#66 © Copyright 2011, I. Nelson Rose, Encino, California.  All rights reserved worldwide.  Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, www.GamblingAndTheLaw.com.

As your attorney I advise you to take a hit out of the small brown bottle in my shaving kit.

Hunter S. Thompson, Fear and Loathing in Las Vegas

Why did PartyGaming announce on October 2, 2006, that it was pulling out of the U.S. market?

The U.S. Congress, through the political machinations of then-Majority Leader of the U.S. Senate, Bill Frist (R.-TN), had unexpectedly passed the Unlawful Internet Gambling Enforcement Act two days earlier.  Frist wanted to run for President, but he knew that American voters were about to repudiate the failed policies of George W. Bush and the Republicans.  So, to get his pet anti-gambling bill passed before the Democrats took control of both houses of Congress, he attached the UIGEA at midnight to a must-pass bill, the anti-terrorist SAFE Port Act.

But because the UIGEA was rushed through without hearings, or even being proof-read, it was a mess.  And it really did not do that much.  For PartyGaming and other operators taking bets from U.S. players, it only meant that if they were already breaking the law they would now face one more criminal charge.

Yet, pulling out of the U.S. market would have a drastic impact.  PartyGaming, under the name PartyPoker, was by far the leading site for online poker.  Congress approved the UIGEA late Friday night.  The announcement that it was cutting off its major customer base resulted in a 60% drop in the price of PartyGaming’s stock on Monday.

So, why did it pull out?  Apparently, it was a decision made by lawyers.

It appears that an attorney concluded that the UIGEA now meant that state anti-gambling laws would, for the first time, apply to PartyPoker.

If this was, in fact, the analysis that took place, it was not only incorrect, but costly.  Maybe PartyGaming should have pulled out of the U.S. market.  But there was no reason to do so before the bill had even been signed into law.

A federal statute becomes an Act of the United States only after it is signed by the President, or a presidential veto is overridden.  Since PartyGaming was making about $3 million a day, if it took Bush a month to sign the bill, the company would make about $100 million.  In fact, he did not sign the UIGEA until October 13, 2006, two weeks later.

And 48 hours was simply not enough time to analyze such a major and unexpected piece of legislation.  It is important to emphasize that waiting until the bill had been signed by Bush could not conceivably have any legal implications, since a bill is not a law.

Lawyers, being human, sometimes make mistakes.  But it is clients who pay for them.  Except for the rare case of malpractice, or even rarer instances where a criminal defendant is convicted due to a lawyer’s incompetence, there is nothing the poor client can do about it.

Interestingly, the legal system is set up so that errors by judges can be corrected.  Multiple levels of courts of appeal will reverse judicial legal mistakes.  They can even remand and order new trials.  Judges are almost the only people on Earth who are literally given second chances to get it right.

Gaming law is complicated, in part because there are so few precedents.  In many other areas of the law, a lawyer faced with a legal question only has to look up the statutes and cases that have already examined the issue.  With Internet gaming in particular, there often are no statutes, let alone cases interpreting those acts.

But there are general principals — such as “A bill is not a law” — and guidance from other areas of gaming law, such as decades of decisions on land-based casinos, horse races and lotteries.

The second worst mistake anyone can make who is involved with Internet gambling is to ask a non-gaming regular lawyer for advice.  (The worst mistake is, of course, to try and do it yourself.)

Gaming law is a specialty.  If you have a real estate deal, you don’t go to a divorce lawyer.

Any competent lawyer should be able, eventually, to figure out what you can and cannot do.  Of course, it will take more time, and for clients, lawyers’ time really is money.

Lawyers who don’t know gaming law seem to be particularly confused when the legal gambling is conducted by an Indian tribe.  Take New York, for example.

The State Constitution makes it clear that slot machines are completely prohibited.  When Turning Stone opened in the Mohawk Valley, it was one of the largest casinos in the world – without slots.

So, why do New York’s tribal casinos now have slots?  Because the lawyers for the “anti’s” blew the case.

