEA, those states would present the most attractive opportunity to do so. I still believe that.

But any state that requires a license to spread commercial poker games is likely to construe that statute to apply to internet poker.

Their argument is that they aren't offering commercial poker games in California, they are offering the ability to transport your legally earned money to the Isle of Man, play poker against people from all over the world in an IoM licensed card room, and transport your legal winnings back to California.

If the State of California objects to people using the internet to telecommute to card rooms licensed in other jurisdictions, California would just need to pass a law to that effect, California themselves allow their racetracks (ADW) to accept off track bets over the internet based on the legal fiction that betting takes place where the money is located.

[lawdude]

Originally Posted by tamiller866

Their argument is that they aren't offering commercial poker games in California, they are offering the ability to transport your legally earned money to the Isle of Man, play poker against people from all over the world in an IoM licensed card room, and transport your legal winnings back to California.

If the State of California objects to people using the internet to telecommute to card rooms licensed in other jurisdictions, California would just need to pass a law to that effect, California themselves allow their racetracks (ADW) to accept off track bets over the internet based on the legal fiction that betting takes place where the money is located.

That argument is frivolous. No court will ever accept it. It would mean, for instance, that if a Nigerian spammer defrauded a California resident, that would not violate any California anti-fraud laws.

If you purposefully direct internet business into a state, you are subject to that state's laws. That is settled law and in addition is CORRECTLY settled law.

[tamiller866]

Originally Posted by lawdude

That argument is frivolous. No court will ever accept it. It would mean, for instance, that if a Nigerian spammer defrauded a California resident, that would not violate any California anti-fraud laws.

If you purposefully direct internet business into a state, you are subject to that state's laws. That is settled law and in addition is CORRECTLY settled law.

The only time this 'frivolous' theory has been tested in a court room it essentially won, in re:MasterCard the court ruled that the only business that poker sites conduct with their US customers is selling gambling chips, while the actual gambling takes place after that business is concluded (and the betting is vs other customers, not the site), and therefore the plaintiffs had gotten exactly for what they had paid.

The site first has to be a gambling business in order to be an illegal gambling business, since the tables are raked where the money is, on the IOM, that is where they maintain that their gambling business is located.

Their site, by virtue of taking US customers, might be promoting a gambling business, but the gambling business it is promoting is licensed and regulated where the gambling is taking place.

[lawdude]

Ta:

MasterCard says nothing more than that the Wire Act applies only to sports betting.

You can look at any decent treatise on the Internet and the law, and you will see that the argument that activity on the Internet does not occur in the state of the user has been made many times and has never been accepted. This was one of those "clever" arguments that criminals and con artists latched onto when the Internet became popular, but the problem is that in practice it would mean that all sorts of anti-social conduct would suddenly become legal simply because of the criminal using the internet to accomplish it.

It's dumb. The Internet isn't some new ephemeral space where the rules don't apply. When a company deliberately uses the Internet to do business with computer users in a state, the laws of that state apply. This is settled law and arguing "we can violate all the laws we want to because are online and therefore are technically outside the state" is simply a legal nonstarter.

States have the police power to decide whether their citizens can gamble AT ALL. Whatever rules they choose to make apply to any commercial gambling business that is directed into their state, including through computers.

[tamiller866]

Ld,

The Wire Act was just one of the laws the 5th circuit ruled that the poker sites didn't violate:

... the Defendants' conduct did not involve any violation of a state or federal gambling law.   Thus, we agree with the district court's conclusion that the Plaintiffs have not sufficiently alleged “the collection of unlawful debt.”...

...In engaging in this conduct, they got exactly what they bargained for-gambling “chips” with which they could place wagers...

IN RE:  MASTERCARD INTERNATIONAL INC. Internet Gambling Litigation

I agree that States do have the right to police all gambling, but PokerStar's position is that unless they have passed internet specific legislation which survives protectionist court challenges, they failed to exercise that right.

Edit to add:

Because the Defendants completed their transaction with the Plaintiffs before any gambling occurred, that transaction cannot have involved taking custody of something bet or collecting the proceeds of a gambling device.