Attorney Owens: The Legalization That Never Happened

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Read It Here

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By Martin Owens, Attorney at Law.

(This article is part of the eighth in a series, analyzing State gambling laws and their effect on players and the online industry.)

In this installment we consider another important Federal case heard in Louisiana. “In re Mastercard” is responsible for an Internet Urban Legend that may yet come true

THE LEGEND

What people think the law says, is at least as important, in the long run, as what’s actually set down in the statute books. But there comes a time when you’re no longer reading the implications, but reading into it what you want to see. A prime example is the increasingly famous and very misunderstood case, “In re Mastercard International Inc. ”. ( Eastern District of Louisiana, February 23, 2001. )

The legend has been growing, even published on other Web pages, that this case ” made Internet gambling legal”. The story goes that this case provided a formal ruling that online gambling did not violate Federal law - a mass, nationwide OK, everybody in the pool. Unfortunately for the offshore industry, it did no such thing.

In the first place, there was never any decision of the case- it was thrown out on procedural grounds before a single witness was heard or item of evidence presented.. Second, Presiding Judge Stanwood R. Duval, Jr. did not, repeat not, overrule Federal gambling law. The court never for a moment challenged the validity of the statutes, just considered their particular application to the facts of this particular matter. Thirdly, as this was a civil lawsuit to begin with, there was hardly any scope for criminal statutes to be overturned anyway.

THE FACTS

Here’s the real story. This was a class action suit by credit card holders against their credit card companies, and the issuing banks. It was alleged, generally, that these corporations had not protected their customers from the wicked urge to gamble. ( Or to be precise, the losers sued; the winners were too busy counting the money) . There were a number of these devil-made-me-do-it actions filed up and down the country- in Kansas, New Hampshire, Illinois, New York, Alabama and even California. Of course any e-casino operator will recognize them at once for what they really are: chargebacks, sore losers welshing on their bets.

Now RICO, the Federal Racketeering- Influenced/ Corrupt Organization Act , in addition to Federal criminal charges against the evildoers, also allows their victims to file civil suits and recover damages- sometimes very heavy damages. So the complaint was that the credit card companies, by allowing those bets to be placed using their cards, were in cahoots with the offshore casinos, and that constituted racketeering. All these cases were rolled into one class action, and accordingly, this test case was heard in the Eastern District of Louisiana.

But Judge Duval wasn’t buying it. He pointed out that without a clear claim that illegal gambling had taken place, there was no case to begin with. Well, there are two ways to satisfy that requirement. Under 18 USC 1955, the gambling section of RICO, it can be gambling that violates a state law. Under 18 USC 1084 it can be a bet made via interstate communications links. Now here, Judge Duval rendered a very narrow reading of section 1084: in one place it specifies sports betting, but in another section it might be read to include ANY bet made over the wires. His Honor stuck to the straight and narrow, and held that it meant sports betting and sports betting only.

Why Was That Important?

First, because the plaintiffs’ lawyers had stated their claim in very general terms, and had not made a proper claim that any state laws had been broken. That eliminated any charges under Section 1955. Secondly, while they claimed internet gambling transactions had taken place, they did not specify whether these had been sports bets or “games of chance”- virtual table games.. The judge’s interpretation of the Wire Act ruled out the use of Section 1084. Together, these two conclusions meant there was no possible peg to hang the RICO charge on . Not only was illegal gambling not proven- they hadn’t reached that stage- it was not even properly alleged. In other words, no dice.

But What About the Judge’s Finding that the Wire Gambling Act Did Not Prohibit Internet Gambling? Doesn’t That Mean It’s Legal Now?

Hell, no! The Judge never said ANY gambling was legal. He said that the Wire Act did not cover non-sports betting. But remember this: this was not a national level decision about the validity of Federal law. It was a decision made in relation to this civil case. Federal law was never in doubt, only its proper application to this matter. The Judge ruled that in this particular case before him, the people suing the credit card companies had not done their job. They had not made a proper case that a) there was RICO activity going on or b) that the credit card companies were part of it.

Therefore, because there was no foundation for the rest of the case, there was no choice but to summarily dismiss the whole thing. Before any trial ever began. This is almost never done, by the way, and it was a black day for the plaintiff’s lawyers. A summary dismissal means the matter was not only thrown out the door, but buried with a stake through the heart and a pound of garlic in the coffin.

IMPLICATIONS FOR THE INDUSTRY

As a practical matter, this ruling won’t make much difference to the offshore industry. There will always be sore losers trying to blame the credit card companies, the gambling establishments, their lucky rabbit’s foot, and God. The credit card companies will continue to defend themselves. From a legal perspective, nothing has changed either. While the judge opened up the possibility that casino style games online might technically escape the Wire Gambling Act, he reaffirmed that unlicensed sports booking is still illegal. And sports bets make up more than two thirds of the bets placed on the Internet. No blanket permission there! Keep in mind, too, that there are a number of law enforcement professionals who disagree with the Judge’s interpretation of the Act, seeing it as too narrow. The last word has not been said here.

So is the coast now clear for virtual casino games? No again! Another thing to keep in mind is that there’s more than one Federal law against gambling and the operations associated with it. There are 18 USC 1952, 1955, 1956 and 1957( illegal gambling, travel and money transfers pursuant to illegal activity, including gambling that violates state laws.) Then comes section 1961 and so on, where all the above add up to racketeering and the really heavy penalties come out.

So in reality, this case is no help to online gaming. The best that can be said is that it does no extra harm.

THE LEGEND LIVES ON

So much for what really happened. The legend is something else again. The story that a Louisiana judge Ok’d Internet gambling is just the sort of tale that will spread and grow. Like the Loch Ness Monster and UFOs, the idea that Internet gambling has been ruled legal will thrive in spite of everything, and before long the legend will wield more power than a few measly facts. What matter that the belief is baseless? The number of gamblers and establishments will continue to grow, urged on a little more by the notion that it’s all right now. And because people want to believe that it’s true, they’ll behave as though it already is. And in the end.... it will be.

Never mind that it never happened. This is a story that won’t die, but will roll up support, state by state, for legalizing and licensing online gaming in this country. Since that’s something that should have been done years ago, in that sense, this case just might be called a victory after all.


( Mr. Owens is an attorney specializing in the problems of the Internet, E-commerce and online gambling. Feel free to send comments, questions and inquiries to mowens@trade-attorney.com. Copyright 2001. All rights reserved. )