The opponents of legal gambling filed a lawsuit challenging the compacts the state had made allowing tribes to operate gaming devices.  Indian gaming law can be quite complicated.  The Indian Gaming Regulatory Act divides all gambling into three classes, with complex requirements.  But the basic rule is easy to state:  Federally recognized tribes can have any form of gambling permitted by state law.

So, all the anti’s lawyers had to do was to show that New York law prohibits slot machines.

Instead, they raised the bizarre argument that the state could not enter into compacts with its tribes, because New York prohibits all Class III gaming.  The lawyers for the state and tribes pointed out that New York has a state lottery and parimutuel betting on horse races, which are indisputably Class III.  The judges ruled that since the only question in front of them was whether the state permitted any Class III gaming, they had to rule against the challengers.

The most recent example of experienced lawyers getting their clients burned by not bringing in experts in gaming law are some of the big money loans made to casino tribes.

When a dispute arises with an Indian tribe, the first thing the gaming lawyer asks is, “What does the waiver of sovereign immunity look like?”  It is astonishing to see corporate lawyers involved in multi-hundred-million-dollar deals look at each other and say, “What waiver?”

The one case I tried to take to the U.S. Supreme Court started when 19-year-old Kirk Erickson, from Arkansas, won $1,061,812 on a slot machine at Caesars Palace in Las Vegas.  Caesars refused to pay, so Kirk’s father, Rusty, hired a lawyer.

How do you find an attorney who knows gaming law?

There are three organizations of gaming lawyers in the U.S.:  The International Masters of Gaming Law, the International Association of Gaming Advisors, and the Gaming Law Committee of the American Bar Association.

What you don’t do is what Rusty did:  Hire a lawyer because he saw an ad on a billboard.

By the time I was brought in, the Ericksons’ lawyer had already filed a Complaint claiming breach of contract for a gambling debt.  The only problem was that gambling debts are not enforceable in Nevada:  Casinos can sue players on unpaid written markers, but players cannot sue casinos.  At least not for breach of contract.

I tried to convince the courts that the Complaint could be read as stating a cause of action for fraud, which Nevada courts can hear.             But it was too late.

If the lawyers get it wrong, clients can end up losing more than money.

Take the case of Sandra Milner.  In the1990s, Sandra worked in Texas, helping her father, Richard E. Jones, take telephone sports bets from all over the country.  Their companies, Spectrum Inc. and World Sportsbook, took in as much as $900,000 a week.

Taking sports bets from the U.S., while sitting in Texas, is a sure way to get convicted under the federal Wire Act.  So, why did Sandra, and her father, think they could get away with this?

Because bettors’ phone calls were forwarded to Jamaica and the Dominican Republic, where bookmaking is legal.

In 1997, when they were convicted, Jones was sentenced to 46 months in prison and fined $12,500.

Sandra got “only” two years and no fine, because she relied on her father and their lawyer and believed that what they were doing was legal.

Saying you relied on the lawyer’s advice will almost never work as a defense to a criminal charge (although, if you’re lucky, it might get your jail sentence reduced).

This case, called U.S. v. Truesdale, contains another example of how even experienced non-gaming lawyers can make fatal mistakes when it comes to gambling law.  The prosecutors, U.S. Attorneys who certainly knew the federal criminal code backwards and forward, did not charge the defendants with violating the Wire Act.  Instead, they got the conviction under 18 U.S.C. section 1955.  This was part of the Organized Crime Control Act, making it a federal felony to run a gambling business that violates state laws.

When Sandra and her father took the case up on appeal, they argued that they were not violating the Texas law on bookmaking.  Although much of the operation took place in Texas, including answering 800 numbers for information and depositing checks from bettors, none of the actual bets were made in Texas.

They were right.  The Texas bookmaking statute was very specific in requiring that the bets be made in Texas, or at least forwarded from Texas.  And there was no evidence that Sandra or her father ever did that.

The U.S. Attorneys had charged the wrong crime, and had not known the intricacies of Texas gaming law, so all of the convictions were reversed.

Internet gaming law is complicated.  But Sandra was lucky.  Normally, if your lawyer gets it wrong, you cannot rely on the other side getting it wrong, too.

END

© Copyright 2011.  Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry.  His latest books, Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.