Legal expert questions constitutionality of online poker bill

By Karoun Demirjian

Wednesday, Nov. 21, 2012 | 2 a.m.

If Congress did manage to pass a poker bill, could it be the next law headed for a constitutional challenge in the courts?

Yes, says Paul Clement, who knows a thing or two about high-profile constitutional challenges: He was the U.S. solicitor-general under former President George W. Bush, and just so happens to be the lawyer who argued against the the Patient Protection and Affordable Care Act, better known as Obamacare, on behalf of 26 unsatisfied states before the Supreme Court earlier this year.

This time, though, his qualms about constitutionality were raised in response to a request by the Poker Players’ Alliance for his legal opinion on the draft online poker bill currently kicking around the U.S. Senate.

In Clement’s memorandum, passed along to Arizona Sen. Jon Kyl on Oct. 31 and first reported by the Las Vegas Review-Journal, he warns that the draft bill is plagued with several “constitutional infirmities” that make the 2012 draft more of a nonstarter than the 2010 version of the online poker bill, which died during that year’s lame duck congressional session for lack of political support.

Clement’s argument centers on the stepped-up measures the bill takes to ensure that no bad actors enter the online poker market. Like the previous iteration of the poker bill, the 2012 draft gives a mandatory timeout to online poker companies that had been serving U.S. clients and processing their bets despite the 2006 Unlawful Internet Gambling Enforcement Act that made those transactions illegal.

That makes it a bill of attainder, Clement says, and unconstitutional.

Bills of attainder are laws that single out individuals or finite groups and declare them guilty of breaking the law without trial. Article I, Section 9 of the Constitution bans them outright.

“It was difficult to view the 2010 act’s exclusion of those who previously provided Internet poker services as anything other than punitive, and thus the legislation may have amounted to an unconstitutional bill of attainder,” Clement wrote, concluding that the 2012 bill had the same problems, only worse. “Indeed, increasing the initial market exclusion and property restrictions ... only magnifies the adverse economic impact of the market-exclusion and property restriction provisions.”

In the 2010 draft bill, online poker companies that were operating unlawfully were forced to sit in the “penalty box” for 540 days before they could secure an operating license; in the 2012 draft, the cool-off period is five years.

Part of the political hurdle in popularizing an online poker bill have been the moral problems many lawmakers have with gambling. But the safety of the market has been a far greater political problem.

Lawmakers on the fence want to be sure that when endorsing an online poker bill, there are safeguards in place to make sure that operators don’t go after young people or facilitate gambling addiction.

There is also the recent reminder that bad apples in the industry do run afoul of the law: last year, online gaming outfits PokerStars, Full Tilt Poker and Absolute Poker were charged with bank fraud, money laundering and illegal gambling in New York federal court for running games outside the reach of the law.

Those cases never went to trial, but only because gaming operators struck deals with prosecutors.

There is also the matter of making the bill palatable to the rest of the would-be online poker operating market. The companies who stayed out of the online poker market because it wasn’t legal lost a potentially significant cut of a $25 billion industry; there has been an expectation, across these draft online poker bills, that they will be rewarded for their patience, or at least not snubbed by being put on equal footing with those companies that flouted the law.

Clement isn’t alleging that there aren’t bad actor companies out there who ran afoul of the law. He just says it isn’t fair those companies to box them out of the new poker market without the due legal process, as PokerStars, Full Tilt and Absolute Poker were given.

“Cutting off prior providers from the newly regulated market deprives them of the expectation that they would have been able to participate in that market, raising serious due process concerns,” Clement wrote. “No notice or hearing is required to accomplish that deprivation — the 2012 act’s passage completes the task.

“In all other contexts, some sort of process would be required in order to deprive the prior providers of their property interests,” Clement continued.

Clement’s argument isn’t singularly focused on the presentation that the draft poker bill amounts to a bill of attainder and a violation of due process, although those are his chief complaints. He also argues, if all else fails, that the 2012 poker draft is illegal because it tramples on states’ rights.

States’ rights have, in a way, been at the heart of this poker bill debate for about a year. Last December, the Department of Justice released its reading of the 1961 Wire Act, finding that gambling online, save for sports betting, was in fact, legal. That opened the floodgates to states looking to legalize online gambling ventures within their borders.

It has also proven to be an incentive to some lawmakers; proponents such as Nevada Sens. Harry Reid and Dean Heller have stressed that part of an online federal poker bill would be concerned with walking that Wire Act reading back.

Clement doesn’t trouble himself with states’ concerns in that regard, however; he simply points out that the requirements for states to opt in or out of the 2012 draft online poker bill reach too deeply into states’ decision-making procedures.

“While allowing a state to decide to participate in the federal licensing scheme through the state’s normal legislative process respects state sovereignty and longstanding principles of federalism, mandating that ‘a majority of a quorum of each chamber of the legislature’ is all that is require to opt in or out disregards both,” Clement wrote. “It raises a distinct concern that the court would invalidate it on federalism grounds.”

Spokespeople for Reid and Kyl did not immediately respond to requests for comment late Tuesday. But a spokeswoman for Reid stressed just last week that the 2012 draft circulating the Senate — the subject of Clement’s complaints — is just a draft, and not a final bill.