Gaming Law "In the News" ...

A Catania Consulting Group Client Newsletter October 17, 2008

Integrity, Leadership, Experience ...

Frank Catania, Esq. President, former Assistant Attorney General, Director NJ Division of Gaming Enforcement,   VP Compliance Players International.  frank@cataniaconsulting.com

Gary Ehrlich, Esq. VP, former Assistant Attorney General, Deputy Director NJ Division of Gaming Enforcement.  gary@cataniaconsulting.com

Keith Furlong, VP, former Public Information Officer & Legislative Liaison NJ Division of Gaming Enforcement. keith@cataniaconsulting.com

Joseph Kelly, Esq., Associate, Professor of Business Law, SUNY College Buffalo.  jkelly@cataniaconsulting.com

Agreements should have a clause selecting the forum where disputes are to be litigated.

A $5 million class action lawsuit in Ohio against PartyGaming was dismissed by a federal judge in Ohio on the grounds of "forum non conveniens.” The major issue in the decision was the enforceability of PartyGaming's contract clause requiring all disputes to be litigated in Gibraltar. The court concluded the matter would be better litigated in Gibraltar for several reasons, viz. Gibraltar was the location of most witnesses and relevant documents and Gibraltar followed English law and would allow class action lawsuits. Professor Joseph Kelly of Catania Gaming Consultants was quoted recently as opining that it did not matter that fraud was alleged against PartyGaming, as long as fraud played no part in the inducement of the contract. Plaintiffs have appealed the decision to the United States Court of Appeals for the 6th Circuit. It would be wise for every attorney advising offshore operators to consider including a "forum selection clause.”

Kentucky Court Upholds Internet Gaming Domain Name Seizure

In a 40-page decision, a Kentucky Circuit Court Judge refused Thursday to dismiss a lawsuit seeking to block access to online gaming sites in Kentucky. Over the objections of various operators and industry representatives, the Court found that its previously issued seizure order for 141 Internet gaming site domain names was proper because: it was a civil proceeding; domain names constitute “property;" and the 141 domain names had a sufficient presence in Kentucky to satisfy the constitutional Due process requirement of "minimum contacts."

The Court also concluded that domain names constituted “illegal gambling devices,” as they were "virtual keys for entering and creating virtual casinos from the desktop of a resident in Kentucky," and that poker violated Kentucky law because chance was the "element which defines its essence." Regarding procedural issues, the Court found that the Kentucky Secretary of Justice had standing to initiate the forfeiture action, and that while industry group lawyers not representing specific domain name owners were permitted to file friend of the court (amicus) briefs, they lacked standing to appear as parties.

Although the Court did not address any issue involving the federal Commerce Clause, which precludes individual States from unnecessarily burdening interstate or international commerce, it did state: "Opposing groups and Lawyers argue any judicial interference [with] the Internet will create havoc. This doomsday argument does not ruffle the court. The Internet, with all its benefits and advantages to modern day commerce and life, is still not above the law, whether on an international or municipal level."

The Court set November 17, 2008, as the date for a final hearing. On or before that date, any owner can regain its domain name if it takes appropriate measures to block Kentucky players and makes such measures known to the Court or Kentucky authorities. Of course, upon finalization, the Court’s ruling will be subject to appeal to Kentucky, and ultimately federal, appellate courts.

U.S. Senator Menendez Introduces Internet Poker Bill

U.S. Senator Robert Menendez (D-NJ) has introduced a bill in the Senate (S. 3616) which would establish a licensing and regulatory framework for the playing of skill games on the Internet. Called the “Internet Skill Game Licensing and Control Act of 2008,” the Bill would license and regulate “Internet skill game facilities,” defined as Internet sites through which wagers on skill games are “placed, accepted, or otherwise made, whether transmitted by telephone, Internet or other electronic communication.” “Skill games” are defined as games that use “simulated cards, dice, or tiles in which success is predominantly determined by the skill of the players, including poker, bridge, and mahjong.”

Other key provisions of the bill include: Thorough vetting of potential licensees; mandatory implementation of technologies to protect against underage gambling and to monitor and detect individuals with excessive gaming habits; high standards to thwart fraud and abuse of customers; regulation to prevent money laundering; and processes to prevent tax avoidance.

S. 3616 was referred to the Committee on Banking, Housing and Urban Affairs. It is unlikely that any Internet gambling bills pending in Congress will move until the next session of Congress, when a new administration and a new Congress have been installed.

Federal vs. State Internet Gambling Regulation: Why Not Have Both?

It has been uniformly accepted that gambling regulation remains the province of the individual States under the Tenth (“States’ Rights”) Amendment to the United States Constitution. Despite the pendency of several bills in Congress that would establish a federal regulatory system for Internet gambling, the federal government has never regulated gambling of any kind (except on Indian lands), and has only prosecuted offenders of various federal criminal codes.

My suggestion is that, instead of viewing Internet gambling regulation as an all federal or all state proposition, we resolve the issue by allowing each sovereign to continue to do what is does best. Individual States, which already have experience in regulating gambling activities, should be allowed to regulate Internet gambling to the extent the States decide to opt into the Internet gambling and regulatory process. The federal government should assume responsibility for the regulation of payment processors.

(Frank Catania’s full article on this subject can be found in the November 2008 issue of I-Gaming Business).