Internet gambling industry wins key ruling

By Liz Benston (contact)

Friday, Nov. 22, 2002 | 11:13 a.m.

Internet gambling supporters won a major legal victory Thursday when a federal appeals court in Louisiana upheld an earlier dismissal of a class-action lawsuit by people who lost money gambling in Internet casinos.

Proponents say the case could help their efforts to legalize Internet wagering nationwide. But the decision could also trigger a backlash by anti-gambling forces intent on banning Web casinos in Congress, they add.

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans upheld a district court's dismissal of a lawsuit by gamblers Larry Thompson and Lawrence Bradley, saying the gamblers failed to prove that online casinos and the credit card companies they used to process their wagers violated federal racketeering laws and the federal Wire Act.

Thirty-three virtually identical cases had been transferred to the Louisiana district court through multi-district litigation and the cases of Thompson and Bradley were selected as test cases and consolidated, the appeals court said.

The 1961 Wire Act was enacted by then-President John F. Kennedy to curb illegal sports betting over interstate telephone lines. Bills that would ban Internet gambling in the United States have failed to pass in previous sessions of Congress, leaving the Wire Act as the primary law on the books to address Internet casinos.

Yet experts have fiercely debated whether the law applies to casino-style gambling on the Web. Attorneys specializing in gambling law have said that the language and the spirit of the law applies to sports events, not card games and other casino-style gambling.

The federal government sees it differently. In August, the U.S. Department of Justice sent a letter to Nevada's state Gaming Control Board stating that, in its view, the Wire Act also applies to casino-style gambling on the Internet.

Thursday, the federal court of appeals in New Orleans disagreed with that interpretation.

"The district court concluded that the Wire Act concerns gambling on sporting events or contests and that the plaintiffs had failed to allege that they had engaged in Internet sports gambling," the panel wrote. "We agree with the district court's statutory interpretation, its reading of the relevant case law, its summary of the relevant legislative history, and its conclusion."

The ruling may leave open the possibility of legalizing non-sports Internet betting, such as traditional casino-style games of chance, in states that approve it, supporters say.

"In 1961 I don't think legislative intent could have included the concept of playing casino-style games over phone lines," said Keith Furlong, deputy director of the Interactive Gaming Council, a group that lobbies on behalf of Internet casinos and related businesses.

Still, it's unlikely that Internet gambling will be legalized in the near future, said Joseph Kelly, an attorney and professor of business law at SUNY College of Buffalo in New York.

The anti-gambling forces in Congress far outnumber pro-casino factions, he said.

Tony Cabot, a gaming attorney and Internet gambling law expert in Las Vegas, agrees.

The court decision could be used as fodder to fuel an all-out ban on Internet gambling, he said.

Similar decisions by weighty courts could weaken the force of the Wire Act over time, however, he noted.

"Ultimately the laws are interpreted by the courts. As you get higher appelate courts making the determination of the Wire Act applying only to sports, it makes it more difficult for the Department of Justice to sustain its position."